-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WbxAOXktGYbvCoALcM+oVhLW1+a2VDJwq91o5vCFavi0dz/z7+GtSeD/TUwKkjCM ZOJX329mG/ldU8rZnb1zJg== 0000021847-97-000071.txt : 19970501 0000021847-97-000071.hdr.sgml : 19970501 ACCESSION NUMBER: 0000021847-97-000071 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970228 FILED AS OF DATE: 19970430 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLONIAL TRUST II / CENTRAL INDEX KEY: 0000315665 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 046452949 FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-03009 FILM NUMBER: 97591115 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CTR CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6174263750 FORMER COMPANY: FORMER CONFORMED NAME: COLONIAL MONEY MARKET FUND DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: COLONIAL TRUST II DATE OF NAME CHANGE: 19920505 FORMER COMPANY: FORMER CONFORMED NAME: COLONIAL MONEY MARKET TRUST/MA/ DATE OF NAME CHANGE: 19910917 N-30D 1 [COLONIAL FLAG LOGO] COLONIAL SHORT DURATION U.S. GOVERNMENT FUND [PHOTO] SEMIANNUAL REPORT FEBRUARY 28, 1997 Not FDIC- May lose value Insured No bank guarantee - -------------------------------------------------------------------------------- COLONIAL SHORT DURATION U.S. GOVERNMENT FUND HIGHLIGHTS SEPTEMBER 1, 1996 - FEBRUARY 28, 1997 INVESTMENT OBJECTIVE: Colonial Short Duration U.S. Government Fund seeks as high a level of current income as is consistent with very low volatility, by investing primarily in U.S. government securities and maintaining a weighted average portfolio duration of three years or less. THE FUND IS DESIGNED TO OFFER: * Portfolio of high quality U.S. government securities * Attractive monthly income * Active management by experts PORTFOLIO MANAGER COMMENTARY: "The past six months were a period of transition as the Fund changed its name and investment objective from an adjustable rate bond fund to a short duration government fund. Shareholders should benefit from these changes as the Fund's increased investment flexibility allows us to concentrate on identifying market sectors that offer greater relative value without increasing the portfolio's overall risk profile." --Ann Peterson COLONIAL SHORT DURATION U.S. GOVERNMENT FUND PERFORMANCE
CLASS A CLASS B CLASS C Inception dates 10/1/92 2/1/93 1/4/95 Distributions declared per share $0.281 $0.249 $0.271 SEC Yields on 2/28/97* 5.39% 4.91% 5.42% Six-month total returns, assuming 3.40% 3.07% 3.30% reinvestment of all distributions and no sales charge or contingent deferred sales charge (CDSC) Net asset value per share on 2/28/97 $9.87 $9.87 $9.87
* The 30-day SEC yields reflect the portfolio's earning power, net of expenses, expressed as an annualized percentage of the maximum offering price per share at the end of the period. If the Adviser had not waived or borne certain Fund expenses, SEC yields would have been lower: 3.98% for Class A shares, 3.46% for Class B shares and 3.96% for Class C shares.
SECTOR BREAKDOWN** MATURITY BREAKDOWN** - ------------------------------------------------ ---------------------------------------------- Adjustable Rate Mortgage-backed 0 - 1 year ...................... 25.1% Securities ...................... 32.0% 1 - 3 years ..................... 19.9% Treasury Securities ............. 23.3% 3 - 5 years ..................... 27.4% Adjustable Rate Notes ........... 9.0% 5 - 7 years .................... 23.6% Fixed Rate Mortgage-backed Over 7 years .................... 4.0% Securities ...................... 7.0% Fixed Rate Agency Debt .......... 3.6% Cash & Equivalents .............. 25.1%
**Sector and maturity breakdowns are based on total net assets. Because the Fund is actively managed, sector and maturity breakdowns will change. - -------------------------------------------------------------------------------- 2 - -------------------------------------------------------------------------------- PRESIDENT'S MESSAGE TO FUND SHAREHOLDERS I am pleased to present your Fund's semiannual report for the period ended February 28, 1997. This report provides information on the investment environment of the past six months and on the performance of your Fund. [PHOTO] Long-term interest rates moved up and down in a well-defined range during the period. Signs that economic growth was easing during the third quarter of 1996 led to a bond market rally and declining interest rates. However, interest rates climbed once again through February in response to accelerating economic activity. Examples include a surge in construction and a sharp improvement in retail sales. Despite continued low levels of inflation, the Federal Reserve Board characterized factors holding down prices as "temporary" and made clear its willingness to strike against inflation in the future. True to its word, the Federal Reserve Board did raise rates in March. Tax-exempt bonds outperformed Treasurys during most of the period, as a result of low supply and narrowing yield spreads. Fundamentals remain positive and state credit quality has generally improved, reflecting in part increased tax revenue collections generated by a stronger economy, among other factors. Prior to recent declines in the domestic stock market, a focus on large capitalization stocks carried market indexes to record highs in February. European markets continued to experience declining interest rates and inflation levels, conditions that may prevail until economic activity in these nations increases. Our economic expectations for 1997 are relatively bright and include growth slowing to more sustainable rate as the year progresses. However, we expect real rates, interest rates adjusted for inflation, to remain relatively high until questions regarding both the Federal Reserve's monetary policy and Federal budget negotiations are resolved. The following report provides you with specific information on your Fund's performance and insights from your portfolio manager. As always, we thank you for the opportunity to help you meet your investment goals through the Colonial family of funds. Respectfully, /s/ Harold W. Cogger Harold W. Cogger President April 10, 1997 Because market conditions change frequently, there can be no assurance that the trends described in this report will continue, come to pass or affect Fund performance. - -------------------------------------------------------------------------------- 3 - -------------------------------------------------------------------------------- PORTFOLIO MANAGER REPORT ANN PETERSON is lead portfolio manager of Colonial Short Duration U.S. Government Fund and is vice president of Colonial Management Associates, Inc. Q. WHAT WAS THE INVESTMENT ENVIRONMENT FOR U.S. GOVERNMENT SECURITIES DURING THE PAST SIX MONTHS? A. The environment continued to be somewhat mixed as fluctuating interest rates caused the bond market to move up and down within a defined range. Conflicting evidence regarding the direction of the economy resulted in the 2-year Treasury generally trading between 5.6% on reports of a weakening economy, to 6.4% on reports of a stronger economy. The questions regarding the strength of economic growth and the level of inflation caused speculation about a rise in short-term interest rates. Signs that economic growth was easing in the middle part of the period resulted in a short-lived rally with higher bond prices and temporarily lower interest rates. Subsequent indications of accelerating economic growth caused interest rates to return to their prior trading range. Q. WHAT WAS THE FUND'S INVESTMENT STRATEGY DURING THE PERIOD? A. The Fund's name and investment objective changed midway through the period. The Fund's current strategy reflects its expanded investment opportunities. Overall, we concentrated on selecting securities that offered relative value to investors those securities that we expect to offer greater returns without significantly increased risk. Specifically, we reduced our holdings of adjustable rate mortgage securities (ARMs) from 67% to 32% at the end of the period. These assets were reinvested in fixed rate mortgages, Treasury securities and cash. While the past six months were a period of transition for the Fund, we maintained the portfolio's duration at a conservative 1.2 to 1.5 years. Duration measures a portfolio's sensitivity to changes in interest rates. Going forward, we will continue to seek relative value in areas such as fixed rate mortgages. In addition, we will use the Treasury and cash positions to manage the Fund's duration as we seek to maintain a conservative risk profile with limited fluctuation in net asset value. Q. HOW DID THE FUND PERFORM RELATIVE TO ITS COMPARATIVE INDEX? A. The Fund kept pace with its Lipper Analytical Services, Inc. peer group of Short Government Bond Funds. The average total return of the Fund's Lipper peer group was 3.41%. However, the Fund slightly underperformed the Lehman Brothers Government Bond (1-3 Year) Index. The total return for the Fund's Class A shares, based on net asset value was 3.40%, while the return on the Index was 3.57%. This underperformance may be attributable to the Fund and the Index investing in different types of securities during the first part of the period. Q. WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD? A. We believe that economic growth will be moderate to strong with continued low levels of inflation. While the Federal Reserve Board has the ability to act preemptively to subdue inflation, a lack of clear evidence of rising wages and prices should restrain the amount by which interest rates may be increased. In addition, we anticipate that the U.S. market will continue - -------------------------------------------------------------------------------- 4 - -------------------------------------------------------------------------------- to provide foreign investors with attractive returns which may add support for U.S. bond prices. We will closely monitor wage and inflation levels, as well as the global demand of U.S. securities, for changes in the investment environment. However, because we think the bond market will continue to trade within a limited range, we will not alter our overall investment strategy until a clearer trend emerges. COLONIAL SHORT DURATION U.S. GOVERNMENT FUND'S INVESTMENT PERFORMANCE VS. LEHMAN BROTHERS GOVERNMENT BOND (1-3 YEAR) INDEX Change in Value of $10,000 from 10/1/92 - 2/28/97 Based on NAV and MOP for Class A Shares [PERFORMANCE GRAPH]
CSDUSGF NAV MOP Lehman Govt Bo Oct 1, 92 10000 9675 10000 Oct 31, 92 9991.041 9666.332 9943 Nov 30, 92 9990.96 9666.254 9932 Dec 31, 92 10051.45 9724.778 10021 Jan 31, 93 10102.02 9773.706 10126 Feb 28, 93 10162.49 9832.21 10206 Mar 31, 93 10191.57 9860.345 10238 Apr 30, 93 10241.25 9908.407 10300 May 31, 93 10249.99 9916.863 10275 Jun 30, 93 10308.86 9973.825 10351 Jul 31, 93 10334.76 9998.885 10374 Aug 31, 93 10381.59 10044.19 10460 Sep 30, 93 10397.24 10059.33 10494 Oct 31, 93 10421.92 10083.2 10517 Nov 30, 93 10413.54 10075.1 10519 Dec 31, 93 10447.27 10107.74 10560 Jan 31, 94 10502.29 10160.97 10626 Feb 28, 94 10504.52 10163.12 10562 Mar 31, 94 10453.57 10113.83 10508 Apr 30, 94 10393.35 10055.57 10468 May 31, 94 10407.67 10069.42 10482 Jun 30, 94 10422.26 10083.54 10509 Jul 31, 94 10469.34 10129.09 10603 Aug 31, 94 10506.12 10164.67 10638 Sep 30, 94 10489.9 10148.98 10614 Oct 31, 94 10489.99 10149.06 10638 Nov 30, 94 10479.04 10138.47 10594 Dec 31, 94 10534.02 10191.66 10615 Jan 31, 95 10656.44 10310.11 10759 Feb 28, 95 10789.56 10438.9 10906 Mar 31, 95 10900.86 10546.58 10967 Apr 30, 95 10990.07 10632.9 11065 May 31, 95 11114.73 10753.5 11254 Jun 30, 95 11163.1 10800.3 11315 Jul 31, 95 11177.87 10814.59 11360 Aug 31, 95 11249.41 10883.8 11427 Sep 30, 95 11324.73 10956.68 11483 Oct 31, 95 11399.31 11028.83 11578 Nov 30, 95 11485.76 11112.47 11677 Dec 31, 95 11555.34 11179.8 11765 Jan 31, 96 11625.17 11247.35 11865 Feb 29, 96 11624 11246.21 11819 Mar 31, 96 11608.89 11231.6 11810 Apr 30, 96 11651.46 11272.78 11821 May 31, 96 11694.17 11314.11 11848 Jun 30, 96 11773.01 11390.39 11934 Jul 31, 96 11829.73 11445.26 11980 Aug 31, 96 11876.06 11490.09 12024 Sep 30, 96 11958.79 11570.13 12134 Oct 31, 96 12066.28 11674.13 12270 Nov 30, 96 12160.38 11765.17 12361 Dec 31, 96 12168.91 11773.42 12363 Jan 31, 97 12236.66 11838.97 12422 Feb 28, 97 12280.01 11880.91 12452
A $10,000 investment in Class B shares made on February 1, 1993 (inception) at net asset value (NAV) would have been valued at $11,839 on February 28, 1997. The same investment after deducting the applicable contingent deferred sales charge (CDSC) would have been valued at $11,740 on February 28, 1997. A $10,000 investment in Class C shares made on January 4, 1995, (inception) would have been valued at $11,591 on February 28, 1997. The Lehman Brothers Government Bond (1-3 Year) Index is an unmanaged index that tracks the performance of short-term U.S. government securities. Unlike mutual funds, an index does not incur fees or expenses, and it is not possible to invest in an index. AVERAGE ANNUAL TOTAL RETURNS As of March 31, 1997 (Most Recent Quarter End) - --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES INCEPTION 10/1/92 2/1/93 1/4/95 NAV MOP NAV W/CDSC NAV - -------------------------------------------------------------------------------- 1 YEAR 5.83% 2.40% 5.15% 1.15% 5.63% - -------------------------------------------------------------------------------- 3 YEARS 5.53% 4.38% 4.85% 4.24% -- - -------------------------------------------------------------------------------- SINCE INCEPTION 4.68% 3.91% 4.14% 4.14% 6.83%
Past performance cannot predict future results. Returns and value of an investment will vary, resulting in a gain or loss on sale. All results shown assume reinvestment of distributions. NAV returns do not include sales charges or CDSC. Maximum offering price (MOP) returns include the maximum sales charge of 3.25%. The CDSC returns reflect the maximum charge of 4% for one year and 2% for three years. If the Adviser had not waived or borne certain Fund expenses, total returns would have been lower. Performance for different share classes will vary based on differences in sales charges and fees associated with each class. - -------------------------------------------------------------------------------- 5 INVESTMENT PORTFOLIO FEBRUARY 28, 1997 (UNAUDITED, IN THOUSANDS)
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 74.9% PAR VALUE - -------------------------------------------------------------------------------- GOVERNMENT AGENCIES - 51.6% Maturities Coupon from/to ------ ------- Federal Home Loan Mortgage Corp: Fixed Rate Mortgage, 7.500% 2012 $ 504 $ 510 Adjustable Rate Mortgage: (a) 6.625% 2018 176 175 6.673% 2018 229 228 7.163% 2019 277 280 ------ 1,193 ------ Federal National Mortgage Association: Fixed Rate Mortgage, 6.240% 2000 400 398 Adjustable Rate Mortgage: (a) 6.085% 2027 179 177 7.085% 2020 169 174 7.340% 2019 239 245 7.345% 2022 204 209 7.425% 2019 185 192 7.505% 2017 162 166 7.583% 2023 259 264 7.741% 2019 275 289 ------ 2,114 ------ Government National Mortgage Association: Fixed Rate Mortgage, 9.000% 2009 244 262 Adjustable Rate Mortgage: (a) 7.125% 2022-2023 1,127 1,155 ------ 1,417 ------ Student Loan Marketing Association, Weekly Floating Rate Note, (a) 5.340% 1999 1,000 996 ------ TOTAL GOVERNMENT AGENCIES (cost of $5,665) 5,720 ======
6
Investment Portfolio/February 28, 1997 - -------------------------------------------------------------------------------- GOVERNMENT OBLIGATIONS - 23.3% U.S. Treasury Notes: 5.750% 12/31/98 $ 415 $ 413 5.875% 10/31/98 520 518 5.875% 10/31/99 280 279 6.125% 12/31/01 126 125 6.250% 08/31/00 300 299 6.500% 05/31/01 498 500 6.875% 05/15/06 438 446 ------- TOTAL GOVERNMENT OBLIGATIONS (cost of $2,665) 2,580 ------- TOTAL INVESTMENTS (cost of $8,330) (b) 8,300 ------- SHORT-TERM OBLIGATIONS - 23.8% - -------------------------------------------------------------------------------- Repurchase agreement with Bankers Trust Securities Corp., dated 02/28/97, due 03/03/97 at 5.350% collateralized by U.S. Treasury notes with various maturities to 2019, market value $1,350 (repurchase proceeds $1,322) 1,321 1,321 Repurchase agreement with Bank of America dated 02/28/97, due 03/03/97 at 5.360% collateralized by U.S. Treasury bonds maturing in 1998, market value $1,348 (repurchase proceeds $1,322) 1,321 1,321 ------- 2,642 ------- OTHER ASSETS & LIABILITIES, NET - 1.3% 146 - -------------------------------------------------------------------------------- NET ASSETS - 100.0% $11,088 ------- - --------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO: (a) Interest rates on variable rate securities change periodically. The rates listed are as of February 28, 1997. (b) Cost for federal income tax purposes is the same. See notes to financial statements. 7 STATEMENT OF ASSETS & LIABILITIES FEBRUARY 28, 1997 (UNAUDITED) (in thousands except for per share amounts and footnotes) ASSETS Investments at value (cost $8,330) $ 8,300 Short-term obligations 2,642 -------- 10,942 Receivable for: Fund shares sold $114 Interest 73 Investments sold 6 Deferred organization expenses 9 Other 6 208 -------------------- Total Assets 11,150 LIABILITIES Payable for: Distributions 47 Fund shares repurchased 4 Payable to Adviser 10 Accrued: Deferred Trustees fees 1 ---- Total Liabilities 62 ------- NET ASSETS $11,088 ======= Net asset value & redemption price per share - Class A ($6,305/639) $9.87 ======= Maximum offering price per share - Class A ($9.87/0.9675) $10.20(a) ======= Net asset value & offering price per share - Class B ($4,177/423) $9.87(b) ======= Net asset value & offering price per share - Class C ($606/61) $9.87 ======= COMPOSITION OF NET ASSETS Capital paid in $11,226 Undistributed net investment income 8 Accumulated net realized loss (116) Net unrealized depreciation (30) ------- $11,088 =======
(a) On sales of $100,000 or more the offering price is reduced. (b) Redemption price per share is equal to net asset value less any applicable contingent deferred sales charge. See notes to financial statements. 8 STATEMENT OF OPERATIONS FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997 (UNAUDITED) (in thousands) INVESTMENT INCOME Interest $329 EXPENSES Management fee $ 29 Service fee - Class A, Class B, Class C 11 Distribution fee - Class B 13 Distribution fee - Class C (a) Transfer agent 11 Bookkeeping fee 14 Trustees fee 7 Custodian fee 1 Audit fee 11 Legal fee 7 Registration fee 12 Reports to shareholders 3 Amortization of deferred organization expenses 9 Other 2 ----- 130 Fees and expenses waived or borne by the Adviser (90) 40 ----- ---- Net Investment Income 289 ---- NET REALIZED & UNREALIZED GAIN ON PORTFOLIO POSITIONS Net realized gain 11 Net unrealized appreciation during the period 42 ----- Net Gain 53 ---- Net Increase in Net Assets from Operations $342 ====
(a) Rounds to less than one. See notes to financial statements. 9 STATEMENT OF CHANGES IN NET ASSETS
(Unaudited) Six months ended Year ended (in thousands) February 28 August 31 ----------------------- INCREASE (DECREASE) IN NET ASSETS 1997 1996 Operations: Net investment income $ 289 $ 713 Net realized gain (loss) 11 (46) Net unrealized appreciation (depreciation) 42 (10) ------------------- Net Increase from Operations 342 657 Distributions: From net investment income - Class A (179) (445) From net investment income - Class B (99) (213) From net investment income - Class C (13) (25) ------------------- 51 (26) ------------------- Fund Share Transactions: Receipts for shares sold - Class A 2,867 3,597 Value of distributions reinvested - Class A 162 389 Cost of shares repurchased - Class A (2,890) (7,769) ------------------- 139 (3,783) ------------------- Receipts for shares sold - Class B 937 3,138 Value of distributions reinvested - Class B 61 122 Cost of shares repurchased - Class B (844) (3,214) ------------------- 154 46 ------------------- Receipts for shares sold - Class C 236 313 Value of distributions reinvested - Class C 13 23 Cost of shares repurchased - Class C (106) (259) ------------------- 143 77 ------------------- Net Increase (Decrease) from Fund Share Transactions 436 (3,660) ------------------- Total Increase (Decrease) 487 (3,686) NET ASSETS Beginning of period 10,601 14,287 ------------------- End of period (including undistributed net investment income of $8 and $8, respectively) $11,088 $10,601 =================== NUMBER OF FUND SHARES Sold - Class A 290 365 Issued for distributions reinvested - Class A 17 40 Repurchased - Class A (293) (788) ------------------- 14 (383) ------------------- Sold - Class B 95 318 Issued for distributions reinvested - Class B 6 13 Repurchased - Class B (86) (326) ------------------- 15 5 ------------------- Sold - Class C 24 32 Issued for distributions reinvested - Class C 1 2 Repurchased - Class C (11) (26) ------------------- 14 8 -------------------
See notes to financial statements. 10 NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1997 (UNAUDITED) NOTE 1. INTERIM FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- In the opinion of management of Colonial Short Duration U.S. Government Fund (the Fund), formerly Colonial Adjustable Rate U.S. Government Fund, a series of Colonial Trust II, the accompanying financial statements contain all normal and recurring adjustments necessary for the fair presentation of the financial position of the Fund at February 28, 1997, and the results of its operations, the changes in its net assets and the financial highlights for the six months then ended. NOTE 2. ACCOUNTING POLICIES - -------------------------------------------------------------------------------- ORGANIZATION: The Fund is a diversified portfolio of a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as an open-end, management investment company. The Fund's investment objective through December 26, 1996 was to seek as high a level of current income as is consistent with very low volatility by investing primarily in adjustable rate securities. Beginning December 27, 1996 the Fund's investment objective is to seek as high a level of current income as is consistent with very low volatility, by investing primarily in U.S. government securities and maintaining a weighted average portfolio duration of three years or less. The Fund may issue an unlimited number of shares. The Fund offers three with a front-end sales charge and Class B shares are subject to an annual distribution fee and a contingent deferred sales charge. Class B shares will convert to Class A shares when they have been outstanding approximately eight years. Class C shares are subject to a continuing annual distribution fee. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. SECURITY VALUATION AND TRANSACTIONS: Debt securities generally are valued by a pricing service based upon market transactions for normal, institutional-size trading units of similar securities. When management deems it appropriate, an over-the-counter or exchange bid quotation is used. Short-term obligations with a maturity of 60 days or less are valued at amortized cost. Portfolio positions which cannot be valued as set forth above are valued at fair value under procedures approved by the Trustees. Security transactions are accounted for on the date the securities are purchased, sold or mature. 11 Notes to Financial Statements/February 28, 1997 - -------------------------------------------------------------------------------- NOTE 2. ACCOUNTING POLICIES - CONT. - -------------------------------------------------------------------------------- Cost is determined and gains and losses are based upon the specific identification method for both financial statement and federal income tax purposes. The Fund may trade securities on other than normal settlement terms. This may increase the risk if the other party to the transaction fails to deliver and causes the Fund to subsequently invest at less advantageous prices. DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income, expenses (other than the Class A, Class B and Class C service fees and Class B and Class C distribution fees), and realized and unrealized gains (losses), are allocated to each class proportionately on a daily basis for purposes of determining the net asset value of each class. Class A, Class B and Class C per share data and ratios are calculated by adjusting the expense and net investment income per share data and ratios for the Fund for the entire period by the service fees for Class A, Class B and Class C shares and the distribution fees for Class B and Class C shares. FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a regulated investment company and to distribute all of its taxable income, no federal income tax has been accrued. INTEREST INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on the accrual basis. Original issue discount is accreted to interest income over the life of a security with a corresponding increase in the cost basis; market discount is not accreted. Premium is amortized against interest income with a corresponding decrease in the cost basis. DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions daily and pays monthly. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to differing treatments for mortgage backed securities for book and tax purposes. Permanent book and tax basis differences will result in reclassifications to capital accounts. DEFERRED ORGANIZATION EXPENSES: The Fund incurred $80,957 of expenses in connection with its organization, initial registration with the Securities and Exchange Commission and various states, and the initial public offering of its shares. These expenses were deferred and are being amortized on a straight-line basis over five years. OTHER: The Fund's custodian takes possession through the federal book-entry system of securities collateralizing repurchase agreements. Collateral is marked-to-market daily to ensure that the market value of the underlying assets remains sufficient to protect the Fund. The Fund may experience costs and delays in liquidating the collateral if the issuer defaults or enters bankruptcy. 12 Notes to Financial Statements/February 28, 1997 - -------------------------------------------------------------------------------- NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES - -------------------------------------------------------------------------------- MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser) is the investment Adviser of the Fund and furnishes accounting and other services and office facilities for a monthly fee equal to 0.55% annually of the Fund's average net assets. BOOKKEEPING FEE: The Adviser provides bookkeeping and pricing services for $27,000 per year plus 0.035% of the Fund's average net assets over $50 million. TRANSFER AGENT: Colonial Investors Service Center, Inc. (the Transfer Agent), an affiliate of the Adviser, provides shareholder services for a monthly fee equal to 0.18% annually of the Fund's average net assets and receives reimbursement for certain out of pocket expenses. UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Colonial Investment Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's principal underwriter. For the six months ended February 28, 1997, the Fund has been advised that the Distributor retained net underwriting discounts of $2,205 on sales of the Fund's Class A shares and received contingent deferred sales charges (CDSC) of $6,064 on Class B share redemptions. The Fund has adopted a 12b-1 plan which requires the payment of a service fee to the Distributor equal to 0.20% annually of Class A and Class B net assets and 0.25% annually of Class C net assets as of the 20th of each month. The plan also requires the payment of a distribution fee to the Distributor equal to 0.65% and 0.15% annually, of the average net assets attributable to Class B and Class C shares, respectively. The CDSC and the fees received from the 12b-1 plan are used principally as repayment to the Distributor for amounts paid by the Distributor to dealers who sold such shares. EXPENSE LIMITS: The Adviser has agreed, until further notice, to waive fees and bear certain Fund expenses to the extent that total expenses (exclusive of service and distribution fees, brokerage commissions, interest, taxes and extraordinary expenses, if any) exceed 0.30% annually of the Fund's average net assets. OTHER: The Fund pays no compensation to its officers, all of whom are employees of the Adviser. The Fund's Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the the Fund's assets. 13 Notes to Financial Statements/February 28, 1997 - -------------------------------------------------------------------------------- NOTE 4. PORTFOLIO INFORMATION - -------------------------------------------------------------------------------- INVESTMENT ACTIVITY: For the six months ended February 28, 1997, purchases and sales of investments, other than short-term obligations, were $3,007,258, and $3,963,529, respectively. Unrealized appreciation (depreciation) at February 28, 1997, based on cost of investments for both financial statement and federal income tax purposes was:
Gross unrealized appreciation $ 11,859 Gross unrealized depreciation (41,469) -------- Net unrealized depreciation $(29,610) --------
CAPITAL LOSS CARRYFORWARDS: At August 31, 1996, capital loss carryforwards available (to the extent provided in regulations) to offset future realized gains were as follows:
Year of Capital loss expiration carryforward ---------- ------------ 2002 $ 1,000 2003 84,000 2004 38,000 -------- $123,000 ========
Expired capital loss carryforwards, if any, are recorded as a reduction of capital paid in. To the extent loss carryforwards are used to offset any future realized gains, it is unlikely that such gains would be distributed since they may be taxable to shareholders as ordinary income. NOTE 5. LINE OF CREDIT - -------------------------------------------------------------------------------- The Fund may borrow up to 10% of its net assets under a line of credit for temporary or emergency purposes. Any borrowings bear interest at one of the following options determined at the inception of the loan: (1) federal funds rate plus 1/2 of 1%, (2) the lending bank's base rate or (3) IBOR offshore loan rate plus 1/2 of 1%. There were no borrowings under the line of credit during the six months ended February 28, 1997. 14 FINANCIAL HIGHLIGHTS Selected data for a share of each class outstanding throughout each period are as follows:
(Unaudited) Six months ended February 28 --------------------------------- 1997 Class A Class B Class C ------- ------- ------- Net asset value - Beginning of period $ 9.820 $ 9.820 $ 9.820 ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (a) 0.281 0.249 0.271 Net realized and unrealized gain 0.050 0.050 0.050 ------- ------- ------- Total from Investment Operations 0.331 0.299 0.321 ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.281) (0.249) (0.271) ------- ------- ------- Total Distributions Declared to Shareholders (0.281) (0.249) (0.271) ------- ------- ------- Net asset value - End of period $ 9.870 $ 9.870 $ 9.870 ======= ======= ======= Total return (b)(c)(d) 3.40% 3.07% 3.30% ======= ======= ======= RATIOS TO AVERAGE NET ASSETS: Expenses (e)(f) 0.50% 1.15% 0.70% Net investment income (e)(f) 5.65% 5.00% 5.45% Fees and expenses waived or borne by the Adviser (e)(f) 1.68% 1.68% 1.68% Portfolio turnover (d) 36% 36% 36% Net assets at end of period (000) $ 6,305 $ 4,177 $ 606 (a) Net of fees and expenses waived or borne by the Adviser which amounted to $ 0.081 $ 0.081 $ 0.081 (b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred sales charge. (c) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced. (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.
15 FINANCIAL HIGHLIGHTS - continued Selected data for a share of each class outstanding throughout each period are as follows:
Year ended August 31 -------------------------------- 1996 Class A Class B Class C ------- ------- ------- Net asset value - Beginning of period $ 9.850 $ 9.850 $ 9.850 ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (a) 0.568 0.504 0.549 Net realized and unrealized gain (loss) (0.032) (0.032) (0.032) ------- ------- ------- Total from Investment Operations 0.536 0.472 0.517 ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.566) (0.502) (0.547) ------- ------- ------- Total Distributions Declared to Shareholders (0.566) (0.502) (0.547) ------- ------- ------- Net asset value - End of period $ 9.820 $ 9.820 $ 9.820 ======= ======= ======= Total return (c)(d) 5.57% 4.89% 5.36% ======= ======= ======= RATIOS TO AVERAGE NET ASSETS: Expenses 0.50%(f) 1.15%(f) 0.70%(f) Net investment income 5.99%(f) 5.34%(f) 5.79%(f) Fees and expenses waived or borne by the Adviser 1.48%(f) 1.48%(f) 1.48%(f) Portfolio turnover 51% 51% 51% Net assets at end of period (000) $ 6,136 $ 4,004 $ 461 (a) Net of fees and expenses waived or borne by the Adviser which amounted to $ 0.136 $ 0.136 $ 0.136 (b) Class C shares were initially offered on January 4, 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) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced. (e) Not 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. (g) Annualized.
16 FINANCIAL HIGHLIGHTS - continued
Year ended August 31 ---------------------------------- 1995 Class A Class B Class C (b) -------- -------- -------- $ 9.670 $ 9.670 $ 9.550 ------- ------- ------- 0.514 0.451 0.334 0.152 0.152 0.280 ------- ------- ------- 0.666 0.603 0.614 ------- ------- ------- (0.486) (0.423) (0.314) ------- ------- ------- (0.486) (0.423) (0.314) ------- ------- ------- $ 9.850 $ 9.850 $ 9.850 ======= ======= ======= 7.08% 6.39% 6.50%(e) ======= ======= ======= 0.50% 1.15% 0.70%(g) 5.50% 4.85% 5.30%(g) 1.14% 1.14% 1.14% 36% 36% 36% $ 9,934 $ 3,968 $ 385 $ 0.107 $ 0.107 $ 0.107
17 FINANCIAL HIGHLIGHTS - continued Selected data for a share of each class outstanding throughout each period are as follows:
Year ended August 31 ---------------------------------------------- 1994 1993(b) Class A Class B Class A Class(c) ------- ------- ------- -------- Net asset value - Beginning of period $ 9.950 $ 9.950 $10.000 $ 9.940 ------- ------- ------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income (a) 0.473 0.409 0.434 0.237 Net realized and unrealized loss (0.356) (0.356) (0.061) (0.003) ------- ------- ------- ------- Total from Investment Operations 0.117 0.053 0.373 0.234 ------- ------- ------- ------- LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS: From net investment income (0.397) (0.333) (0.406) (0.215) In excess of net investment income - - (0.015) (0.008) From net realized gains - - (0.002) (0.001) Total Distributions Declared to Shareholders (0.397) (0.333) (0.423) (0.224) ------- ------- ------- ------- Net asset value - End of period $ 9.670 $ 9.670 $ 9.950 $ 9.950 ======= ======= ======= ======= Total return (d)(e) 1.20% 0.55% 3.82%(f) 2.38%(f) ======= ======= ======= ======= RATIOS TO AVERAGE NET ASSETS: Expenses 0.50% 1.15% 0.50%(g) 1.15%(g) Net investment income 4.84% 4.19% 4.70%(g) 4.05%(g) Fees and expenses waived or borne by the Adviser 1.16% 1.16% 1.68%(g) 1.68%(g) Portfolio turnover 69% 69% 25%(g) 25%(g) Net assets at end of period (000) $16,168 $ 4,176 $ 7,866 $ 1,675 (a) Net of fees and expenses waived or borne by the Adviser which amounted $ 0.114 $ 0.114 $ 0.155 $ 0.092 (b) The Fund commenced investment operations on October 1, 1992. Per share amounts reflect activity from that date. (c) Class B shares were initially offered on February 1, 1993. 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) Had the Adviser not waived or reimbursed a portion of expenses total return would have been reduced. (f) Not annualized. (g) Annualized.
18 IMPORTANT INFORMATION ABOUT THIS REPORT The Transfer Agent for Colonial Short Duration U.S. Government Fund is: Colonial Investors Service Center, Inc. P.O. Box 1722 Boston, MA 02105-1722 1-800-345-6611 Colonial Short Duration U.S. Government Fund mails one shareholder report to each shareholder address. If you would like more than one report, please call Colonial at 1-800-426-3750 and additional reports will be sent to you. This report has been prepared for shareholders of Colonial Short Duration U.S. Government Fund. This report may also be used as sales literature when preceded or accompanied by the current prospectus which provides details of sales charges, investment objective, and operating policies of the Fund. 19 [FLAG LOGO] COLONIAL MUTUAL FUNDS Mutual Funds for Planned Portfolios - -------------------------------------------------------------------------------- TRUSTEES ROBERT J. BIRNBAUM Retired (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief Operating Officer, New York Stock Exchange, Inc.) TOM BLEASDALE Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank & Trust Company) LORA S. COLLINS Attorney (formerly Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel) JAMES E. GRINNELL Private Investor (formerly Senior Vice President-Operations, The Rockport Company) WILLIAM D. IRELAND, JR. Retired (formerly Chairman of the Board, Bank of New England-Worcester) RICHARD W. LOWRY Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood Corporation) WILLIAM E. MAYER Partner, Development Capital, L.L.C. (formerly Dean, College of Business and Management, University of Maryland; Dean, Simon Graduate School of Business, University of Rochester; Chairman and Chief Executive Officer, C. S. First Boston Merchant Bank; and President and Chief Executive Officer, The First Boston Corporation) JAMES L. MOODY, JR. Chairman of the Board and Director, Hannaford Bros. Co. (formerly Chief Executive Officer, Hannaford Bros. Co.) JOHN J. NEUHAUSER Dean, Boston College School of Management GEORGE L. SHINN Financial Consultant (formerly Chairman, Chief Executive Officer and Consultant, The First Boston Corporation) ROBERT L. SULLIVAN Retired Partner, Peat Marwick Main & Co. (formerly Management Consultant, Saatchi and Saatchi Consulting Ltd. and Principal and International Practice Director, Management Consulting, Peat Marwick Main & Co.) SINCLAIR WEEKS, JR. Chairman of the Board, Reed & Barton Corporation COLONIAL INVESTMENT SERVICES, INC., Distributor (C)1997 A Liberty Financial Company (NYSE: L) One Financial Center, Boston, Massachusetts 02111-2621, 617-426-3750 SD-03/452D-0297 M (4/97) - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----