QUALITY GOVERNMENT BONDS
CAN ADD DIVERSIFICATION TO
YOUR PORTFOLIO.
COLONIAL GOVERNMENT FUNDS SEMIANNUAL REPORT, FEBRUARY 28, 1999
[bullet] COLONIAL SHORT DURATION U.S. GOVERNMENT FUND
[bullet] COLONIAL INTERMEDIATE U.S. GOVERNMENT FUND
[bullet] COLONIAL FEDERAL SECURITIES FUND
<PAGE>
PRESIDENT'S MESSAGE
What's inside:
[bullet] The market environment for government bonds
[bullet] Management strategies during the period
[bullet] A look at portfolio holdings and fund performance
- ---------------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
- ---------------------------------
[graphic omitted] DEAR SHAREHOLDER;
The past six months were marked by volatility in the
government bond market. Interest rates and bond prices
seesawed during the period in response to a variety of
domestic and foreign factors. Uncertainty about the U.S.
economy's ability to grow prompted a series of interest-rate
cuts by the Federal Reserve Bank in the fall of 1998. This
triggered a strong fourth-quarter rally in U.S. bond
markets. The first two months of 1999 proved more difficult as interest rates
rose and bond prices fell. As a result, bond prices ended the period slightly
below where they began.
Continued economic and financial trouble abroad made "flight-to-quality" a
dominant theme during the period. Problems in Asia, Russia and Latin America
caused investors worldwide to seek the relative stability of U.S. Treasury
bonds. A lower rate of bond issuance due to a federal budget surplus and
increased foreign demand further supported bond prices.
The Funds' managers actively managed each portfolio in response to variable
conditions in the bond market during the period. For the six months ended
February 28, 1999, Class A shares of each fund generated the following returns,
based on net asset value (NAV):
Colonial Short Duration U.S. Government Fund: 1.50%
Colonial Intermediate U.S. Government Fund: 0.58%
Colonial Federal Securities Fund: 0.01%
As always, we thank you for choosing one of Colonial's Government Funds for your
portfolio and for giving us the opportunity to serve your investment needs.
Respectfully,
/s/ Stephen E. Gibson
Stephen E. Gibson, President
April 12, 1999
IMPORTANT NOTES:
Returns and value of an investment will vary resulting in a gain or a loss on
sale.
All results shown assume reinvestment of distributions. Net asset value (NAV)
returns do not include sales charges or contingent deferred sales charges
(CDSC).
Public offering price (POP) returns include the maximum initial sales charge:
For Colonial Short Duration U.S. Government Fund: 3.25%. For Colonial
Intermediate U.S. Government Fund and Federal Securities Fund: 4.75%.
The CDSC returns reflect the maximum sales charge on the following schedule:
For Colonial Short Duration U.S. Government Fund: 4% for 1 year on Class B
shares, 1% for 1 year on Class C shares. For Colonial Intermediate U.S.
Government Fund and Federal Securities Fund: 5% for 1 year and 2% for 5 years on
Class B shares, 1% for 1 year on Class C shares.
If the Advisor or its affiliates had not borne or waived certain Fund expenses,
total returns would have been lower. Performance for different share classes
will vary based on the differences in sales charges and fees associated with
each class. Because the Funds are actively managed, there can be no guarantee
the Funds will continue to maintain the portfolio structure and average life
shown in the future.
Because market conditions change frequently, there can be no assurance that the
trends described in this report will continue.
<PAGE>
Portfolio Managers' Report
THE MARKET ENVIRONMENT FOR GOVERNMENT BONDS
WHEN YOU CONSIDER BOTH RISK AND RETURN POTENTIAL, TREASURY BONDS HAVE BEEN
ATTRACTIVE FOR SEVERAL REASONS:
1. REAL RATES OF RETURN HAVE BEEN HIGH. While yields are not as high as they
have been in the past, inflation is at its lowest point in 40 years. This means
that your real rate of return (investment return less inflation) may be higher
today than in the early '90s, when interest rates were higher.
2. U.S. GOVERNMENT SECURITIES HAVE PROVIDED A HAVEN FOR FOREIGN INVESTORS.
Yields on U.S. Treasurys are higher than many foreign equivalents. This, coupled
with a stable currency, makes Treasurys an attractive option for foreign
investors.
3. DECLINING SUPPLY OF GOVERNMENT BONDS. The federal budget surplus has reduced
the U.S. Treasury's need to issue bonds. As supply decreases, the demand for
these bonds may drive interest rates down and prices upward, which could in turn
produce attractive appreciation potential for investors.
INFLATION VS. A 10-YEAR TREASURY NOTE 1989 TO 1999
Today's interest rates may seem low. However, when you compare real rates of
return over the last 10 years, you will see that your post-inflation return is
higher today than when interest rates were over 8% in the early '90s.
[graphic omitted]
TEN-YEAR CPI INDEX
NOTE (INFLATION)
2/28/89 9.295 4.8
3/31/89 90275 5
4/30/89 9.053 5.1
5/31/89 8.6 5.4
6/30/89 8.077 5.2
7/31/89 7.804 5
8/31/89 8.25 4.7
9/30/89 8.286 4.3
10/31/89 7.909 4.5
11/30/89 7.826 4.7
12/31/89 7.935 4.6
1/31/90 8.418 5.2
2/28/90 8.515 5.3
3/31/90 8.628 5.2
4/30/90 9.022 4.7
5/31/90 8.599 4.4
6/30/90 8.412 4.7
7/31/90 8.341 4.8
8/31/90 8.846 5.6
9/30/90 8.795 6.2
10/31/90 8.617 6.3
11/30/90 8.252 6.3
12/31/90 8.067 6.1
1/31/91 8.007 5.7
2/28/91 8.033 5.3
3/31/91 8.061 4.9
4/30/91 8.013 4.9
5/31/91 8.059 5
6/30/91 8.227 4.7
7/31/91 8.147 4.4
8/31/91 7.816 3.8
9/30/91 7.445 3.4
10/31/91 7.46 2.9
11/30/91 7.376 3
12/31/91 6.699 3.1
1/31/92 7.274 2.6
2/29/92 7.25 2.8
3/31/92 7.528 3.2
4/30/92 7.583 3.2
5/31/92 7.378 3
6/30/92 7.121 3.1
7/31/92 6.709 3.2
8/31/92 6.604 3.1
9/30/92 6.354 3
10/31/92 6.789 3.2
11/30/92 6.937 3
12/31/92 6.686 2.9
1/31/93 6.359 3.3
2/28/93 6.02 3.2
3/31/93 6.024 3.1
4/30/93 6.009 3.2
5/31/93 6.149 3.2
6/30/93 5.776 3
7/31/93 5.807 2.8
8/31/93 5.448 2.8
9/30/93 5.382 2.7
10/31/93 5.426 2.8
11/30/93 5.819 2.7
12/31/93 5.794 2.7
1/31/94 5.642 2.5
2/28/94 6.129 2.5
3/31/94 6.738 2.5
4/30/94 7.042 2.4
5/31/94 7.147 2.3
6/30/94 7.32 2.5
7/31/94 7.111 2.8
8/31/94 7.173 2.9
9/30/94 7.603 3
10/31/94 7.807 2.6
11/30/94 7.906 2.7
12/31/94 7.822 2.7
1/31/95 7.581 2.8
2/28/95 7.201 2.9
3/31/95 7.196 2.9
4/30/95 7.055 3.1
5/31/95 6.284 3.2
6/30/95 6.203 3
7/31/95 6.426 2.8
8/31/95 6.284 2.6
9/30/95 6.182 2.5
10/31/95 6.02 2.8
11/30/95 5.741 2.6
12/31/95 5.572 2.5
1/31/96 5.58 2.7
2/29/96 6.098 2.7
3/31/96 6.327 2.8
4/30/96 6.67 2.9
5/31/96 6.852 2.9
6/30/96 6.711 2.8
7/31/96 6.794 3
8/31/96 6.943 2.9
9/30/96 6.703 3
10/31/96 6.339 3
11/30/96 6.044 3.3
12/31/96 6.418 3.3
1/31/97 6.494 3
2/28/97 6.552 3
3/31/97 6.903 2.8
4/30/97 6.718 2.5
5/31/97 6.659 2.2
6/30/97 6.5 2.3
7/31/97 6.01 2.2
8/31/97 6.339 2.2
9/30/97 6.102 2.2
10/31/97 5.831 2.1
11/30/97 5.874 1.8
12/31/97 5.741 1.7
1/31/98 5.505 1.6
2/28/98 5.622 1.4
3/31/98 5.654 1.4
4/30/98 5.671 1.4
5/31/98 5.552 1.7
6/30/98 5.446 1.7
7/31/98 5.494 1.7
8/31/98 4.976 1.6
9/30/98 4.42 1.5
10/31/98 4.605 1.5
11/30/98 4.714 1.5
12/31/98 4.648 1.6
1/31/99 4.651 1.7
2/28/99 5.287 1.6
Source: Bloomberg -- all rights reserved.
3
<PAGE>
Portfolio Managers' Report
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.
ACTIVE MANAGEMENT RESPONDS TO CHALLENGING MARKET CONDITIONS
BASED ON OUR OUTLOOK FOR INTEREST RATES, OUR PRIMARY STRATEGY WAS TO MANAGE
DURATION, ESPECIALLY IN MORTGAGE-BACKED SECURITIES. We shortened mortgage
security durations early in the period because of a sudden decline in interest
rates and heightened fears of rising prepayments. At the same time, we increased
the duration of other Funds' holdings to maintain an overall portfolio duration
that was within in each Fund's targeted level.
However, once interest rates began to rise again, we reduced our exposure to
Treasurys to offset an increase in duration of mortgage securities. Overall, we
lengthened the Portfolios' durations during the period to compensate for our
mortgage sector weightings.
/s/Lesliek 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, 1999
<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 U.S.
Government Funds Government Funds Government Funds
<S> <C> <C> <C>
1 year 52 68 53
out of 72 out of 127 out of 184
- ----------------------------------------------------------------------------------------------
3 year 16 44 34
out of 55 out of 99 out of 148
- ----------------------------------------------------------------------------------------------
5 years 11 29 29
out of 41 out of 72 out of 100
- ----------------------------------------------------------------------------------------------
10 years n/a 19 14
out of 23 out of 50
- ----------------------------------------------------------------------------------------------
</TABLE>
These rankings are as of 2/28/99 as calculated by Lipper, Inc. Rankings are
based on total returns for Class A shares and reflect reinvestment of dividends
and capital gains. Rankings do not assume deduction of sales charges.
4
<PAGE>
Fund Facts: 2/28/99
DURATION
2.27 years
LAST SIX MONTHS' DECLARATIONS
Class A $0.240
- --------------------------------
Class B $0.208
- --------------------------------
Class C $0.229
- --------------------------------
SEC YIELDS (1)
Class A 4.38%
- --------------------------------
Class B 3.86%
- --------------------------------
Class C 4.32%
- --------------------------------
AVERAGE LIFE BREAKDOWN
(As a percentage of net assets)
0 - 2 years 31.33%
- --------------------------------
2 - 4 years 39.68%
- --------------------------------
4 - 6 years 15.73%
- --------------------------------
6 - 8 years 6.71%
- --------------------------------
8 - 10 years 0.94%
- --------------------------------
More than 10 years 5.61%
- --------------------------------
ISSUER BREAKDOWN
(As a percentage of net assets)
[graphic omitted]
FHLBs -- 6.2%
GNMAs -- 17.0%
Cash & Other -- 9.2%
Other Agency -- 3.9%
FNMAs -- 26.7%
Treasury Securities -- 37.0%
COLONIAL SHORT DURATION U.S. GOVERNMENT FUND
Investing primarily in U.S. government securities, the Fund is managed for low
price volatility. It is the most conservative of Colonial's three government
funds, designed for investors with a short investment horizon or low-risk
tolerance.
As interest rates increased, particularly during the first two months of 1999,
we increased the Fund's duration from 1.8 to 2.3 years, primarily by increasing
our exposure to mortgage-backed securities from 27% to 36% and decreasing our
holdings in U.S. agency debt and cash. This shift allowed the portfolio to take
advantage of higher interest rates and to position the Fund for greater price
appreciation potential.
Adjustable-rate mortgages experienced high prepayments due to a decline in
interest rates early in the period. As a result, we increased the Fund's
mortgage-backed exposure through the purchase of fixed-rate securities. However,
we saw prepayments slow when interest rates began to rise in 1999.
Our strategy to increase mortgage-backed securities in the portfolio hampered
the Fund's six-month performance somewhat relative to its Lipper peer average.
The total return for the Lipper Short U.S. Government Fund category was 1.78%
for the six months ended February 28, 1999. However, we believe active
management of duration and of our Treasury and mortgage-backed security holdings
should benefit the Fund over the longer term.
PERFORMANCE OF A $10,000 INVESTMENT IN CLASS A SHARES 10/1/92 - 2/28/99
[graphic omitted]
DATE NAV POP LIPPER SHORT US LEHMAN GOVT
GOVT FUND AVG. BD TR
10/1/92 10000 9675 10000 10000
10/31/92 9991 9666 9939 9856
11/30/92 9991 9666 9924 9841
12/31/92 10051 9725 10006 10004
1/31/93 10102 9774 10104 10217
2/28/93 10162 9832 10183 10421
3/31/93 10192 9860 10209 10456
4/30/93 10241 9908 10264 10537
5/31/93 10250 9917 10254 10525
6/30/93 10309 9974 10327 10759
7/31/93 10335 9999 10355 10824
8/31/93 10382 10044 10430 11066
9/30/93 10397 10059 10455 11108
10/31/93 10422 10083 10470 11150
11/30/93 10414 10075 10462 11028
12/31/93 10447 10108 10499 11071
1/31/94 10502 10161 10565 11222
2/28/94 10505 10163 10501 10985
3/31/94 10454 10114 10427 10738
4/30/94 10393 10056 10389 10653
5/31/94 10408 10069 10399 10639
6/30/94 10422 10084 10413 10615
7/31/94 10469 10129 10490 10810
8/31/94 10506 10165 10516 10812
9/30/94 10490 10149 10496 10660
10/31/94 10490 10149 10517 10652
11/30/94 10479 10138 10483 10632
12/31/94 10534 10192 10505 10697
1/31/95 10656 10310 10625 10896
2/28/95 10790 10439 10753 11131
3/31/95 10901 10547 10809 11200
4/30/95 10990 10633 10892 11347
5/31/95 11115 10753 11059 11804
6/30/95 11163 10800 11111 11895
7/31/95 11178 10815 11141 11851
8/31/95 11249 10884 11208 11991
9/30/95 11325 10957 11260 12106
10/31/95 11399 11029 11343 12290
11/30/95 11486 11112 11433 12482
12/31/95 11555 11180 11514 12659
1/31/96 11625 11247 11594 12737
2/29/96 11624 11246 11551 12477
3/31/96 11609 11232 11543 12373
4/30/96 11651 11273 11554 12294
5/31/96 11694 11314 11568 12273
6/30/96 11773 11390 11642 12432
7/31/96 11830 11445 11684 12462
8/31/96 11876 11490 11714 12435
9/30/96 11959 11570 11810 12641
10/31/96 12066 11674 11925 12919
11/30/96 12160 11765 12011 13144
12/31/96 12169 11773 12007 13010
1/31/97 12237 11839 12062 13024
2/28/97 12280 11881 12093 13042
3/31/97 12286 11887 12082 12904
4/30/97 12380 11978 12172 13090
5/31/97 12461 12056 12245 13203
6/30/97 12543 12136 12321 13351
7/31/97 12664 12252 12447 13730
8/31/97 12683 12271 12455 13595
9/30/97 12783 12368 12543 13799
10/31/97 12871 12453 12625 14038
11/30/97 12921 12501 12648 14110
12/31/97 12997 12574 12713 14257
1/31/98 13082 12656 12821 14470
2/28/98 13110 12684 12832 14431
3/31/98 13156 12729 12878 14472
4/30/98 13214 12785 12928 14537
5/31/98 13286 12854 12995 14686
6/30/98 13345 12911 13053 14853
7/31/98 13377 12942 13105 14876
8/31/98 13463 13025 13243 15263
9/30/98 13617 13174 13388 15675
10/31/98 13728 13282 13411 15621
11/30/98 13687 13242 13417 15627
12/31/98 13770 13322 13462 15662
1/31/99 13783 13335 13515 15753
2/28/99 13727 13281 13469 15378
CHANGE IN VALUE OF A $10,000 INVESTMENT MADE ON 10/1/92 AS OF 2/28/99
<TABLE>
<CAPTION>
Class A Class B Class C
NAV POP NAV w/CDSC NAV w/CDSC
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$13,727 $13,281 $13,195 $13,195 $13,616 $13,616
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 2/28/99
<TABLE>
<CAPTION>
SHARE CLASS A B C
INCEPTION DATE 10/1/92 2/1/93 1/4/95
NAV POP NAV w/CDSC NAV w/CDSC
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Six months (cumulative) 1.50% (1.80)% 1.18% (2.79)% 1.40% 0.41%
- ------------------------------------------------------------------------------------
1 year 4.70 1.30 4.01 0.04 4.49 3.49
- ------------------------------------------------------------------------------------
5 years 5.50 4.80 4.81 4.81 5.33 5.33
- ------------------------------------------------------------------------------------
Life 5.06 4.52 4.42 4.42 4.93 4.93
- ------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(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
Advisor or its affiliates had not borne certain expenses, the yields would have
been lower; 3.84% for Class A, 3.30% for Class B and 3.76% for Class C.
Class B and C share (newer class shares) performance includes returns of the
Fund's Class A shares (oldest existing fund class) for periods prior to the
inception dates of the newer class shares. Class A share returns have not been
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
Class A shares and the newer class shares. Had the expense differential been
reflected, the returns for periods prior to the inception date of the newer
class shares would have been lower.
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 and do not incur fees or charges. It is not
possible to invest directly in an index. The Lipper Short U.S. Government Fund
Average represents a hypothetical investment in the funds that comprise the
Lipper Short U.S. Government Fund Category.
Past performance cannot predict future results.
5
<PAGE>
Fund Facts: 2/28/99
DURATION
5.43 years
LAST SIX MONTHS' DECLARATIONS
Class A $0.181
- --------------------------------
Class B $0.156
- --------------------------------
Class C $0.161
- --------------------------------
Class Z $0.033
- --------------------------------
SEC YIELDS (1)
Class A 4.89%
- --------------------------------
Class B 4.36%
- --------------------------------
Class C 4.51%
- --------------------------------
Class Z 5.15%
- --------------------------------
AVERAGE LIFE BREAKDOWN
(As a percentage of senior securities)
0 - 2 years 0.54%
- --------------------------------
2 - 4 years 28.23%
- --------------------------------
4 - 6 years 21.02%
- --------------------------------
6 - 8 years 28.09%
- --------------------------------
8 - 10 years 10.32%
- --------------------------------
10 - 12 years 0.36%
- --------------------------------
12 - 14 years 6.17%
- --------------------------------
14 - 16 years 1.89%
- --------------------------------
More than 20 years 3.38%
- --------------------------------
ISSUER BREAKDOWN
(As a percentage of senior securities)
[graphic omitted]
Treasury Securities -- 31.7%
FNMAs -- 27.7%
GNMAs -- 36.5%
FHLMCs -- 2.0%
SBA -- 2.1%
COLONIAL INTERMEDIATE U.S. GOVERNMENT FUND
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 IS MANAGED TO MAINTAIN AN AVERAGE DURATION OF BETWEEN 2.5 AND 5.5 YEARS.
Declining interest rates and increasing fears of prepayments early in the period
led us to reduce our exposure to mortgage-backed securities. However, as rates
moved up again in early 1999, we purchased mortgage securities, as they became
more attractive relative to other sectors of the portfolio. We increased our
exposure in mortgage securities from 60% to 87% and decreased the percentage of
assets in Treasurys (especially those with an intermediate duration).
Furthermore, we lengthened the portfolio's duration from 4.7 years to 5.4 years
at the end of the period. This shift allowed the portfolio to take advantage of
higher interest rates and to position the Fund for greater price appreciation
potential.
Our strategy to increase mortgage-backed securities in the portfolio hampered
the Fund's six-month performance somewhat relative to its Lipper peer average.
The total return for the Lipper Intermediate U.S. Government Fund category was
0.76% for the six months ended February 28, 1999. We believe active management
of duration and of our Treasury and mortgage-backed security holdings should
prove beneficial over the long term.
PERFORMANCE OF A $10,000 INVESTMENT IN CLASS A SHARES 2/28/89 - 2/28/99
[graphic omitted]
DATE NAV POP
3/31/89 10010 9535
4/30/89 10207 9723
5/31/89 10391 9897
6/30/89 10595 10092
7/31/89 10713 10204
8/31/89 10653 10147
9/30/89 10683 10175
10/31/89 10834 10319
11/30/89 10925 10406
12/31/89 10986 10464
1/31/90 10940 10420
2/28/90 11003 10480
3/31/90 11034 10510
4/30/90 11050 10525
5/31/90 11257 10723
6/30/90 11370 10830
7/31/90 11549 11001
8/31/90 11500 10954
9/30/90 11566 11017
10/31/90 11699 11143
11/30/90 11901 11336
12/31/90 12050 11477
1/31/91 12165 11587
2/28/91 12230 11649
3/31/91 12313 11728
4/30/91 12414 11824
5/31/91 12498 11905
6/30/91 12548 11952
7/31/91 12687 12084
8/31/91 12827 12218
9/30/91 12987 12371
10/31/91 13075 12454
11/30/91 13182 12556
12/31/91 13387 12751
1/31/92 13330 12696
2/29/92 13386 12750
3/31/92 13366 12731
4/30/92 13442 12803
5/31/92 13596 12950
6/30/92 13707 13056
7/31/92 13761 13107
8/31/92 13913 13253
9/30/92 14007 13342
10/31/92 13962 13298
11/30/92 13955 13293
12/31/92 14062 13394
1/31/93 14189 13515
2/28/93 14297 13618
3/31/93 14343 13662
4/30/93 14431 13745
5/31/93 14457 13770
6/30/93 14624 13929
7/31/93 14664 13968
8/31/93 14769 14067
9/30/93 14810 14106
10/31/93 14829 14125
11/30/93 14762 14061
12/31/93 14858 14153
1/31/94 14999 14287
2/28/94 14854 14149
3/31/94 14575 13883
4/30/94 14473 13786
5/31/94 14482 13794
6/30/94 14468 13781
7/31/94 14658 13962
8/31/94 14691 13993
9/30/94 14609 13915
10/31/94 14618 13924
11/30/94 14558 13867
12/31/94 14594 13901
1/31/95 14841 14136
2/28/95 15089 14372
3/31/95 15173 14452
4/30/95 15352 14623
5/31/95 15771 15022
6/30/95 15853 15100
7/31/95 15863 15109
8/31/95 15994 15234
9/30/95 16150 15383
10/31/95 16332 15556
11/30/95 16564 15777
12/31/95 16773 15976
1/31/96 16908 16105
2/29/96 16617 15828
3/31/96 16502 15718
4/30/96 16412 15632
5/31/96 16346 15569
6/30/96 16535 15750
7/31/96 16571 15784
8/31/96 16556 15769
9/30/96 16826 16027
10/31/96 17124 16311
11/30/96 17398 16571
12/31/96 17246 16427
1/31/97 17333 16510
2/28/97 17341 16517
3/31/97 17161 16346
4/30/97 17384 16558
5/31/97 17526 16694
6/30/97 17724 16882
7/31/97 18115 17255
8/31/97 17986 17131
9/30/97 18214 17349
10/31/97 18472 17595
11/30/97 18508 17629
12/31/97 18684 17797
1/31/98 18918 18019
2/28/98 18898 18000
3/31/98 18934 18034
4/30/98 18999 18097
5/31/98 19180 18269
6/30/98 19303 18386
7/31/98 19311 18394
8/31/98 19494 18568
9/30/98 20023 19072
10/31/98 20172 19214
11/30/98 20056 19103
12/31/98 20236 19275
1/31/99 20148 19191
2/28/99 19875 18931
CHANGE IN VALUE OF A $10,000 INVESTMENT MADE ON 2/28/89 AS OF 2/28/99
<TABLE>
<CAPTION>
Class A Class B Class C Class Z
NAV POP NAV w/CDSC NAV w/CDSC NAV
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$19,875 $18,931 $18,912 $18,912 $19,686 $19,686 $19,879
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 2/28/99
<TABLE>
<CAPTION>
SHARE CLASS A B C Z
INCEPTION DATE 10/13/87 6/8/92 8/1/97 1/29/99
NAV POP NAV w/CDSC NAV w/CDSC NAV
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Six months (cumulative) 0.58% (4.19)% 0.21% (4.68)% 0.29% (0.69)% 0.60%
- -----------------------------------------------------------------------------------------------
1 year 5.17 0.18 4.37 (0.59) 4.53 3.54 5.19
- -----------------------------------------------------------------------------------------------
5 years 6.00 4.97 5.21 4.88 5.79 5.79 6.00
- -----------------------------------------------------------------------------------------------
10 years 7.11 6.59 6.58 6.58 7.01 7.01 7.11
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(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
Advisor or its affiliates had not waived certain fees, the yield would have been
4.36% for Class C.
Class B, C and Z share (newer class shares) performance includes returns of the
Fund's Class A shares (oldest existing fund class) for periods prior to the
inception dates of the newer class shares. Class A share returns have not been
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
Class A shares and the newer class shares. Had the expense differential been
reflected, the returns for periods prior to the inception date of the newer
class shares would have been lower.
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 and do not incur fees or
charges. It is not possible to invest directly in an index. The Lipper
Intermediate U.S. Gov't Average represents a hypothetical investment in the
funds that comprise the Lipper Intermediate U.S. Gov't Fund category.
Past performance cannot predict future results.
6
<PAGE>
Fund Facts: 2/28/99
DURATION
6.61 years
LAST SIX MONTHS' DECLARATIONS
Class A $0.326
- --------------------------------
Class B $0.284
- --------------------------------
Class C $0.293
- --------------------------------
Class Z $0.102
- --------------------------------
SEC YIELDS (1)
Class A 5.36%
- --------------------------------
Class B 4.85%
- --------------------------------
Class C 5.00%
- --------------------------------
Class Z 5.62%
- --------------------------------
AVERAGE LIFE BREAKDOWN
(As a percentage of senior securities)
0 - 2 years 1.40%
- --------------------------------
2 - 4 years 18.96%
- --------------------------------
4 - 6 years 21.52%
- --------------------------------
6 - 8 years 15.31%
- --------------------------------
8 - 10 years 15.32%
- --------------------------------
10 - 12 years 5.71%
- --------------------------------
12 - 14 years 7.34%
- --------------------------------
14 - 16 years 10.62%
- --------------------------------
18 - 20 years 1.90%
- --------------------------------
More than 20 years 1.92%
- --------------------------------
ISSUER BREAKDOWN
(As a percentage of senior securities)
[graphic omitted]
GNMAs -- 24.8%
Treasury Securities -- 39.6%
FNMAs -- 14.6%
FHLMCs -- 11.4%
Non-Agency MBS & ABS -- 9.2%
CMO -- 0.4%
COLONIAL FEDERAL SECURITIES FUND
THE FUND INVESTS PRIMARILY IN U.S. GOVERNMENT SECURITIES AND IS DESIGNED FOR
INVESTORS WHO ARE WILLING TO ACCEPT THE RISKS ASSOCIATED WITH LONGER-TERM
SECURITIES. THE FUND OFFERS THE HIGHEST RETURN POTENTIAL OF COLONIAL'S THREE
GOVERNMENT FUNDS.
During the six-month period, we increased our weighting in mortgage-backed
securities from 61% of net assets to 75%. This increased the mortgage exposure
in the Fund's 30-year holdings and decreased the percentage of assets in
Treasurys. At the same time, we reduced the number of AA-rated, asset-backed
holdings in the portfolio to improve portfolio liquidity and boost credit
quality.
At the end of the period, we lengthened the duration of the Fund from nearly 6
years to 6.6 years to take advantage of higher interest rates and to position
the Fund for greater price appreciation potential.
Our strategy to increase mortgage-backed securities in the portfolio hampered
the Fund's six-month performance somewhat relative to its Lipper peer average.
The total return for the Lipper U.S. Government Fund category was 0.19% for the
six months ended February 28, 1999. As long as economic uncertainty and
volatility exists, we believe active management of duration and of our Treasury
and mortgage-backed security holdings should prove beneficial over the long
term.
PERFORMANCE OF A $10,000 INVESTMENT FOR CLASS A SHARES 2/28/89 - 2/28/99
[graphic omitted]
DATE NAV POP LEHMAN GOVT LIPPER GENERAL
BD INT TR US GOVT AVG
2/28/89 10000 9525 10000 10000
5/31/89 10482 9984 10448 10435
8/31/89 10763 10252 10784 10757
11/30/89 11250 10716 11172 11138
2/28/90 10991 10469 11177 11045
5/31/90 11177 10646 11391 11238
8/31/90 11177 10646 11660 11386
11/30/90 11820 11258 12108 11903
2/28/91 12205 11625 12477 12292
5/31/91 12420 11830 12747 12518
8/31/91 12842 12232 13141 12932
11/30/91 13330 12697 13676 13396
2/29/92 13687 13037 13916 13683
5/31/92 13889 13230 14194 13918
8/31/92 14431 13746 14825 14536
11/30/92 14467 13780 14785 14510
2/28/93 15478 14743 15482 15304
5/31/93 15701 14955 15617 15463
8/31/93 16471 15689 16112 16202
11/30/93 16391 15613 16135 16094
2/28/94 16320 15545 16138 16039
5/31/94 15626 14884 15811 15423
8/31/94 15861 15108 16068 15624
11/30/94 15449 14715 15868 15316
2/28/95 16355 15578 16490 16061
5/31/95 17438 16609 17246 16989
8/31/95 17673 16834 17508 17224
11/30/95 18445 17569 18036 17948
2/29/96 18332 17461 18173 17875
5/31/96 17775 16931 18028 17509
8/31/96 17990 17136 18289 17689
11/30/96 19207 18294 19056 18753
2/28/97 18999 18096 19057 18585
5/31/97 19211 18299 19312 18783
8/31/97 19834 18892 19760 19337
11/30/97 20581 19603 20252 20031
2/28/98 21071 20070 20662 20459
5/31/98 21432 20414 20968 20792
8/31/98 21896 20856 21591 21471
11/30/98 22505 21436 22064 21864
2/28/99 22238 21182 21943 21521
CHANGE IN VALUE OF A $10,000 INVESTMENT MADE ON 2/28/89 AS OF 2/28/99
<TABLE>
<CAPTION>
Class A Class B Class C Class Z
NAV POP NAV w/CDSC NAV w/CDSC NAV
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$22,238 $21,182 $21,155 $21,155 $22,026 $22,026 $22,246
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 2/28/99
<TABLE>
<CAPTION>
SHARE CLASS A B C Z
INCEPTION DATE 3/30/84 6/8/92 8/1/97 1/11/99
NAV POP NAV w/CDSC NAV w/CDSC NAV
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Six months (cumulative) 0.01% (4.74)% (0.36)% (5.21)% (0.28)% (1.26)% 0.05%
- -----------------------------------------------------------------------------------------------
1 year 5.54 0.53 4.74 (0.23) 4.90 3.91 5.58
- -----------------------------------------------------------------------------------------------
5 years 6.38 5.35 5.59 5.27 6.18 6.18 6.39
- -----------------------------------------------------------------------------------------------
10 years 8.32 7.79 7.78 7.78 8.22 8.22 8.32
- -----------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(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
Advisor or its affiliates had not waived certain fees, the yield would have been
4.85% for Class C.
Class B, C and Z share (newer class shares) performance includes returns of the
Fund's Class A shares (oldest existing fund class) for periods prior to the
inception dates of the newer class shares. Class A share returns have not been
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
Class A shares and the newer class shares. Had the expense differential been
reflected, the returns for periods prior to the inception date of the newer
class shares would have been lower.
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 and do not incur fees or charges. It is not possible
to invest directly in an index. The Lipper U.S. Government Average represents a
hypothetical investment in the funds that comprise the Lipper U.S. Government
Fund Category.
Past performance cannot predict future results.
7
<PAGE>
INVESTMENT PORTFOLIO
February 28, 1999 (Unaudited, In Thousands)
COLONIAL SHORT DURATION U.S. GOVERNMENT FUND
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 90.8% PAR VALUE
- --------------------------------------------------------------------------------
GOVERNMENT AGENCIES -- 53.9%
MATURITIES
COUPON FROM /TO
- ----------------------
FEDERAL FARM CREDIT BANK,
Fixed Rate Note,
6.400% 2002 $ 250 $ 256
----------
FEDERAL HOME LOAN BANK,
Fixed Rate Note:
5.720% 2003 500 499
6.150% 2000 500 505
6.290% 2002 220 225
6.490% 2004 200 206
7.590% 2005 50 55
----------
1,490
----------
FEDERAL HOME LOAN MORTGAGE CORP.:
Fixed Rate Note,
9.250% 2009 161 172
----------
Adjustable Rate Mortgage: (a)
6.669% 2019 219 220
6.676% 2018 118 119
6.697% 2018 181 182
----------
521
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION:
Fixed Rate Note:
5.720% 2000 500 502
5.875% 2006 200 201
6.000% 2008-2010 (b) 1,102 1,096
6.080% 2000 120 121
6.230% 2002 200 203
6.240% 2000 400 405
6.500% 2012 (b) 1,000 1,006
6.800% 2003 500 518
7.000% 2009-2012 970 989
7.375% 2005 50 54
8.250% 2000 300 314
9.500% 2006 80 84
----------
5,493
----------
Adjustable Rate Mortgage: (a)
5.941% 2027 131 132
6.414% 2019 171 173
6.515% 2020 93 94
6.662% 2019 119 121
6.745% 2017 78 79
6.967% 2022 88 89
7.375% 2019 145 149
7.555% 2023 112 112
----------
949
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION:
Fixed Rate Mortgage:
6.500% 2029 1,010 1,004
7.000% 2027-2028 1,175 1,192
7.500% 2028 (b) $1,000 $ 1,028
9.000% 2009 200 214
----------
3,438
----------
Adjustable Rate Mortgage: (a)
6.625% 2022 31 32
6.875% 2022 344 350
6.875% 2023 274 279
----------
661
----------
TOTAL GOVERNMENT
AGENCIES (COST OF $12,991) 12,980
----------
GOVERNMENT OBLIGATIONS -- 36.9%
U.S. TREASURY BONDS,
5.625% 02/28/01 1,200 1,210
----------
U.S. Treasury Notes:
5.625% 11/30/99 170 171
5.750% 09/30/99 794 798
5.750% 10/31/02 (c) 1,685 1,710
6.125% 12/31/01 792 810
6.250% 08/31/00 140 142
6.250% 06/30/02 355 365
6.500% 05/31/01 (c) 2,075 2,131
----------
6,127
----------
U.S. TREASURY NOTES/BONDS:
4.500% 09/30/00 200 198
5.125% 08/31/00 50 50
5.250% 08/15/03 213 213
5.375% 07/31/00 225 226
5.500% 03/31/00 35 35
5.500% 05/31/00 100 100
5.625% 12/31/99 25 25
5.625% 11/30/00 100 101
5.625% 12/31/02 590 596
5.875% 07/31/99 15 15
----------
1,559
----------
TOTAL GOVERNMENT
OBLIGATIONS (COST OF $8,934) 8,896
----------
TOTAL INVESTMENTS (COST OF $21,925) (d) 21,876
----------
SHORT-TERM OBLIGATIONS -- 18.6%
- --------------------------------------------------------------------------------
Repurchase agreement with ABN AMRO Chicago
Corp., dated 02/26/99, due 03/01/99 at
4.750%, collateralized by U.S. Treasury
bonds and notes with various maturities
to 2021, market value $4,415 (repurchase
proceeds $4,485) 4,483 4,483
----------
OTHER ASSETS & LIABILITIES, NET -- (9.4)% (2,261)
----------
Net Assets -- 100.0% $ 24,098
==========
Notes to Investment Portfolio:
(a) Interest rates on variable rate securities change periodically. The rates
listed are as of February 28, 1999.
(b) 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.
(c) These securities, or a portion thereof, with a total market value of $3,250,
are being used to collateralize the delayed delivery purchases indicated in
note (b) above.
(d) Cost for federal income tax purposes is $21,927.
See notes to financial statements.
8
<PAGE>
INVESTMENT PORTFOLIO CONT.
COLONIAL FEDERAL SECURITIES FUND
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 133.9% PAR VALUE
- --------------------------------------------------------------------------------
GOVERNMENT AGENCIES -- 75.4%
MATURITIES
COUPON FROM/TO
- ----------------------
FEDERAL HOME LOAN MORTGAGE CORP.:
6.500% 2024-2027 (a) $122,450 $122,537
7.500% 2016 585 608
8.000% 2003-2016 2,438 2,549
8.500% 2007-2010 1,788 1,885
8.750% 2004-2010 667 709
9.000% 2001-2022 4,093 4,339
9.250% 2008-2010 3,181 3,395
9.500% 2004-2016 1,494 1,583
9.750% 2008-2016 553 589
10.000% 2019 584 627
10.250% 2009-2013 830 898
10.500% 2017-2020 1,149 1,261
11.250% 2003-2016 1,263 1,424
11.500% 2015 93 105
12.000% 2013 45 51
----------
142,560
----------
COLLATERALIZED MORTGAGE OBLIGATIONS:
5.000% 2013 2,242 2,235
8.750% 2020 2,218 2,233
----------
4,468
----------
FEDERAL NATIONAL MORTGAGE ASSOCIATION:
6.000% 2008-2030 (a) 99,691 97,552
6.500% 2003-2026 (a) 5,781 5,751
7.000% 2010-2027 (a) 37,043 37,508
7.500% 2002-2028 20,437 20,985
8.000% 2008-2019 2,098 2,180
8.250% 2008-2011 901 937
8.500% 2008-2017 3,281 3,455
9.000% 2002-2021 11,663 12,320
9.500% 2008-2018 1,106 1,177
----------
181,865
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION:
6.500% 2023-2029 (a) 84,898 84,395
7.000% 2022-2030 (a) 113,317 114,910
7.500% 2006-2028 (a) 70,740 72,754
8.000% 2005-2008 56 58
9.000% 2008-2017 5,416 5,808
9.500% 2009-2019 14,775 15,894
10.000% 2000-2003 131 140
10.500% 2013-2021 8,354 9,210
11.000% 2010 2 2
11.500% 2013-2015 30 34
11.750% 2013-2015 101 114
12.000% 2012-2015 418 477
12.500% 2010-2014 3,616 4,147
13.000% 2011-2015 1,525 1,764
----------
309,707
----------
TOTAL GOVERNMENT
AGENCIES (COST OF $637,246) 638,600
----------
GOVERNMENT OBLIGATIONS -- 58.5%
U.S. TREASURY BONDS:
6.125% 11/15/27 (b) $ 4,376 $ 4,578
8.750% 08/15/20 (b) 14,333 19,354
12.000% 08/15/13 (b) 91,051 132,821
12.750% 11/15/10 (b) 46,873 65,542
----------
222,295
----------
U.S. TREASURY NOTES:
5.625% 05/15/08 (b) 18,360 18,690
6.125% 12/31/01 (b) 2,202 2,251
7.250% 08/15/04 (b) 12,407 13,496
7.875% 11/15/04 (b) 39,280 44,000
8.875% 02/15/19 (b) 17,585 23,781
10.375% 11/15/12 (b) 53,118 70,149
----------
172,367
----------
U.S. TREASURY BONDS/NOTES:
5.250% 08/15/03 (b) 14,357 14,323
6.375% 08/15/02 (b) 62,711 64,817
----------
79,140
----------
U.S. TREASURY STRIP,
0.000% 08/15/12 (b) 47,184 21,641
----------
TOTAL GOVERNMENT
OBLIGATIONS (COST OF $502,436) 495,443
----------
TOTAL U.S. GOVERNMENT &
AGENCY OBLIGATIONS (COST OF $1,139,682) 1,134,043
==========
NON-AGENCY MORTGAGE-BACKED
SECURITIES & ASSET-BACKED SECURITIES -- 13.7%
- --------------------------------------------------------------------------------
NON-AGENCY MORTGAGE-BACKED SECURITIES -- 3.6%
Countrywide Mortgage Trust,
7.600% 4/25/23 4/25/23 1,345 1,350
CS First Boston Mortgage Securities Corp.,
7.500% 6/1/20 (b) 10,451 10,441
First Boston Mortgage Securities Corp.,
6.150% 9/28/13 2,000 2,000
Headlands Mortgage Securities, Inc.,
7.750% 3/25/27 5,329 5,299
Norwest Asset Securities Corp.,
7.000% 4/25/12 2,422 2,394
PNC Mortgage Securities Corp.,
7.000% 5/25/27 2,444 2,421
Prudential Home Mortgage Securities,
6.456% 12/28/08 1,481 1,410
Residential Asset Securitization Trust,
7.500% 11/25/11 1,093 1,094
Structured Mortgage Asset Residential Trust,
8.375% 6/25/08 2,240 2,336
Tryon Mortgage Funding, Inc.,
7.500% 2/20/27 1,228 1,239
----------
29,984
----------
ASSET-BACKED SECURITIES -- 10.1%
Contimortage Home Equity Loan Trust:
7.310% 8/15/28 7,150 7,220
7.340% 4/15/28 4,000 4,004
7.420% 3/15/28 2,400 2,405
See notes to financial statements.
9
<PAGE>
INVESTMENT PORTFOLIO CONTINUED
February 28, 1999 (Unaudited, In Thousands)
Delta Funding Home Equity Loan Trust,
7.330% 10/25/28 $ 7,588 $ 7,422
Empire Funding Home Loan Owner Trust,
7.510% 3/25/23 4,000 3,981
Green Tree Financial Corp.:
7.200% 1/15/28 10,000 10,206
7.320% 7/15/28 4,500 4,678
7.850% 8/15/25 9,100 8,245
Indymac Manufactured Housing Contract,
6.970% 2/25/28 4,875 4,921
Preferred Mortgage Asset Trust,
7.900% 5/25/12 2,506 2,548
Team Fleet Financing Corp.,
7.350% 5/15/03 3,550 3,644
The Money Store Home Equity Trust:
7.910% 5/15/24 9,306 9,604
8.525% 6/15/25 2,800 2,922
The Money Store Home Improvement Trust,
8.070% 5/15/23 5,875 5,890
UCFC Home Equity Loan Trust:
7.980% 2/15/22 5,000 5,184
8.550% 1/10/20 2,650 2,717
----------
85,591
----------
NON-AGENCY MORTGAGE-BACKED
& ASSET-BACKED SECURITIES
(COST $116,777) 115,575
TOTAL INVESTMENTS --
(COST OF $1,256,459)(C) 1,249,618
SHORT-TERM OBLIGATIONS -- 1.4%
- --------------------------------------------------------------------------------
Repurchase agreement with ABN AMRO Chicago
Corp., dated 02/26/99, due 03/01/99 at
4.750%, collateralized by U.S. Treasury
bonds and notes with various maturities to
2021, market value $11,833 (repurchase
proceeds $12,019) 12,014 12,014
----------
OTHER ASSETS & LIABILITIES, NET -- (49.0)% (414,897)
----------
Net Assets -- 100.0% $846,735
==========
(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 $481,119,
are being used to collateralize the delayed delivery purchase indicated in
note (a) above.
(c) Cost for federal income tax purposes is $1,256,926.
COLONIAL INTERMEDIATE U.S. GOVERNMENT FUND
- --------------------------------------------------------------------------------
U.S. GOVERNMENT & AGENCY
OBLIGATIONS -- 140.0% PAR VALUE
- --------------------------------------------------------------------------------
GOVERNMENT AGENCIES -- 95.6%
MATURITIES
COUPON FROM/TO
- ----------------------
FEDERAL HOME LOAN MORTGAGE CORP.:
7.500% 2007-2016 $928 $960
8.000% 2003-2016 9,328 9,640
8.500% 2007-2017 2,186 2,305
8.750% 2005-2013 980 1,041
9.000% 2001-2018 1,844 1,955
9.250% 2008-2019 3,338 3,562
9.500% 2005-2016 1,227 1,300
9.750% 2016 84 90
10.000% 2019 584 627
10.250% 2009-2016 1,031 1,116
10.500% 2009-2021 1,569 1,722
11.250% 2005-2016 1,844 2,073
---------
26,391
---------
FEDERAL NATIONAL MORTGAGE ASSOCIATION:
5.750% 2003 (a) 53,000 53,223
6.000% 2008-2030 (b) 165,110 162,229
6.500% 2007-2026 (b) 33,054 32,828
7.000% 2007-2024 (b) 72,119 73,000
7.500% 2006-2028 21,897 22,484
8.000% 2008-2009 1,721 1,789
8.250% 2008 583 607
8.500% 2003-2021 4,720 4,971
9.000% 2002-2022 12,790 13,522
10.000% 2001-2006 4,989 5,355
10.500% 2010-2016 2,766 3,017
11.000% 2015 660 736
----------
373,761
----------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION:
6.500% 2023-2029 (b) 93,035 92,493
7.000% 2022-2030 (b) 127,980 129,878
7.500% 2007-2028 (b) 100,223 103,073
8.000% 2004-2023 2,065 2,144
8.500% 2017-2022 1,188 1,253
8.750% 2021-2022 1,282 1,350
8.850% 2018-2020 2,644 2,802
9.000% 2008-2025 10,628 11,329
9.250% 2016-2022 5,233 5,477
9.500% 2004-2025 77,157 83,003
10.000% 2000-2024 2,447 2,602
10.250% 2018 192 208
10.500% 2000-2020 6,245 6,868
10.625% 2010 22 24
11.000% 2009-2021 7,691 8,627
11.250% 2015 73 80
11.500% 2010-2021 11,409 12,922
11.750% 2013-2015 229 257
12.000% 2011-2016 11,761 13,399
12.250% 2013-2015 472 532
12.500% 2010-2015 7,750 8,881
12.750% 2014 45 51
13.000% 2011-2016 2,672 3,089
13.500% 2010-2015 2,044 2,392
14.000% 2011-2012 93 109
14.500% 2012 27 31
15.000% 2011-2012 87 104
----------
492,978
----------
See notes to financial statements.
10
<PAGE>
INVESTMENT PORTFOLIO CIUSGF CONT.
U.S. SMALL BUSINESS ADMINISTRATION:
7.600% 1/1/12 $ 3,114 $ 3,402
8.200% 10/1/11 3,094 3,452
8.250% 11/1/11 6,044 6,744
8.650% 11/1/14 4,599 5,250
8.850% 8/1/11 1,024 1,164
9.150% 7/1/11 2,614 2,993
9.450% 8/1/10 1,038 1,190
9.500% 4/1/10 1,846 2,123
9.650% 5/1/10 1,368 1,586
----------
27,904
----------
TOTAL GOVERNMENT
AGENCIES (COST OF $837,288) 921,034
----------
GOVERNMENT OBLIGATIONS -- 44.4%
U.S. TREASURY BONDS:
6.125% 11/15/27 (a) 4,840 5,063
7.875% 2/15/21 (a) 25,241 31,472
12.000% 5/15/13 (a) 13,843 20,194
----------
56,729
----------
U.S. TREASURY NOTES:
.750% 8/15/03 (a) 28,877 29,369
.875% 11/15/05 (a) 18,210 18,665
.250% 6/30/02 (a) 22,120 22,766
.375% 8/15/02 (a) 31,228 32,277
.500% 10/15/06 18,571 19,775
.500% 11/15/26 (a) 8,294 9,079
.625% 3/31/02 (a) 52,400 54,398
.875% 5/15/06 (a) 90,118 97,778
.875% 11/15/04 (a) 19,518 21,863
10.375% 11/15/12 (a) 49,603 65,507
----------
371,477
----------
TOTAL GOVERNMENT
OBLIGATIONS (COST OF $500,760) $428,206
----------
TOTAL INVESTMENTS
(COST OF $1,338,048)(C) 1,349,240
----------
SHORT-TERM OBLIGATIONS -- 1.9%
- --------------------------------------------------------------------------------
Repurchase agreement with ABN AMRO Chicago
Corp., dated 02/26/99, due 03/01/99 at
4.750%, collateralized by U.S. Treasury
bonds and notes with various maturities to
2021, market value $17,819 (repurchase
proceeds $18,099) $18,092 18,092
----------
OTHER ASSETS & LIABILITIES, NET -- (41.9)% (404,046)
----------
Net Assets -- 100.0% $963,284
==========
NOTES TO INVESTMENT PORTFOLIO:
(a) These securities, or a portion thereof, with a total market value of
$415,461, are being used to collateralize the delayed delivery purchases
indicated in note (b) below.
(b) 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.
(c) Cost for federal income tax purposes is $1,339,280.
See notes to financial statements.
11
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
February 28, 1999 (Unaudited)
<TABLE>
<CAPTION>
(In thousands except for per share amounts and footnotes)
CSDUSGF CIUSGF CFSF
====================================================================================================================================
ASSETS
<S> <C> <C> <C> <C> <C> <C>
Investments at cost $21,925 $1,338,048 $1,256,459
Appreciation (depreciation) (49) 11,192 (6,841)
----------------- ------------------- -------------------
Investments at value $21,876 $1,349,240 1,249,618
Short-term obligations 4,483 18,092 12,014
----------------- ------------------- -------------------
26,359 1,367,332 1,261,632
Receivable for:
Investments sold $ -- $ 25,546 $ 23,884
Interest 256 11,481 7,751
Fund shares sold 178 673 832
Other 12 446 292 37,992 603 33,070
-------- ----------------- --------- ------------------- --------- -------------------
Total Assets 26,805 1,405,324 1,294,702
LIABILITIES
Payable for:
Investments purchased 2,543 439,804 443,467
Distributions 46 1,192 3,341
Fund shares repurchased 115 966 1,104
Accrued:
Transfer Agent Out-of-Pocket fees -- 58 36
Deferred Trustees fees 3 20 19
-------- --------- ---------
Total Liabilities 2,707 442,040 447,967
----------------- ------------------- -------------------
Net Assets $24,098 $963,284 $846,735
================= =================== ===================
Net asset value & redemption price per share--Class A $9.91(a) $6.59(a) $10.76(a)
----------------- ------------------- -------------------
($13,134/1,326) ($606,477/91,987) ($767,642/71,355)
Maximum offering price per share--Class A $10.24(b) $6.92(b) $11.30(b)
----------------- ------------------- -------------------
($9.91/0.9675) ($6.59/0.9525) ($10.76/0.9525)
Net asset value & offering price per share--Class B $9.91(a) $6.59(a) $10.76(a)
----------------- ------------------- -------------------
($7,153/722) ($353,695/53,646) ($74,860/6,959)
Net asset value & offering price per share--Class C $9.91(a) $6.59(a) $10.76(a)
----------------- ------------------- -------------------
($3,811/385) ($2,096/318) ($4,232/394)
Net asset value, offering & redemption price
per share--Class Z n/a $6.59 $10.76
----------------- ------------------- -------------------
($1,016/154) ($1/(c))
COMPOSITION OF NET ASSETS
Capital paid in $24,184 $1,068,495 $987,700
Undistributed (overdistributed)
net investment income (46) 622 (491)
Accumulated net realized gain (loss) 9 (117,025) (133,633)
Net unrealized appreciation (depreciation) (49) 11,192 (6,841)
----------------- ------------------- -------------------
$24,098 $963,284 $846,735
================================================================================
</TABLE>
(a) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge. (b) On sales of $100,000 or more of CSDUSGF or
$50,000 or more of CIUSGF or CFSF, the offering price is reduced. (c) Rounds to
less than one.
See notes to financial statements.
12
<PAGE>
STATEMENT OF OPERATIONS
For The Six Months Ended February 28, 1999 (Unaudited)
<TABLE>
<CAPTION>
CSDUSGF CIUSGF CFSF
====================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
INVESTMENT INCOME
Interest $ 615 $34,286 $30,622
Dollar roll fee income 4 874 1,408
================================================================================
619 35,160 32,030
EXPENSES
Management fee $ 63 $3,041 $2,654
Service fee 24 1,264 1,103
Distribution fee--Class B 28 1,426 284
Distribution fee--Class C 2 6 9
Transfer agent 21 863 932
Bookkeeping fee 14 181 160
Trustees fee 4 23 22
Custodian fee 1 55 11
Audit fee 9 33 26
Legal fee 9 6 3
Registration fee 15 17 19
Reports to shareholders 1 18 24
Other 2 206 27
-------- --------- ---------
193 7,139 5,274
Fees and expenses waived or
borne by the Advisor (70) -- --
Fees waived by the Distributor--Class C -- 123 (1) 7,138 (2) 5,272
-------- ----------------- --------- ------------------- --------- -------------------
Net Investment Income 496 28,022 26,758
================= =================== ===================
NET REALIZED & UNREALIZED
GAIN (LOSS) ON PORTFOLIO
POSITIONS
Net realized gain on:
Investments (see Note 6) 83 5,297 8,657
Closed futures contract -- 24 22
-------- ----------------- --------- ------------------- --------- -------------------
Net Realized Gain 83 5,321 8,679
Change in net unrealized depreciation (187) (27,856) (35,453)
----------------- ------------------- -------------------
Net Loss (104) (22,535) (26,774)
----------------- ------------------- -------------------
Increase (Decrease) in Net Assets from
Operations $ 392 $ 5,487 $ (16)
=========================================================================================
</TABLE>
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 Year ended
February 28 August 31 February 28 August 31 February 28 August 31
===================================================================================================================================
CSDUSGF CIUSGF CFSF
===================================================================================================================================
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS 1999 1998 1999(a) 1998 1999(b) 1998
1998
Operations:
Net investment income $ 496 $ 659 $ 28,022 $ 63,528 $ 26,758 $ 58,656
Net realized gain 83 26 5,321 23,328 8,679 24,144
Net unrealized appreciation
(depreciation) (187) 113 (27,856) 14,849 (35,453) 22,012
--------- -------- ----------- ----------- --------- ----------
Net Increase (Decrease) from
Operations 392 798 5,487 101,705 (16) 104,812
Distributions:
From net investment income--
Class A (271) (396) (16,940) (38,886) (23,648) (53,064)
In excess of net investment
income--Class A -- (15) -- (2,922) -- --
From net investment income--
Class B (177) (204) (8,771) (21,012) (1,940) (3,545)
In excess of net investment
income--Class B -- (8) -- (1,579) -- --
From net investment income--
Class C (67) (67) (40) (26) (67) (31)
In excess of net investment
income--Class C -- (3) -- (2) -- --
From net investment income--
Class Z -- -- (1) -- (c) --
In excess of net investment
income--Class Z -- -- -- -- -- --
--------- -------- ----------- ----------- --------- ----------
(123) 105 (20,265) 32,278 (25,671) 48,172
--------- -------- ----------- ----------- --------- ----------
Fund Share Transactions:
Receipts for shares sold--Class A 14,106 4,793 81,627 64,333 32,457 25,903
Receipts for shares issued in
the acquisition of Crabbe Huson
U.S. Gov't Income Fund 4,254 -- -- -- -- --
Value of distributions
reinvested--Class A 217 383 10,546 27,046 12,379 28,232
Cost of shares repurchased--
Class A (12,722) (4,804) (123,807) (194,333) (74,774) (166,562)
--------- -------- ----------- ----------- --------- ----------
5,855 372 (31,634) (102,954) (29,938) (112,427)
--------- -------- ----------- ----------- --------- ----------
Receipts for shares sold--
Class B 6,081 5,469 22,183 29,371 24,966 19,396
Value of distributions
reinvested--Class B 115 138 5,114 13,395 1,128 1,926
Cost of shares repurchased--
Class B (6,506) (2,338) (61,190) (122,795) (20,886) (17,031)
--------- -------- ----------- ----------- --------- ----------
(310) 3,269 (33,893) (80,029) 5,208 4,291
--------- -------- ----------- ----------- --------- ----------
Receipts for shares sold--Class C 2,078 1,604 1,506 1,310 3,408 1,317
Value of distributions
reinvested--Class C 57 66 34 20 53 27
Cost of shares repurchased--
Class C (223) (318) (399) (444) (502) (72)
--------- -------- ----------- ----------- --------- ----------
1,912 1,352 1,141 886 2,959 1,272
--------- -------- ----------- ----------- --------- ----------
Receipts for shares sold--
Class Z -- -- 1,037 -- 1 --
Value of distributions
reinvested--Class Z -- -- 1 -- (c) --
Cost of shares repurchased--
Class Z -- -- (13) -- (c) --
--------- -------- ----------- ----------- --------- ----------
-- -- 1,025 -- 1 --
--------- -------- ----------- ----------- --------- ----------
Net Increase (Decrease) from
Fund Share Transactions 7,457 4,993 (63,361) (182,097) (21,770) (106,864)
--------- -------- ----------- ----------- --------- ----------
Total Increase (Decrease) 7,334 5,098 (83,626) (144,819) (47,441) (58,692)
NET ASSETS
Beginning of period 16,764 11,666 1,046,910 1,191,729 894,176 952,868
--------- -------- ----------- ----------- --------- ----------
End of period $ 24,098 $16,764 $ 963,284 $1,046,910 $846,735 $ 894,176
--------- -------- ----------- ----------- --------- ----------
Net of undistributed
(overdistributed) net
investment income (46) (27) 622 (1,648) (491) (1,597)
--------- -------- ----------- ----------- --------- ----------
NUMBER OF FUND SHARES
Sold--Class A 1,424 481 12,086 9,704 2,921 2,381
Issued in the acquisition of
Crabbe Huson U.S. Gov't
Income Fund 421 -- -- -- -- --
Issued for distributions
reinvested--Class A 22 38 1,566 4,088 1,118 2,615
Repurchased--Class A (1,269) (482) (18,315) (29,361) (6,736) (15,425)
--------- -------- ----------- ----------- --------- ----------
598 37 (4,663) (15,569) (2,697) (10,429)
--------- -------- ----------- ----------- --------- ----------
Sold--Class B 605 548 3,275 4,426 2,242 1,784
Issued for distributions
reinvested--Class B 12 14 759 2,025 102 178
Repurchased--Class B (649) (235) (9,053) (18,551) (1,885) (1,575)
--------- -------- ----------- ----------- --------- ----------
(32) 327 (5,019) (12,100) 459 387
--------- -------- ----------- ----------- --------- ----------
Sold--Class C 207 161 223 198 307 122
Issued for distributions
reinvested--Class C 6 7 5 3 5 3
Repurchased-- Class C (22) (32) (59) (67) (45) (7)
--------- -------- ----------- ----------- --------- ----------
191 136 169 134 267 118
--------- -------- ----------- ----------- --------- ----------
Sold--Class Z -- -- 156 -- (c) --
Issued for distributions
reinvested--Class Z -- -- (c) -- (c) --
Repurchased--Class Z -- -- (2) -- (c) --
--------- -------- ----------- ----------- --------- ----------
-- -- 154 -- (c) --
============================================================================================
</TABLE>
(a) Class Z shares were initially offered on January 29, 1999.
(b) Class Z shares were initially offered on January 11, 1999.
(c) Rounds to less than one.
14 See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
February 28, 1999 (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, 1999, 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. CSDUSGF offers
three classes of shares: Class A, Class B, and Class C. CIUSGF and CFSF offer
four classes of shares: Class A, Class B, Class C, and Class Z. Class A shares
are sold with a front-end sales charge and a 1.00% contingent deferred sales
charge on redemptions made within eighteen months on an original purchase of $1
million to $5 million. 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 an annual distribution fee. Effective January 29, 1999
and January 11, 1999, CIUSGF and CFSF, respectively, began offering Class Z
shares. Class Z shares are offered continuously at net asset value. There are
certain restrictions on purchasing Class Z shares, please refer to a prospectus.
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 Funds' 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.
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.
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
====================================================================================================================================
1999 1998
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 $ 10.000 $ 10.000 $ 10.000 $ 9.920 $ 9.920 $ 9.920
---------------- --------------- ------------ ----------------- --------------- ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.237 0.205 0.226 0.529 0.462 0.508
Net realized and unrealized gain (loss) (0.087) (0.087) (0.087) 0.113 0.113 0.113
---------------- --------------- ------------ ----------------- --------------- ------------
Total from Investment Operations 0.150 0.118 0.139 0.642 0.575 0.621
---------------- --------------- ------------ ----------------- --------------- ------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.240) (0.208) (0.229) (0.541) (0.476) (0.521)
In excess of net investment income -- -- -- (0.021) (0.019) (0.020)
---------------- --------------- ------------ ----------------- --------------- ------------
Total Distributions Declared to
Shareholders (0.240) (0.208) (0.229) (0.562) (0.495) (0.541)
---------------- --------------- ------------ ----------------- --------------- ------------
Net asset value--End of period $ 9.910 $ 9.910 $ 9.910 $ 10.000 $ 10.000 $ 10.000
---------------- --------------- ------------ ----------------- --------------- ------------
Total return(c)(d) 1.50%(e) 1.18%(e) 1.40%(e) 6.64% 5.93% 6.41%
================ =============== ============ ================= =============== ============
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80%(f)(g) 1.45%(f)(g) 1.00%(f)(g) 0.70%(f) 1.35%(f) 0.90%(f)
---------------- --------------- ------------ ----------------- --------------- ------------
Net investment income 4.57%(f)(g) 3.92%(f)(g) 4.37%(f)(g) 5.37%(f) 4.72%(f) 5.17%(f)
---------------- --------------- ------------ ----------------- --------------- ------------
Fees and expenses waived or borne by
the Advisor 0.60%(f)(g) 0.60%(f)(g) 0.60%(f)(g) 1.10%(f) 1.10%(f) 1.10%(f)
---------------- --------------- ------------ ----------------- --------------- ------------
Portfolio turnover 53%(e) 53%(e) 53%(e) 183% 183% 183%
---------------- --------------- ------------ ----------------- --------------- ------------
Net assets at end of period (000) $ 13,134 $ 7,153 $ 3,811 $ 7,284 $ 7,543 $ 1,937
---------------- --------------- ------------ ----------------- --------------- ------------
(a) Net of fees and expenses waived
or borne by the Advisor or its
affiliates which amounted to: $ 0.030 $ 0.030 $ 0.030 $ 0.110 $ 0.110 $ 0.110
</TABLE>
(b) Class C shares were initially offered on January 4, 1995. Per share data
reflects activity from that date.
(c) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(d) Had the Advisor or its affiliates not waived or reimbursed a portion of
expenses, total return would have been reduced.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(g) Annualized.
================================================================================
February 28, 1999
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 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
16
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS CSDUSGF CONT.
Year ended August 31
====================================================================================================================================
1997 1996
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 $ 9.820 $ 9.820 $ 9.820 $ 9.850 $ 9.850 $ 9.850
---------------- --------------- ------------ ----------------- --------------- ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.561 0.497 0.542 0.568 0.504 0.549
Net realized and unrealized gain (loss) 0.090 0.090 0.090 (0.032) (0.032) (0.032)
---------------- --------------- ------------ ----------------- --------------- ------------
Total from Investment Operations 0.651 0.587 0.632 0.536 0.472 0.517
---------------- --------------- ------------ ----------------- --------------- ------------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.551) (0.487) (0.532) (0.566) (0.502) (0.547)
In excess of net investment income -- -- -- -- -- --
---------------- --------------- ------------ ----------------- --------------- ------------
Total Distributions Declared to
Shareholders (0.551) (0.487) (0.532) (0.566) (0.502) (0.547)
---------------- --------------- ------------ ----------------- --------------- ------------
Net asset value--End of period $ 9.920 $ 9.920 $ 9.920 $ 9.820 $ 9.820 $ 9.820
---------------- --------------- ------------ ----------------- --------------- ------------
Total return(c)(d) 6.79% 6.11% 6.59% 5.57% 4.89% 5.36%
================ =============== ============ ================= =============== ============
RATIOS TO AVERAGE NET ASSETS
Expenses 0.50%(f) 1.15%(f) 0.70%(f) 0.50%(f) 1.15%(f) 0.70%(f)
---------------- --------------- ------------ ----------------- --------------- ------------
Net investment income 5.64%(f) 4.99%(f) 5.44%(f) 5.99%(f) 5.34%(f) 5.79%(f)
---------------- --------------- ------------ ----------------- --------------- ------------
Fees and expenses waived or borne by
the Advisor 1.76%(f) 1.76%(f) 1.76%(f) 1.48%(f) 1.48%(f) 1.48%(f)
---------------- --------------- ------------ ----------------- --------------- ------------
Portfolio turnover 73% 73% 73% 51% 51% 51%
---------------- --------------- ------------ ----------------- --------------- ------------
Net assets at end of period (000) $ 6,858 $ 4,233 $ 575 $ 6,136 $ 4,004 $ 461
---------------- --------------- ------------ ----------------- --------------- ------------
(a) Net of fees and expenses waived
or borne by the Advisor or its
affiliates which amounted to: $ 0.169 $ 0.169 $ 0.169 $ 0.136 $ 0.136 $ 0.136
</TABLE>
<TABLE>
<CAPTION>
Year ended August 31 cont.
================================================================================================================
1995 1994
Class A Class B Class C(b) Class A Class B
------------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C>
Net asset value-- Beginning of period $ 9.670 $ 9.670 $ 9.550 $ 9.950 $ 9.950
---------------- --------------- -------------- ------------ -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.514 0.451 0.334 0.473 0.409
Net realized and unrealized gain (loss) 0.152 0.152 0.280 (0.356) (0.356)
---------------- --------------- -------------- ------------ -----------
Total from Investment Operations 0.666 0.603 0.614 0.117 0.053
---------------- --------------- -------------- ------------ -----------
LESS DISTRIBUTIONS DECLARED TO
SHAREHOLDERS:
From net investment income (0.486) (0.423) (0.314) (0.397) (0.333)
In excess of net investment income -- -- -- -- --
---------------- --------------- -------------- ------------ -----------
Total Distributions Declared to
Shareholders (0.486) (0.423) (0.314) (0.397) (0.333)
---------------- --------------- -------------- ------------ -----------
Net asset value--End of period $ 9.850 $ 9.850 $ 9.850 $ 9.670 $ 9.670
---------------- --------------- -------------- ------------ -----------
Total return(c)(d) 7.08% 6.39% 6.50%(e) 1.20% 0.55%
================ =============== ============== ============ ===========
RATIOS TO AVERAGE NET ASSETS
Expenses 0.50% 1.15% 0.70%(g) 0.50% 1.15%
---------------- --------------- ------------ -------------- -----------
Net investment income 5.50% 4.85% 5.30%(g) 4.84% 4.19%
---------------- --------------- ------------ -------------- -----------
Fees and expenses waived or borne by
the Advisor 1.14% 1.14% 1.14% 1.16% 1.16%
---------------- --------------- -------------- ------------ -----------
Portfolio turnover 36% 36% 36% 69% 69%
---------------- --------------- -------------- ------------ -----------
Net assets at end of period (000) $ 9,934 $ 3,968 $ 385 $ 16,168 $ 4,176
---------------- --------------- -------------- ------------ -----------
(a) Net of fees and expenses waived
or borne by the Advisor or its
affiliates which amounted to: $ 0.107 $ 0.107 $ 0.107 $ 0.114 $ 0.114
</TABLE>
================================================================================
NOTES CONT.
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 Funds' 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 Advisor) is
the investment Advisor 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 CFSF for the first $1 billion
in assets was 0.65%.
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
======================================================================================================
1999
Class A Class B Class C Class Z(a)
------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value-- Beginning of period $ 6.730 $ 6.730 $ 6.730 $ 6.760
------------ -------------- ------------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.196 0.171 0.176(c) 0.037
Net realized and unrealized gain (loss) (0.155) (0.155) (0.155) (0.174)
------------ -------------- ------------- --------------
Total from Investment Operations 0.041 0.016 0.021 (0.137)
------------ -------------- ------------- --------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.181) (0.156) (0.161) (0.033)
In excess of net investment income -- -- -- --
From capital paid in -- -- -- --
------------ -------------- ------------- --------------
Total Distributions Declared
to Shareholders (0.181) (0.156) (0.161) (0.033)
------------ -------------- ------------- --------------
Net asset value--End of period $ 6.590 $ 6.590 $ 6.590 $ 6.590
------------ -------------- ------------- --------------
Total return (e) 0.58%(f) 0.21%(f) 0.29%(f)(g) 0.60%(f)
============ ============== ============= ==============
RATIOS TO AVERAGE NET ASSETS
Expenses 1.12%(h)(i) 1.87%(h)(i) 1.73%(c)(h)(i) 0.93%(h)(i)
------------ -------------- ------------- --------------
Net investment income 5.80%(h)(i) 5.05%(h)(i) 5.20%(c)(h)(i) 6.58%(h)(i)
------------ -------------- ------------- --------------
Portfolio turnover 21%(f) 21%(f) 21%(f) 21%(f)
------------ -------------- ------------- --------------
Net assets at end of period
(in millions) $ 606 $ 354 $ 2 $ 1
----------- --------------- -------------- --------------
</TABLE>
<TABLE>
<CAPTION>
Year ended August 31
================================================================================
1998
Class A Class B Class C
-----------------------------------------
<S> <C> <C> <C>
Net asset value-- Beginning of period $ 6.510 $ 6.510 $ 6.510
------------ ------------ -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.420 0.370 0.380(d)
Net realized and unrealized gain (loss) 0.204 0.204 0.204
------------ ------------ -----------
Total from Investment Operations 0.624 0.574 0.584
------------ ------------ -----------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.376) (0.329) (0.339)
In excess of net investment income (0.028) (0.025) (0.025)
From capital paid in -- -- --
------------ ------------ -----------
Total Distributions Declared
to Shareholders (0.404) (0.354) (0.364)
------------ ------------ -----------
Net asset value--End of period $ 6.730 $ 6.730 $ 6.730
------------ ------------ -----------
Total return (e) 9.87% 9.03% 9.20%(g)
============ ============ ===========
RATIOS TO AVERAGE NET ASSETS
Expenses 1.12%(h) 1.87%(h) 1.72%(d)(h)
------------ ------------ -----------
Net investment income 6.02%(h) 5.27%(h) 5.42%(d)(h)
------------ ------------ -----------
Portfolio turnover 214% 214% 214%
------------ ------------ -----------
Net assets at end of period
(in millions) $ 651 $ 395 $ 1
------------ ------------ -----------
</TABLE>
(a) Class Z shares were initially offered on January 29, 1999. Per share amounts
reflect activity from that date.
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) Net of fees waived by the Advisor or its affiliates which amounted to $0.005
per share and 0.15% (annualized).
(d) Net of fees waived by the Advisor or its affiliates which amounted to $0.010
per share and 0.15%.
(e) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(f) Not annualized.
(g) Had the Advisor or its affiliates not waived a portion of expenses, total
return would have been reduced.
(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.
(j) Rounds to less than one million.
================================================================================
February 28, 1999
BOOKKEEPING FEE: For each Fund the Advisor 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%
TRANSFER AGENT FEE: Liberty Funds Services, Inc. (the Transfer Agent), an
affiliate of the Advisor, 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% resulting in a decrease in the fee from
0.18% to 0.17% annually.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Liberty Funds
Distributor, Inc. (the Distributor), a subsidiary of the Advisor, is each Fund's
principal underwriter. During the six months ended February 28, 1999, each Fund
has been advised that the Distributor retained net underwriting discounts on
CSDUSGF, CIUSGF, and CFSF of $2,278, $20,338, and $17,889, respectively, on
sales of the Funds' Class A shares and received contingent deferred sales
charges (CDSC) of $1,229, $1,138, and $91 on Class A share redemptions, $9,345,
$237,148, and $69,898 on Class B share redemptions, and $474, $724, and $209 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
18
<PAGE>
FINANCIAL HIGHLIGHTS CIUSGF CONT.
Year ended August 31
===============================================================================
<TABLE>
<CAPTION>
1997
Class A Class B Class C(b)
-------------------------------------------------
<S> <C> <C> <C>
Net asset value-- Beginning of period $ 6.370 $ 6.370 $ 6.590
---------------- ------------- ----------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.393 0.344 0.032
Net realized and unrealized gain (loss) 0.145 0.145 (0.082)
---------------- ------------- ----------------
Total from Investment Operations 0.538 0.489 (0.050)
---------------- ------------- ----------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.398) (0.349) (0.030)
In excess of net investment income -- -- --
From capital paid in -- -- --
---------------- ------------- ----------------
Total Distributions Declared
to Shareholders (0.398) (0.349) (0.030)
---------------- ------------- ----------------
Net asset value--End of period $ 6.510 $ 6.510 $ 6.510
---------------- ------------- ----------------
Total return (e) 8.64% 7.83% (0.77)%(f)(g)
================ ============= ================
RATIOS TO AVERAGE NET ASSETS
Expenses 1.13%(h) 1.88%(h) 1.78%(h)(i)
---------------- ------------- ----------------
Net investment income 6.43%(h) 5.68%(h) 5.85%(h)(i)
---------------- ------------- ----------------
Portfolio turnover 61% 61% 61%
---------------- ------------- ----------------
Net assets at end of period
(in millions) $ 731 $ 461 $ (j)
---------------- ------------- ----------------
</TABLE>
<TABLE>
<CAPTION>
Year ended August 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 $ 6.550 $ 6.550 $ 6.420 $ 6.420 $ 6.880 $ 6.880
--------------- ----------- ------------------ ----------- --------------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.390 0.341 0.447 0.399 0.415 0.365
Net realized and unrealized gain (loss) (0.161) (0.161) 0.100 0.100 (0.452) (0.452)
--------------- ----------- ------------------ ----------- --------------- -----------
Total from Investment Operations 0.229 0.180 0.547 0.499 (0.037) (0.087)
--------------- ----------- ------------------ ----------- --------------- -----------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.391) (0.344) (0.417) (0.369) (0.400) (0.352)
In excess of net investment income (0.018) (0.016) -- -- -- --
From capital paid in -- -- -- -- (0.023) (0.021)
--------------- ----------- ------------------ ----------- --------------- -----------
Total Distributions Declared
to Shareholders (0.409) (0.360) (0.417) (0.369) (0.423) (0.373)
--------------- ----------- ------------------ ----------- --------------- -----------
Net asset value--End of period $ 6.370 $ 6.370 $ 6.550 $ 6.550 $ 6.420 $ 6.420
--------------- ----------- ------------------ ----------- --------------- -----------
Total return (e) 3.51% 2.74% 8.88% 8.07% (0.53)% (1.28)%
=============== =========== ================== =========== =============== ===========
RATIOS TO AVERAGE NET ASSETS
Expenses 1.11%(h) 1.86%(h) 1.11% 1.86% 1.11% 1.86%
--------------- ----------- ------------------ ----------- --------------- -----------
Net investment income 6.45%(h) 5.70%(h) 7.51% 6.76% 8.14% 7.39%
--------------- ----------- ------------------ ----------- --------------- -----------
Portfolio turnover 123% 123% 140% 140% 291% 291%
--------------- ----------- ------------------ ----------- --------------- -----------
Net assets at end of period
(in millions) $ 921 $ 572 $ 1,164 $ 701 $ 758 $ 836
--------------- ----------- ------------------ ----------- --------------- -----------
</TABLE>
===============================================================================
NOTES CONT.
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 Advisor has agreed, until further notice, to
waive fees and bear certain Fund expenses to the extent that total expenses
(exclusive of service and distribution fees, brokerage commissions, interest,
taxes and extraordinary expenses, if any) exceed 0.60% 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 Advisor.
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
Fund's assets.
NOTE 4: PORTFOLIO INFORMATION
INVESTMENT ACTIVITY: For the six months ended February 28, 1999, purchase and
sales of investments, other than short-term obligations and mortgage dollar roll
transactions, were as follows:
Purchases Sales
------------ ------------
CSDUSGF $ 13,647,693 $ 9,725,921
CIUSGF $269,273,914 $343,411,311
CFSF $299,389,909 $232,775,654
Unrealized appreciation (depreciation) at February 28, 1999 for federal income
tax purposes was:
CSDUSGF CIUSGF CFSF
---------- ------------ ---------------
Gross unrealized
appreciation $ 84,281 $18,102,659 $ 13,265,425
Gross unrealized
depreciation (135,736) (8,142,734) (20,573,177)
-------- ---------- -----------
Net unrealized
appreciation
(depreciation) $ (51,455) $ 9,959,925 $ (7,307,752)
---------- ----------- ------------
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
========================================================================================================
1999
Class A Class B Class C Class Z(b)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value--Beginning of period $ 11.080 $ 11.080 $ 11.080 $ 11.010
-------------- -------------- ----------------- --------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.340 0.298 0.307(d) 0.116
Net realized and unrealized gain (loss) (0.334) (0.334) (0.334) (0.264)
-------------- -------------- ----------------- --------------
Total from Investment Operations 0.006 (0.036) (0.027) (0.148)
-------------- -------------- ----------------- --------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.326) (0.284) (0.293) (0.102)
From net realized gains -- -- -- --
From capital paid in -- -- -- --
-------------- -------------- ----------------- --------------
Total Distributions Declared
to Shareholders (0.326) (0.284) (0.293) (0.102)
-------------- -------------- ----------------- --------------
Net asset value--End of period $ 10.760 $ 10.760 $ 10.760 $ 10.760
-------------- -------------- ----------------- --------------
Total return (f) 0.01%(g) (0.36)%(g) (0.28)%(g)(h) 0.05%(g)
============== ============== ================= ==============
RATIOS TO AVERAGE NET ASSETS
Expenses 1.13%(i)(j) 1.88%(i)(j) 1.73%(d)(i)(j) 0.88%(i)(j)
-------------- -------------- ----------------- --------------
Net investment income 6.11%(i)(j) 5.36%(i)(j) 5.51%(d)(i)(j) 6.36%(i)(j)
-------------- -------------- ----------------- --------------
Portfolio turnover 27%(g) 27%(g) 27%(g) 27%(g)
-------------- -------------- ----------------- --------------
Net assets at end of period
(in millions) $ 768 $ 75 $ 4 $ (k)
-------------- -------------- ----------------- --------------
</TABLE>
<TABLE>
<CAPTION>
Year ended August 31 (a)
==================================================================================
1998
Class A Class B Class C
-----------------------------------------
<S> <C> <C> <C>
Net asset value--Beginning of period $ 10.520 $ 10.520 $ 10.520
----------- ----------- ---------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.708 0.625 0.642(e)
Net realized and unrealized gain (loss) 0.530 0.530 0.530
----------- ----------- ---------------
Total from Investment Operations 1.238 1.155 1.172
----------- ----------- ---------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.678) (0.595) (0.612)
From net realized gains -- -- --
From capital paid in -- -- --
----------- ----------- ---------------
Total Distributions Declared
to Shareholders (0.678) (0.595) (0.612)
----------- ----------- ---------------
Net asset value--End of period $ 11.080 $ 11.080 $ 11.080
----------- ----------- ---------------
Total return (f) 12.11% 11.26% 11.43%(h)
=========== =========== ===============
RATIOS TO AVERAGE NET ASSETS
Expenses 1.14%(i) 1.89%(i) 1.74%(e)(i)
----------- ----------- ---------------
Net investment income 6.49%(i) 5.74%(i) 5.89%(e)(i)
----------- ----------- ---------------
Portfolio turnover 356% 356% 356%
----------- ----------- ---------------
Net assets at end of period
(in millions) $ 821 $ 72 $ 1
----------- ----------- ---------------
</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 Z shares were initially offered on January 11, 1999. Per share data
reflects activity from that date.
(c) Class C shares were initially offered on August 1, 1997. Per share data
reflects activity from that date.
(d) Net of fees waived by the Advisor or its affiliates which amounted to $0.008
per share and 0.15% (annualized).
(e) Net of fees waived by the Advisor or its affiliates which amounted to $0.017
per share and 0.15%.
(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) Had the Advisor or its affiliates not waived a portion of expenses, total
return would have been reduced.
(i) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(j) Annualized.
(k) Rounds to less than one million.
================================================================================
February 28, 1999
CAPITAL LOSS CARRYFORWARDS: At August 31, 1998, 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 $ 36,000
2004 38,000
--------
$ 74,000
--------
Year of Capital loss
expiration carryforward
========== ============
CIUSGF 2001 $ 12,601,000
2002 7,249,000
2003 67,291,000
2004 32,580,000
2005 18,973,000
------------
$138,694,000
------------
Of the CIUSGF loss carryforwards expiring in 2001 and 2002, $12,601,000 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 1999 $ 34,066,000
2000 595,000
2002 84,302,000
2004 21,929,000
------------
$140,892,000
------------
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.
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
20
<PAGE>
FINANCIAL HIGHLIGHTS CFSF CONT.
<TABLE>
<CAPTION>
Period ended August 31 (a)
=========================================================================================
1997
Class A Class B Class C (c)
------------------------------------------------
<S> <C> <C> <C>
Net asset value--Beginning of period $ 10.530 $ 10.530 $ 10.710
--------------- -------------- ---------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.580 0.515 0.058
Net realized and unrealized gain (loss) (0.038) (0.038) (0.198)
--------------- -------------- ---------------
Total from Investment Operations 0.542 0.477 (0.140)
--------------- -------------- ---------------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.552) (0.487) (0.050)
From net realized gains -- -- --
From capital paid in -- -- --
--------------- -------------- ---------------
Total Distributions Declared
to Shareholders (0.552) (0.487) (0.050)
--------------- -------------- ---------------
Net asset value--End of period $ 10.520 $ 10.520 $ 10.520
--------------- -------------- ---------------
Total return (f) 5.31%(g) 4.66%(g) (1.31)%(g)(h)
=============== ============== ===============
RATIOS TO AVERAGE NET ASSETS
Expenses 1.19%(i)(j) 1.94%(i)(j) 1.82%(i)(j)
--------------- -------------- ---------------
Net investment income 6.71%(i)(j) 5.96%(i)(j) 6.55%(i)(j)
--------------- -------------- ---------------
Portfolio turnover 79%(g) 79%(g) 79%(g)
--------------- -------------- ---------------
Net assets at end of period
(in millions) $ 888 $ 64 $ (k)
--------------- -------------- ---------------
</TABLE>
<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 gains -- -- (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
------------ ------------ ---------- ---------- ---------- ----------
</TABLE>
================================================================================
NOTES CONT.
changes in interest rates and/or market conditions and not for trading purposes.
The Funds 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 Advisor of the
future direction of interest rates. Any of these risks may involve amounts
exceeding the variation margin, or option premium recorded in the Funds'
Statement of Assets and Liabilities at any given time.
NOTE 5: LINE OF CREDIT
CSDUSGF may borrow up to 33 1/3% 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) LIBOR offshore loan
rate plus 1/2 of 1%. There were no borrowings under the line of credit during
the six months ended February 28, 1999.
NOTE 6: MERGER INFORMATION
On October 16, 1998, Crabbe Huson U.S. Government Income Fund (CHUSGIF) was
merged into CSDUSGF by a non-taxable exchange of 421,220 Class A shares of the
Fund (valued at $4,254,320) for the 382,027 of CHUSGIF shares then outstanding.
The assets of CHUSGIF acquired included unrealized appreciation of $150,545. The
aggregate net assets of the Fund and CHUSGIF immediately after the merger were
$23,875,969.
NOTE 7: RESULTS OF SPECIAL MEETING OF SHAREHOLDERS
On October 30, 1998, a Special Meeting of Shareholders of the Fund was held to
approve the following items, all as described in the Proxy Statement for the
Meeting. On August 21, 1998, the record date for the Meeting, CSDUSGF, CIUSGF,
and CFSF had outstanding 1,368,828, 155,319,431, and 80,244,205 shares of
beneficial interest, respectively. The votes cast at the Meeting were as
follows:
21
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONT.
February 28, 1999
To Elect a Board of Trustees:
<TABLE>
<CAPTION>
CSDUSGF CIUSGF CFSF
Authority Authority Authority
For Withheld For Withheld For Withheld
=== ======== === ======== === ========
<S> <C> <C> <C> <C> <C> <C>
Robert J. Birnbaum 789,466 116,710 86,099,548 4,638,525 44,420,212 1,631,497
Tom Bleasdale 785,199 121,057 86,099,548 4,638,525 44,427,541 1,624,168
John Carberry 789,576 116,600 86,099,548 4,638,525 44,430,793 1,620,916
Lora S. Collins 790,132 116,044 86,099,548 4,638,525 44,435,720 1,615,989
James E. Grinnell 785,453 120,723 86,099,548 4,638,525 44,421,835 1,629,874
Richard W. Lowry 788,687 117,489 85,266,085 4,638,525 44,440,657 1,611,052
Salvatore Macera 786,254 119,922 86,098,439 4,639,634 44,429,342 1,622,367
William E. Mayer 782,923 123,253 86,099,548 4,638,525 44,430,631 1,621,078
James L. Moody, Jr. 795,142 111,034 86,099,548 4,638,525 44,432,179 1,619,530
John J. Neuhauser 789,521 116,655 86,099,548 4,638,525 44,433,930 1,617,779
Thomas E. Stitzel 789,498 116,678 86,098,439 4,639,634 44,433,969 1,617,740
Robert L. Sullivan 788,792 117,384 86,099,548 4,638,525 44,435,292 1,616,417
Anne-Lee Verville 789,576 116,600 86,099,548 4,638,525 44,431,715 1,619,994
</TABLE>
<TABLE>
<CAPTION>
To amend fundamental investment policies To approve policies for a master fund/feeder fund
regarding borrowing and lending: structure:
CSDUSGF CSDUSGF
For Against Abstain For Against Abstain
=== ======= ======= === ======= =======
<S> <C> <C> <C> <C> <C>
628,247 2,520 168,315 640,143 1,967 156,972
CIUSGF CIUSGF
For Against Abstain For Against Abstain
=== ======= ======= === ======= =======
67,193,381 2,191,048 5,711,976 66,827,341 2,058,018 6,211,048
CFSF CFSF
For Against Abstain For Against Abstain
=== ======= ======= === ======= =======
34,017,148 1,481,126 2,424,383 33,584,221 1,555,679 2,782,756
</TABLE>
To reclassify the fundamental investment policy
regarding the purchase of
illiquid securities:
CIUSGF
For Against Abstain
=== ======= =======
66,271,714 2,728,594 6,096,099
CFSF
For Against Abstain
=== ======= =======
33,262,039 1,997,326 2,663,290
22
<PAGE>
TRUSTEES & TRANSFER AGENT
ROBERT J. BIRNBAUM
Consultant (formerly Special Counsel, Dechert, Price & Rhoads; President and
Chief Operating Officer, New York Stock Exchange, Inc.; President, American
Stock Exchange Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
JOHN V. CARBERRY
Senior Vice President of Liberty Financial Companies, Inc. (formerly Managing
Director, Salomon Brothers)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
SALVATORE MACERA
Private Investor (formerly Executive Vice President of Itek Corp. and President
of Itek Optical & Electronic Industries, Inc.)
WILLIAM E. MAYER
Partner, Development Capital, LLC (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, Chief Executive Officer and Director
Hannaford Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
THOMAS E. STITZEL
Professor of Finance, College of Business, Boise State University; Business
Consultant and Author
ROBERT L. SULLIVAN
Retired Partner, KPMG LLP (formerly Management Consultant, Saatchi and Saatchi
Consulting Ltd. and Principal and International Practice Director, Management
Consulting, Peat Marwick Main & Co.)
ANNE-LEE VERVILLE
Consultant (formerly General Manager, Global Education Industry, and President,
Applications Solutions Division, IBM 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:
Liberty Funds Services, 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 and with the
most recent copy of the Liberty Funds Distributor, Inc. Performance Update.
<PAGE>
CHOOSE LIBERTY
BECAUSE NO SINGLE INVESTMENT MANAGER CAN BE ALL THINGS TO ALL INVESTORS.
[SERVICEMARK]
At Liberty Funds Distributor, Inc. (Liberty), we believe that -- try as they may
- -- no single investment manager can do all things well. That's why we make
available the individual talents of investment managers that have excelled in a
particular investment discipline. These managers not only specialize in a
distinct investment style, they hold a passion for the style along with a
demonstrated track record.
[graphic omitted]
<TABLE>
<CAPTION>
<S> <C>
Boston, MA Colonial has long been a recognized Portland, OR Crabbe Huson's contrarian investment
leader in fixed-income investing. In addition, Colonial style seeks long-term performance by investing in stocks
has distinguished itself with both a traditional and from high-quality, out-of-favor companies. This risk-averse
a more contemporary New Value[registered trademark] strategy capitalizes on the potential of these companies
approach to equity investing. to regain market popularity.
Colonial Management Associates, Inc.[logo] Crabbe Huson[logo]
Liberty
Newport Fund Management[logo] Stein Roe & Farnham[logo]
San Francisco, CA A leader in Asian investing[trademark], Chicago, IL Stein Roe's growth management style
Newport has an unparalleled knowledge of Asian economies, emphasizes companies with the ability to create, maintain
business and culture. and grow earnings in different market environments.
</TABLE>
Each of these managers is a member of the Liberty Financial Companies (NYSE: L),
a diversified asset accumulation and management organization with more than $61
billion in assets under management for more than 1.7 million investors.
COLONIAL GOVERNMENT FUNDS SEMIANNUAL REPORT, FEBRUARY 28, 1999
[logo]L I B E R T Y
COLONIAL [BULLET] CRABBE HUSON [BULLET] NEWPORT [BULLET] STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. [copyright] 1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
GF-03/763G-0299(4/99)99/432
