<PAGE>
COLONIAL
GOVERNMENT
MONEY
MARKET FUND
ANNUAL REPORT
AUGUST 31, 1997
NOT FDIC-INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
<PAGE>
COLONIAL GOVERNMENT MONEY MARKET FUND HIGHLIGHTS
SEPTEMBER 1, 1996 - AUGUST 31, 1997
INVESTMENT OBJECTIVE: Colonial Government Money Market Fund seeks current
income, consistent with capital preservation and liquidity, by investing
exclusively in short-term U.S. government securities.
THE FUND IS DESIGNED TO OFFER:
- - Steady monthly income
- - Stable net asset value
- - A high quality portfolio
PORTFOLIO MANAGER COMMENTARY: "The Federal Reserve Board's action to increase
interest rates early in 1997 played a key role in our strategy. We shortened the
Fund's average days to maturity from 42 days, at the beginning of the period, to
25 days, at the end of the period, in order to capture any increase in
short-term rates. We have continued this conservative approach and are
positioning the Fund to take advantage of rate increases from an anticipated Fed
tightening by the end of 1997." -- Steve Harasimowicz
COLONIAL GOVERNMENT MONEY MARKET FUND PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C(1)
Inception dates 1/30/81 6/8/92 7/1/94
- --------------- ------- ------ ------
<S> <C> <C> <C>
Distributions declared per share $0.048 $0.038 $0.039
Seven-day yields on 8/31/97 4.73% 3.92% 4.49%
30-day yields on 8/31/97 4.69% 3.79% 4.36%
</TABLE>
A Portfolio of High Quality Money Market Securities(2)
As of 8/31/97
[PIE CHART]
REPURCHASE AGREEMENTS 12.5%
FFCB 0.5%
FHLMC 70.3%
FNMA 16.7%
Your Fund's portfolio holdings represented a selection of short-term,
fixed-income U.S. government agency securities. These holdings include notes
issued by the Federal National Mortgage Association (FNMA), Federal Home Loan
Mortgage Corporation (FHLMC) and Federal Farm Credit Bank (FFCB).
(1) As of July 1, 1997, Class D shares were converted to Class C shares.
(2) Portfolio holdings are calculated as a percentage of total investments.
An investment in the Fund is neither insured nor guaranteed by the U.S.
government. There can be no assurance that the Fund will maintain a stable net
asset value of $1.00 per share.
2
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[PHOTO OF COGGER]
I am pleased to present your Fund's annual report for the year ended August 31,
1997. This report reflects on the investment environment of the past 12 months
and the performance of your Fund.
In the beginning of the period, the environment was favorable to the bond
market. The economy slowed without major Federal Reserve Board (Fed)
intervention and inflation remained low.
The economy picked up momentum in late 1996 and continued to grow at a healthy
pace in 1997. The long awaited budget agreement in Washington and a firm job
market increased consumer confidence. Consumers were more upbeat about their
finances than at any time in the past 28 years and the rate of unemployment was
the lowest since 1973. In March, the Fed raised short-term interest rates in
response to a growing concern about future wage and price inflation.
In the second half of the Fund's fiscal year, the economy continued to grow, yet
inflation remained in control. The low level of inflation has been the result of
a general increase in economic productivity. This has allowed the Fed to keep
monetary policy on hold. Short-term interest rates have remained stable yet firm
over the period. According to a poll conducted by Reuters, most economists
anticipate at least one increase in interest rates by the Fed before the end of
1997.
In anticipation of a Fed increase, the Fund has held a portfolio of shorter
maturity securities and repurchase agreements. The Fund has been positioned so
that if the Fed raises interest rates, the yield of the Fund may reflect that
increase. Given the current economic environment, we believe short-term interest
rates should rise as the Fed intervenes to slow the pace of economic growth and
the threat of inflation. Our strategy is to maintain the Fund's current short
portfolio at least until the outcome of the upcoming Federal Reserve Board
meeting in November.
Thank you for the opportunity to help you meet your investment goals.
Sincerely,
/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.
3
<PAGE>
INVESTMENT PORTFOLIO
AUGUST 31, 1997 (IN THOUSANDS)
SHORT-TERM OBLIGATIONS - 94.9%
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES - 83.0%
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ANNUALIZED
YIELD AT TIME
MATURITY OF PURCHASE PAR VALUE
- --------------------------------------------------------------------------------------------
Federal Farm Credit Bank:
<S> <C> <C> <C>
11/03/97 5.600% $ 1,080 $ 1,080
------------
</TABLE>
<TABLE>
<CAPTION>
Federal Home Loan Mortgage Corp.:
<S> <C> <C> <C>
09/02/97 5.420% 78,166 78,154
09/22/97 5.410% 5,240 5,223
09/29/97 5.400% 10,000 9,958
09/30/97 5.400% 7,000 6,970
10/03/97 5.410% 10,000 9,952
10/24/97 5.340% 10,000 9,921
10/31/97 5.400% 15,000 14,865
11/24/97 5.440% 10,000 9,873
------------
144,916
------------
</TABLE>
<TABLE>
<CAPTION>
Federal National Mortgage Association:
<S> <C> <C> <C>
09/03/97 5.450% 10,665 10,662
09/29/97 5.400% 9,000 8,962
10/13/97 5.770% 1,000 1,000
10/16/97 5.790% 500 500
11/04/97 5.400% 12,355 12,236
11/10/97 9.550% 955 962
------------
34,322
------------
</TABLE>
<TABLE>
<S> <C>
TOTAL U.S. GOVERNMENT AGENCIES (cost of $180,318) 180,318
------------
</TABLE>
<TABLE>
<CAPTION>
REPURCHASE AGREEMENTS - 11.9%
- --------------------------------------------------------------------------------
<S> <C> <C>
Repurchase agreement with Greenwich Capital Markets, dated 8/29/97,
due 9/02/97 at 5.530%, collaterized by U.S. Treasury bonds & notes
with various maturities to 2025, market value $26,346
(repurchase proceeds $25,807) 25,791 25,791
------------
TOTAL SHORT-TERM OBLIGATIONS
(cost of $206,109) (a) 206,109
------------
OTHER ASSETS & LIABILITIES, NET - 5.1% 11,113
- --------------------------------------------------------------------------------------------
NET ASSETS - 100% $ 217,222
------------
</TABLE>
NOTE TO INVESTMENT PORTFOLIO:
- -----------------------------------------------------------------------
(a) Cost for federal income tax purposes is the same.
See notes to financial statements.
4
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
AUGUST 31, 1997
<TABLE>
<CAPTION>
(in thousands except for per share amounts)
ASSETS
<S> <C> <C>
Investments at amortized cost $ 206,109
Receivable for:
Fund shares sold $ 12,571
Interest 93
Receivable due from Adviser 70
Other 10 12,744
---------- ----------
Total Assets 218,853
LIABILITIES
Payable for:
Fund shares repurchased 913
Distributions 681
Accrued:
Deferred Trustees fees 3
Other 34
----------
Total Liabilities 1,631
----------
NET ASSETS $ 217,222
----------
Net asset value:
Class A ($144,076/144,094) $ 1.00
----------
Class B ($70,242/70,263) $ 1.00(a)
----------
Class C ($2,904/2,905) $ 1.00(a)
----------
COMPOSITION OF NET ASSETS
Capital paid in $ 217,265
Overdistributed net investment income (42)
Accumulated net realized loss (1)
------------
$ 217,222
------------
(a) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
</TABLE>
See notes to financial statements.
5
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED AUGUST 31, 1997
<TABLE>
<CAPTION>
(in thousands)
<S> <C> <C>
INVESTMENT INCOME
Interest $ 10,265
EXPENSES
Management fee $ 564
Service fee - Class B 174
Service fee - Class C 9
Distribution fee - Class B 517
Distribution fee - Class C 24
Transfer agent 475
Bookkeeping fee 75
Trustees fee 18
Custodian fee 11
Audit fee 25
Legal fee 7
Registration fee 163
Reports to shareholders 6
Other 15 2,083
--------- ----------
Net Investment Income $ 8,182
----------
</TABLE>
See notes to financial statements.
6
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended
(in thousands) August 31
-----------------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS 1997(a) 1996
Operations:
Net investment income $ 8,182 $ 6,673
------------ -----------
Distributions:
From net investment income - Class A (5,490) (4,162)
In excess of net investment income - Class A (28) -
From net investment income - Class B (2,585) (2,436)
In excess of net investment income - Class B (13) -
From net investment income - Class C (136) (82)
In excess of net investment income - Class C (1) -
============ ===========
(71) (7)
------------ -----------
Fund Share Transactions:
Receipts for shares sold - Class A 1,511,776 892,066
Value of distributions reinvested - Class A 4,456 3,327
Cost of shares repurchased - Class A (1,487,170) (863,413)
------------ -----------
29,062 31,980
------------ -----------
Receipts for shares sold - Class B 343,510 264,792
Value of distributions reinvested - Class B 2,017 1,845
Cost of shares repurchased - Class B (351,804) (245,533)
------------ -----------
(6,277) 21,104
------------ -----------
Receipts for shares sold - Class C 37,213 9,081
Value of distributions reinvested - Class C 117 61
Cost of shares repurchased - Class C (38,859) (5,334)
------------ -----------
(1,529) 3,808
============ ===========
Net Increase from Fund Share Transactions 21,256 56,892
------------ -----------
Total Increase 21,185 56,885
NET ASSETS
Beginning of period 196,037 139,152
------------ -----------
End of period (net of overdistributed and
including undistributed net investment
income of $42 and $29, respectively) $ 217,222 $ 196,037
============ ===========
NUMBER OF FUND SHARES
Sold - Class A 1,511,776 892,065
Issued for distributions reinvested - Class A 4,456 3,327
Repurchased - Class A (1,487,169) (863,413)
------------ -----------
29,063 31,979
------------ -----------
Sold - Class B 343,507 264,792
Issued for distributions reinvested - Class B 2,017 1,845
Repurchased - Class B (351,804) (245,533)
------------ -----------
(6,280) 21,104
------------ -----------
Sold - Class C 37,213 9,081
Issued for distributions reinvested - Class C 117 61
Repurchased - Class C (38,858) (5,334)
------------ -----------
(1,528) 3,808
------------ -----------
</TABLE>
(a) Class D shares were converted to Class C shares on July 1, 1997. See notes
to financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
NOTE 1. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: Colonial Government Money Market 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
current income, consistent with capital preservation and liquidity, by investing
exclusively in short-term U.S. government securities. The Fund may issue an
unlimited number of shares. The Fund offers three classes of shares: Class A,
Class B and Class C. 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. 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
service and distribution fee.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported 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: The Fund values its portfolio securities
utilizing the amortized cost valuation method.
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 B and Class C service and distribution fees), and
realized and unrealized gains (losses) are allocated to each class
proportionately on a daily basis for purposes of determining the net asset value
of each class.
Class B and Class C 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 C shares only.
8
<PAGE>
Notes to Financial Statements/August 31, 1997
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
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 2. FEES AND COMPENSATION PAID TO AFFILIATES
- --------------------------------------------------------------------------------
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser) is the
investment Adviser of the Fund and furnishes accounting and other services and
office facilities for a monthly fee equal to 0.30% annually of the Fund's
average net assets.
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: Liberty Financial
Investments, Inc. (formerly Colonial Investment Services, Inc.) (the
Distributor), an affiliate of the Adviser, is the Fund's principal underwriter.
During the year ended August 31, 1997, the Fund has been advised that the
Distributor received contingent deferred sales charges (CDSC) of $683,644 and
$5,804 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 of 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% annually of the average net assets attributable
to Class B shares and Class C shares.
Effective July 1, 1997, the Distributor has voluntarily agreed to waive a
9
<PAGE>
Notes to Financial Statements/August 31, 1997
- --------------------------------------------------------------------------------
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
- --------------------------------------------------------------------------------
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES - CONT.
portion of the Class C share distribution fee so that it does not exceed 0.15%
annually.
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
EXPENSE LIMITS: 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 year ended August 31, 1997, the Fund's total expenses as defined above
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 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended August 31, 1997, purchases and sales
(including maturities) of short-term obligations (excluding repurchase
agreements) were $1,038,318,757 and $976,199,000, respectively, all of which
were U.S. government securities.
NOTE 4. OTHER RELATED PARTY TRANSACTIONS
- --------------------------------------------------------------------------------
At August 31, 1997, Liberty Financial Investments, Inc. owned greater than 5% of
the Fund's shares outstanding.
10
<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 (b)
---------- --------- ----------
<S> <C> <C> <C>
Net asset value -
Beginning of period $ 1.000 $ 1.000 $ 1.000
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 0.048 0.038 0.039
-------- --------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.048) (0.038) (0.039)
In excess of net investment
income (0.000) (0.000) (0.000)
--------- --------- ---------
Total Distributions Declared to
Shareholders (0.048) (0.038) (0.039)
--------- --------- ---------
Net asset value -
End of period $ 1.000 $ 1.000 $ 1.000
--------- --------- ---------
Total return (c) 4.90% 3.82% 3.97%
========= ========= =========
RATIOS TO AVERAGE NET ASSETS
Expenses (d) 0.72% 1.72% 1.64%
Fees and expenses waived
or borne by the Adviser (d) -- -- --
Net investment
income (d) 4.73% 3.73% 3.81%
Net assets at end
of period (000) $ 144,076 $ 70,242 $ 2,904
</TABLE>
<TABLE>
<CAPTION>
(a) Net of fees and expenses waived or borne by the Adviser which amounted to:
<S> <C> <C> <C>
$ -- $ -- $ --
</TABLE>
(b) Effective July 1, 1997, Class D shares were converted to Class C shares.
(c) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
11
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Selected data for a share of each class outstanding throughout each period
are as follows:
<TABLE>
<CAPTION>
Year ended August 31
---------------------------------------------------------
1996
Class A Class B Class D
------------ ------------ ----------
<S> <C> <C> <C>
Net asset value -
Beginning of period $ 1.000 $ 1.000 $ 1.000
------------ ----------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 0.048 0.038 0.038
------------ ----------- ----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.048) (0.038) (0.038)
------------ ----------- ----------
Net asset value -
End of period $ 1.000 $ 1.000 $ 1.000
------------ ----------- ----------
Total return (c) 4.93% 3.86% 3.85%
------------ ----------- ----------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.70% (f) 1.70% (f) 1.70% (f)
Fees and expenses waived
or borne by the Adviser -- -- --
Net investment
income 4.76% (f) 3.76% (f) 3.76% (f)
Net assets at end
of period (000) $ 115,063 $ 76,539 $ 4,435
</TABLE>
<TABLE>
<CAPTION>
(a) Net of fees and expenses waived or borne by the Adviser which amounted to:
<S> <C> <C>
$ -- $ -- $ --
</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 contingent deferred sales charge.
(d) Had the Adviser not waived or reimbursed a portion of expenses, total return
would have been reduced.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(g) Annualized.
12
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
<TABLE>
<CAPTION>
Year ended August 31
- ------------------------------------------------------------------------------------------------------------
1995 1994
Class A Class B Class D Class A Class B Class D (b)
- ----------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ----------- ----------- ----------- ----------- ----------- ------------
0.050 0.040 0.040 0.028 0.018 0.005
- ----------- ----------- ----------- ----------- ----------- ------------
(0.050) (0.040) (0.040) (0.028) (0.018) (0.005)
- ----------- ----------- ----------- ----------- ----------- ------------
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
- ----------- ----------- ----------- ----------- ----------- ------------
5.14% (d) 4.08% (d) 4.07% (d) 2.85% (d) 1.82% (d) 0.45% (d)(e)
=========== =========== =========== =========== =========== ============
0.69% 1.69% 1.69% 0.73% 1.73% 1.73% (g)
0.04% 0.04% 0.04% 0.20% 0.20% 0.20% (g)
4.96% 3.96% 3.96% 3.01% 2.01% 2.01% (g)
$ 83,086 $ 55,441 $ 625 $ 97,115 $ 54,535 $ 518
$ 0.000 $ 0.000 $ 0.000 $ 0.002 $ 0.002 $ 0.002
</TABLE>
13
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended
August 31
-------------------------------
1993
Class A Class B
----------- -----------
<S> <C> <C>
Net asset value -
Beginning of period $ 1.000 $ 1.000
----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 0.023 0.013
----------- -----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.023) (0.013)
----------- -----------
Net asset value -
End of period $ 1.000 $ 1.000
----------- -----------
Total return (b)(c) 2.28% 1.27%
=========== ===========
RATIOS TO AVERAGE NET ASSETS
Expenses 0.88% 1.88%
Fees and expenses waived
or borne by the Adviser 0.20% 0.20%
Net investment
income 2.26% 1.26%
Net assets at end
of period (000) $ 44,693 $ 10,890
</TABLE>
<TABLE>
<CAPTION>
(a) Net of fees and expenses waived or borne by the Adviser which amounted to:
<S> <C>
$0.002 $0.002
</TABLE>
(b) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(c) Had the Adviser not waived or reimbursed a portion of expenses, total return
would have been reduced.
- --------------------------------------------------------------------------------
State Tax Information for the year ended August 31, 1997 (unaudited)
An average of 21% of the Fund's investments as of the end of each quarter were
in direct obligations of the U.S. Treasury.
Approximately 14% of the Fund's distributions (11% of gross income) was derived
from interest on direct investments in U.S. Treasury bonds, notes, and bills.
- --------------------------------------------------------------------------------
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
T0 THE TRUSTEES OF COLONIAL TRUST II AND THE SHAREHOLDERS OF COLONIAL GOVERNMENT
MONEY MARKET 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 Government Money Market
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, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
October 13, 1997
15
<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.
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HOW TO REACH COLONIAL
BY PHONE OR BY MAIL
BY TELEPHONE
CUSTOMER CONNECTION - 1-800-345-6611
For 24-hour account information, call from your touch-tone phone. (Rotary
callers will be automatically connected to a representative during business
hours.) A recorded message will guide you through the menu:
For fund prices, dividends and capital gains information . . . . . press 1
For account information . . . . . . . . . . . . . . . . . . . . . press 2
To speak to a service representative . . . . . . . . . . . . . . press 3
For yield and total return information . . . . . . . . . . . . . . press 4
For duplicate statements or new supply of checks . . . . . . . . . press 5
To order duplicate tax forms and year-end statements . . . . . . . press 6
(February through May)
To review your options at any time during your call . . . . . . . press *
To speak with a shareholder services representative about your account, call
Monday to Friday, 8:00 a.m. to 8:00 p.m. ET, and Saturdays from February
through mid-April, 10:00 a.m. to 2:00 p.m. ET.
COLONIAL TELEPHONE TRANSACTION DEPARTMENT - 1-800-422-3737
To purchase, exchange or sell shares by telephone, call Monday to Friday,
9:00 a.m. to 7:00 p.m. ET. Transactions received after the close of the New
York Stock Exchange will receive the next business day's closing price.
Literature - 1-800-426-3750
To request literature on any fund distributed by Liberty Financial
Investments, call Monday to Friday, 8:30 a.m. to 6:30 p.m. ET.
BY MAIL
COLONIAL INVESTORS SERVICE CENTER, INC.
P.O. BOX 1722
BOSTON, MA 02105-1722
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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.)
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IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Government Money Market Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial Government Money Market 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 Government Money
Market 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 objective and operating policies of the Fund.
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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
[LIBERTY FINANCIAL LOGO] LIBERTY FINANCIAL INVESTMENTS, INC. Copyright 1997
Distributor for Colonial Funds, Stein Roe Advisor Funds and Newport Funds
One Financial Center, Boston, Massachusetts 02111-2621
MM-02/060E-0897 M (10/97)
