<PAGE>
--------------------------------
[COLONIAL FLAG LOGO]
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Colonial
Newport Tiger
[PICTURE OF TIGER CUBS] Cub Fund
--------------------------------
Annual Report
August 31, 1996
--------------------------------
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Not FDIC- May lose value
Insured No bank guarantee
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<PAGE>
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COLONIAL NEWPORT TIGER CUB FUND HIGHLIGHTS
JUNE 3, 1996 - AUGUST 31, 1996
INVESTMENT OBJECTIVE: Colonial Newport Tiger Cub Fund seeks capital appreciation
by investing primarily in equity securities of small companies (i.e., companies
with equity market capitalizations of U.S. $1 billion or less) located in the
nine Tigers of Asia: Hong Kong, Singapore, South Korea, Taiwan, Malaysia,
Thailand, Indonesia, China and the Philippines.
THE FUND IS DESIGNED TO OFFER:
X Access to entrepreneurial company stocks in fast-growing economies
X Aggressive long-term growth potential
X Experienced investment management
PORTFOLIO MANAGER COMMENTARY: "The Fund invests in a select group of smaller
Asian companies. Many of these are single-product companies focusing on a
specific growth market. I think they offer unusual opportunities for investors."
-- Robert Cameron
PERFORMANCE: The Morgan Stanley Capital International Pacific Region Funds
Ex-Japan Index, a broad-based, unmanaged index that tracks the performance of
stocks in the Pacific Rim in countries other than Japan, provided a cumulative
total return of (2.7)% for the period 6/3/96 through 8/31/96. Unlike mutual
funds, an index does not incur fees or charges and it is not possible to invest
in an index.
<TABLE>
COLONIAL NEWPORT TIGER CUB FUND PERFORMANCE
<CAPTION>
CLASS A CLASS B CLASS D
<S> <C> <C> <C>
Inception 6/3/96 6/3/96 6/3/96
Distributions declared per share -- -- --
Total returns, assuming reinvestment
of all distributions and no sales
charge or contingent deferred sales
charge (CDSC), since inception (6.80)% (7.00)% (7.00)%
Net asset value per share at 8/31/96 $9.32 $9.30 $9.30
Total return assuming maximum offering
price (MOP) and CDSC, since inception* (12.25)% (11.65)% (8.85)%
<FN>
* MOP returns include the maximum sales charge of 5.75% for Class A and 1% for
Class D. The CDSC returns reflect the maximum charge of 5% and 1%,
respectively, for Class B and Class D. Past performance cannot predict future
results. Returns and value of an investment will vary, resulting in a gain or
loss on sale.
</TABLE>
<TABLE>
<CAPTION>
TOP FIVE COUNTRIES (AS OF 8/31/96)** TOP FIVE HOLDINGS (AS OF 8/31/96)**
- ------------------------------------ -----------------------------------
<S> <C> <C> <C>
1. Hong Kong 48.28% 1. Yip's Hang Cheung Ho 4.60%
2. Singapore 19.36% 2. Siam City Bank, Ltd. 4.23%
3. Thailand 8.36% 3. Liu Chong Hing Bank 4.12%
4. Indonesia 7.38% 4. Hong Kong Telecomm 4.08%
5. Philippines 2.56% 5. Vitasoy International 3.92%
<FN>
** Because the Fund is actively managed, there can be no guarantee it will
continue to hold these securities or maintain these weightings in the future.
Breakdowns are based on total net assets.
</TABLE>
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2
<PAGE>
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PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
I am pleased to present the first annual report for
Colonial Newport Tiger Cub Fund and would like to take [PICTURE OF
the opportunity to welcome you as shareholders. This Harold W. Cogger]
report provides performance information for the Fund
since it commenced operations on June 3, 1996.
Asian markets are traditionally slow in the mid-summer to late-autumn, and
this year is no exception. Far East exchanges took their cue from U.S. market
movements, as uncertainty regarding the future direction of interest rates
caused a pause in the U.S. bull market.
Nonetheless, the long-term prospects for the Pacific Rim are strong. Rising
disposable income, supported by rapid economic growth is fueling a consumer
boom. With approximately three billion people -- nearly half the world's
population -- this boom may be on a scale the world has never seen before.
Newport Fund Management believes many companies throughout the Asian Tigers
and Japan are poised to benefit from this market environment. Your Fund is
designed to help you participate in the growth of this exciting region.
Portfolio Manager Robert Cameron believes that assuming U.S. interest rates
remain relatively stable, the prospects for the Tiger markets are promising.
In the following report he comments on the key issues affecting the markets
in which your Fund invests.
Respectfully,
/s/ Harold W. Cogger
Harold W. Cogger
President
October 11, 1996
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3
<PAGE>
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PORTFOLIO MANAGEMENT REPORT
by Robert Cameron who is the portfolio manager of Colonial Newport Tiger Cub
Fund and is senior vice president of Newport Fund Management, Inc.
My objective for the Fund is to invest in the best quality, smaller growth
businesses in East Asia which has been the fastest growing region of the world.
I believe this growth will continue because of its high savings and inv estment
rates, hard work ethic, high standards for education and pro-business
governments. The Fund is well positioned to take advantage of the consumer boom
in Asia which is a result of rising disposable incomes.
I look for well managed companies that Newport believes have a strong market
niche and can grow their earnings at 20% to 25% for the foreseeable future, say
five years. You can tell a lot about management from looking at the financial
health of the business. Strong cash flows and low debt levels are important as
is management that is open, honest and transparent in their dealings and
sensitive to the interests of minority shareholders.
EXAMPLES OF COMPANIES HELD BY THE FUND* Sinocan Holdings is one of the largest
manufacturers of high quality steel cans in China, 80% of which are used for
food and beverages, a market which has been growing at 25% annually. Return on
equity is 37% and the stock is valued at nine times estimated 1997 earnings.
Guangnan Holdings is the sole authorized importer of live and fresh foodstuffs
from Guangdong, China into Hong Kong. A vertically integrated food trader,
Guangnan imports and exports gourmet food and operates close to 100
supermarkets. This is a dynamic consumer-oriented company which is well
positioned to benefit from the rising standard of living in China.
Srithai Superware controls over 50% of the plastics market in Thailand and
dominates the tableware market with 47,000 'Superware' sales people. With twelve
foreign automobile manufacturers setting up in Thailand, that country is
becoming the automobile manufacturing headquarters of Southeast Asia (GM
recently announced that they will invest $750 million there). Srithai is well
positioned to tap into this booming market by supplying plastic parts like
bumpers and dashboards.
PERFORMANCE During the short period since inception of the Fund on June 3, 1996,
the markets have been volatile. Hong Kong was up slightly, 0.9%, while
Singapore, Malaysia, Thailand and Indonesia were down (10.0)%, (1.1)%, (14.8)%
and (12.3)% respectively. The Cub Fund was down (6.8)% based on Class A shares
at net asset value. This compares favorably with the HSBC James Capel Smaller
Asia Companies S.E. Asia Index which was down (6.2)%.
OUTLOOK Most of the countries in which we invest have been going through a
period of tight liquidity designed to cool economic growth and keep inflation
under control. Inflation has been well contained and I expect a general
relaxation of monetary policy across the region. Stock valuations are still very
reasonable and I do not see any significant political or economic risks on the
horizon. This is a very healthy environment for stocks and one in which the high
quality, smaller companies which make up the Fund have the potential for
considerable capital appreciation over time.
* Because the Fund is actively managed, holdings may change.
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4
<PAGE>
<TABLE>
INVESTMENT PORTFOLIO
AUGUST 31, 1996
<CAPTION>
COMMON STOCKS - 88.1% COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
AGRICULTURE, FORESTRY & FISHING - 1.1%
AGRICULTURE - LIVESTOCK
Pt Anwar Sierad (Foreign) In 107 $ 87
------
- --------------------------------------------------------------------------------
CONSTRUCTION - 3.1%
BUILDING CONSTRUCTION - 1.0%
C & P Homes, Inc. Ph 110 80
------
HEAVY CONSTRUCTION-NON BUILDING CONSTRUCTION - 2.1%
Road Builder (M) Holdings Bhd Ma 37 174
------
- --------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 29.1%
DEPOSITORY INSTITUTIONS - 15.3%
HSBC Holdings PLC HK 10 173
JCG Holdings Ltd. HK 276 235
Liu Chong Hing Bank Ltd. HK 236 333
Pt Lippo Bank In 100 154
Siam City Bank Ltd Reg Th 173 341
------
1,236
------
NONDEPOSITORY CREDIT INSTITUTIONS - 9.2%
Finance One Public Co. (Foreign) Th 50 247
Manhattan Card Co., Ltd. HK 470 211
ST Capital Ltd. Si 209 284
------
742
------
REAL ESTATE - 4.6%
City Developments Ltd. Si 30 250
Hon Kwok Land Investment Ltd. HK 350 122
------
372
------
- --------------------------------------------------------------------------------
MANUFACTURING - 34.3%
CHEMICALS & ALLIED PRODUCTS - 5.6%
Pt Darya Varia Laboratoria (a) In 50 84
Yip's Hang Cheung Ltd. HK 3,086 371
------
455
------
ELECTRONIC & ELECTRICAL EQUIPMENT - 7.9%
Clipsal Industries Ltd. Si 47 132
Elec & Eltek International Company Ltd. Si 93 268
Varitronix International Ltd. HK 127 240
------
640
------
</TABLE>
5
<PAGE>
Investment Portfolio/August 31, 1996
- --------------------------------------------------------------------------------
[CAPTION]
COMMON STOCKS - 88.1% COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
[S] [C] [C] [C]
MANUFACTURING - CONT.
FOOD & KINDRED PRODUCTS - 9.8%
Guangnan Holdings HK 216 $ 133
La Tondena Distillers Inc. Ph 69 127
Pt Mayora Indah Reg (a) In 495 217
Vitasoy International Holdings Ltd. HK 816 316
------
793
------
FABRICATED METAL - 2.9%
Sinocan Holdings Ltd. HK 494 235
------
FURNITURE & FIXTURES - 2.8%
Courts Ltd. Si 161 228
------
MEASURING & ANALYZING INSTRUMENTS - 1.7%
China Hong Kong Photo Products HK 298 141
------
RUBBER & PLASTIC - 1.7%
Pt Dynaplast In 50 49
Srithai Superware Public Co., Ltd.
(Foreign) Th 18 89
------
138
------
STONE, CLAY, GLASS & CONCRETE - 1.9%
Wai Kee Holdings Ltd. HK 650 152
------
- --------------------------------------------------------------------------------
RETAIL TRADE - 4.3%
APPAREL & ACCESSORY STORES
Dickson Concepts International Ltd. HK 108 131
Giordano International Ltd. HK 260 215
------
346
------
- --------------------------------------------------------------------------------
SERVICES - 6.3%
AMUSEMENT & RECREATION - 1.3%
Golden Harvest Entertainment Ltd. HK 324 105
------
Miscellaneous Repair Services - 5.0%
Keppel Corp. Si 24 183
Singapore Technologies Automotive Ltd. Si 110 223
------
406
------
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 6.1%
COMMUNICATIONS - 4.1%
Hong Kong Telecommunications Ltd. HK 197 330
------
GAS SERVICES - 1.9%
Hong Kong and China Gas Co., Ltd. HK 97 157
------
6
<PAGE>
<TABLE>
Investment Portfolio/August 31, 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
LOCAL & SUBURBAN TRANSIT - 0.1%
Pt Steady Safe Transportation Co.
(Foreign) In 8 $ 7
------
- --------------------------------------------------------------------------------
WHOLESALE TRADE - 3.8%
DURABLE GOODS
Li & Fung Ltd. HK 344 311
------
TOTAL INVESTMENTS (cost of $7,452) (b) 7,135
------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM OBLIGATIONS - 8.8% PAR
- --------------------------------------------------------------------------------
<S> <C> <C>
Repurchase agreement with Bankers Trust
Securities Corp., dated 08/30/96 due
09/03/96 at 5.240% collateralized by
U.S. Treasury bills and notes with
various maturities to 2017, market
value $741 (repurchase proceeds $710) $710 710
------
OTHER ASSETS & LIABILITIES, NET - 3.1% 255
- --------------------------------------------------------------------------------
NET ASSETS - 100% $8,100
======
<FN>
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Non-income producing.
(b) Cost for federal income tax purposes is the same.
</TABLE>
<TABLE>
<CAPTION>
Summary of Securities
by Country Country Value % of Total
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Hong Kong HK $3,911 54.8
Singapore Si 1,568 22.0
Thailand Th 677 9.5
Indonesia In 598 8.4
Philippines Ph 207 2.9
Malaysia Ma 174 2.4
------ -----
$7,135 100.0%
====== =====
</TABLE>
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
See notes to financial statements.
7
<PAGE>
<TABLE>
STATEMENT OF ASSETS & LIABILITIES
AUGUST 31, 1996
(in thousands except for per share amounts and footnotes)
<S> <C> <C>
ASSETS
Investments at value (cost $7,452) $7,135
Short-term obligations 710
------
7,845
Cash including foreign currencies (cost $2) 2
Receivable for:
Fund shares sold 217
Dividends 16
Expense reimbursment due from
Adviser/Administrator 65
Deferred organization expenses 1 301
--- ------
Total Assets 8,146
LIABILITIES
Payable for:
Fund shares repurchased 33
Accrued:
Management fee 7
Other 6
---
Total Liabilities 46
------
NET ASSETS $8,100
------
Net asset value & redemption price per share -
Class A ($3,542/380) $ 9.32
------
Maximum offering price per share - Class A
($9.32/0.9425) $ 9.89(a)
------
Net asset value & offering price per share -
Class B ($2,654/285) $ 9.30(b)
------
Net asset value & redemption price per share -
Class D ($738/79) $ 9.30(b)
------
Maximum offering price per share - Class D
($9.30/0.9900) $ 9.39
------
Net asset value, offering & redemption price
per share - Class Z ($1,166/125) $ 9.32
------
<FN>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
</TABLE>
See notes to financial statements.
8
<PAGE>
<TABLE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED AUGUST 31, 1996 (a)
(in thousands)
<S> <C> <C>
INVESTMENT INCOME
Dividends $ 25
Interest 12
------
Total Investment Income (net of nonrebatable
foreign taxes withheld at source which
amounted to $1) 37
EXPENSES
Management fee $ 15
Administration fee 3
Service fee - Class A 1
Service fee - Class B 1
Service fee - Class D (b)
Distribution fee - Class B 3
Distribution fee - Class D 1
Transfer agent fee 3
Bookkeeping fee 7
Custodian fee 8
Registration fee 7
Other (b)
----
99
Fees and expenses waived or borne
by the Adviser/Administrator (67) 32
---- ------
Net Investment Income 5
------
NET REALIZED & UNREALIZED LOSS ON PORTFOLIO POSITIONS
Net realized loss on:
Investments (34)
Foreign currency transactions (28)
----
Net Realized Loss (62)
Net unrealized depreciation
during the period (317)
------
Net Loss (379)
------
Net Decrease in Net Assets from Operations $ (374)
======
<FN>
(a) The Fund commenced investment operations on June 3, 1996.
(b) Rounds to less than one.
</TABLE>
See notes to financial statements.
9
<PAGE>
<TABLE>
STATEMENT OF CHANGES IN NET ASSETS
<CAPTION>
Period ended
(in thousands) August 31
------------
1996 (a)
<S> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations:
Net investment income $ 5
Net realized loss (62)
Net unrealized depreciation (317)
------
Net Decrease from Operations (374)
------
Fund Share Transactions
Receipts for shares sold - Class A 4,138
Cost of shares repurchased - Class A (462)
------
3,676
------
Receipts for shares sold - Class B 2,816
Cost of shares repurchased - Class B (49)
------
2,767
------
Receipts for shares sold - Class D 889
Cost of shares repurchased - Class D (108)
------
781
------
Receipts for shares sold - Class Z 1,250
------
Net Increase from Fund Share Transactions 8,474
------
Total Increase 8,100
NET ASSETS
Beginning of period -
------
End of period (including undistributed net
investment loss of $17) $8,100
------
NUMBER OF FUND SHARES
Sold - Class A 429
Repurchased - Class A (49)
------
380
------
Sold - Class B 290
Repurchased - Class B (5)
------
285
------
Sold - Class D 90
Repurchased - Class D (11)
------
79
------
Sold - Class Z 125
------
<FN>
(a) The Fund commenced investment operations on June 3, 1996.
</TABLE>
See notes to financial statements.
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
NOTE 1. ACCOUNTING POLICIES
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ORGANIZATION: Colonial Newport Tiger Cub Fund (the Fund), a series of Colonial
Trust II, is a diversified portfolio of a Massachusetts business trust,
registered under the Investment Company Act of 1940, as amended, as an open-end,
management investment company. The Fund's investment objective is to seek
capital appreciation by investing primarily in equity securities of small
companies located in the nine Tigers of Asia (Hong Kong, Singapore, South Korea,
Taiwan, Malaysia, Thailand, Indonesia, China and the Philippines). The Fund may
issue an unlimited number of shares. The Fund offers four classes of shares:
Class A, Class B, Class D, and Class Z. Class A shares are sold with a front-end
sales charge and Class B shares are subject to an annual distribution fee and a
contingent deferred sales charge. Class B shares will convert to Class A shares
when they have been out- standing 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 distribution
fee. Class Z shares are offered continuously at net asset value. There are
certain restrictions on the purchase of Class Z shares, please refer to the
prospectus.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the period. Actual results
could differ from those estimates. The following is a summary of significant
accounting policies that are consistently followed by the Fund in the
preparation of its financial statements.
SECURITY VALUATION AND TRANSACTIONS: Equity securities are valued at the last
sale price or, in the case of unlisted or listed securities for which there were
no sales during the day, at current quoted bid prices. In certain countries, the
Fund may hold foreign designated shares. If the foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded. Korean equity securities that have
reached the limit for aggregate foreign ownership and for which premiums to the
local exchange prices may be paid by foreign investors are valued by applying a
broker quoted premium to the local share price.
Forward currency contracts are valued based on the weighted value of the
exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
11
<PAGE>
Notes to Financial Statements/August 31, 1996
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
The value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates. In certain countries,
the Fund may hold portfolio positions which cannot be valued as set forth above,
and 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 and losses are based upon the first-in, first-out
basis 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 A, Class B and Class D service fee and Class B
and Class D distribution fee), 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.
The per share data was calculated using average shares outstanding during the
period. In addition, Class A, Class B and Class D net investment income per
share data reflects the service fee per share applicable to Class A, Class B and
Class D shares and the distribution fee applicable to Class B and Class D shares
only.
Class A, Class B and Class D ratios are calculated by adjusting the expense and
net investment income ratios for the Fund for the entire period by the service
fee applicable to Class A, Class B and Class D shares and the distribution fee
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.
DEFERRED ORGANIZATION EXPENSES: The Fund incurred $1,000 of expenses in
connection with its organization. These expenses were deferred and are being
amortized on a straight-line basis over five years.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are recorded on the
ex-date.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
FOREIGN CURRENCY TRANSACTIONS: Net realized and unrealized gains (losses) on
foreign currency transactions includes the fluctuation in exchange
12
<PAGE>
Notes to Financial Statements/August 31, 1996
- --------------------------------------------------------------------------------
rates on gains (losses) between trade and settlement dates on securities
transactions, gains (losses) arising from the disposition of foreign currency,
and currency gains (losses) between the accrual and payment dates on dividends
and interest income and foreign withholding taxes.
The Fund does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) from investments.
FORWARD CURRENCY CONTRACTS: The Fund may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities. The Fund
may also enter into forward currency contracts to hedge certain other foreign
currency denominated assets. The contracts are used to minimize the exposure to
foreign exchange rate fluctuations during the period between trade and
settlement date of the contracts. All contracts are marked-to-market daily,
resulting in unrealized gains (losses) which become realized at the time the
forward currency contracts are closed or mature. Realized and unrealized gains
(losses) arising from such transactions are included in net realized and
unrealized gains (losses) on foreign currency transactions. Forward currency
contracts do not eliminate fluctuations in the prices of the Fund's portfolio
securities. While the maximum potential loss from such contracts is the
aggregate face value in U.S. dollars at the time the contract is opened, the
actual exposure is typically limited to the change in value of the contract (in
U.S. dollars) over the period it remains open. Risks may also arise if
counterparties fail to perform their obligations under the contracts.
OTHER: Corporate actions are recorded on the ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware of
such), net of nonrebatable tax withholdings. Where a high level of uncertainty
as to collection exists, income on securities is recorded net of all tax
withholdings with any rebates recorded when received.
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 2. FEES AND COMPENSATION PAID TO AFFILIATES
- --------------------------------------------------------------------------------
MANAGEMENT FEE: Newport Fund Management (the Adviser) is the investment Adviser
of the Fund and receives a monthly fee equal to 1.15% annually of the Fund's
average net assets.
13
<PAGE>
Notes to Financial Statements/August 31, 1996
- --------------------------------------------------------------------------------
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES - CONT.
- --------------------------------------------------------------------------------
ADMINISTRATION FEE: Colonial Management Associates, Inc. (the Administrator)
provides accounting and other services for a monthly fee equal to 0.25% annually
of the Fund's average net assets.
BOOKKEEPING FEE: The Administrator 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 Administrator, provides shareholder services for a monthly fee
equal to 0.25% annually of the Fund's average net assets and receives a
reimbursement for certain out of pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Administrator, is the
Fund's principal underwriter. For the period ended August 31, 1996, the Fund has
been advised that the Distributor retained net underwriting discounts of $13,260
on sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $1,097 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 equal to 0.25% annually on Class A, Class B and Class D net assets
as of the 20th of each month. The plan also requires the payment of a
distribution fee to the Distributor equal to 0.75% of the average net assets
attributable to Class B and Class D shares only.
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/Administrator have agreed, until further notice, to
waive fees and bear certain Fund expenses to the extent that total expenses
(exclusive of service fees, distribution fees, brokerage commissions, interest,
taxes and extraordinary expenses, if any) exceed 2.00% annually of the Fund's
average net assets.
OTHER: The Fund pays no compensation to its officers, all of whom are employ-
ees of the Adviser or Administrator.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
the Fund's assets.
14
<PAGE>
Notes to Financial Statements/August 31, 1996
- --------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the period ended August 31, 1996, purchases and
sales of investments, other than short-term obligations, were $7,607,188 and
$121,059, respectively.
<TABLE>
Unrealized appreciation (depreciation) at August 31, 1996, based on cost of
investments for both financial statement and federal income tax purposes was:
<S> <C>
Gross unrealized appreciation $ 143,369
Gross unrealized depreciation (460,473)
---------
Net unrealized depreciation $(317,104)
=========
</TABLE>
OTHER: There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities. These
risks may involve foreign currency exchange rate fluctuations, adverse political
and economic developments and the possible prevention of currency exchange or
other foreign governmental laws or restrictions.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
NOTE 4. OTHER RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
At August 31, 1996, the Fund had one shareholder, Liberty Financial Companies,
who owned greater than 5% of the Fund's shares outstanding.
<TABLE>
NOTE 5. COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
<S> <C>
Capital paid in $8,468
Accumulated net investment loss (17)
Accumulated net realized loss (34)
Net unrealized depreciation (317)
------
$8,100
======
</TABLE>
15
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS (b)
Selected data for a share of each class outstanding throughout the period are
as follows:
<CAPTION>
Period Ended August 31
----------------------------------------------------
1996 (c)
Class A Class B Class D Class Z
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $10.000 $10.000 $10.000 $10.000
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (loss) (a) 0.016 (0.002) (0.002) 0.021
Net realized and
unrealized loss (0.696) (0.698) (0.698) (0.701)
------- ------- ------- -------
Total from Investment
Operations (0.680) (0.700) (0.700) (0.680)
------- ------- ------- -------
Net asset value -
End of period $ 9.320 $ 9.300 $ 9.300 $ 9.320
======= ======= ======= =======
Total return (d)(e) (6.80)%(f) (7.00)%(f) (7.00)%(f) (6.80)%(f)
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses 2.25%(g)(h) 3.00%(g)(h) 3.00%(g)(h) 2.00%(g)(h)
Net investment
income (loss) 0.62%(g)(h) (0.13)%(g)(h) (0.13%)(g)(h) 0.87%(g)(h)
Fees and expenses
waived or borne by
the Adviser/Administrator 5.16%(h) 5.16%(h) 5.16%(h) 5.16%(h)
Portfolio turnover 3%(f) 3%(f) 3%(f) 3%(f)
Average Commission rate $0.0049 $0.0049 $0.0049 $0.0049
Net assets at end
of period(000) $ 3,542 $ 2,654 $ 738 $ 1,166
<FN>
(a) Net fees and expenses waived or borne by the Adviser/Administrator
which amounted to: $ 0.123 $ 0.123 $ 0.123 $ 0.123
(b) Per share data was calculated using average shares outstanding during the
period.
(c) The Fund commenced investment operations on June 3, 1996.
(d) Total reutrn at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(e) Had the Adviser/Administrator not waived or reimbursed a portion of
expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derigved from custody credits and directed brokerage arrangements
had no impact.
(h) Annualized.
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST II AND THE SHAREHOLDERS OF COLONIAL
NEWPORT TIGER CUB FUND
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of Colonial Newport Tiger Cub
Fund (a series of Colonial Trust II) at August 31, 1996, the results of its
operations, the changes in its net assets and the financial highlights for the
period from June 3, 1996 (commencement of operations) through August 31, 1996
in conformity with generally accepted accounting principles. These financial
statements and the financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audit. We conducted our audit of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation of
portfolio positions at August 31, 1996 by correspondence with the custodian,
provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
October 11, 1996
17
<PAGE>
SHAREHOLDER SERVICES
TO MAKE INVESTING EASIER
Colonial has one of the most extensive selections of shareholder services
available. Your financial adviser can help you arrange for any of these
services, or you can call Colonial directly at 1-800-345-6611.
AFFORDABLE ADDITIONAL INVESTMENTS: Add to your account with as little as $50;
$25 for an IRA account.
FREE EXCHANGES*: Exchange all or part of your account into the same share class
of another Colonial fund, by phone or mail, as your needs change over time.
EASY ACCESS TO YOUR MONEY*: Make withdrawals from your account by phone, by mail
or, for certain funds, by check.
ONE-YEAR REINSTATEMENT PRIVILEGE: If you need access to your money, but then
choose to return it to Colonial within one year, you can reinvest in any
Colonial fund of the same share class without any penalty or sales charge.
FUNDAMATIC: Make periodic investments as low as $50 from your checking account
to your Colonial account.
SYSTEMATIC WITHDRAWAL PLAN (SWP): Receive monthly, quarterly, or semiannual
payments via check or bank transmission. There is a $5,000 account value
required, but no minimum for the payment amount. The maximum annual withdrawal
is 12% of account balance at time SWP is established. SWPs by check are
processed on the 10th of each month.
AUTOMATED DOLLAR COST AVERAGING: Transfer money on a monthly basis from any
Colonial fund with a balance of $5,000 into the same share class of up to four
other Colonial funds. Minimum for each transfer is $100.
LOW COST IRAS: Choose from a broad range of retirement plans, including IRAs.
* Redemptions and exchanges are made at the next determined net asset value
after the request is received by Colonial. Proceeds may be more or less than
your original cost. The exchange privilege may be terminated at any time.
Investors who purchase Class B or Class D shares (for applicable funds), or $1
million or more of Class A shares, may be subject to a contingent deferred sales
charge.
18
<PAGE>
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IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Newport Tiger Cub Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial Newport Tiger Cub 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.
This report has been prepared for shareholders of Colonial Newport Tiger Cub
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 Fund.
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19
<PAGE>
[FLAG] COLONIAL
MUTUAL FUNDS
Mutual Funds for
Planned Portfolios
- --------------------------------------------------------------------------------
TRUSTEES
ROBERT J. BIRNBAUM
Trustee (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.)
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
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Trustee (formerly Chairman of the Board, Bank of New England-Worcester)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
WILLIAM E. MAYER
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)
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 (formerly Management Consultant, Saatchi and Saatchi
Consulting Ltd. and Principal and International Practice Director, Management
Consulting, Peat Marwick Main & Co.)
SINCLAIR WEEKS, JR.
Chairman of the Board, Reed & Barton Corporation
-----------------------------
Not FDIC- May lose value
Insured No bank guarantee
-----------------------------
COLONIAL INVESTMENT SERVICES, INC., Distributor[Copyright] 1996
One Financial Center, Boston, Massachusetts 02111-2621, 617-426-3750
CF-02/758C-0996
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