<PAGE>
LETTER FROM THE PRESIDENT
Dear Shareholder:
During the six months ended February 28, 1995, Colonial Government Money
Market Fund met its objective of providing investors with current income
consistent with capital preservation and liquidity by investing exclusively in
money market securities issued by the U.S. government and its agencies.
FUND PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS D
FUND INCEPTION 1/30/81 6/8/92 7/1/94
- ---------------------------------------------------------
<S> <C> <C> <C>
Distributions declared
per share $0.0234 $0.0182 $0.0182
- -------------------------------------------------------
Seven-day yield at 2/28/95 5.53% 4.22% 4.23%
- -------------------------------------------------------
30-day yield at 2/28/95 5.49% 4.28% 4.23%
- -------------------------------------------------------
</TABLE>
ECONOMIC SUMMARY
During the Fund's semiannual period, the U.S. economy remained strong, and
the Federal Reserve Board maintained its commitment to keep inflation under
control. The Fed raised short-term interest rates two times during the period --
0.75 percentage points in November and 0.50 percentage points in February.
Higher interest rates had a negative impact on the prices of most
fixed-income securities. However, the short-term nature of the money market
securities in which your Fund invests benefited from the recent economic
environment. As interest rates moved higher, so did your Fund's yield.
INVESTMENT STRATEGY
To help the Fund take advantage of rising interest rates, the average
maturity of the securities in the portfolio was kept fairly short for most of
the period. However, toward the end of the period there were tentative signs the
economy may be slowing. Some cyclical industries, including housing, appeared to
be weakening. As a consequence, the management of your Fund began extending the
average maturity of the portfolio, positioning the Fund to lock in higher yields
should interest rates begin to decline.
For more information about your Fund or other investment opportunities offered
by Colonial, please contact your full-service financial adviser or call us
directly at 1-800-426-3750.
Sincerely,
[PHOTO]
/s/ John A. McNeice, Jr.
John A. McNiece, Jr.
John A. McNeice, Jr. President
President
April 13, 1995
Note: Unlike a bank savings account, which is guaranteed as to price and
interest, Fund shares are not guaranteed by any financial institution or the
federal government.
A PORTFOLIO OF HIGH QUALITY
MONEY MARKET SECURITIES
AS OF 2/28/95
Your Fund's portfolio holdings represent a diverse selection of short-term,
fixed-income U.S. government and agency securities. These holdings include notes
issued by the Federal National Mortgage Association (FNMA), Federal Home Loan
Bank (FHLB), Federal Farm Credit Bank (FFCB), and Federal Home Loan Mortgage
Corporation (FHLMC).
<TABLE>
<CAPTION>
CGMMF Pie
- ---------------------------------
<S> <C>
FFCB 9.3
- ---------------------------------
FHLB 20.2
- ---------------------------------
FHLMC 3.3
- ---------------------------------
FNMA 45.2
- ---------------------------------
Repurchase Agreements 22.0
- ---------------------------------
</TABLE>
<PAGE>
INVESTMENT PORTFOLIO (UNAUDITED, IN THOUSANDS) FEBRUARY 28, 1995
<TABLE>
<CAPTION>
Annualized yield
SHORT-TERM OBLIGATIONS - 101.8% Maturity at time of purchase Par Value
- -----------------------------------------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES - 79.5% (unaudited)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Federal Farm Credit Bank:
................................................... 03/02/95 5.900% $ 5,825 $ 5,824
................................................... 03/13/95 5.930% 4,000 3,992
--------
9,816
--------
Federal Home Loan Bank:
................................................... 03/02/95 6.125% 4,000 3,999
................................................... 03/17/95 5.850% 3,000 2,992
................................................... 03/27/95 6.110% 4,000 3,982
................................................... 04/17/95 6.020% 1,485 1,473
................................................... 04/18/95 5.990% 5,000 4,960
................................................... 07/24/95 6.360% 4,000 3,898
--------
21,304
--------
Federal Home Loan Mortgage Corp...................... 03/02/95 5.660% 3,500 3,500
--------
Federal National Mortgage Association:
................................................... 03/08/95 6.100% 6,000 5,993
................................................... 03/23/95 5.770% 5,000 4,982
................................................... 03/30/95 5.950% 4,000 3,981
................................................... 04/10/95 6.100% 4,000 3,973
................................................... 04/11/95 6.100% 4,000 3,972
................................................... 05/09/95 5.990% 5,000 4,943
................................................... 05/11/95 6.150% 5,000 4,939
................................................... 05/30/95 5.930% 5,000 4,926
................................................... 06/20/95 6.160% 5,000 4,905
................................................... 06/27/95 5.940% 5,000 4,903
--------
47,517
- -----------------------------------------------------------------------------------------------------------------------------
Total U.S. government agencies (cost 82,137)...................................................................... 82,137
- -----------------------------------------------------------------------------------------------------------------------------
REPURCHASE AGREEMENT - 22.3%
- -----------------------------------------------------------------------------------------------------------------------------
Bankers Trust Securities Corp., dated 02/28/95,
due 03/01/95 at 6.050%, collateralized by U.S. Treasury
notes with various maturities to 1997, market value
$23,623 (repurchase proceeds $23,115)......................................................... 23,111 23,111
- -----------------------------------------------------------------------------------------------------------------------------
Total short-term obligations (cost $105,248)(a)................................................................... 105,248
- -----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - (1.8)%.......................................................................... (1,896)
- -----------------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0%............................................................................................... $103,352
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note to investment portfolio:
(a) Cost for federal income tax purposes is the same.
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS
STATEMENT OF ASSETS & LIABILITIES (UNAUDITED)
February 28, 1995
(in thousands except for per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments at amortized cost................... $ 105,248
Receivable for:
Fund shares sold............ $144
Interest.................... 4
Other.......................... 14 162
---- ---------
Total assets..................... 105,410
LIABILITIES
Payable for:
Fund shares repurchased..... 1,597
Distributions............... 437
Accrued:
Deferred Trustees fees...... 3
Other....................... 21
----
Total liabilities................ 2,058
---------
NET ASSETS...................................... $ 103,352
---------
Class A ($59,213/59,194).................... $ 1.00
---------
Class B ($43,609/43,618).................... $ 1.00
---------
Class D ($530/530).......................... $ 1.00
---------
Maximum offering price per share - Class D
($1.00/0.9999)......................... $ 1.00
---------
COMPOSITION OF NET ASSETS
Capital paid in.............................. $ 103,329
Undistributed net investment income.......... 10
Accumulated net realized gain................ 13
---------
$ 103,352
---------
</TABLE>
STATEMENT OF OPERATIONS (UNAUDITED)
Six months ended February 28, 1995
(in thousands)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest................................... $4,146
EXPENSES
Management fee.................. $288
Service fee - Class B........... 71
Service fee - Class D........... 1
Distribution fee - Class B...... 212
Distribution fee - Class D...... 2
Transfer agent.................. 200
Bookkeeping fee................. 31
Trustees fees................... 7
Custodian fee................... 4
Audit fee....................... 13
Legal fee....................... 4
Reports to shareholders......... 2
Registration fees............... 46
Other........................... 11
----
892
Fees waived by the adviser...... (55) 837
---- ------
Net investment income.............. $3,309
------
</TABLE>
See notes to financial statements.
<PAGE>
FINANCIAL STATEMENTS - CONTINUED
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
Six months Year
ended ended
February 28 August 31
------------- ----------
1995 1994(A)
------------- ----------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income........................................................................ $ 3,309 $ 2,816
Net realized loss............................................................................ --- (1)
--------- ---------
3,309 2,815
--------- ---------
Distributions
From net investment income - Class A......................................................... (2,279) (2,136)
From net investment income - Class B......................................................... (1,025) (666)
From net investment income - Class D......................................................... (10) (2)
--------- ---------
(5) 11
--------- ---------
Fund share transactions
Receipts for shares sold - Class A........................................................... 197,633 284,222
Value of distributions reinvested - Class A.................................................. 1,856 1,633
Cost of shares repurchased - Class A......................................................... (237,386) (233,441)
--------- ---------
(37,897) 52,414
--------- ---------
Receipts for shares sold - Class B........................................................... 61,375 121,635
Value of distributions reinvested - Class B.................................................. 796 461
Cost of shares repurchased - Class B......................................................... (73,097) (78,454)
--------- ---------
(10,926) 43,642
--------- ---------
Receipts for shares sold - Class D.................................... 16 517
Value of distributions reinvested - Class D.................................................. 9 1
Cost of shares repurchased - Class D......................................................... (13)
--------- ---------
12 518
--------- ---------
Net increase (decrease) from Fund share transactions...................................... (48,811) 96,574
--------- ---------
Total increase (decrease)........................................................ (48,816) 96,585
NET ASSETS
Beginning of period.......................................................................... 152,168 55,583
--------- ---------
End of period (including undistributed net investment income of $10 and $15, respectively) $ 103,352 $ 152,168
--------- ---------
NUMBER OF FUND SHARES
Sold - Class A............................................................................... 197,633 284,222
Issued for distributions reinvested - Class A................................................ 1,856 1,633
Repurchased - Class A........................................................................ 237,386) (233,441)
--------- ---------
(37,897) 52,414
--------- ---------
Sold - Class B............................................................................... 61,375 121,635
Issued for distributions reinvested - Class B................................................ 796 461
Repurchased - Class B........................................................................ (73,097) (78,454)
--------- ---------
(10,926) 43,642
--------- ---------
Sold - Class D............................................................................... 16 517
Issued for distributions reinvested - Class D................................................ 9 1
Repurchased - Class D........................................................................ (13)
--------- ---------
12 518
--------- ---------
Net increase (decrease) in shares outstanding............................................. (48,811) 96,574
Outstanding at
Beginning of period......................................................................... 152,153 55,579
--------- ---------
End of period............................................................................... 103,342 152,153
--------- ---------
</TABLE>
(a) Class D shares were initially offered on July 1, 1994.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. INTERIM FINANCIAL STATEMENTS
In the opinion of management of Colonial Government Money Market Fund (the
Fund), a series of Colonial Trust II, the accompanying financial statements
contain all normal and recurring adjustments necessary for the fair presentation
of the financial position of the Fund at February 28, 1995, and the results of
its operations, the changes in its net assets and the financial highlights for
the six months then ended.
NOTE 2. ACCOUNTING POLICIES
The Fund is a Massachusetts business trust registered under the Investment
Company Act of 1940, as amended, as a diversified, open-end, management
investment company. The Fund may issue an unlimited number of shares. The Fund
offers three classes of shares; Class A, Class B, and Class D. Class B shares,
which are identical to Class A shares except for an annual service and
distribution fee and a contingent deferred sales charge, will convert to Class A
shares when they have been outstanding approximately eight years. Class D
shares are subject to a reduced front-end sales charge, a contingent deferred
sales charge on redemptions made within one year after purchase and a continuing
service and distribution fee. The following significant accounting policies are
consistently followed by the Fund in the preparation of its financial statements
and conform to generally accepted accounting principles.
SECURITY VALUATION AND TRANSACTIONS
The Fund values its portfolio securities utilizing the amortized cost
valuation method.
Security transactions are accounted for on the date the securities are
purchased or sold.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS
All income, expenses (other than the Class B and Class D service and
distribution fees), 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 B and Class D per share data and ratios are calculated by adjusting
the expense and net investment income per share data and ratios for the Fund for
the entire period by the service and distribution fees applicable to Class B and
Class D shares only.
FEDERAL INCOME TAXES
Consistent with the Fund's policy to qualify as a regulated investment
company and to distribute all of its taxable income, no federal income tax has
been accrued.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund declares and records distributions daily and pays monthly.
OTHER
Interest income, including discount accretion and premium amortization, is
recorded daily on the accrual basis.
The Fund's custodian takes possession through the federal book-entry system
of securities collateralizing repurchase agreements. Collateral is
marked-to-market daily to ensure that the market value of the underlying assets
remains sufficient to protect the Fund. The Fund may experience costs and
delays in liquidating the collateral if the issuer defaults or enters
bankruptcy.
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE
Colonial Management Associates, Inc. (the Adviser) is the investment adviser
of the Fund, and through October 16, 1994, furnished accounting and other
services and office facilities for a monthly fee equal to 0.50% annually of the
Fund's average net assets. The
<PAGE>
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Adviser had voluntarily waived a portion of its management fee, and the Fund
paid a fee equal to 0.30% of its average net assets.
Effective October 17, 1994, and until further notice, the Adviser changed
the monthly fee to 0.30% of the Fund's average net assets, and discontinued the
voluntary waiver.
BOOKKEEPING FEE
The Adviser provides bookkeeping and pricing services for $27,000 per year
plus 0.035% of the Fund's average net assets over $50 million.
TRANSFER AGENT
Colonial Investors Service Center, Inc. (the Transfer Agent) an affiliate of
the Adviser, provides shareholder services for a monthly fee equal to 0.20%
annually of the Fund's average net assets and receives reimbursement for certain
out of pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES
The Adviser, through Colonial Investment Services, Inc. (the Distributor)
division, is the Fund's principal underwriter. During the six months ended
February 28, 1995, the Distributor received contingent deferred sales charges
(CDSC) of $408,474 and none, on Class B and Class D share redemptions,
respectively.
The Fund has adopted a 12b-1 plan which requires it to pay the Distributor a
service fee and a distribution fee equal to 0.25% annually and 0.75% annually,
respectively, of the net assets attributable to Class B shares and Class D
shares as of the 20th of each month.
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
EXPENSE LIMITS
The Adviser has agreed, until further notice, to waive fees and bear certain
Fund expenses to the extent that total expenses (exclusive of service and
distribution fees, brokerage commissions, interest, taxes and extraordinary
expenses, if any) exceed 1.00% annually of the Fund's average net assets.
For the six months ended February 28, 1995, the Fund's operating expenses
did not exceed the 1.00% expense limit.
OTHER
The Fund pays no compensation to its officers all of whom are employees of
the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which
may be terminated at any time. Obligations of the plan will be paid solely out
of the Fund's assets.
NOTE 4. PORTFOLIO INFORMATION
During the six months ended February 28, 1995, purchases and sales
(including maturities) of short-term obligations (excluding repurchase
agreements) were $102,936,381 and $172,940,000, respectively, all of which were
U.S. government securities.
NOTE 5. RESULTS OF SPECIAL SHAREHOLDERS MEETING
On February 15, 1995, a special meeting of shareholders was held and a new
Management Agreement between the Trust and Colonial Management Associates, Inc.
was approved that became effective upon the completion of the merge of The
Colonial Group, Inc. and Apple Merger Corporation, a subsidiary of Liberty
Financial Companies, Inc. on March 24, 1995. Out of the shares of beneficial
interest outstanding on December 9, 1994, 112,325,654 voted for the new
Management Agreement, 2,099,269 voted against and 7,155,554 abstained.
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28 AUGUST 31
--------------------------------- -------------------------------
1995 1994
--------------------------------- -------------------------------
CLASS A CLASS B CLASS D CLASS A CLASS B CLASS D (B)
------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value-
Beginning of period............................ $ 1.000 $1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income (a)................... 0.023 0.018 0.018 0.028 0.018 0.005
------- ------- ------- ------- ------- -------
Less distributions declared to shareholders:
From net investment income.................. (0.023) (0.018) (0.018) (0.028) (0.018) (0.005)
------- ------- ------- ------- ------- -------
Net asset value- End of period.................. $ 1.000 $1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- ------- -------
Total return (c)(d)............................. 2.37% (e) 1.84% (e) 1.83% (e) 2.85% 1.82% --
------- ------- ------- ------- ------- -------
Ratios to average net assets
Expenses.................................... 0.71% (f) 1.71% (f) 1.71% (f) 0.73% 1.73% 1.73% (f)
Fees and expenses waived or borne
by the adviser........................... 0.07% (f) 0.07% (f) 0.07% (f) 0.20% 0.20% 0.20% (f)
Net investment income....................... 4.60% (f) 3.60% (f) 3.60% (f) 3.01% 2.01% 2.01% (f)
Net assets at end of period (000)............... $59,213 $43,609 $ 530 $97,115 $54,535 $ 518
(a) Net of fees and expenses
waived or borne by
the adviser which
amounted to................................. $ 0.000 $ 0.000 $ 0.000 $ 0.002 $ 0.002 $ 0.002
</TABLE>
(b) Class D shares were initially offered on July 1, 1994. Per share amounts
reflect activity from that date.
(c) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or CDSC.
(d) Had the adviser not waived or reimbursed a portion of expenses, total return
would have been reduced.
(e) Not annualized.
(f) Annualized.
<PAGE>
FINANCIAL HIGHLIGHTS - CONTINUED
Selected data for a share of each class outstanding throughout each period are
as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
AUGUST 31 AUGUST 31 YEAR ENDED DECEMBER 31
------------------ --------------------- ------------------------------
1993 1992 (B) 1991 1990 1989
------------------ --------------------- ------- ------- -------
CLASS A CLASS B CLASS A CLASS B(C) CLASS A CLASS A CLASS A
------- ------- ------- ---------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value-
Beginning of period............. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- ------- ------- -------
Income from investment operations:
Net investment income(a)....... 0.023 0.013 0.022 0.004 0.053 0.074 0.082
------- ------- ------- ------- ------- ------- -------
Less distributions declared to
shareholders:
From net investment income..... (0.023) (0.013) (0.022) (0.004) (0.053) (0.074) (0.082)
------- ------- ------- ------- ------- ------- -------
Net asset value- End of period..... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- ------- ------- -------
Total return(d)(e)................. 2.28% 1.27% 2.18% (f) 0.43% (f) 5.38% 7.64% 8.50%
------- ------- ------- ------- ------- ------- -------
Ratios to average net assets
Expenses....................... 0.88% 1.88% 1.00% (g) 2.00% (g) 0.85% 0.77% 0.74%
Fees and expenses waived or
borne by the adviser......... 0.20% 0.20% 0.38% (g) 0.38% (g) 0.20% 0.13% --
Net investment income.......... 2.26% 1.26% 3.23% (g) 2.23% (g) 5.32% 7.38% 8.20%
Net assets at end of period (000).. $44,693 $10,890 $47,885 $14,096 $56,198 $79,771 $75,301
(a) Net of fees and expenses
waived or borne by
the adviser which
amounted to.................... $ 0.002 $ 0.002 $ 0.003 $ 0.001 $ 0.002 $ 0.001 --
</TABLE>
(b) The Fund changed its fiscal year end from December 31 to August 31 in 1992.
(c) Class B shares were initially offered on June 8, 1992. Per share amounts
reflect activity from that date.
(d) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or CDSC.
(e) Had the adviser not waived or reimbursed a portion of expenses, total return
would have been reduced.
(f) Not annualized.
(g) Annualized.
<PAGE>
TRUSTEES
- --------------------------------------------------------------------------------
TOM BLEASDALE
Trustee (formerly Chairman of the Board and Chief Executive
Officer, Shore Bank & Trust Company)
LORA S. COLLINS
Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
WILLIAM D. IRELAND, JR.
Trustee (formerly Chairman of the Board, Bank of New England - Worcester)
WILLIAM E. MAYER
Dean, College of Business and Management, University of Maryland (formerly
Dean, Simon Graduate School of Business, University of Rochester; Chairman
and Chief Executive Officer, C.S. First Boston Merchant Bank; and President
and Chief Executive Officer, The First Boston Corporation)
JOHN A. MCNEICE, JR.
Chairman of the Board, Chief Executive Officer and Director, The Colonial
Group, Inc. and Colonial Management Associates, Inc.
JAMES L. MOODY, JR.
Chairman of the Board, Hannaford Bros. Co. (formerly Chief
Executive Officer, Hannaford Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
GEORGE L. SHINN
Financial Consultant (formerly Chairman, Chief Executive Officer and
Consultant, The First Boston Corporation)
ROBERT L. SULLIVAN
Management Consultant
SINCLAIR WEEKS, JR.
Chairman of the Board, Reed &Barton Corporation
<PAGE>
- --------------------------------------------------------------------------------
- -------------------------------------------------------
[PICTURE OF ABOUT OUR COVER...
MONEY BUNDLES]
The symbol on the cover of this
Report represents the Fund's primary
investment focus on U.S. government
money market instruments.
- -------------------------------------------------------
Colonial Government Money Market Fund mails one
shareholder report to each shareholder address. If you
would like more than one report, please call our
Literature Department at 1-800-248-2828 and additional
reports will be sent to you.
SHAREHOLDER SERVICES AND TRANSFER AGENT
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
This material may be used with potential investors if it
is preceded or accompanied by a current Fund prospectus
containing more complete information including fees, risks,
and expenses.
<PAGE>
THIS PAGE LEFT BLANK INTENTIONALLY
<PAGE>
[LOGO] COLONIAL
MUTUAL FUNDS
[PICTURE OF MONEY
BUNDLES]
COLONIAL GOVERNMENT
MONEY MARKET FUND
-----------------------------
SEMIANNUAL REPORT
FEBRUARY 28, 1995
[LOGO] COLONIAL
MUTUAL FUNDS]
COLONIAL INVESTMENT SERVICES Copy Rights 1995
ONE FINANCIAL CENTER, BOSTON, MASSACHUSETTS 02111-2621
PRINTED ON RECYCLED PAPER
MM-02/819A-0295
