Quality government bonds
can add diversification to
your portfolio.
COLONIAL GOVERNMENT FUNDS Semiannual Report, February 28, 1998
. COLONIAL SHORT DURATION U.S. GOVERNMENT FUND
. COLONIAL INTERMEDIATE U.S. GOVERNMENT FUND
. COLONIAL FEDERAL SECURITIES FUND
<PAGE>
President's Message
What's inside:
. The market environment for bonds has continued to be positive.
. Management strategies that helped the Funds beat their respective Lipper peer
averages during the six-month period.
. Your Fund's holdings and individual performance.
- ----------------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
- ----------------------------------
Because market conditions change frequently, there can be no assurance that
the trends described in this report will continue.
[PHOTO OF
HAROLD W. COGGER,
PRESIDENT
APPEARS HERE]
Dear shareholders
The past six months have been good for bond fund investors. The economy
continued to grow, though at a more moderate pace in the new year. By the end of
February the inflation rate was less than 2%.
This downward pressure on inflation stemmed in part from Asia's slumping
economy, as competition from low-cost imports restrained any price increases for
domestic goods. Troubled Asian economies also worked to slow U.S. economic
growth. If U.S. growth continues to slow throughout the year, it could
contribute to an increasingly positive outlook for fixed-income securities.
Low inflation, slowing growth and concerns over the global response to Asia
caused the Federal Reserve Board to shift to a more neutral monetary policy.
While a year ago the Fed raised interest rates as a preemptive strike against
inflation, there was no such tightening during the six months ended February 28,
1998. In response to low inflation, interest rates trended downward.
Colonial government funds were positioned to take advantage of this declining
interest rate environment, as you'll read in the Portfolio Managers' Report. The
managers' strategies worked well; for the six months ended February 28, 1998,
Class A shares of each fund achieved the following pre-load total returns:
. Colonial Short Duration U.S. Government Fund: 3.37%
. Colonial Intermediate U.S. Government Fund: 5.07%
. Colonial Federal Securities Fund: 6.23%
We thank you for giving us the opportunity to help you meet your financial
goals, and we hope to continue serving you in the years to come.
Respectfully,
/s/ Harold W. Cogger
Harold W. Cogger, President
April 9, 1998
<PAGE>
Portfolio Managers' Report
A good market for bond owners
When you look at both risk and return, Treasury bonds have been attractive for
several reasons:
1. Real rates of return have been high. While current interest rates seem low,
they are high relative to inflation, as shown in the chart below. What's more,
we expect a further slowing of inflation this year, due in part to the severe
decline in Asian currency values making imports from the region relatively
cheap.
2. U.S. rates remain attractive to foreign investors. The U.S. continues to be a
safe haven for fixed-income investors around the world. Comparatively high U.S.
rates continue to draw foreign investors.
3. The U.S. government is issuing fewer bonds. The federal budget is close to
being balanced. As the deficit decreases, so does the need for the Treasury to
issue bonds. With the supply of Treasury bonds dropping, continued demand for
these bonds may drive down the interest rates the government must pay on them.
In a low interest rate environment accompanied by decreased supply and strong
foreign demand, bond prices can rally, producing attractive returns for
investors.
Inflation vs. a 10-year Treasury note 1988 to 1998
Today's interest rates may seem low. However, when you compare interest rates to
inflation over the last 10 years, you will see that your post-inflation return
- -- or real rate of return -- is higher today than when interest rates were over
8% in the early '90s.
[GRAPH APPEARS HERE]
US Treasury 10-year T-note yields
Consumer Price Interest
Index Rates
Feb-88 3.9 8.15
Mar-88 3.9 8.54
Apr-88 3.9 8.89
May-88 3.9 9.15
Jun-88 4 8.87
Jul-88 4.1 9.11
Aug-88 4 9.24
Sep-88 4.2 8.94
Oct-88 4.2 8.64
Nov-88 4.2 9.05
Dec-88 4.4 9.14
Jan-89 4.7 8.98
Feb-89 4.8 9.29
Mar-89 5 9.28
Apr-89 5.1 9.05
May-89 5.4 8.6
Jun-89 5.2 8.08
Jul-89 5 7.8
Aug-89 4.7 8.25
Sep-89 4.3 8.29
Oct-89 4.5 7.91
Nov-89 4.7 7.83
Dec-89 4.6 7.93
Jan-90 5.2 8.42
Feb-90 5.3 8.52
Mar-90 5.2 8.63
Apr-90 4.7 9.02
May-90 4.4 8.6
Jun-90 4.7 8.41
Jul-90 4.8 8.34
Aug-90 5.6 8.85
Sep-90 6.2 8.79
Oct-90 6.3 8.62
Nov-90 6.3 8.25
Dec-90 6.1 8.07
Jan-91 5.7 8.01
Feb-91 5.3 8.03
Mar-91 4.9 8.06
Apr-91 4.9 8.01
May-91 5 8.06
Jun-91 4.7 8.23
Jul-91 4.4 8.15
Aug-91 3.8 7.82
Sep-91 3.4 7.45
Oct-91 2.9 7.46
Nov-91 3 7.38
Dec-91 3.1 6.7
Jan-92 2.6 7.27
Feb-92 2.8 7.25
Mar-92 3.2 7.53
Apr-92 3.2 7.58
May-92 3 7.32
Jun-92 3.1 7.12
Jul-92 3.2 6.71
Aug-92 3.1 6.6
Sep-92 3 6.35
Oct-92 3.2 6.79
Nov-92 3 6.94
Dec-92 2.9 6.69
Jan-93 3.3 6.36
Feb-93 3.2 6.02
Mar-93 3.1 6.02
Apr-93 3.2 6.01
May-93 3.2 6.15
Jun-93 3 5.78
Jul-93 2.8 5.81
Aug-93 2.8 5.45
Sep-93 2.7 5.38
Oct-93 2.8 5.43
Nov-93 2.7 5.82
Dec-93 2.7 5.79
Jan-94 2.5 5.64
Feb-94 2.5 6.13
Mar-94 2.5 6.74
Apr-94 2.4 7.04
May-94 2.3 7.15
Jun-94 2.5 7.32
Jul-94 2.8 7.11
Aug-94 2.9 7.17
Sep-94 3 7.6
Oct-94 2.6 7.81
Nov-94 2.7 7.91
Dec-94 2.7 7.82
Jan-95 2.8 7.58
Feb-95 2.9 7.2
Mar-95 2.9 7.2
Apr-95 3.1 7.05
May-95 3.2 6.28
Jun-95 3 6.2
Jul-95 2.8 6.43
Aug-95 2.6 6.28
Sep-95 2.5 6.18
Oct-95 2.8 6.02
Nov-95 2.6 5.74
Dec-95 2.5 5.57
Jan-96 2.7 5.58
Feb-96 2.7 6.1
Mar-96 2.8 6.33
Apr-96 2.9 6.67
May-96 2.9 6.85
Jun-96 2.8 6.71
Jul-96 3 6.79
Aug-96 2.9 6.94
Sep-96 3 6.7
Oct-96 3 6.34
Nov-96 3.3 6.04
Dec-96 3.3 6.42
Jan-97 3 6.49
Feb-97 3 6.55
Mar-97 2.8 6.9
Apr-97 2.5 6.72
May-97 2.2 6.66
Jun-97 2.3 6.5
Jul-97 2.2 6.01
Aug-97 2.2 6.34
Sep-97 2.2 6.1
Oct-97 2.1 5.83
Nov-97 1.8 5.87
Dec-97 1.7 5.74
Jan-98 1.6 5.5
Feb-98 1.4 5.62
Source: Bloomberg -- all rights reserved.
<PAGE>
Portfolio Managers' Report
- --------------------------------------------------------------------------------
Active management enables Funds to beat peers
- --------------------------------------------------------------------------------
What is Duration?
Duration is a measure of a bond mutual fund's price sensitivity to interest rate
movements. It is a mathematical calculation that assesses such factors as the
maturities of the bonds in a fund's portfolio, coupon rates and how often they
are paid, and prevailing market interest rates. In government bond funds,
interest rate risk is the primary consideration. Therefore, the specific
benefits and risks of these funds vary by their duration.
Anticipating that interest rates would continue to decline and inflation would
remain under control, we kept each Fund's duration in the upper half of its
allowable range. Our strategy rewarded investors; in a rallying bond market,
each Fund generated price gains consistent with its respective risk profile. All
of Colonial's government bond funds outperformed their respective Lipper peer
group average for the six months ended February 28, 1998.
We continued to invest heavily in mortgage-backed securities because these
securities tend to do well in a stable interest rate environment. However, to
help protect against refinancing risk, we reduced the percentage of the
portfolio invested in mortgage-backed securities and lowered the average coupon
rate of the securities we held.
We also emphasized securities that would be more responsive to declining
interest rates. Generally speaking, as interest rates fall, longer-term bonds
appreciate in price more than shorter-term securities. For this reason, we kept
each Fund's duration relatively high and invested more in Treasury securities.
/s/ Leslie W. Finnemore /s/ Ann T. Peterson /s/ William C. Hill
Leslie W. Finnemore Ann T. Peterson William C. Hill
Lipper Rankings as of February 28, 1998
<TABLE>
<CAPTION>
Colonial Short Duration Colonial Intermediate U.S. Colonial Federal
U.S. Government Fund Government Fund Securities Fund
Rank out of total Rank out of total number Rank out of total
number of Short U.S. of Intermediate U.S. number of General U.S.
Government Funds Government Funds Government Funds
<S> <C> <C> <C>
20 56 22
6 months out of 74 out of 121 out of 196
- --------------------------------------------------------------------------------------------
18 54 23
1 year out of 72 out of 116 out of 184
- --------------------------------------------------------------------------------------------
13 45 28
3 years out of 56 out of 97 out of 147
- --------------------------------------------------------------------------------------------
8 21 19
5 years out of 33 out of 51 out of 88
- --------------------------------------------------------------------------------------------
n/a 13 12
10 years out of 14 out of 53
- --------------------------------------------------------------------------------------------
</TABLE>
These rankings are as of month-end as calculated by Lipper Analytical Services,
Inc. Rankings are based on total returns for Class A shares, and reflect
reinvestment of dividends and capital gains and do not assume deduction of sales
charges.
4
<PAGE>
- --------------------------------------------------------------------------------
Colonial Short Duration U.S. Government Fund
- --------------------------------------------------------------------------------
Fund Facts: 2/28/98
Duration
1.63 years
Last six months' distributions
Class A $0.281
Class B $0.249
Class C $0.271
SEC yield/1/
Class A 5.02%
Class B 4.52%
Class C 5.03%
Average life breakdown
(As a percentage of net assets)
0 - 2 years 49.19%
2 - 4 years 24.61%
4 - 6 years 10.53%
6 - 8 years 4.24%
8 - 10 years 5.24%
More than 10 years 6.19%
Sector breakdown
(As a percentage of net assets)
[PIE CHART APPEARS HERE]
Adjustable Rate Mortgage Securities - 22.49%
Cash & Other - 25.13%
Treasury Securities - 25.75%
Fixed-rate Mortgage Securities - 19.01%
Other Agency Securities - 7.62%
................................................................................
/1/SEC yields reflect the portfolio's earning power net of expenses, expressed
as an annualized percentage of the public offering price per share. If the
Adviser had not borne certain expenses, the yields would have been 3.98% for
Class A, 3.45% for Class B and 3.96% for Class C. A $10,000 investment in Class
B shares made on 2/1/93 (inception) at net asset value (NAV) would have grown to
$12,558 on 2/28/98. A $10,000 investment in Class C shares made on 1/4/95
(inception) at NAV would have grown to $12,351 on 2/28/98. 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,
indexes are not investments, do not incur fees or charges and it is not possible
to invest in indexes. The Lipper Short U.S. Government Fund Average represents a
hypothetical investment in the funds which comprise the Lipper Short U.S.
Government Fund Category. 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. Public offering price (POP) returns include the
maximum sales charge of 3.25%. The CDSC returns reflect the maximum charge of 4%
for 6 months and for one year for Class B shares, and 1% for 6 months and for
one year for Class C shares. If the Adviser had not 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. Because the Fund is actively
managed, there can be no guarantee the Fund will continue to maintain this
portfolio structure and quality breakdown in the future.
Investing primarily in U.S. government securities, this Fund is designed for
relatively low volatility. It is the most conservative of Colonial's three
government funds, designed for investors with a short investment time frame.
The Fund invests in mortgage-backed securities -- both fixed-rate and
adjustable -- as well as Treasurys and other agency securities. Consistent with
its goal of low volatility, it maintains a short duration range of less than
three years.
Because we believed interest rates would continue to decline over the last six
months, we increased duration within the Fund's allowable range. We also
increased our investment in Treasurys. Owning longer-maturity securities
benefited investors as interest rates did indeed decline.
We kept a significant portion of your portfolio in mortgage-backed securities,
which perform well in stable interest rate environments. However, we used
several tactics to help protect the portfolio from the risk of mortgage holders
refinancing their loans. We reduced the overall percentage of the Fund invested
in these securities and we lowered the average coupon rates of the mortgage-
backed securities we held. We also maintained investments in older adjustable-
rate mortgage-backed securities which should have lower refinancing risk.
Duration management, increased investment in Treasurys and continued exposure to
mortgage-backed securities all contributed to the Fund's strong performance
during this period.
Performance of a $10,000 investment in Class A shares 10/1/92 - 2/28/98
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
$12,837 $13,327
Lipper Short $13,110 Lehman
$12,684 U.S. Gov't Fund Gov't Bond
Fund at POP Fund Average at NAV (1-3 yr) Index
Lehman Brothers Short US Govt (1-3) Index
Hypothetical Investment of $10,000
Date
- ------------
<S> <C> <C> <C> <C>
9/30/92 $10,000 $10,000 $10,000 $10,000
10/31/92 $9,666 $9,938 $9,991 $9,943
11/30/92 $9,666 $9,923 $9,991 $9,932
12/31/92 $9,725 $10,006 $10,051 $10,020
1/31/93 $9,774 $10,105 $10,102 $10,126
2/28/93 $9,832 $10,184 $10,162 $10,207
3/31/93 $9,860 $10,211 $10,192 $10,238
4/30/93 $9,908 $10,267 $10,241 $10,301
5/31/93 $9,917 $10,256 $10,250 $10,276
6/30/93 $9,974 $10,330 $10,309 $10,353
7/31/93 $9,999 $10,358 $10,335 $10,376
8/31/93 $10,044 $10,433 $10,382 $10,462
9/30/93 $10,059 $10,458 $10,397 $10,495
10/31/93 $10,083 $10,474 $10,422 $10,519
11/30/93 $10,075 $10,465 $10,414 $10,521
12/31/93 $10,108 $10,502 $10,447 $10,563
1/31/94 $10,161 $10,569 $10,502 $10,629
2/28/94 $10,163 $10,504 $10,505 $10,564
3/31/94 $10,114 $10,431 $10,454 $10,511
4/30/94 $10,056 $10,392 $10,393 $10,471
5/31/94 $10,069 $10,402 $10,408 $10,484
6/30/94 $10,084 $10,416 $10,422 $10,510
7/31/94 $10,129 $10,494 $10,469 $10,605
8/31/94 $10,165 $10,520 $10,506 $10,640
9/30/94 $10,149 $10,500 $10,490 $10,616
10/31/94 $10,149 $10,520 $10,490 $10,640
11/30/94 $10,138 $10,487 $10,479 $10,595
12/31/94 $10,192 $10,509 $10,534 $10,615
1/31/95 $10,310 $10,629 $10,656 $10,760
2/28/95 $10,439 $10,758 $10,790 $10,906
3/31/95 $10,547 $10,813 $10,901 $10,967
4/30/95 $10,633 $10,896 $10,990 $11,065
5/31/95 $10,753 $11,063 $11,115 $11,254
6/30/95 $10,800 $11,116 $11,163 $11,315
7/31/95 $10,815 $11,146 $11,178 $11,360
8/31/95 $10,884 $11,213 $11,249 $11,428
9/30/95 $10,957 $11,265 $11,325 $11,484
10/31/95 $11,029 $11,348 $11,399 $11,580
11/30/95 $11,112 $11,437 $11,486 $11,678
12/31/95 $11,180 $11,519 $11,555 $11,767
1/31/96 $11,247 $11,598 $11,625 $11,867
2/29/96 $11,246 $11,556 $11,624 $11,820
3/31/96 $11,232 $11,548 $11,609 $11,811
4/30/96 $11,273 $11,559 $11,651 $11,823
5/31/96 $11,314 $11,573 $11,694 $11,849
6/30/96 $11,390 $11,647 $11,773 $11,935
7/31/96 $11,445 $11,690 $11,830 $11,982
8/31/96 $11,490 $11,719 $11,876 $12,026
9/30/96 $11,570 $11,815 $11,959 $12,136
10/31/96 $11,674 $11,930 $12,066 $12,273
11/30/96 $11,765 $12,017 $12,160 $12,364
12/31/96 $11,773 $12,012 $12,169 $12,366
1/31/97 $11,839 $12,067 $12,237 $12,425
2/28/97 $11,881 $12,097 $12,280 $12,455
3/31/97 $11,887 $12,087 $12,286 $12,445
4/30/97 $11,978 $12,177 $12,380 $12,547
5/31/97 $12,056 $12,249 $12,461 $12,635
6/30/97 $12,136 $12,326 $12,543 $12,722
7/31/97 $12,252 $12,452 $12,664 $12,861
8/31/97 $12,271 $12,459 $12,683 $12,874
9/30/97 $12,368 $12,548 $12,783 $12,972
10/31/97 $12,453 $12,629 $12,871 $13,068
11/30/97 $12,501 $12,653 $12,921 $13,100
12/31/97 $12,574 $12,719 $12,997 $13,188
1/31/98 $12,656 $12,826 $13,082 $13,315
2/28/98 $12,684 $12,837 $13,110 $13,327
</TABLE>
Average annual total returns as of 2/28/98
Share Class A B C
Inception 10/1/92 2/1/93 1/4/95
NAV POP NAV w/CDSC NAV w/CDSC
- --------------------------------------------------------------------------------
6 months (cumulative) 3.37% 0.01% 3.04% (0.96)% 3.27% 2.27%
- --------------------------------------------------------------------------------
1 year 6.76 3.29 6.08 2.08 6.55 5.55
- --------------------------------------------------------------------------------
5 years 5.23 4.53 4.55 4.55 -- --
- --------------------------------------------------------------------------------
10 years or life 5.13 4.49 4.59 4.59 6.92 6.92
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Colonial Intermediate U.S. Government Fund
- --------------------------------------------------------------------------------
Fund Facts: 2/28/98
Duration
4.34 years
Last 6 months' distributions
Class A $0.197
- ----------------------------------
Class B $0.172
- ----------------------------------
Class C $0.177
- ----------------------------------
SEC yield/1/
Class A 5.20%
- ----------------------------------
Class B 4.69%
- ----------------------------------
Class C 4.85%
- ----------------------------------
Average life breakdown
(As a percentage of net assets)
0 - 5 years 48.67%
- ----------------------------------
5 - 10 years 39.22%
- ----------------------------------
10 - 15 years 3.53%
- ----------------------------------
15 - 20 years 0.53%
- ----------------------------------
20 - 25 years 1.76%
- ----------------------------------
25 - 30 years 6.29%
- ----------------------------------
Sector breakdown
(As a percentage of senior securities)
[PIE CHART APPEARS HERE]
FNMAs -- 35.20%
Treasury Securities -- 30.13%
GNMAs -- 28.66%
FHLMCs -- 3.21%
SBA -- 2.80%
................................................................................
/1/SEC yields reflect the portfolio's earning power net of expenses, expressed
as an annualized percentage of the public offering price per share. If the
Distributor had not waived certain fees, the yield would have been 4.69% for
Class C.
A $10,000 investment in Class B shares made on 6/8/92 (inception) at net asset
value (NAV) would have grown to $13,321 on 2/28/98. The same investment after
deducting the applicable contingent deferred sales charge (CDSC) would have been
valued at $13,226. A $10,000 investment in Class C shares made on 8/1/97
(inception) at NAV would have grown to $10,395 on 2/28/98. The same investment
after deducting the applicable CDSC would have been valued at $10,295 on
2/28/98. The Lehman Brothers Intermediate Government Bond Index is an unmanaged
index that tracks the performance of U.S. government securities. Unlike mutual
funds, indexes are not investments, do not incur fees or charges and it is not
possible to invest in indexes. The Lipper Intermediate U.S. Gov't Average
represents a hypothetical investment in the funds which comprise the Lipper
Intermediate U.S. Gov't Fund category. 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. Public offering price (POP)
returns include the maximum sales charge of 4.75%. The CDSC returns reflect the
maximum charge of 5% for six months and one year, 2% for 5 years and 1% since
inception for Class B shares, and 1% for six months and one year for Class C
shares.
Performance for different share classes will vary based on differences in sales
charges and fees associated with each class. Because the Fund is actively
managed, there can be no guarantee the Fund will continue to maintain this
portfolio structure and quality breakdown in the future.
The Fund maintains a conservative portfolio invested primarily in U.S.
government securities, with a risk profile similar to a five-year Treasury. The
Fund has been managed to maintain an average duration between 2.5 to 5.5 years.
Heading into the second half of 1997, our analysis suggested that interest rates
would continue to decline. In response, we kept the Fund's duration in the upper
half of its allowable range by investing in more interest rate-sensitive
securities. As rates fell throughout the six months that followed, shareholders
were rewarded with price gains.
Mortgage-backed securities continued to represent a significant portion of your
portfolio. However, the percentage was lower than in prior periods in an effort
to protect the portfolio from the risk of mortgage holders refinancing their
loans as interest rates declined. We sold some mortgage-backed securities with
higher coupons that had greater refinancing risk. These moves strategically
lowered the average coupon of the portfolio.
We also rebalanced the Fund's investment within the mortgage sector. During the
latter part of the period Japanese investors sold Ginnie Maes causing their
prices to fall relative to Fannie Maes. We added Ginnie Maes to your portfolio
during this period, because we believed they offered good relative value. We
believe that foreign investors will be attracted to the strong U.S. dollar, good
market liquidity and high credit quality of Ginnie Maes. If foreign demand for
Ginnie Maes returns, their prices should appreciate and we believe the
marketplace will realize their fundamental value.
Performance of a $10,000 investment in Class A shares 2/28/88 - 2/28/98
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Lipper Lehman
Fund at POP Fund at Nav Intermediate Intermediate Gov't
AS OF DATE Postload Preload AS OF DATE U.S. Gov't Avg Bond Index
---------- -------- ------- ---------- -------------- -----------
<S> <C> <C> <C> <C> <C>
2/29/88 $9,525 $10,000 2/28/88 $10,000 $10,000
5/31/88 $9,467 $9,939 5/31/88 $9,834 $9,893
8/31/88 $9,631 $10,111 8/31/88 $10,011 $10,038
11/30/88 $9,849 $10,340 11/30/88 $10,261 $10,263
2/28/89 $9,867 $10,359 2/28/89 $10,332 $10,331
5/31/89 $10,252 $10,764 5/31/89 $10,772 $10,793
8/31/89 $10,511 $11,035 8/31/89 $11,104 $11,141
11/30/89 $10,779 $11,316 11/30/89 $11,487 $11,542
2/28/90 $10,856 $11,397 2/28/90 $11,455 $11,546
5/31/90 $11,107 $11,661 5/31/90 $11,666 $11,768
8/31/90 $11,347 $11,912 8/31/90 $11,900 $12,046
11/30/90 $11,742 $12,328 11/30/90 $12,378 $12,509
2/28/91 $12,067 $12,669 2/28/91 $12,765 $12,890
5/31/91 $12,332 $12,947 5/31/91 $13,029 $13,169
8/31/91 $12,656 $13,287 8/31/91 $13,457 $13,576
11/30/91 $13,006 $13,654 11/30/91 $13,986 $14,128
2/28/92 $13,207 $13,866 2/29/92 $14,234 $14,377
5/31/92 $13,415 $14,084 5/31/92 $14,495 $14,664
8/31/92 $13,728 $14,412 8/31/92 $15,129 $15,315
11/30/92 $13,769 $14,456 11/30/92 $15,063 $15,275
2/28/93 $14,106 $14,809 2/28/93 $15,778 $15,994
5/31/93 $14,264 $14,975 5/31/93 $15,937 $16,134
8/31/93 $14,572 $15,298 8/31/93 $16,515 $16,645
11/30/93 $14,565 $15,292 11/30/93 $16,472 $16,669
2/28/94 $14,656 $15,387 2/28/94 $16,466 $16,672
5/31/94 $14,288 $15,001 5/31/94 $15,932 $16,334
8/31/94 $14,494 $15,217 8/31/94 $16,137 $16,600
11/30/94 $14,364 $15,080 11/30/94 $15,863 $16,393
2/28/95 $14,888 $15,630 2/28/95 $16,548 $17,036
5/31/95 $15,561 $16,337 5/31/95 $17,414 $17,817
8/31/95 $15,781 $16,568 8/31/95 $17,673 $18,087
11/30/95 $16,343 $17,158 11/30/95 $18,270 $18,633
2/28/96 $16,396 $17,213 2/29/96 $18,324 $18,775
5/31/96 $16,127 $16,932 5/31/96 $18,057 $18,625
8/31/96 $16,335 $17,149 8/31/96 $18,283 $18,894
11/30/96 $17,165 $18,021 11/30/96 $19,203 $19,687
2/28/97 $17,110 $17,963 2/28/97 $19,135 $19,688
5/31/97 $17,293 $18,155 5/31/97 $19,353 $19,951
8/31/97 $17,746 $18,631 8/31/97 $19,863 $20,414
11/30/97 $18,261 $19,171 11/30/97 $20,433 $20,922
2/28/98 $18,645 $19,575 2/28/98 $20,857 $21,345
</TABLE>
Average annual total returns as of 2/28/98
<TABLE>
<CAPTION>
Share Class A B C
Inception 10/13/87 6/8/92 8/1/97(cumulative)
NAV POP NAV w/CDSC NAV w/CDSC
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 months (cumulative) 5.07% 0.08% 4.68% (0.32)% 4.76% 3.76%
- -----------------------------------------------------------------------------------------
1 year 8.98 3.80 8.17 3.17 -- --
- -----------------------------------------------------------------------------------------
5 years 5.74 4.71 4.95 4.63 -- --
- -----------------------------------------------------------------------------------------
10 years or life 6.95 6.43 5.13 5.00 3.95 2.95
- -----------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
Colonial Federal Securities Fund
- --------------------------------------------------------------------------------
Fund Facts: 2/28/98
Duration
5.79 years
Last 6 months' distributions
Class A $0.329
- ---------------------------------------
Class B $0.289
- ---------------------------------------
Class C $0.297
- ---------------------------------------
SEC yield/1/
Class A 5.69%
- ---------------------------------------
Class B 5.21%
- ---------------------------------------
Class C 5.34%
- ---------------------------------------
Average life breakdown
(As a percentage of senior securities)
0 - 5 years 26.72%
- ---------------------------------------
5 - 10 years 43.77%
- ---------------------------------------
10 - 15 years 15.03%
- ---------------------------------------
15 - 20 years 11.83%
- ---------------------------------------
20 - 25 years 2.65%
- ---------------------------------------
Sector breakdown
(As a percentage of senior securities)
[PIE CHART APPEARS HERE]
Treasury Securities -- 30.63%
FNMAs -- 14.28%
FHLMCs -- 18.70%
WL/ABS -- 12.00%
CMO -- 5.77%
GNMAs -- 18.62%
................................................................................
/1/SEC yields reflect the portfolio's earning power net of expenses, expressed
as an annualized percentage of the public offering price per share. If the
Distributor had not waived certain fees, the yield would have been 5.19% for
Class C.
A $10,000 investment in Class B shares made on 6/8/92 (inception) at net asset
value (NAV) would have grown to $14,513 on 2/28/98. The same investment after
deducting the applicable contingent deferred sales charge (CDSC) would have been
valued at $14,413 on 2/28/98. A $10,000 investment in Class C shares made on
8/1/97 (inception) at NAV would have grown to $10,453 on 2/28/98. The same
investment after deducting the applicable CDSC would have been valued at $10,353
on 2/28/98. The Lehman Brothers Intermediate Government Bond Index is an
unmanaged index that tracks the performance of U.S. government securities.
Unlike mutual funds, indexes are not investments, do not incur fees or charges
and it is not possible to invest in indexes. The Lipper General U.S. Government
Average represents a hypothetical investment in the funds which comprise the
Lipper General U.S. Government Average.
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 the maximum
sales charge of 4.75% for Class A shares. The CDSC returns reflect the maximum
charge of 5% for six months and one year and 1% since inception for Class B
shares and 1% for six months and one year for Class C shares.
Performance for different share classes will vary based on differences in sales
charges and fees associated with each class. Because the Fund is actively
managed, there can be no guarantee the Fund will continue to maintain this
portfolio structure and quality breakdown in the future.
The Fund invests primarily in U.S. government securities and is designed for the
investor who can accept the risks associated with the additional return
potential of longer-term securities. The Fund offers the highest return
potential of Colonial's three government funds.
With our analysis suggesting that interest rates would continue to decline
during the second half of 1997, we kept the Fund's duration at the midpoint of
its allowable range. Securities with longer durations are more sensitive to
changes in interest rates. As rates fell, shareholders were rewarded with price
gains.
We kept a significant portion of the portfolio in mortgage-backed securities.
However, to protect the portfolio from the risk of mortgage holders refinancing
their loans as interest rates declined, we reduced the percentage of mortgage-
backed securities in the portfolio. For the same reason, we also lowered the
portfolio's average mortgage-backed coupon.
During the past six months, the Asian economic crisis played an important role
in our strategy. As events unfolded in the Pacific Rim, foreign investors found
a "safe haven" in U.S. Treasury securities because of their higher credit
quality and greater liquidity. We took advantage of increased demand and higher
prices for these securities by selling into the strong market. We then invested
the proceeds in sectors that we believed offered greater relative value. In
particular, we increased our investment in non-government securities such as
asset-backed and non-Agency mortgage securities. This sector now represents 15%
of the portfolio.
The combination of these strategies helped the Fund deliver strong performance
compared to its Lipper peer group average. See page 4 for more information about
the Fund's Lipper rankings.
Performance of a $10,000 investment for Class A shares 2/28/88 - 2/28/98
<TABLE>
<CAPTION>
Lehman
Lipper Gen Intermediate Gov't Fund Fund
Date US Gov't Avg Bond Index Date at POP at NAV
---- ------------ ------------------ ---- ------ ------
<S> <C> <C> <C> <C> <C>
2/28/88 $10,000 $10,000 2/29/88 $9,525 $10,000
5/31/88 $9,787 $9,893 5/31/88 $9,088 $9,541
8/31/88 $9,949 $10,038 8/31/88 $9,364 $9,831
11/30/88 $10,211 $10,263 11/30/88 $9,787 $10,275
2/28/89 $10,267 $10,331 2/28/89 $9,911 $10,405
5/31/89 $10,714 $10,793 5/31/89 $10,388 $10,906
8/31/89 $11,049 $11,141 8/31/89 $10,667 $11,199
11/30/89 $11,429 $11,542 11/30/89 $11,150 $11,706
2/28/90 $11,329 $11,546 2/28/90 $10,893 $11,436
5/31/90 $11,518 $11,768 5/31/90 $11,078 $11,630
8/31/90 $11,668 $12,046 8/31/90 $11,077 $11,629
11/30/90 $12,185 $12,509 11/30/90 $11,714 $12,298
2/28/91 $12,573 $12,890 2/28/91 $12,096 $12,699
5/31/91 $12,801 $13,169 5/31/91 $12,309 $12,923
8/31/91 $13,224 $13,576 8/31/91 $12,727 $13,362
11/30/91 $13,696 $14,128 11/30/91 $13,212 $13,870
2/29/92 $13,985 $14,377 2/28/92 $13,565 $14,241
5/31/92 $14,219 $14,664 5/31/92 $13,765 $14,452
8/31/92 $14,846 $15,315 8/31/92 $14,302 $15,016
11/30/92 $14,816 $15,275 11/30/92 $14,338 $15,053
2/28/93 $15,626 $15,994 2/28/93 $15,340 $16,105
5/31/93 $15,788 $16,134 5/31/93 $15,561 $16,337
8/31/93 $16,532 $16,645 8/31/93 $16,324 $17,138
11/30/93 $16,418 $16,669 11/30/93 $16,245 $17,055
2/28/94 $16,356 $16,672 2/28/94 $16,174 $16,981
5/31/94 $15,737 $16,334 5/31/94 $15,487 $16,259
8/31/94 $15,932 $16,600 8/31/94 $15,720 $16,504
11/30/94 $15,622 $16,393 11/30/94 $15,311 $16,074
2/28/95 $16,371 $17,036 2/28/95 $16,209 $17,017
5/31/95 $17,294 $17,817 5/31/95 $17,282 $18,144
8/31/95 $17,530 $18,087 8/31/95 $17,515 $18,389
11/30/95 $18,252 $18,633 11/30/95 $18,281 $19,192
2/29/96 $18,173 $18,775 2/28/96 $18,169 $19,075
5/31/96 $17,811 $18,625 5/31/96 $17,616 $18,495
8/31/96 $17,994 $18,894 8/31/96 $17,830 $18,719
11/30/96 $19,057 $19,687 11/30/96 $19,035 $19,985
2/28/97 $18,880 $19,688 2/28/97 $18,829 $19,768
5/31/97 $19,065 $19,951 5/31/97 $19,040 $19,989
8/31/97 $19,614 $20,414 8/31/97 $19,657 $20,637
11/30/97 $20,324 $20,922 11/30/97 $20,397 $21,414
2/28/98 $20,753 $21,345 2/28/98 $20,882 $21,924
</TABLE>
Average annual total returns as of 2/28/98
<TABLE>
<CAPTION>
Share Class A B C
Inception 3/30/84 6/8/92 8/1/97(cumulative)
NAV POP NAV w/CDSC NAV w/CDSC
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 months (cumulative) 6.23% 1.19% 5.84% 0.84% 5.92% 4.92%
- ------------------------------------------------------------------------------------------
1 year 10.91 5.64 10.08 5.08 -- --
- ------------------------------------------------------------------------------------------
5 years 6.36 5.33 5.58 5.26 -- --
- ------------------------------------------------------------------------------------------
10 years or life 8.17 7.64 6.71 6.59 4.53 3.53
- ------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Investment Portfolios
- --------------------------------------------------------------------------------
February 28, 1998 (Unaudited, In Thousands)
Colonial Short Duration U.S. Government Fund
- --------------------------------------------------------------------------------
U.S. Government & Agency
Obligations--74.9% Par Value
- --------------------------------------------------------------------------------
Government Agencies--49.1%
Maturities
Coupon From/To
Federal Home Loan Mortgage Corp.:
Fixed Rate Note,
9.250% 2009 $ 227 $ 242
--------
Adjustable Rate Mortgage: (a)
6.096% 2018 142 144
6.577% 2018 185 186
7.391% 2019 247 252
--------
582
--------
Federal National Mortgage Association:
Fixed Rate Note:
6.000% 2008-2010 (b) 965 952
6.240% 2000 400 405
9.500% 2006 135 143
--------
1,500
--------
Adjustable Rate Mortgage: (a)
6.391% 2027 158 158
7.296% 2019 216 223
7.435% 2019 149 154
7.583% 2023 255 263
7.614% 2020 127 130
7.995% 2022 148 152
8.105% 2017 91 92
8.366% 2019 233 245
--------
1,417
--------
Government National Mortgage Association:
Fixed Rate Mortgage:
6.500% 2024 (b) 500 496
9.000% 2009 232 251
--------
747
--------
Adjustable Rate Mortgage: (a)
6.875% 2022 51 52
7.000% 2022 484 497
7.375% 2023 385 396
--------
945
--------
Student Loan Marketing Association,
Weekly Floating Rate Note, (a)
5.479% 1999 (c) 1,000 998
--------
Total Government
Agencies (cost of $6,398) 6,431
--------
Government Obligations-25.8%
U.S. Treasury Bonds,
7.875% 02/15/21 147 181
--------
U.S. Treasury Notes:
5.750% 12/31/98 415 416
5.750% 09/30/99 794 796
5.750% 10/31/02 160 161
5.875% 10/31/98 280 281
5.875% 01/31/99 (c) 265 266
5.875% 11/15/05 144 146
6.125% 12/31/01 63 64
6.125% 08/15/07 33 34
6.125% 11/15/27 31 32
6.250% 06/30/02 225 230
6.500% 05/31/01 (c) 498 511
6.500% 11/15/26 91 97
6.625% 05/15/07 50 53
6.875% 05/15/06 96 103
--------
3,190
--------
Total Government
Obligations (cost of $3,339) 3,371
--------
Total Investments (cost of $9,737) (d) 9,802
--------
Short-Term Obligations - 33.3%
- --------------------------------------------------------------------------------
Repurchase agreement with ABN AMRO Chicago Corp., dated 02/27/98, due 03/02/98
at 5.650%, collateralized by U.S. Treasury notes with various maturities to
2027, market value $2,410 (repurchase proceeds $2,358)
2,357 2,357
--------
Repurchase agreement with Greenwich Capital Markets, Inc., dated 02/27/98, due
03/02/98 at 5.625%, collateralized by a U.S. Treasury note maturing in 2000,
market value $2,046 (repurchase proceeds $2,001)
2,000 2,000
--------
Total Short-Term Obligations 4,357
--------
Other Assets & Liabilities, Net - (8.2)% (1,068)
--------
Net Assets - 100.0% $ 13,091
========
Notes To Investment Portfolio:
(a) Interest rates on variable rate securities change periodically. The rates
listed are as of February 28, 1998.
(b) These securities have been purchased on a delayed delivery basis whereby the
terms that are fixed are the purchase price, interest rate and the
settlement date. The exact quantity purchased may be slightly more or less
than the amount shown.
(c) These securities with a total market value of $1,775 are being used to
collateralize the delayed delivery purchases indicated in note (b) above.
(d) Cost for federal income tax purposes is $9,739.
Colonial Intermediate U.S. Government Fund
- --------------------------------------------------------------------------------
U.S. Government & Agency
Obligations--103.6% Par Value
- --------------------------------------------------------------------------------
Government Agencies--72.4%
Maturities
Coupon From /To
- --------------------------------------------------------------------------------
Federal Home Loan Mortgage Corp.:
7.500% 2007-2016 $ 1,301 $ 1,347
8.000% 2003-2016 13,015 13,504
8.500% 2007-2017 3,159 3,339
8.750% 2005-2013 1,324 1,398
9.000% 2001-2018 2,563 2,735
9.250% 2008-2019 4,482 4,794
Notes to financial statements.
8
<PAGE>
Investment Portfolio CIUSGF Cont.
9.500% 2005-2016 $ 1,707 $ 1,833
9.750% 2016 123 131
10.000% 2019 854 931
10.250% 2009-2016 1,384 1,503
10.500% 2009-2021 2,200 2,436
11.250% 2005-2016 2,596 2,936
12.000% 2014 1 1
---------
36,888
---------
Federal National Mortgage Association:
6.000% 2008-2026 (a) 158,415 155,837
6.500% 2007-2026 181,746 181,637
7.000% 2007-2023 21,211 21,565
7.500% 2006-2009 2,257 2,347
8.000% 2008-2009 2,394 2,503
8.250% 2008 682 707
8.500% 2003-2021 6,867 7,249
9.000% 2002-2022 18,748 19,907
10.000% 2001-2006 7,506 8,076
10.500% 2010-2016 3,840 4,256
11.000% 2015 847 963
---------
405,047
---------
Government National Mortgage Association:
6.500% 2023-2024 (a) 40,152 39,824
7.000% 2022-2024 48,706 49,376
7.500% 2007 403 417
8.000% 2004-2023 3,183 3,295
8.500% 2017-2022 1,870 1,970
8.750% 2021-2022 1,817 2,000
8.850% 2018-2020 3,789 4,004
9.000% 2008-2025 15,517 16,630
9.250% 2016-2022 8,320 8,762
9.500% 2004-2025 106,285 115,995
10.000% 2000-2024 3,760 4,042
10.250% 2018 195 213
10.500% 1998-2020 9,042 10,208
10.625% 2010 79 89
11.000% 2009-2021 11,038 12,670
11.250% 2015 100 110
11.500% 2010-2021 16,393 19,072
11.750% 2013-2015 253 287
12.000% 2011-2016 16,286 19,229
12.250% 2013-2015 695 791
12.500% 2010-2015 10,845 12,881
12.750% 2013-2014 139 159
13.000% 2011-2016 3,496 4,189
13.500% 2010-2015 2,634 3,188
14.000% 2011-2014 146 177
14.500% 2012 44 54
15.000% 2011-2012 90 110
---------
329,742
---------
U.S. Small Business Administration:
7.600% 01/01/12 $ 3,648 $ 3,900
8.200% 10/01/11 3,551 3,897
8.250% 11/01/11 6,986 7,669
8.650% 11/01/14 5,224 5,871
8.850% 08/01/11 1,298 1,452
9.150% 07/01/11 3,175 3,576
9.450% 08/01/10 1,244 1,404
9.500% 04/01/10 2,242 2,535
9.650% 05/01/10 1,630 1,859
---------
32,163
---------
Total Government
Agencies (cost of $775,374) 803,840
---------
Government Obligations 31.2%
U.S. Treasury Bonds:
6.750% 08/15/26 11,100 12,250
7.875% 02/15/21 15,871 19,531
---------
31,781
---------
U.S. Treasury Notes:
5.625% 02/15/06 14,678 14,605
5.875% 11/15/05 9,473 9,574
6.125% 08/15/07 1,976 2,038
6.125% 11/15/27 11,740 12,068
6.250% 06/30/02 27,420 28,067
6.500% 10/15/06 18,571 19,543
6.500% 11/15/26 (b) 42,572 45,565
6.625% 03/31/02 (b) 59,820 61,960
6.625% 04/30/02 8,487 8,797
6.625% 05/15/07 9,000 9,588
6.875% 05/15/06 83,936 90,218
10.375% 11/15/12 9,693 12,902
---------
314,925
---------
Total Government
Obligations (cost of $336,260) 346,706
---------
Total Investments
(cost of $1,111,634) (c) 1,150,546
---------
Short-Term Obligations - 4.0%
- --------------------------------------------------------------------------------
Repurchase agreement with ABN AMRO
Chicago Corp., dated 02/27/98, due 03/02/98
at 5.650%, collateralized by U.S. Treasury
notes with various maturities
to 2027, market value $45,205
(repurchase proceeds $44,232) 44,211 44,211
---------
Other Assets & Liabilities, Net - (7.6)% (84,752)
---------
Net Assets - 100.0% $1,110,005
=========
Notes To Investment Portfolio:
(a) These securities, or a portion thereof, have been purchased on a delayed
delivery basis whereby the terms that are fixed are the purchase price,
interest rate and the settlement date. The exact quantity purchased may be
slightly more or less than the amount shown.
(b) These securities, or a portion thereof, with a total market value of
$84,972, are being used to collateralize the delayed delivery purchases
indicated in note (a) above.
(c) Cost for federal income tax purposes is $1,113,548.
See notes to financial statements.
9
<PAGE>
Investment Portfolios Cont.
February 28, 1998 (Unaudited, In Thousands)
Colonial Federal Securities Fund
U.S. Government & Agency
Obligations-111.2% Par Value
Government Agencies - 72.5%
Maturities
Coupon From /To
Federal Home Loan Mortgage Corp.:
6.500% 2024-2027 (a)$ 145,450 $ 145,040
7.000% 2024 (a) 15,000 15,263
7.500% 2010-2016 27,273 28,081
8.000% 2003-2016 3,440 3,610
8.500% 2007-2010 2,674 2,826
8.750% 2004-2010 992 1,048
9.000% 2001-2022 5,742 6,112
9.250% 2008-2016 4,524 4,839
9.500% 2004-2016 1,869 2,007
9.750% 2008-2016 753 805
10.000% 2019 854 931
10.250% 2009-2013 1,059 1,150
10.500% 2017-2020 1,588 1,758
11.250% 2003-2016 1,673 1,896
11.500% 2015 95 108
12.000% 2013 57 66
---------
215,540
---------
Collateralized Mortgage Obligations:
5.000% 2013 11,862 11,692
6.500% 2014 17,428 17,069
6.750% 2020-2021 26,878 27,074
8.500% 2021 933 948
8.750% 2020 9,381 9,695
---------
66,478
---------
Federal National Mortgage Association:
6.000% 2008-2024 (a) 87,632 85,989
6.500% 2003-2026 11,807 11,723
7.000% 2010-2028 (a) 33,927 34,745
7.500% 2006-2011 (a) 2,965 3,077
8.000% 2008-2019 2,962 3,098
8.250% 2008-2011 1,175 1,218
8.500% 2008-2017 4,872 5,142
9.000% 2002-2021 16,980 18,009
9.500% 2008-2018 1,550 1,660
10.500% 2004 3 4
---------
164,665
---------
Government National Mortgage Association:
6.500% 2023-2025 (a) 78,350 79,409
7.000% 2024-2027 (a) 78,612 79,699
7.500% 2006-2007 1,002 1,039
8.000% 2005-2008 78 81
9.000% 2008-2017 7,355 7,967
9.500% 2009-2019 21,130 23,053
10.000% 2000-2003 245 262
10.500% 2013-2021 12,012 13,585
11.000% 2010 3 3
11.500% 2013-2015 47 55
11.750% 2013-2015 169 191
12.000% 2012-2015 680 803
12.500% 2010-2014 5,145 6,118
13.000% 2011-2015 2,020 2,423
214,688
----------
Total Government
Agencies (cost of $648,594) 661,371
----------
Government Obligations--38.7%
U.S. Treasury Bonds:
8.750% 08/15/20 (b) 14,333 19,161
12.000% 08/15/13 (b) 91,051 134,343
12.750% 11/15/10 (b) 46,873 66,911
----------
220,415
----------
U.S. Treasury Notes:
6.125% 11/15/27 (b) 9,737 10,009
6.500% 11/15/26 (b) 7,146 7,649
7.250% 08/15/04 12,407 13,471
8.875% 02/15/19 8,114 10,884
10.375% 11/15/12 (b) 53,118 70,705
----------
112,718
----------
U.S. Treasury Strip,
0.000% 08/15/12 (b) 47,184 20,015
----------
Total Government
Obligations (cost of $352,469) 353,148
----------
Total U.S. Government & Agencies
Obligations (cost of $1,001,063) 1,014,519
----------
Non-Agency Mortgage-Backed &
Asset-Backed Securities -- 15.1%
- --------------------------------------------------------------------------------
Non-Agency Mortgage-Backed -- 6.6%
CS First Boston Mortgage Securities Corp.,
7.500% 06/01/20 (c) 12,959 13,312
First Boston Mortgage Securities Corp.,
6.150% 09/28/13 2,000 1,981
General Electric Capital Mortgage Services, Inc.,
8.250% 09/25/26 2,692 2,867
Green Tree Financial Corp.:
7.200% 01/15/28 10,000 10,319
7.320% 07/15/28 4,500 4,656
7.850% 08/15/25 10,100 10,240
Indymac Manufactured Housing Contract,
6.970% 02/25/28 5,000 5,042
Norwest Asset Securities Corp.,
7.000% 04/25/12 2,531 2,560
PNC Mortgage Securities Corp.,
7.000% 05/25/27 2,567 2,624
Prudential Home Mortgage Securities,
6.456% 12/28/08 1,624 1,613
Structured Mortgage Asset Residential Trust,
8.375% 06/25/08 3,809 3,936
Tryon Mortgage Funding, Inc.,
7.500% 02/20/27 1,240 1,273
----------
60,423
----------
10 See notes to financial statements.
<PAGE>
Investment Portfolio CFSF Cont.
Asset-Backed Securities -- 8.5%
Cityscape Home Equity Loan Trust,
7.850% 04/25/18 $ 6,500 $ 6,719
Contimortage Home Equity Loan Trust:
7.310% 08/15/28 7,150 7,281
7.340% 04/15/28 4,000 4,108
7.420% 03/15/28 2,400 2,472
Countrywide Mortgage Trust,
7.600% 04/25/23 3,268 3,334
Delta Funding Home Equity Loan Trust,
7.330% 10/25/28 7,588 7,621
Empire Funding Home Loan Owner Trust,
7.510% 03/25/23 4,000 4,133
Headlands Mortgage Securities, Inc.,
7.750% 03/25/27 5,392 5,537
IMC Home Equity Loan Trust,
7.320% 08/20/27 7,000 7,102
Preferred Mortgage Asset Trust,
7.900% 05/25/12 3,682 3,759
Residential Asset Securitization Trust,
7.500% 11/25/11 1,146 1,188
Team Fleet Financing Corp.,
7.350% 05/15/03 2,900 3,002
The Money Store Home Equity Trust:
7.910% 05/15/24 9,306 9,648
8.525% 06/15/25 2,800 2,969
The Money Store Home Improvement Trust,
8.070% 05/15/23 5,875 6,244
UCFC Home Equity Loan Trust,
8.550% 01/10/20 2,650 2,780
-------------
77,897
-------------
Non-Agency Mortgage-Backed
& Asset-Backed Securities
(cost of $136,144) 138,320
-------------
Total Investments-126.3%
(cost of $1,137,207) (d) 1,152,839
-------------
Short-Term Obligations - 6.1%
- --------------------------------------------------------------------------------
Repurchase agreement with ABN AMRO Chicago Corp.,
dated 02/27/98, due 03/02/98 at 5.650%, collateralized
by U.S. Treasury notes with various maturities
to 2027, market value $56,644 (repurchase proceeds
$55,425) 55,399 55,399
-------------
Other Assets & Liabilities, Net - (32.4)% (295,612)
-------------
Net Assets - 100.0% $ 912,626
-------------
Notes To Investment Portfolio:
(a) These securities have been purchased on a delayed delivery basis whereby
the terms that are fixed are the purchase price, interest rate and the
settlement date. The exact quantity purchased may be slightly more or less
than the amount shown.
(b) These securities, or a portion thereof, with a total market value of
$324,449, are being used to collateralize the delayed delivery purchases
indicated in note (a) above.
(c) Security exempt from registration under Rule 144A of the Securities Act of
1933. This security may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At February 28, 1998, the value
of this security amounted to $13,312 or 1.5% of net assets.
(d) Cost for federal income tax purposes is $1,137,475.
- -------------------------------------------------------------------------------
Notes To Financial Statements
- -------------------------------------------------------------------------------
February 28, 1998 (Unaudited)
Note 1: Interim Financial Statements
In the opinion of management of Colonial Short Duration U.S. Government Fund
(CSDUSGF), and Colonial Intermediate U. S. Government Fund (CIUSGF), both a
series of Colonial Trust II and Colonial Federal Securities Fund (CFSF) a series
of Colonial Trust III (the series are collectively referred to as the Funds and
are diversified portfolios). The accompanying financial statements contain all
normal and recurring adjustments necessary for the fair presentation of the
financial position of the Funds at February 28, 1998, and the results of their
operations, the changes in their net assets and the financial highlights for the
six months then ended.
Note 2: Accounting Policies
Organization: The Funds are Massachusetts business trusts registered under the
Investment Company Act of 1940, as amended, as open end management investment
companies. CSDUSGF'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. CIUSGF's investment objective is to seek as high a level of
current income and total return as is consistent with prudent risk by investing
primarily in U.S. government securities. CFSF's investment objective is to seek
as high a level of current income and total return as is consistent with prudent
longer-term investing by investing primarily in U.S. government securities. The
Funds may issue an unlimited number of shares. The Funds each offer three
classes of shares: Class A, Class B and Class C. Class A shares are sold 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 contingent deferred sales charge on redemptions made
within one year after purchase and a continuing 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 amount 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 that are
consistently followed in the preparation of the Fund's financial statements.
Security valuation and transactions: The Funds 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.
Continued
11
<PAGE>
- ------------------------------------------------------------------------------
Statement of Assets and Liabilities
- ------------------------------------------------------------------------------
February 28, 1998 (Unaudited)
(In thousands except for per share amounts and footnotes)
<TABLE>
<CAPTION>
CSDUSGF CIUSGF CFSF
- ---------------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C> <C> <C> <C> <C>
Investments at cost $9,737 $1,111,634 $1,137,207
Appreciation 65 38,912 15,632
--------- --------- ---------
Investments at value 9,802 1,150,546 1,152,839
Short-term obligations 4,357 44,211 55,399
--------- --------- ---------
14,159 1,194,757 1,208,238
Receivable for:
Interest $110 $11,407 $7,612
Investments sold 519 622 444
Fund shares sold 2 996 413
Receivable due to Adviser 14 -- --
Other 20 665 104 13,129 452 8,921
--------- --------- --------- --------- --------- ---------
Total Assets 14,824 1,207,886 1,217,159
Liabilities
Payable for:
Investments purchased 1,657 90,200 298,537
Distributions 53 5,251 4,606
Fund shares repurchased 20 2,268 1,330
Accrued:
Transfer Agent Out-of-Pocket fees -- 39 36
Deferred Trustees fees 2 19 17
Other 1 104 7
--------- --------- --------- --------- --------- ---------
Total Liabilities 1,733 97,881 304,533
---------------- ---------------- ----------------
Net Assets $13,091 $1,110,005 $912,626
---------------- ---------------- ----------------
Net asset value & redemption price
per share-Class A $9.97 $6.64 $ 10.84
---------------- ---------------- ----------------
($7,794/782) ($687,133/103,492) ($849,708/78,403)
Maximum offering price per share-Class A $10.30 (a) $6.97 (a) $11.38 (a)
---------------- ---------------- ----------------
($9.97/0.9675) ($6.64/0.9525) ($10.84/0.9525)
Net asset value &
offering price per share-Class B $9.97 (b) $6.64 (b) $10.84 (b)
---------------- ---------------- ----------------
($4,163/417) ($422,563/63,644) ($62,569/5,773)
Net asset value &
offering price per share-Class C $9.97 (b) $6.64 (b) $10.84 (b)
---------------- ---------------- ----------------
($1,134/114) ($309/47) ($349/32)
Composition of Net Assets
Capital paid in $13,103 $1,196,344 $1,047,698
Undistributed (overdistributed)
net investment income 7 (5,815) (1,210)
Accumulated net realized loss (84) (119,436) (149,494)
Net unrealized appreciation 65 38,912 15,632
---------------- ---------------- ----------------
$13,091 $1,110,005 $912,626
---------------- ---------------- ----------------
</TABLE>
(a) On sales of $100,000 or more of CSDUSGF or $50,000 or more of CIUSGF or
CFSF 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.
12
<PAGE>
Statement of Operations
For the six months ended February 28, 1998 (Unaudited)
<TABLE>
<CAPTION>
CSDUSGF CIUSGF CFSF
- ---------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment Income
Interest $ 375 $ 41,015 $ 34,295
Mortgage dollar roll fee income 7 616 1,556
--------- --------- ---------
382 41,631 35,851
Expenses
Management fee $ 34 $ 3,422 $ 2,844
Service fee 13 1,441 1,169
Distribution fee - Class B 14 1,665 239
Distribution fee - Class C 1 1 1
Transfer agent 13 1,255 986
Bookkeeping fee 14 199 169
Trustees fee 5 36 26
Custodian fee 1 106 38
Audit fee 10 35 27
Legal fee 7 5 5
Registration fee 18 46 34
Reports to shareholders 3 12 10
Amortization of deferred
organization expenses 1 -- --
Other 4 42 62
--------- --------- ---------
138 8,265 5,610
Fees and expenses waived or
borne by the Adviser (85)
Fees waived by the Distributor-Class C -- 53 (a) 8,265 (a) 5,610
--------- --------- --------- --------- --------- --------
Net Investment Income 329 33,366 30,241
--------- --------- --------
Net Realized & Unrealized
Gain (Loss) on Portfolio
Positions
Net realized gain on:
Investments and purchased options 23 7,339 17,555
Closed futures contract -- -- 61
--------- --------- --------- --------
Net realized gain 23 7,339 17,616
Net change in net unrealized
appreciation (depreciation)
during the period on:
Investments 40 14,786 9,086
Written Options -- (73) (54)
--------- --------- ---------
Net unrealized appreciation 40 14,713 9,032
--------- --------- ---------
Net gain 63 22,052 26,648
--------- --------- ---------
Increase in Net Assets from Operations $ 392 $ 55,418 $ 56,889
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a)Rounds to less than one.
See notes to financial statements.
13
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In thousands)
(Unaudited) (Unaudited) (Unaudited)
Six months ended Year ended Six months ended Year ended Six months ended Period ended
February 28 August 31 February 28 August 31 February 28 August 31 (a)
- --------------------------------------------------------------------------------------------------------------------------------
CSDUSGF CIUSGF CFSF
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) in Net Assets 1998 1997 1998 1997(b) 1998 1997(b)
Operations:
Net investment income $ 329 $ 590 $ 33,366 $ 82,752 $ 30,241 $ 56,704
Net realized gain (loss) 23 6 7,339 (1,696) 17,616 5,201
Net unrealized appreciation
(depreciation) 40 97 14,713 28,452 9,032 (10,609)
-------- -------- ---------- ---------- -------- ----------
Net Increase from Operations 392 693 55,418 109,508 56,889 51,296
Distributions:
From net investment income--Class A (201) (356) (20,562) (51,004) (26,657) (50,372)
In excess of net investment income--Class A -- -- (559) -- -- --
From net investment income--Class B (105) (198) (11,260) (27,936) (1,712) (3,364)
In excess of net investment income--Class B -- -- (306) -- -- --
From net investment income--Class C (29) (29) (8) (1) (7) (c)
-------- -------- ---------- ---------- -------- ----------
57 110 22,723 30,567 28,513 (2,440)
-------- -------- ---------- ---------- -------- ----------
Fund Share Transactions:
Receipts for shares sold--Class A 2,051 5,004 27,600 126,935 12,285 41,502
Value of distributions reinvested--Class A 175 321 13,042 30,856 13,442 25,121
Cost of shares repurchased--Class A (1,323) (4,669) (98,231) (366,834) (91,073) (201,762)
-------- -------- ---------- ---------- -------- ----------
903 656 (57,589) (209,043) (65,346) (135,139)
-------- -------- ---------- ---------- -------- ----------
Receipts for shares sold--Class B 980 1,788 13,395 43,099 4,202 19,284
Value of distributions reinvested--Class B 62 117 6,503 15,509 861 1,767
Cost of shares repurchased--Class B (1,133) (1,715) (66,960) (181,019) (8,718) (29,862)
-------- -------- ---------- ---------- -------- ----------
(91) 190 (47,062) (122,411) (3,655) (8,811)
-------- -------- ---------- ---------- -------- ----------
Receipts for shares sold--Class C 726 320 430 102 276 100
Value of distributions reinvested--Class C 27 26 4 -- 6 --
Cost of shares repurchased--Class C (197) (237) (230) -- (36) --
-------- -------- ---------- ---------- -------- ----------
Net Increase (Decrease) from Fund 556 109 204 102 246 100
-------- -------- ---------- ---------- -------- ----------
Share Transactions 1,368 955 (104,447) (331,352) (68,755) (143,850)
-------- -------- ---------- ---------- -------- ----------
Total Increase (Decrease) 1,425 1,065 (81,724) (300,785) (40,242) (146,290)
Net Assets
Beginning of period 11,666 10,601 1,191,729 1,492,514 952,868 1,099,158
-------- -------- ---------- ---------- -------- ----------
End of period $ 13,091 $ 11,666 $1,110,005 $1,191,729 $912,626 $ 952,868
-------- -------- ---------- ---------- -------- ----------
Net of undistributed (overdistributed)
net investment income $7 $20 ($5,815) ($4,947) ($1,210) ($2,808)
-------- -------- ---------- ---------- -------- ----------
Number of Fund Shares
Sold--Class A 206 506 4,165 19,575 1,136 3,952
Issued for distributions
reinvested--Class A 18 33 1,978 4,766 1,255 2,402
Repurchased--Class A (133) (473) (14,870) (56,629) (8,469) (19,317)
-------- -------- ---------- ---------- -------- ----------
91 66 (8,727) (32,288) (6,078) (12,963)
-------- -------- ---------- ---------- -------- ----------
Sold--Class B 98 181 2,023 6,653 390 1,829
Issued for distributions
reinvested--Class B 6 12 986 2,396 80 169
Repurchased--Class B (114) (174) (10,130) (27,955) (810) (2,857)
-------- -------- ---------- ---------- -------- ----------
(10) 19 (7,121) (18,906) (340) (859)
-------- -------- ---------- ---------- -------- ----------
Sold--Class C 73 32 65 15 26 9
Issued for distributions
reinvested--Class C 3 3 1 -- (c) --
Repurchased--Class C (20) (24) (34) -- (3) --
-------- -------- ---------- ---------- -------- ----------
56 11 32 15 23 9
-------- -------- ---------- ---------- -------- ----------
</TABLE>
(a) The Fund changed its fiscal year end from October 31 to August 31.
Information presented is for the period November 1, 1996 through August 31,
1997.
(b) Class C shares were initially offered on August 1, 1997.
(c) Rounds to less than one.
See notes to financial statements.
14
<PAGE>
- --------------------------------------------------------------------------------
Notes To Financial Statements cont.
- --------------------------------------------------------------------------------
February 28, 1998
Note 2 continued
Options are valued at the last reported sale price, or in the absence of a sale,
the mean between the last quoted bid and asking price.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
Portfolio positions for which market quotations are not readily available 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.
Cost is determined and gains (losses) are based upon the specific identification
method for both financial statement and federal income tax purposes.
The Funds may enter into mortgage dollar roll transactions. A mortgage dollar
roll transaction involves a sale by the Fund of securities that it holds with an
agreement by the Fund to repurchase substantially similar securities at an
agreed upon price and date. During the period between the sale and repurchase,
the Fund will not be entitled to accrue interest and receive principal payments
on the securities sold. Mortgage dollar roll transactions involve the risk that
the market value of the securities sold by the Fund may decline below the
repurchase price of those securities. In the event the buyer of the securities
under a mortgage dollar roll transaction files for bankruptcy or becomes
insolvent, the Fund's use of proceeds of the transaction may be restricted
pending a determination by or with respect to the other party.
The Funds 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 invest at less advantageous prices.
The Funds maintain U.S. government securities or other liquid high grade debt
obligations as collateral with respect to mortgage dollar roll transactions and
securities traded on other than normal settlement terms.
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 ratios for each 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 only.
Federal income taxes: Consistent with each 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, fee income, debt discount and premium: Interest income is
recorded on the accrual basis. Fee income attributable to mortgage dollar roll
transactions is recorded on the accrual basis over the term of the transaction.
Original issue discount is accreted to interest income over the life of a
security with a corresponding increase in the cost basis. For CSDUSGF market
discount is not accreted and premium is amortized against interest income with a
corresponding decrease in the cost basis. For CIUSGF and CFSF premium and market
discount are not amortized or accreted.
Distributions to shareholders: Each 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 and expired
capital loss carryforwards. Permanent book and tax basis differences will result
in reclassifications to capital accounts.
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.
Note 3: Fees and Compensation Paid to Affiliates
Management fee: Colonial Management Associates, Inc. (the Adviser) is the
investment Adviser of each Fund and furnishes accounting and other services and
office facilities for a monthly fee based on each Fund's average net assets as
follows:
CSDUSGF
Flat fee rate of 0.55%
CIUSGF
Average Net Assets Annual Fee Rate
- -----------------------------------------------------------------------------
First $1 billion 0.60%
Next $500 million 0.55%
Over $1.5 billion 0.50%
CFSF
Average Net Assets Annual Fee Rate
- -----------------------------------------------------------------------------
First $1 billion 0.60%
Next $1 billion 0.55%
Next $1 billion 0.50%
Over $3 billion 0.40%
Through September 30, 1997, the management fee for the first $1 billion in
assets was 0.65%.
Bookkeeping fee: For each Fund the Adviser provides bookkeeping and pricing
services for $27,000 per year plus a percentage of the Fund's average net assets
as follows:
Average Net Assets Annual Fee Rate
- --------------------------------------------------------------------------------
First $50 million No charge
Next $950 million 0.035%
Next $1 billion 0.025%
Next $1 billion 0.015%
15
<PAGE>
- ------------------------------------------------------------------------------
Financial Highlights CSDUSGF
- ------------------------------------------------------------------------------
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
(Unaudited)
Six months ended February 28 Year ended August 31
- -------------------------------------------------------------------------------------------------------------------------------
1998 1997
Class A Class B Class C Class A Class B Class C
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value--Beginning of period $ 9.920 $ 9.920 $ 9.920 $ 9.820 $ 9.820 $ 9.820
Income From Investment Operations:
Net investment income (a) 0.269 0.237 0.259 0.561 0.497 0.542
Net realized and unrealized gain (loss) 0.062 0.062 0.062 0.090 0.090 0.090
------------ ----------- ------------ ------------- ----------- -----------
Total from Investment Operations 0.331 0.299 0.321 0.651 0.587 0.632
------------ ----------- ------------ ------------- ----------- -----------
Less Distributions Declared to Shareholders:
From net investment income (0.281) (0.249) (0.271) (0.551) (0.487) (0.532)
In excess of net investment income -- -- -- -- -- --
From net realized gains -- -- -- -- -- --
------------ ----------- ------------ ------------- ----------- -----------
Total Distributions Declared to Shareholders (0.281) (0.249) (0.271) (0.551) (0.487) (0.532)
------------ ----------- ------------ ------------- ----------- -----------
Net asset value--End of period $ 9.970 $ 9.970 $ 9.970 $ 9.920 $ 9.920 $ 9.920
------------ ----------- ------------ ------------- ----------- -----------
Total return (e) (f) 3.37%(g) 3.04%(g) 3.27%(g) 6.79% 6.11% 6.59%
============ =========== ============ ============= =========== ===========
Ratios to Average Net Assets
Expenses 0.60%(h)(i) 1.25%(h)(i) 0.80%(h)(i) 0.50%(h) 1.15%(h) 0.70%(h)
------------ ----------- ------------ ------------- ----------- -----------
Net investment income 5.53%(h)(i) 4.88%(h)(i) 5.33%(h)(i) 5.64%(h) 4.99%(h) 5.44%(h)
------------ ----------- ------------ ------------- ----------- -----------
Fees and expenses waived or borne by the
Adviser 1.36%(h)(i) 1.36%(h)(i) 1.36%(h)(i) 1.76%(h) 1.76%(h) 1.76%(h)
------------ ----------- ------------ ------------- ----------- -----------
Portfolio turnover 30%(g) 30%(g) 30%(g) 73% 73% 73%
------------ ----------- ------------ ------------- ----------- -----------
Net assets at end of period (000) $7,794 $4,163 $1,134 $6,858 $4,233 $575
------------ ----------- ------------ ------------- ----------- -----------
(a) Net of fees and expenses waived
or borne by the Adviser which
amounted to: $0.068 $0.068 $ 0.068 $ 0.169 $0.169 $0.169
</TABLE>
(b) Class C shares were initially offered on January 4, 1995. Per share amounts
reflect activity from that date.
(c) The Fund commenced investment operations on October 1, 1992. Per share
amounts reflect activity from that date.
(d) Class B shares were initially offered on February 1, 1993. Per share
amounts reflect activity from that date.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the Adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(i) Annualized.
- --------------------------------------------------------------------------------
Notes To Financial Statements cont.
- --------------------------------------------------------------------------------
February 28, 1998
Transfer agent fee: Colonial Investors Service Center, Inc. (the Transfer
Agent), an affiliate of the Adviser, provides shareholder services for a monthly
fee equal to 0.17% annually of each Fund's average net assets and receives
reimbursement for certain out-of-pocket expenses.
Effective January 1, 1997 and continuing through calendar year 1997, the
Transfer agent fee was reduced by 0.01% in cumulative monthly increments,
resulting in a decrease in the fee from 0.18% to 0.17% annually.
Underwriting discounts, service and distribution fees:
Liberty Financial Investments, Inc. (the Distributor), a subsidiary of the
Adviser, is each Fund's principal underwriter. During the six months ended
February 28, 1998, each Fund has been advised that the Distributor retained net
underwriting discounts on CSDUSGF, CIUSGF and CFSF of $351, $12,957 and $8,480,
respectively, on sales of the Funds' Class A shares and received contingent
deferred sales charges (CDSC) of $6,832, $549,285 and $82,714, on Class B share
redemptions and none, $14 and $1,840 on Class C share redemptions, respectively.
Each Fund has adopted a 12b-1 plan which requires the payment of a service fee
to the Distributor. CIUSGF and CFSF pay a service fee equal to 0.25% annually of
their net assets as of the 20th of each month. CSDUSGF pays a service fee 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. CSDUSGF pays a distribution fee equal to
0.65% annually of the average net assets of Class B shares and 0.15% annually of
the average net assets of Class C shares. CIUSGF and CFSF each pay a
distribution fee equal to 0.75% annually of the average net assets attributable
to Class B and Class C shares. The Distributor has voluntarily agreed, until
further notice, to waive a portion of the Class C share distribution fee so that
it does not exceed 0.60% annually.
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: For CSDUSGF, the Adviser has agreed, until further notice, to
waive fees and bear certain Fund expenses to the
16
<PAGE>
- -----------------------------------------------------------------------------
Financial Highlights cont. CSDUSGF
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended August 31
- ------------------------------------------------------------------------------------------------------------------------------
1996 1995
Class A Class B Class C Class A Class B Class C (b)
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value--Beginning of period $ 9.850 $ 9.850 $ 9.850 $ 9.670 $ 9.670 $ 9.550
---------- ---------- ---------- ---------- ---------- ----------
Income From Investment Operations:
Net investment income (a) 0.568 0.504 0.549 0.514 0.451 0.334
Net realized and unrealized gain (loss) (0.032) (0.032) (0.032) 0.152 0.152 0.280
---------- ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.536 0.472 0.517 0.666 0.603 0.614
---------- ---------- ---------- ---------- ---------- ----------
Less Distributions Declared to Shareholders:
From net investment income (0.566) (0.502) (0.547) (0.486) (0.423) (0.314)
In excess of net investment income -- -- -- -- -- --
From net realized gains -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions Declared to Shareholders (0.566) (0.502) (0.547) (0.486) (0.423) (0.314)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value--End of period $ 9.820 $ 9.820 $ 9.820 $ 9.850 $ 9.850 $ 9.850
---------- ---------- ---------- ---------- ---------- ----------
Total return (e) (f) 5.57% 4.89% 5.36% 7.08% 6.39% 6.50%(g)
========== ========== ========== ========== ========== ==========
Ratios to Average Net Assets
Expenses 0.50% (h) 1.15%(h) 0.70%(h) 0.50% 1.15% 0.70%(i)
---------- ---------- ---------- ---------- ---------- ----------
Net investment income 5.99% (h) 5.34%(h) 5.79%(h) 5.50% 4.85% 5.30%(i)
---------- ---------- ---------- ---------- ---------- ----------
Fees and expenses waived or borne by the
Adviser 1.48% (h) 1.48%(h) 1.48%(h) 1.14% 1.14% 1.14%
---------- ---------- ---------- ---------- ---------- ----------
Portfolio turnover 51% 51% 51% 36% 36% 36%
---------- ---------- ---------- ---------- ---------- ----------
Net assets at end of period (000) $ 6,136 $ 4,004 $ 461 $ 9,934 $ 3,968 $ 385
---------- ---------- ---------- ---------- ---------- ----------
(a) Net of fees and expenses waived
or borne by the Adviser which
amounted to: $ 0.136 $ 0.136 $ 0.136 $ 0.107 $ 0.107 $ 0.107
</TABLE>
(b) Class C shares were initially offered on January 4, 1995. Per share amounts
reflect activity from that date.
(c) The Fund commenced investment operations on October 1, 1992. Per share
amounts reflect activity from that date.
(d) Class B shares were initially offered on February 1, 1993. Per share
amounts reflect activity from that date.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the Adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(i) Annualized.
<TABLE>
<CAPTION>
Year ended August 31
- -------------------------------------------------------------------------------------------------
1994 1993 (c)
Class A Class B Class A Class B (d)
--------- --------- --------- ---------
<S> <C> <C> <C> <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 gain (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 (e) (f) 1.20% 0.55% 3.82%(g) 2.38%(g)
--------- --------- --------- ---------
Ratios to Average Net Assets
Expenses 0.50% 1.15% 0.50%(i) 1.15%(i)
--------- --------- --------- ---------
Net investment income 4.84% 4.19% 4.70%(i) 4.05%(i)
--------- --------- --------- ---------
Fees and expenses waived or borne by the
Adviser 1.16% 1.16% 1.68%(i) 1.68%(i)
--------- --------- --------- ---------
Portfolio turnover 69% 69% 25%(i) 25%(i)
--------- --------- --------- ---------
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 to: $ 0.114 $ 0.114 $ 01.55 $ 0.092
</TABLE>
(b) Class C shares were initially offered on January 4, 1995. Per share amounts
reflect activity from that date.
(c) The Fund commenced investment operations on October 1, 1992. Per share
amounts reflect activity from that date.
(d) Class B shares were initially offered on February 1, 1993. Per share
amounts reflect activity from that date.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Had the Adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
(g) Not annualized.
(h) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(i) Annualized.
- ----------------------------------------------------------------------------
Notes cont.
- ----------------------------------------------------------------------------
extent that total expenses (exclusive of service and distribution fees,
brokerage commissions, interest, taxes and extraordinary expenses, if any)
exceed 0.60% annually of the Fund's average net assets. Through December 31,
1997, the expense limit was 0.30% annually of the Fund's average net assets.
Other: The Funds pay no compensation to their officers, all of whom are
employees of the Adviser.
The Funds' 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
Funds' assets.
Note 4: Portfolio Information
Investment activity: For the six months ended February 28, 1998, purchases and
sales of investments, other than short-term obligations and mortgage dollar roll
transactions, were as follows:
Purchases Sales
CSDUSGF $3,941,791 $2,769,271
CIUSGF $543,843,852 $631,832,312
CFSF $657,201,351 $704,299,196
Transactions in written call options were as follows:
CIUSGF CFSF
Par Value Par Value Premiums
Covered by Premiums Covered by Received
Written Options Received Written Options
Outstanding at 59,180
beginning of period 40,000,000 78,906 30,000,000 232,891
Written 65,000,000 183,984 77,000,000 --
Closed -- -- -- 292,071
Expirations 105,000,000 262,890 107,000,000 --
Exercises -- -- --
Outstanding at end --
of period -- -- --
Unrealized appreciation (depreciation) at February 28, 1998 for federal income
tax purposes was approximately:
CSDUSGF CIUSGF CFSF
Gross unrealized
appreciation $ 79,163 $38,545,330 $25,182,000
Gross unrealized
depreciation (15,833) (1,547,300) (9,818,000)
-------- ------------ ------------
Net unrealized
appreciation $ 63,330 $36,998,030 $15,364,000
------- ----------- -----------
17
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights CIUSGF
- --------------------------------------------------------------------------------
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
(Unaudited)
Six months ended February 28 Year ended August 31
- ---------------------------------------------------------------------------------------------------------------------------------
1998 1997
Class A Class B Class C Class A Class B Class C(a)
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value--Beginning of period $6.510 $6.510 $6.510 $6.370 $6.370 $6.590
--------------- --------------- ---------------- ---------- ------------ --------------
Income From Investment Operations:
Net investment income 0.189 0.164 0.169(b) 0.393 0.344 0.032
Net realized and unrealized gain (loss) 0.138 0.138 0.138 0.145 0.145 (0.082)
--------------- --------------- ---------------- ---------- ------------ --------------
Total from Investment Operations 0.327 0.302 0.307 0.538 0.489 (0.050)
--------------- --------------- ---------------- ---------- ------------ --------------
Less Distributions Declared to
Shareholders:
From net investment income (0.192) (0.167) (0.177) (0.398) (0.349) (0.030)
In excess of net investment income (0.005) (0.005) -- -- -- --
From capital paid in -- -- -- -- -- --
--------------- --------------- ---------------- ---------- ------------ --------------
Total Distributions Declared to
Shareholders (0.197) (0.172) (0.177) (0.398) (0.349) (0.030)
--------------- --------------- ---------------- ---------- ------------ --------------
Net asset value--End of period $6.640 $6.640 $6.640 $6.510 $6.510 $6.510
--------------- --------------- ---------------- ---------- ------------ --------------
Total return (c) 5.07%(d) 4.68%(d) 4.76%(d) 8.64% 7.83% (0.77)%(d)
=============== =============== ================ ========== ============ ==============
Ratios to Average Net Assets
Expenses 1.14%(e)(f) 1.89%(e)(f) 1.74%(b)(e)(f) 1.13%(e) 1.88%(e) 1.78%(e)(f)
--------------- --------------- ---------------- ---------- ------------ --------------
Net investment income 6.07%(e)(f) 5.32%(e)(f) 5.47%(b)(e)(f) 6.43%(e) 5.68%(e) 5.85%(e)(f)
--------------- --------------- ---------------- ---------- ------------ --------------
Portfolio turnover 45%(d) 45%(d) 45%(d) 61% 61% 61%
--------------- --------------- ---------------- ---------- ------------ --------------
Net assets at end of period (in millions) $687 $423 $(g) $731 $461 $(g)
--------------- --------------- ---------------- ---------- ------------ --------------
</TABLE>
(a) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(b) Net of fees waived by the Distributor which amounted to 0.005% per share
and 0.15% (annualized).
(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. Prior years' ratios are net of benefits
received, if any.
(f) Annualized.
(g) Rounds to less than one million.
- --------------------------------------------------------------------------------
Notes To Financial Statements cont.
- --------------------------------------------------------------------------------
February 28, 1998
Capital loss carryforwards: At August 31, 1997, capital loss carryforwards
available (to the extent provided in regulations) to offset future realized
gains were approximately as follows:
Year of Capital loss
expiration carryforward
- --------- ----------------- -------------------
CSDUSGF 2003 $ 78,000
2004 38,000
-----------
$ 116,000
-----------
Year of Capital loss
expiration carryforward
- --------- ----------------- -------------------
CIUSGF 1998 $ 706,000
1999 2,970,000
2000 5,878,000
2001 29,729,000
2002 7,249,000
2003 67,291,000
2004 32,580,000
2005 18,973,000
------------
$165,376,000
------------
Of the CIUSGF loss carryforwards expiring in 1998, 1999, 2000, 2001 and 2002,
$130,000 and $1,184,000, none, none, and none, respectively, were acquired in
the merger with VIP Federal Securities Fund and none, $938,000, $5,252,000,
$25,355,000 and $4,423,000, respectively, were acquired in the merger with
Liberty Financial U.S. Government Securities Fund. Their availability for use in
offsetting any future realized gains may be limited in a given year.
Year of Capital loss
expiration carryforward
- --------- ----------------- -------------------
CFSF 1998 $ 22,515,000
1999 36,282,000
2000 595,000
2002 84,302,000
2004 21,929,000
---------------
$ 165,623,000
---------------
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.
18
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights cont. CIUSGF
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended August 31
- ------------------------------------------------------------------------------------------------
1996 1995
Class A Class B Class A Class B
---------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value--Beginning of period $6.550 $6.550 $6.420 $6.420
------------ ----------- ----------- -----------
Income From Investment Operations:
Net investment income 0.390 0.341 0.447 0.399
Net realized and unrealized gain (loss) (0.161) (0.161) 0.100 0.100
------------ ----------- ----------- -----------
Total from Investment Operations 0.229 0.180 0.547 0.499
------------ ----------- ----------- -----------
Less Distributions Declared to Shareholders:
From net investment income (0.391) (0.344) (0.417) (0.369)
In excess of net investment income (0.018) (0.016) -- --
From capital paid in -- -- -- --
------------ ----------- ----------- -----------
Total Distributions Declared to Shareholders (0.409) (0.360) (0.417) (0.369)
------------ ----------- ----------- -----------
Net asset value--End of period $6.370 $6.370 $6.550 $6.550
------------ ----------- ----------- -----------
Total return (c) 3.51% 2.74% 8.88% 8.07%
============ =========== =========== ===========
Ratios to Average Net Assets
Expenses 1.11%(e) 1.86%(e) 1.11% 1.86%
------------ ----------- ----------- -----------
Net investment income 6.45%(e) 5.70%(e) 7.51% 6.76%
------------ ----------- ----------- -----------
Portfolio turnover 123% 123% 140% 140%
------------ ----------- ----------- -----------
Net assets at end of period (in millions) $921 $572 $1,164 $701
------------ ----------- ----------- -----------
<CAPTION>
Year ended August 31
- ------------------------------------------------------------------------------------------------
1994 1993
Class A Class B Class A Class B
---------------------------------------------------
Net asset value--Beginning of period $6.880 $6.880 $6.980 $6.980
------------ ----------- ----------- -----------
Income From Investment Operations:
Net investment income 0.415 0.365 0.541 0.490
Net realized and unrealized gain (loss) (0.452) (0.452) (0.130) (0.130)
------------ ----------- ----------- -----------
Total from Investment Operations (0.037) (0.087) 0.411 0.360
------------ ----------- ----------- -----------
Less Distributions Declared to Shareholders:
From net investment income (0.400) (0.352) (0.511) (0.460)
In excess of net investment income -- -- -- --
From capital paid in (0.023) (0.021) -- --
------------ ----------- ----------- -----------
Total Distributions Declared to Shareholders (0.423) (0.373) (0.511) (0.460)
------------ ----------- ----------- -----------
Net asset value--End of period $6.420 $6.420 $6.880 $6.880
------------ ----------- ----------- -----------
Total return (c) (0.53)% (1.28)% 6.15% 5.36%
============ =========== =========== ===========
Ratios to Average Net Assets
Expenses 1.11% 1.86% 1.10% 1.85%
------------ ----------- ----------- -----------
Net investment income 8.14% 7.39% 7.85% 7.10%
------------ ----------- ----------- -----------
Portfolio turnover 291% 291% 162% 162%
------------ ----------- ----------- -----------
Net assets at end of period (in millions) $758 $836 $1,202 $978
------------ ----------- ----------- -----------
</TABLE>
(a) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(b) Net of fees waived by the Distributor which amounted to 0.005% per share
and 0.15% (annualized).
(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. Prior years' ratios are net of benefits
received, if any.
(f) Annualized.
(g) Rounds to less than one million.
- --------------------------------------------------------------------------------
Notes cont.
- --------------------------------------------------------------------------------
Other: CIUSGF and CFSF may purchase or sell futures contracts and purchase and
write options on futures and securities. The Funds will use these instruments to
hedge against the effects of changes in the value of the portfolio securities
due to anticipated changes in interest rates and/or market conditions and not
for trading purposes. CIUSGF may also invest in these instruments for duration
management. The use of futures contracts and options involves certain risks
which include (1) the imperfect correlation between the price movement of the
instruments and the underlying securities, (2) inability to close out a position
due to different trading hours, or the absence of a liquid market for either the
instrument or the underlying securities or (3) an inaccurate prediction by the
Adviser of the future direction of interest rates. Any of these risks may
involve amounts exceeding the variation margin, or option premium recorded in
the Fund's Statement of Assets and Liabilities at any given time.
Note 5: Line of Credit
CSDUSGF 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, 1998.
19
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights CFSF
- --------------------------------------------------------------------------------
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
(Unaudited)
Six months ended February 28 Period ended August 31(a)
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997
Class A Class B Class C Class A Class B Class C(b)
------------- -------------- ----------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value--Beginning of period $10.520 $10.520 $10.520 $10.530 $10.530 $10.710
------------- -------------- ----------------- ------------- --------------- -------------
Income From Investment Operations:
Net investment income 0.346 0.306 0.314(d) 0.580 0.515 0.058
Net realized and unrealized gain (loss) 0.303 0.303 0.303 (0.038) (0.038) (0.198)
------------- -------------- ----------------- ------------- --------------- -------------
Total from Investment Operations 0.649 0.609 0.617 0.542 0.477 (0.140)
------------- -------------- ----------------- ------------- --------------- -------------
Less Distributions Declared
to Shareholders:
From net investment income (0.329) (0.289) (0.297) (0.552) (0.487) (0.050)
From net realized gain -- -- -- -- -- --
From capital paid in -- -- -- -- -- --
------------- -------------- ----------------- ------------- --------------- -------------
Total Distributions Declared to
Shareholders (0.329) (0.289) (0.297) (0.552) (0.487) (0.050)
------------- -------------- ----------------- ------------- --------------- -------------
Net asset value--End of period $10.840 $10.840 $10.840 $10.520 $10.520 $10.520
------------- -------------- ----------------- ------------- --------------- -------------
Total return (f) 6.23%(g) 5.84%(g) 5.92%(g) 5.31%(g) 4.66%(g) (1.31%)(g)
============= ============== ================= ============= =============== =============
Ratios to Average Net Assets
Expenses 1.15%(h)(i) 1.90%(h)(i) 1.75%(d)(h)(i) 1.19%(h)(i) 1.94%(h)(i) 1.82%(h)(i)
------------- -------------- ----------------- ------------- --------------- -------------
Net investment income 6.52%(h)(i) 5.77%(h)(i) 5.92%(d)(h)(i) 6.71%(h)(i) 5.96%(h)(i) 6.55%(h)(i)
------------- -------------- ----------------- ------------- --------------- -------------
Portfolio turnover 56%(g) 56%(g) 56%(g) 79%(g) 79%(g) 79%(g)
------------- -------------- ----------------- ------------- --------------- -------------
Net assets at end of period
(in millions) $ 850 $ 63 $ (j) $888 $ 64 $(j)
------------- -------------- ----------------- ------------- --------------- -------------
</TABLE>
(a) The Fund changed its fiscal year end from October 31 to August 31.
Information presented is for the period November 1, 1996 through August 31,
1997.
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) Class B shares were initially offered on June 8, 1992. Per share amounts
reflect activity from that date.
(d) Net of fees waived by the Distributor which amounted to $0.008 per share
and 0.15% (annualized).
(e) Because of differences between book and tax basis accounting, approximately
$0.247 and $0.095, respectively, were a return of capital for federal
income tax purposes.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Not annualized.
(h) Annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year's ratios are net of benefits
received, if any.
(j) Rounds to less than one million.
20
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights cont. CFSF
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended October 31
- ------------------------------------------------------------------------------------------------------------------------
1996 1995 1994
Class A Class B Class A Class B Class A Class B
------------ ------------ ------------ ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value--Beginning of period $10.830 $10.830 $9.950 $9.950 $11.460 $11.460
------------ ------------ ------------ ---------- ---------- -----------
Income From Investment Operations:
Net investment income 0.696 0.617 0.710 0.633 0.821 0.741
Net realized and unrealized gain (loss) (0.300) (0.300) 0.907 0.907 (1.560) (1.560)
------------ ------------ ------------ ---------- ---------- -----------
Total from Investment Operations 0.396 0.317 1.617 1.540 (0.739) (0.819)
------------ ------------ ------------ ---------- ---------- -----------
Less Distributions Declared
to Shareholders:
From net investment income (0.684) (0.606) (0.709) (0.632) (0.771) (0.691)
From net realized gain -- -- (0.028) (0.028) -- --
From capital paid in (0.012) (0.011) -- -- -- --
------------ ------------ ------------ ---------- ---------- -----------
Total Distributions Declared to
Shareholders (0.696) (0.617) (0.737) (0.660) (0.771) (0.691)
------------ ------------ ------------ ---------- ---------- -----------
Net asset value--End of period $10.530 $10.530 $10.830 $10.830 $9.950 $9.950
------------ ------------ ------------ ---------- ---------- -----------
Total return (f) 3.88% 3.11% 16.82% 15.96% (6.57%) (7.28%)
============ ============ ============ ========== ========== ===========
Ratios to Average Net Assets
Expenses 1.18%(i) 1.93%(i) 1.17% 1.92% 1.16% 1.91%
------------ ------------ ------------ ---------- ---------- -----------
Net investment income 6.62%(i) 5.87%(i) 7.04% 6.29% 7.80% 7.05%
------------ ------------ ------------ ---------- ---------- -----------
Portfolio turnover 125% 125% 171% 171% 121% 121%
------------ ------------ ------------ ---------- ---------- -----------
Net assets at end of period
(in millions) $ 1,026 $73 $ 1,201 $79 $ 1,278 $70
------------ ------------ ------------ ---------- ---------- -----------
<CAPTION>
Years ended October 31
- ----------------------------------------------------------------------------------------------
1993 1992
Class A Class B Class A Class B(c)
----------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Net asset value--Beginning of period $10.750 $10.750 $10.800 $10.730
----------- ---------- ----------- -------------
Income From Investment Operations:
Net investment income 0.819 0.737 0.796 0.286
Net realized and unrealized gain (loss) 0.739 0.739 0.157 0.095
----------- ---------- ----------- -------------
Total from Investment Operations 1.558 1.476 0.953 0.381
----------- ---------- ----------- -------------
Less Distributions Declared
to Shareholders:
From net investment income (0.781) (0.706) (0.796) (0.286)
From net realized gain (0.067) (0.060) -- --
From capital paid in -- -- (0.207)(e) (0.075)(e)
----------- ---------- ----------- -------------
Total Distributions Declared to
Shareholders (0.848) (0.766) (1.003) (0.361)
----------- ---------- ----------- -------------
Net asset value--End of period $11.460 $11.460 $10.750 $10.750
----------- ---------- ----------- -------------
Total return (f) 14.94% 14.11% 9.15% 3.47%(g)
=========== ========== =========== =============
Ratios to Average Net Assets
Expenses 1.17% 1.92% 1.24% 1.99%(h)
----------- ---------- ----------- -------------
Net investment income 7.37% 6.62% 7.36% 6.61%(h)
----------- ---------- ----------- -------------
Portfolio turnover 252% 252% 18% 18%
----------- ---------- ----------- -------------
Net assets at end of period
(in millions) $ 1,736 $68 $1,809 $28
----------- ---------- ----------- -------------
</TABLE>
(a) The Fund changed its fiscal year end from October 31 to August 31.
Information presented is for the period November 1, 1996 through August 31,
1997.
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) Class B shares were initially offered on June 8, 1992. Per share amounts
reflect activity from that date.
(d) Net of fees waived by the Distributor which amounted to $0.008 per share
and 0.15% (annualized).
(e) Because of differences between book and tax basis accounting, approximately
$0.247 and $0.095, respectively, were a return of capital for federal
income tax purposes.
(f) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(g) Not annualized.
(h) Annualized.
(i) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year's ratios are net of benefits
received, if any.
(j) Rounds to less than one million.
21
<PAGE>
This page intentionally left blank
22
<PAGE>
Trustees & Transfer Agent
- --------------------------------------------------------------------------------
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, CS First Boston
Merchant Bank; and President and Chief Executive Officer, The First Boston
Corporation)
James L. Moody, Jr.
Retired (formerly Chairman of the Board and 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
- --------------------------------------------------------------------------------
Important Information About This Report
The Transfer Agent for Colonial Short Duration U.S. Government Fund, Colonial
Intermediate U.S. Government Fund and Colonial Federal Securities Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
The Funds mail one shareholder report to each shareholder address.
If you would like more than one report, please call 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, Colonial Intermediate U.S. Government Fund and Colonial Federal
Securities 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 objectives and operating policies of the Funds.
<PAGE>
- --------------------------------------------------------------------------------
A select group of investment managers
- --------------------------------------------------------------------------------
Liberty Financial Investments offers a diverse group of mutual funds from a
select group of investment managers that includes Colonial Management
Associates, Inc., Stein Roe & Farnham Incorporated and Newport Fund Management,
Inc. Each of these accomplished managers offers solid long-term performance
potential through a focused, consistent style of management. All are members of
the Liberty Financial Companies (NYSE: L), a diversified asset management group
with more than $50 billion in assets under management for more than 1.5 million
investors.
You can choose from a spectrum of conservative income funds to more aggressive
international funds to build a portfolio designed to meet your needs.
[GRAPH APPEARS HERE]
Disciplined Management Styles
International
Growth Stocks
Value Stocks
Taxable Bonds
Tax-Free Bonds
Colonial
Funds
Stein Roe
Advisor Funds
Newport
Funds
Ask your financial advisor to help you develop an investment strategy that
blends the complementary disciplines of different investment managers into a
well-balanced program tailored to your goals.
- -------------------------
COLONIAL GOVERNMENT FUNDS Semiannual Report, February 28, 1998
- -------------------------
BULK RATE
U.S. POSTAGE
PAID
HOLLISTON, MA
PERMIT NO. 20
[LOGO OF LIBERTY FINANCIAL INVESTMENTS, INC. APPEARS HERE]
LIBERTY FINANCIAL INVESTMENTS, INC. (C) 1998
Distributor Colonial Funds, Stein Roe Advisor Funds and Newport Funds
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
Visit us at www.libertyfunds.com
