<PAGE>
COLONIAL NEWPORT TIGER CUB FUND ANNUAL REPORT
AUGUST 31, 1997
[graphic omitted]
NOT FDIC | MAY LOSE VALUE
INSURED | NO BANK GUARANTEE
<PAGE>
COLONIAL NEWPORT TIGER CUB FUND HIGHLIGHTS
SEPTEMBER 1, 1996 - AUGUST 31, 1997
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 Tiger markets 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: "Several of the Asian Tiger markets
experienced currency devaluations and declining stock markets during the period.
However, on a relative basis, the Fund performed better than many other funds
invested in this region, highlighting the value of active management in complex
and fast moving markets such as the Asian Tiger markets." -- Robert Cameron
COLONIAL NEWPORT TIGER CUB FUND PERFORMANCE
CLASS A CLASS B CLASS C\1/
Inception Date 6/3/96 6/3/96 6/3/96
- -------------------------------------------------------------------------------
12-month total returns, assuming (2.36)% (3.01)% (3.01)%
reinvestment of all distributions
and no sales charge or contingent
deferred sales charge (CDSC)
- -------------------------------------------------------------------------------
12-month total returns, assuming (7.97)% (7.86)% (3.98)%
maximum offering price (MOP) and CDSC\2/
- -------------------------------------------------------------------------------
Net asset value per share at 8/31/97 $9.10 $9.02 $9.02
\1/ As of July 1, 1997, Class D shares were converted to Class C shares.
\2/ Maximum offering price (MOP) returns include the maximum sales charge of
5.75% for Class A shares. The contingent deferred sales charge (CDSC)
returns reflect the maximum charge of 5% and 1%, respectively, for Class B
and C shares. Past performance cannot predict future results. Returns and
value of an investment will fluctuate, resulting in a gain or loss on sale.
The inception date for Class Z shares is 6/3/96 with a 12-month total return of
negative 2.04%.
COUNTRY BREAKDOWN\3/ TOP FIVE HOLDINGS\3/
(as of 8/31/97) (as of 8/31/97)
- ------------------------------------ -------------------------------------
1. Hong Kong .................. 82.2% 1. Four Seas Mercantile ........ 7.4%
2. Singapore .................. 12.2% 2. Li & Fung Ltd. .............. 7.3%
3. Indonesia .................. 3.5% 3. Sun Hung Kai Properties ..... 6.1%
4. Thailand ................... 2.1% 4. Dickson Concepts Int'l. Ltd. 5.7%
5. Cheung Kong Holdings Ltd. ... 5.4%
\3/ Country and holdings breakdowns are calculated as a percent of total
investments. Because the Fund is actively managed, there can be no
guarantee the Fund will continue to hold these securities or invest in
these countries in the future.
<PAGE>
PRESIDENT'S MESSAGE TO FUND SHAREHOLDERS
[Photo of Harold W. Cogger]
Throughout much of the twelve months ended August 31, 1997, the Tiger countries
of Asia were divided in two groups -- those countries with weak investment
fundamentals and those with strong fundamentals. Colonial Newport Tiger Cub Fund
benefitted from Newport's thorough top-down analysis, as a significant portion
of its assets was invested in strong markets, which helped the Fund outperform
the broad-based indices. Based on net asset value, the Fund's Class A shares
posted a total return down 2.36% for the 12-month period ended August 31, 1997.
This compares favorably with the MSCI Pacific Region (ex-Japan) Index
performance of negative 3.02% over the same period.
Overexpansion, declining export growth, and weakening currencies in Thailand,
Malaysia, and to a lesser extent, Indonesia and the Philippines have led to
steep declines in these local stock markets. Fortunately, Colonial Newport Tiger
Cub Fund had less than 6% of its assets invested in those economies with the
greatest weaknesses. Reacting to the weakness in these markets and anticipated
redemptions, some institutional managers reduced holdings in larger, more liquid
markets such as Hong Kong and Singapore, where a significant portion of the
Fund's assets were invested. Although the Fund's preference for smaller
companies helped to shield investors from some of the declines in these markets,
some recent spill-over selling has had a negative impact on performance.
Investing in strong economies and avoiding weak ones is nothing new for Newport
Fund Management, Inc. Going forward, the Tiger countries are likely to continue
to expand and contract at different rates, much like emerging markets in other
parts of the world. Newport's significant experience, insightful top-down
country selection and thorough company research are now more important than ever
to global investors seeking growth potential in the Tigers of Asia.
The following report offers specific information on your Fund's performance. As
always, we thank you for the opportunity to help meet your investment goals.
Respectfully,
/s/ Harold W. Cogger
Harold W. Cogger
President
October 13, 1997
Because market conditions change frequently, there can be no assurance that the
trends described in this report will continue.
<PAGE>
PORTFOLIO MANAGEMENT REPORT
[photo of Robert Cameron]
ROBERT CAMERON is portfolio manager of Colonial Newport Tiger Cub Fund and is a
senior vice president of Newport Fund Management, Inc.
PERFORMANCE ENHANCED BY REDUCED EXPOSURE TO PROBLEM TIGER COUNTRIES
The Fund's Class A shares posted a total return down 2.36% for the 12-month
period based on net asset value, outperforming the HSBC James Capel Smaller Asia
Companies S.E. Asia Index and the MSCI Pacific Region (ex Japan) Index, which
returned negative 11.65% and negative 3.02%, respectively. Our relative
performance was enhanced in part by avoiding the problems that arose in some of
the Tiger economies over the last year. For the period, over 50% of our assets
were invested in Hong Kong.
RAPID GROWTH OF THE TIGERS HAVE LED TO A BROAD-BASED SELL OFF IN THESE MARKETS
Over the last year, the excesses resulting from the rapid growth of the Tigers
have led to a broad-based sell off in these markets. In Thailand for example,
the ability of local businesses to borrow in low interest currencies, like the
U.S. dollar, created much liquidity. Some of this liquidity found its way into
unproductive areas creating over-supply in many sectors. At the same time,
slowing exports caused capital flows back into Thailand to slow dramatically and
the Thai central bank had to use its foreign reserves to support the baht. By
July, the central bank ran out of reserves and they had no choice but to devalue
the baht. After the central bank of Thailand ran out of foreign currency
reserves trying to strengthen the Baht, it raised interest rates -- a move that
made it difficult for local businesses to grow. By July, the pressures were too
great and the Baht was devalued. Stock market investors had already been selling
in anticipation of the devaluation. This combination of local market declines
and currency devaluation resulted in an overall market decline of 66% in U.S.
dollar terms. Other countries in the region such as Malaysia, Indonesia and the
Philippines have experienced similar situations, although their markets have
declined less than Thailand's.
We see a bright side to the market events in these "problem" countries. As these
economies slow, decreases in consumer spending will slow imports. Weakening
currencies may increase these countries' global competitiveness, leading to
increased exports and improved trade balances. In addition, weaker currencies in
these countries are likely to accelerate foreign direct investment, promoting
currency stability, lowering interest rates, and improving domestic economies
and the environments for stocks.
The Fund benefitted from our thorough top-down analysis as our exposure to the
weakening markets of Thailand, Malaysia, Indonesia and the Phillipines was low
during the period. At the end of the period, our equity exposure outside of Hong
Kong and Singapore was less than 6% of the Fund's total assets.
HONG KONG AND SINGAPORE FACE SOME WEAKNESSES DUE TO PROBLEM MARKETS
While much of Asia is experiencing slower economic growth, China is
emerging from a three-year austerity program. Low inflation has allowed interest
rates in China to come down. Meanwhile, China's exports have swelled, causing
huge capital flows and resulting in foreign reserves of over U.S. $131 billion.
Much of this new liquidity is spilling over into Hong Kong where strong
corporate earnings growth, a booming property market and increased investor
confidence regarding reunification with China caused the Hong Kong Hang Seng
Index to rise more than 26% for the period.
Although Singapore is geographically close to the "problem" Tiger countries, it
managed to weather the storm much better than its neighbors. Singapore has a 50%
savings rate and a current account surplus of 15% of GDP. The Singapore
government was able to keep interest rates low, while carefully guiding the
currency lower, increasing its export competitiveness. Our equity holdings at
the end of the period in Singapore were 12.2%.
Although there has been some weakness in these two stock markets recently, this
weakness appears to be driven by investors in the region having difficulty
selling stocks in the "problem" markets who then turn to Hong Kong and Singapore
for liquidity. We believe that these two countries will continue to offer strong
growth prospects in the years ahead.
RISING STANDARD OF LIVING OFFERS GROWTH OPPORTUNITIES FOR SELECT COMPANIES
The Fund owns a number of companies that are well positioned to benefit from the
rising standard of living and increased disposable incomes around the region.
One such company is Glorious Sun which is listed in Hong Kong, but manufactures
and sells jeans and sweaters throughout China. It operates stores throughout
China and is opening new stores at the rate of two per week.
Another Fund holding is Four Seas Mercantile, also based in Hong Kong. Four Seas
is the largest importer of snack foods into Hong Kong and is growing its
business in China. It distributes many name brands, including Cadbury, and
recently entered into an agreement with Gallo to distribute wine in China. The
company has grown earnings at close to 30% for the last two years and is likely
to repeat this performance in the future.
A company we recently added to the portfolio is Lamex Holdings. Lamex builds and
distributes office furniture in Hong Kong and China. With the rapid growth of
office space in the major Chinese cities, we view this company as a good
long-term investment.
OPPORTUNITIES FOR LONG-TERM GLOBAL INVESTORS
We believe the current turmoil in the region presents long-term investors with
some great opportunities. We currently have about 10% of the portfolio in cash
and will look to add high quality, well-managed, smaller growth companies from
around the region to our existing portfolio of 28 such companies. In the
meantime, we expect to remain overweighted in Hong Kong and keep our positions
in Singapore until we feel comfortable that the currencies and stock markets of
the other Tiger markets have stabilized.
<PAGE>
COLONIAL NEWPORT TIGER CUB FUND INVESTMENT PERFORMANCE VS.
THE MSCI PACIFIC REGION (EX-JAPAN) INDEX
Change in Value of $10,000 from 6/30/96 - 8/31/97
CLASS A SHARES BASED ON NAV AND MOP
AVERAGE ANNUAL TOTAL RETURNS\1/
Inception 6/3/96 NAV MOP
- -------------------------------------------
1 year (0.85)% (6.55)%
- -------------------------------------------
SINCE INCEPTION (4.93) (9.08)
MSCI
PACIFIC REGION
NAV MOP (EX-JAPAN) INDEX
- ------------------------------------------------------
Jun 30, 96 10,000 9,425 10,000
Jul 31, 96 9,424.823 8,882.896 9,495.69
Aug 31, 96 9,404.642 8,863.875 9,920.15
Sep 30, 96 9,515.641 8,968.491 10,173.23
Oct 31, 96 9,162.462 8,635.62 10,449.48
Nov 30, 96 9,606.458 9,054.087 11,006.71
Dec 31, 96 9,727.548 9,168.214 11,027.67
Jan 31, 97 9,899.092 9,329.894 10,895.01
Feb 28, 97 9,767.911 9,206.256 11,049.25
Mar 31, 97 9,354.188 8,816.321 10,536.05
Apr 30, 97 9,273.461 8,740.237 10,319.68
May 31, 97 9,798.184 9,234.788 10,961.18
Jun 30, 97 9,929.364 9,358.426 11,200.55
Jul 31, 97 10,302.72 9,710.318 11,170.49
Aug 31, 97 9,182.644 8,654.642 9,620.27
CLASS B SHARES BASED ON NAV AND W/CDSC
AVERAGE ANNUAL TOTAL RETURNS\1/
Inception 6/3/96 NAV MOP
- -------------------------------------------
1 year (1.70)% (6.62)%
- -------------------------------------------
SINCE INCEPTION (5.70) (8.55)
MSCI
PACIFIC REGION
NAV MOP (EX-JAPAN) INDEX
- ------------------------------------------------------
Jun 30, 96 10,000 10,000 10,000
Jul 31, 96 9,424.823 9,424.823 9,495.69
Aug 31, 96 9,384.46 9,384.46 9,920.15
Sep 30, 96 9,495.459 9,495.459 10,173.23
Oct 31, 96 9,142.28 9,142.28 10,449.48
Nov 30, 96 9,576.186 9,576.186 11,006.71
Dec 31, 96 9,697.275 9,697.275 11,027.67
Jan 31, 97 9,848.638 9,848.638 10,895.01
Feb 28, 97 9,717.457 9,717.457 11,049.25
Mar 31, 97 9,303.733 9,303.733 10,536.05
Apr 30, 97 9,212.916 9,212.916 10,319.68
May 31, 97 9,727.548 9,727.548 10,961.18
Jun 30, 97 9,858.729 9,858.729 11,200.55
Jul 31, 97 10,211.91 10,211.91 11,170.49
Aug 31, 97 9,101.917 8,737.84 9,620.27
<PAGE>
CLASS C SHARES BASED ON NAV AND W/CDSC\2/
AVERAGE ANNUAL TOTAL RETURNS\1/
Inception 6/3/96 NAV MOP
- -------------------------------------------
1 year (1.59)% (2.58)%
- -------------------------------------------
SINCE INCEPTION (5.62) (5.62)
MSCI
PACIFIC REGION
NAV (EX-JAPAN) INDEX
- ------------------------------------------
Jun 30, 96 10,000 10,000
Jul 31, 96 9,424.823 9,495.69
Aug 31, 96 9,384.46 9,920.15
Sep 30, 96 9,495.459 10,173.23
Oct 31, 96 9,142.28 10,449.48
Nov 30, 96 9,576.186 11,006.71
Dec 31, 96 9,697.275 11,027.67
Jan 31, 97 9,858.729 10,895.01
Feb 28, 97 9,727.548 11,049.25
Mar 31, 97 9,303.733 10,536.05
Apr 30, 97 9,212.916 10,319.68
May 31, 97 9,737.639 10,961.18
Jun 30, 97 9,858.729 11,200.55
Jul 31, 97 10,222 11,170.49
Aug 31, 97 9,101.917 9,620.27
\1/ Average annual total returns are as of 9/30/97, the most recent quarter end.
\2/ Effective July 1, 1997, Class D shares were converted to Class C shares.
A hypothetical $10,000 investment in Class Z shares made on June 30, 1996 at net
asset value (NAV) would amount to $9,213 on August 31,1997.
MSCI Pacific Region (ex-Japan) Index is a broad-based, unmanaged index that
tracks the performance of stocks in the Pacific Rim in countries other than
Japan. Unlike mutual funds, indices are not investments, do not incur fees or
expenses, and it is not possible to invest in an index.
Past performance cannot predict future results. Returns and value of an
investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. Net asset value (NAV) returns do not
include sales charges or contingent deferred sales charges (CDSC). Maximum
offering price (MOP) returns include the maximum initial sales charge of 5.75%
for Class A shares. The CDSC returns reflect the applicable charges of: 5% for
one year, and 4% since inception for Class B shares and 1% for one year for
Class C shares.
<PAGE>
INVESTMENT PORTFOLIO
AUGUST 31, 1997 (IN THOUSANDS)
COMMON STOCKS - 78.3% COUNTRY SHARES VALUE
- --------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 32.1%
DEPOSITORY INSTITUTIONS - 8.5%
Dah Sing Financial HK 150 $ 627
HSBC Holdings PLC HK 10 292
JCG Holdings Ltd. HK 476 365
Keppel Bank Si 150 313
-------
1,597
-------
HOLDING & OTHER INVESTMENT OFFICES - 4.5%
Dickson Concepts International Ltd. HK 223 847
-------
INSURANCE CARRIERS - 1.3%
Thai Reinsurance Co., Ltd. Th 100 252
-------
NONDEPOSITORY CREDIT INSTITUTIONS - 4.6%
Manhattan Card Co., Ltd. HK 908 334
Singapore Finance Ltd. Si 344 431
ST Capital Ltd. Si 160 99
-------
864
-------
REAL ESTATE - 13.2%
Cheung Kong Holdings Ltd. HK 75 794
City Developments Ltd. Si 54 340
Hon Kwok Land Investment Ltd. HK 1,085 444
Sun Hung Kai Properties Ltd. HK 79 897
-------
2,475
-------
- --------------------------------------------------------------------------------
MANUFACTURING - 20.0%
ELECTRONIC COMPONENTS - 6.1%
Johnson Electric Holdings Ltd. HK 274 616
Varitronix International Ltd. HK 386 533
-------
1,149
-------
FABRICATED METAL - 2.4%
Sinocan Holdings Ltd. HK 1,118 462
-------
FURNITURE & FIXTURES - 1.6%
Lamex Holdings Ltd. HK 1,000 310
-------
LIGHTING EQUIPMENT - 3.3%
Clipsal Industries Ltd. Si 187 617
-------
MEASURING & ANALYZING INSTRUMENTS - 3.6%
China Hong Kong Photo Products HK 1,898 674
-------
RUBBER & PLASTIC - 3.0%
PT Dynaplast - Foreign Reg. In 1,668 511
Srithai Superware Public Co., Ltd.
(Foreign) Th 33 63
-------
574
-------
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 10.7%
COMMUNICATIONS - 5.6%
Hong Kong Telecommunications Ltd. HK 151 317
Vanda Systems & Communication Holdings Ltd. HK 1,276 724
-------
1,041
-------
GAS SERVICES - 2.9%
Hong Kong and China Gas Co., Ltd. HK 296 551
-------
RAILROAD - 2.2%
Guangshen Railway Co., Ltd. HK 1,000 416
-------
- --------------------------------------------------------------------------------
WHOLESALE TRADE - 15.5%
DURABLE GOODS
Four Seas Mercantile HK 1,754 1,098
Glorious Sun Enterprises HK 1,900 729
Li & Fung Ltd. HK 1,062 1,083
-------
2,910
-------
TOTAL INVESTMENTS (cost of $15,207)(a) 14,739
=======
SHORT-TERM OBLIGATIONS - 9.7% PAR
- --------------------------------------------------------------------------------
Repurchase agreement with Greenwich Capital Markets, dated 08/29/97 due
09/02/97 at 5.530%, collateralized by U.S. Treasury bonds & notes with
various maturities to 2025, market value $1,867
(repurchase proceeds $1,829) $ 1,828 1,828
-------
FORWARD CURRENCY CONTRACTS (b) - (0.0)% (2)
- --------------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - 12.0% 2,255
- --------------------------------------------------------------------------------
NET ASSETS - 100% $18,820
=======
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Cost for federal income tax purposes is the same.
(b) As of August 31, 1997, the Fund had entered into the following
forward currency exchange contracts:
NET UNREALIZED
CONTRACTS IN EXCHANGE SETTLEMENT DEPRECIATION
TO DELIVER FOR DATE (US $)
---------- --- ---- ------
PP 4,630 US $149 09/02/97 $2
Summary of Securities
by Country Country Value % of Total
- --------------------------------------------------------------------------------
Hong Kong HK $ 12,113 82.2
Singapore Si 1,800 12.2
Indonesia In 511 3.5
Thailand Th 315 2.1
-------- -----
$ 14,739 100.0
======== =====
Certain securities are listed by country of underlying exposure but may trade
predominantly on other exchanges.
Acronym Name
-------------- -----------------------
PP Phillipine Peso
See notes to financial statements.
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
AUGUST 31, 1997
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $15,207) $ 14,739
Short-term obligations 1,828
--------
16,567
Cash including foreign currencies (cost $339) 339
Receivable for:
Investments sold 2,015
Dividends 39
Fund shares sold 29
Interest 1
Expense reimbursment due from
Adviser/Administrator 146
Deferred organization expenses 1 2,570
----- --------
Total Assets 19,137
LIABILITIES
Foreign currencies (cost $83) 83
Unrealized depreciation on forward
currency contracts 2
Payable for:
Investments purchased 143
Fund shares repurchased 50
Accrued:
Management fee 20
Administration fee 4
Transfer agent fee 5
Bookkeeping fee 2
Other 8
-----
Total Liabilities 317
--------
NET ASSETS $ 18,820
========
Net asset value & redemption price per share -
Class A ($8,653/951) $ 9.10
========
Maximum offering price per share - Class A
($9.10/0.9425) $ 9.66(a)
========
Net asset value & offering price per share -
Class B ($7,664/850) $ 9.02(b)
========
Net asset value & offering price per share -
Class C ($1,300/144) $ 9.02(b)
========
Net asset value, offering & redemption price
per share - Class Z ($1,203/132) $ 9.13
========
(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.
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1997
(in thousands)
INVESTMENT INCOME
Dividends:
Srithai Superware Public Co., Ltd. (Foreign) $ 32
Varitronix International Ltd. 32
Other 356
Interest 40
--------
Total Investment Income (net of nonrebatable
foreign taxes withheld at source which
amounted to $23) 460
EXPENSES
Management fee $ 184
Administration fee 40
Service fee - Class A 19
Service fee - Class B 15
Service fee - Class C 3
Distribution fee - Class B 46
Distribution fee - Class C 10
Transfer agent fee 51
Bookkeeping fee 27
Trustees fee 6
Audit fee 16
Legal fee 5
Custodian fee 72
Registration fee 104
Reports to shareholders 5
Other 8
-----
611
Fees and expenses waived or borne
by the Adviser/Administrator (198) 413
----- --------
Net Investment Income 47
--------
NET REALIZED & UNREALIZED LOSS ON PORTFOLIO POSITIONS
Net realized loss on:
Investments (468)
Foreign currency transactions (124)
-----
Net Realized Loss (592)
Change in net unrealized depreciation
during the period on:
Investments (151)
Foreign currency transactions (6)
-----
Net Unrealized Depreciation (157)
--------
Net Loss (749)
--------
Decrease in Net Assets from Operations $ (702)
========
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Year Period
ended ended
(in thousands) August 31 August 31
--------- --------
INCREASE (DECREASE) IN NET ASSETS 1997 1996 (a)
Operations:
Net investment income $ 47 $ 5
Net realized loss (592) (62)
Net unrealized depreciation (157) (317)
-------- -------
Net Decrease from Operations (702) (374)
-------- -------
Fund Share Transactions: (b)
Receipts for shares sold - Class A 9,296 4,138
Cost of shares repurchased - Class A (3,860) (462)
-------- -------
5,436 3,676
-------- -------
Receipts for shares sold - Class B 7,205 2,816
Cost of shares repurchased - Class B (1,884) (49)
-------- -------
5,321 2,767
-------- -------
Receipts for shares sold - Class C 1,323 889
Cost of shares repurchased - Class C (722) (108)
-------- -------
601 781
-------- -------
Receipts for shares sold - Class Z 114 1,250
Cost of shares repurchased - Class Z (50) -
-------- -------
64 1,250
-------- -------
Net Increase from Fund Share Transactions 11,422 8,474
-------- -------
Total Increase 10,720 8,100
NET ASSETS
Beginning of period 8,100 -
-------- -------
End of period (including accumulated
net investment loss of $93 and $17,
respectively) $ 18,820 $ 8,100
======== =======
NUMBER OF FUND SHARES (b)
Sold - Class A 979 429
Repurchased - Class A (408) (49)
-------- -------
571 380
-------- -------
Sold - Class B 765 290
Repurchased - Class B (200) (5)
----------- -----------
565 285
----------- -----------
Sold - Class C 140 90
Repurchased - Class C (75) (11)
----------- -----------
65 79
----------- -----------
Sold - Class Z 12 125
Repurchased - Class Z (5) -
----------- -----------
7 125
----------- -----------
(a) The Fund commenced investment operations on June 3, 1996.
(b) Effective July 1, 1997, Class D shares were converted to Class C shares.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
NOTE 1. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
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 (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 may
issue an unlimited number of shares. The Fund offers 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 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. Effective July 1,
1997, Class D shares were converted to Class C shares. Class C shares are
subject to 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 reporting 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.
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.
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.
Such securities 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 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 A, Class B and Class C service fee and Class B
and Class C distribution fee) 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.
The per share data was calculated using average shares outstanding during the
period. In addition, Class A, Class B and Class C net investment income per
share data reflects the service fee per share applicable to Class A, Class B and
Class C shares and the distribution fee applicable to Class B and Class C shares
only.
Class A, Class B and Class C 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 C shares and the distribution fee
applicable to Class B and Class C 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 gains (losses) arising from the
fluctuation in exchange rates 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, Inc. (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.
ADMINISTRATION FEE: Colonial Management Associates, Inc. (the
Administrator), an affiliate of the Adviser, 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 reimbursement for certain out-of-pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Liberty Financial
Investments, Inc., formerly Colonial Investment Services, Inc. (the
Distributor), an affiliate of the Administrator, is the Fund's principal
underwriter. For the year ended August 31, 1997, the Fund has been advised that
the Distributor retained net underwriting discounts of $25,828 on sales of the
Fund's Class A shares and received contingent deferred sales charges (CDSC) of
$14,344 and $1,900 on Class B and Class C 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 C net assets
as of the 20th of each month. The plan also requires the payment of a
distribution fee to the Distributor equal to 0.75% of the average net assets
attributable to Class B and Class C 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 and 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 employees
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.
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended August 31, 1997, purchases and sales
of investments, other than short-term obligations, were $22,214,219 and
$13,991,180, respectively.
Unrealized appreciation (depreciation) at August 31, 1997, based on cost of
investments for both financial statement and federal income tax purposes was:
Gross unrealized appreciation $ 954,318
Gross unrealized depreciation (1,422,345)
--------------
Net unrealized depreciation $ (468,027)
==============
CAPITAL LOSS CARRYFORWARDS: At August 31, 1997, capital loss carryforwards
available (to the extent provided in regulations) to offset future realized
gains were approximately as follows:
Year of Capital loss
expiration carryforward
---------- ------------
2005 $38,000
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: 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. LINE OF CREDIT
- --------------------------------------------------------------------------------
The Fund may borrow up to 10% of its net assests 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 fund rate
plus 1/2 of 1%, (2) the lending bank's base rate or (3) IBOR offshore loan rate
plus 1/2 of 1%. There were no borrowings under the line of credit during the
year ended August 31, 1997.
NOTE 5. OTHER RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
At August 31, 1997, the Fund had one shareholder, Liberty Financial Companies,
Inc., who owned greater than 5% of the Fund's shares outstanding.
NOTE 6. COMPOSITION OF NET ASSETS
- --------------------------------------------------------------------------------
Capital paid in $ 19,889
Accumulated net investment loss (93)
Accumulated net realized loss (502)
Net unrealized depreciation:
Investments (468)
Foreign currency transactions (6)
--------
$ 18,820
========
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended August 31
-----------------------------------------------------
1997
Class A Class B Class C(d) Class Z
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 9.320 $ 9.300 $ 9.300 $ 9.320
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (loss) (a)(b) 0.059(e) (0.012)(e) (0.012)(e) 0.083(e)
Net realized and
unrealized loss (b) (0.279) (0.268) (0.268) (0.273)
-------- -------- -------- --------
Total from Investment
Operations (0.220) (0.280) (0.280) (0.190)
-------- -------- -------- --------
Net asset value -
End of period $ 9.100 $ 9.020 $ 9.020 $ 9.130
======== ======== ======== ========
Total return (f)(g) (2.36)% (3.01)% (3.01)% (2.04)%
======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS
Expenses (i) 2.25% 3.00% 3.00% 2.00%
Net investment
income (loss) (i) 0.62% (0.13)% (0.13)% 0.87%
Fees and expenses
waived or borne by
the Adviser/Administrator (i) 1.09% 1.09% 1.09% 1.09%
Portfolio turnover 96% 96% 96% 96%
Average commission rate $ 0.0053 $ 0.0053 $ 0.0053 $ 0.0053
Net assets at end
of period (000) $ 8,653 $ 7,664 $ 1,300 $ 1,203
(a) Net of fees and expenses waived or borne by the Adviser/Administrator
which amounted to: $ 0.105 $ 0.105 $ 0.105 $ 0.105
(b) Per share data was calculated using average shares outstanding during the period.
(c) The Fund commenced investment operations on June 3, 1996
(d) Effective July 1, 1997, Class D shares were converted to Class C shares.
(e) Includes distributions from Srithai Superware Public Co., Ltd. and Varitronix
International Ltd. which amounted to $0.039 per share.
(f) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(g) Had the Adviser/Administrator not waived or reimbursed a portion of expenses, total
return would have been reduced.
(h) Not annualized.
(i) The benefits derived from custody credits and directed brokerage arrangements had no impact.
(j) Annualized.
</TABLE>
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Period ended August 31
--------------------------------------------------
1996 (c)
Class A Class B Class D Class Z
---------- --------- --------- ----------
$ 10.000 $ 10.000 $ 10.000 $ 10.000
-------- -------- -------- --------
0.016 (0.002) (0.002) 0.021
(0.696) (0.698) (0.698) (0.701)
-------- -------- -------- --------
(0.680) (0.700) (0.700) (0.680)
-------- -------- -------- --------
$ 9.320 $ 9.300 $ 9.300 $ 9.320
======== ======== ======= =======
(6.80)%(h) (7.00)%(h) (7.00)%(h) (6.80)%(h)
======== ======== ======= =======
2.25%(j) 3.00%(j) 3.00%(j) 2.00%(j)
0.62%(j) (0.13)%(j) (0.13)%(j) 0.87%(j)
5.16%(j) 5.16%(j) 5.16%(j) 5.16%(j)
3%(h) 3%(h) 3%(h) 3%(h)
$ 0.0049 $ 0.0049 $ 0.0049 $ 0.0049
$ 3,542 $ 2,654 $ 738 $ 1,166
$ 0.123 $ 0.123 $ 0.123 $ 0.123
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
T0 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, 1997, the results of its operations,
the changes in its net assets and the financial highlights for the periods
indicated, 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 audits. We conducted our audits 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 audits, which included confirmation of portfolio positions
at August 31, 1997 by correspondence with the custodian and the application of
alternative auditing procedures where investments purchased had not settled with
the custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
October 13, 1997
<PAGE>
SHAREHOLDER SERVICES
TO MAKE INVESTING EASIER
Your fund has one of the most extensive selections of shareholder services
available. Your financial advisor can help you arrange for any of these
services, or you can call Colonial Investors Service Center directly at
1-800-345-6611.
AFFORDABLE ADDITIONAL INVESTMENTS: Add to your account with as little as $50 on
most funds; $25 for an IRA account.
FREE EXCHANGES\1/: Exchange all or part of your account into the same share
class of another fund distributed by Liberty Financial Investments, by phone or
mail.
EASY ACCESS TO YOUR MONEY\1/: 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 within one year, you can reinvest in any fund distributed by
Liberty Financial Investments 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 Fund 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 calendar day of each month unless the 10th falls on a
non-business day or the first business day of the week. If this occurs, the
processing date will be the previous business day. Dividends and capital gains
must be reinvested.
AUTOMATED DOLLAR COST AVERAGING: Transfer money on a monthly basis from any fund
with a balance of $5,000 into the same share class of up to four other funds
distributed by Liberty Financial Investments. Minimum for each transfer is $100.
RETIREMENT PLANS: Choose from a broad range of retirement plans, including IRAs.
\1/ Redemptions and exchanges are made at the next determined net asset value
after the request is received by the Transfer Agent. Proceeds may be more or
less than your original cost. The exchange privilege may be terminated at any
time. Exchanges are not available on all funds. Investors who purchase Class B
or C shares, or $1 million or more of Class A shares, may be subject to a
contingent deferred sales charge.
<PAGE>
SHAREHOLDER COMMUNICATIONS
TO KEEP YOU INFORMED
To make recordkeeping easy and keep you up-to-date on the performance of your
investments, you can expect to receive the following information about your
account:
TRANSACTION CONFIRMATIONS: Each time you make a purchase, sale or exchange, you
receive a confirmation statement within just a few days.
QUARTERLY STATEMENTS: Every three months, if any transactions are made that
affect your share balance, this statement reports on your account activity
during the quarter (including any reinvestment of dividends). This statement
also provides year-to-date information.
LIBERTY FINANCIAL INVESTMENTS INVESTOR OPPORTUNITIES: Mailed with your quarterly
account statements, this newsletter highlights timely investment strategies,
portfolio manager commentary and shareholder service updates.
TAX FORMS AND YEAR-END TAX GUIDE: Easy-to-use forms and timely information are
designed to make tax reporting simpler. (Usually mailed in January.)
AVERAGE COST BASIS STATEMENTS: If you sold or exchanged shares during the year,
this statement may help you calculate your gain/loss for tax purposes. (Usually
mailed in February.)
<PAGE>
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 1-800-426-3750 to
order additional reports.
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.
<PAGE>
TRUSTEES
ROBERT J. BIRNBAUM
Retired (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Retired (formerly Chairman of the Board, Bank of New England-Worcester)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
WILLIAM E. MAYER
Partner, Development Capital, L.L.C. (formerly Dean, College of Business and
Management, University of Maryland; Dean, Simon Graduate School of Business,
University of Rochester; Chairman and Chief Executive Officer, CS First Boston
Merchant Bank; and President and Chief Executive Officer, The First Boston
Corporation)
JAMES L. MOODY, JR.
Retired (formerly Chairman of the Board and Chief Executive Officer, Hannaford
Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
GEORGE L. SHINN
Financial Consultant (formerly Chairman, Chief Executive Officer and Consultant,
The First Boston Corporation)
ROBERT L. SULLIVAN
Retired Partner, Peat Marwick Main & Co. (formerly Management Consultant,
Saatchi and Saatchi Consulting Ltd. and Principal and International Practice
Director, Management Consulting, Peat Marwick Main & Co.)
SINCLAIR WEEKS, JR.
Chairman of the Board, Reed & Barton Corporation
[LOGO] LIBERTY FINANCIAL INVESTMENTS, INC .(C)1997
Distributor for Colonial Funds, Stein Roe Advisor Funds and Newport Funds
One Financial Center, Boston, Massachusetts 02111-2621
CF-02/110E-0897 (10/97)
