<PAGE>
COLONIAL MONEY MARKET FUND ANNUAL REPORT
June 30, 1998
[PHOTO OF CAPITAL]
Not FDIC
Insured
May Lose Value
No Bank Guarantee
<PAGE>
COLONIAL MONEY MARKET FUND HIGHLIGHTS
SEPTEMBER 1, 1997 - JUNE 30, 1998
INVESTMENT OBJECTIVE: Colonial Money Market Fund seeks maximum current income,
consistent with safety of capital and maintenance of liquidity.
STRATEGY: The Fund pursues its objective by investing all of its assets in the
SR&F Cash Reserves Portfolio (Portfolio), a money market fund with the same
investment objective as the Fund.
PORTFOLIO MANAGER COMMENTARY: "Supply and demand factors contributed toward
rising and declining prices during the period. The yield spread among different
maturity money market instruments was narrow, and investors did not benefit by
assuming the additional risk of a longer security. In this environment, the
Portfolio kept its maturity short due to the unclear trend in interest rates. We
may lengthen the maturity to move toward a more neutral stance in order to
increase flexibility in this environment."
-- Jane Naeseth
COLONIAL MONEY MARKET FUND PERFORMANCE
<TABLE>
<CAPTION>
Class A Class B Class C
<S> <C> <C> <C>
Inception dates 1/30/81 6/8/92 7/1/94
Distributions declared per share $0.041 $0.032 $0.037
7-day yields on 6/30/98(1) 4.99% 3.96% 4.58%
30-day yields on 6/30/98(1) 5.01% 3.99% 4.60%
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO BREAKDOWN(2)
(as of 6/30/98)
<S> <C>
Commercial Paper ................... 89.9%
LOC ................................ 3.9%
Yankee CDs ......................... 3.2%
Corporate Notes .................... 3.0%
</TABLE>
<TABLE>
<CAPTION>
PORTFOLIO MATURITY(2)
(as of 6/30/98)
<S> <C>
0 - 4 days ......................... 21.4%
5 - 14 days ........................ 32.3%
15 - 29 days ....................... 27.6%
30 - 59 days ....................... 11.0%
60+ days ........................... 7.7%
</TABLE>
(1) If the Distributor or Administrator had not waived or borne certain Fund
expenses, the 7-day and 30-day yields would have been 4.80% and 4.81% for Class
A shares, 3.77% and 3.80% for Class B shares, and 3.98% and 4.00% for Class C
shares, respectively.
(2) Portfolio breakdown and maturity weightings are calculated as a percentage
of total market value of the investment portfolio. Because it is actively
managed, there can be no guarantee the Portfolio will continue to hold or invest
in these securities in the future.
An investment in the Fund is not insured or guaranteed by the U.S. government.
There can be no assurance that the $1.00 net asset value per share will be
maintained.
2
<PAGE>
PRESIDENT'S MESSAGE [PHOTO]
TO FUND SHAREHOLDERS
In June 1998, Harold Cogger retired as president of Colonial Money Market Fund.
I would like to take this opportunity to thank him for his guidance over the
past few years and wish him well. As the new president of the Fund, I am pleased
to present the annual report for Colonial Money Market Fund for the 10-month
period ended June 30, 1998.
A variety of factors caused interest rates to seesaw during the period, as
different sectors of the economy provided mixed signals to investors. The
economic turmoil in Southeast Asia, its potential to slow U.S. economic growth
and the possibility of interest rate increases by the Federal Reserve Board
contributed to volatility. With hints that growth might slow, investors' fear of
inflation was reduced. As interest rates dropped, the environment was positive
for money market securities.
Overall, our long-term outlook remains positive. We expect that low inflation
and modest economic growth will continue. Unresolved issues in the Pacific Rim
should keep the U.S. economy from growing too fast. We believe that short-term
interest rates will remain unchanged until the Federal Reserve Board is
convinced the economy is slowing.
For investors seeking a relatively stable environment for their investment
dollars and the potential for current income, Colonial Money Market Fund remains
a sensible option for their investment portfolio.
Thank you for choosing Colonial Money Market Fund and for giving us the
opportunity to serve your investment needs.
Respectfully,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
August 11, 1998
On March 2, 1998, the Fund became a feeder fund for the SR&F Cash Reserves
Portfolio, a money market fund managed by Stein Roe & Farnham Incorporated.
Prior to this transition, approximately two-thirds of the portfolio holdings
represented a selection of short-term, fixed-income U.S. government agency
securities. The Fund no longer invests primarily in U.S. government securities,
but rather in the Portfolio which has the flexibility to search for the highest
relative yield among a variety of money market instruments.
Because market and economic conditions change frequently, there can be no
assurance that the trends described here will continue.
3
<PAGE>
SR&F CASH RESERVES PORTFOLIO
INVESTMENT PORTFOLIO
JUNE 30, 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
COMMERCIAL PAPER - 93.2% (a) PAR VALUE
<S> <C> <C> <C> <C>
CHEMICALS-PLASTICS - 3.9%
Formosa Plastic (LOC ABN AMRO),
5.740% 08/25/98 $27,000 $ 26,771
-------
CONSULTING SERVICES - 3.9%
CSC Enterprises (gtd. by Computer
Sciences),
5.701% - 5.719% 07/09/98 - 07/21/98 26,900 26,839
-------
ELECTRONICS - 4.3%
General Signal,
5.666% - 5.733% 07/07/98 - 07/27/98(b) 29,500 29,822
-------
FINANCIAL SERVICES - 67.5%
BANKS - 4.1%
NBD Bank Canada,
5.678% 07/02/98 28,000 27,996
-------
BUSINESS CREDIT INSTITUTIONS - 16.7%
Avon Capital (gtd. by Avon Products),
5.674% - 6.116% 07/06/98 - 07/08/98(b) 31,200 31,169
BAT Capital (gtd. by BAT Industries),
5.750% 07/01/98 30,000 30,000
Finova Capital,
5.611% - 5.683% 07/07/98 - 07/09/98 30,880 30,850
Harley-Davidson Funding (gtd. by
Eaglemark Financial Services),
5.683% 07/17/98(b) 7,400 7,382
USAA Capital,
5.690% 07/29/98 15,000 14,935
-------
114,336
-------
DIVERSIFIED FINANCIAL SERVICES - 6.2%
Associates Corp. of North America,
6.339% 07/01/98 12,992 12,992
Lehman Brothers Holdings,
6.593% 07/01/98 30,000 30,000
-------
42,992
-------
</TABLE>
4
<PAGE>
Investment Portfolio/June 30, 1998
<TABLE>
<S> <C> <C>
<C> <C>
MORTGAGE BANKING - 4.1%
Countrywide Home Loans (gtd. by
Countrywide Credit Industries),
5.760% 08/27/98
$28,650 $ 28,398
- --------
OTHER FINANCIAL - 36.4%
Asset Securitization,
5.652% - 5.666% 07/06/98 - 07/22/98(b)
32,000 31,946
Corporate Assets Funding,
5.650% 07/02/98(b)
15,000 14,998
CXC,
5.673% 07/24/98(b)
25,000 24,912
International Securitization,
5.646% 07/01/98(b)
30,000 30,000
One Line Funding,
5.709% 07/23/98(b)
32,000 31,891
Preferred Receivables Funding,
5.699% 07/21/98(b)
30,000 29,907
Receivables Capital,
5.668% 07/10/98(b)
25,735 25,699
Thames Asset Global Securitization No. 1,
5.760% - 5.783% 09/02/98 - 09/08/98(b)
30,800 30,485
Windmill Funding,
5.688% 07/07/98(b)
30,000 29,972
- --------
249,810
- --------
MEDICAL PRODUCTS - 4.7%
Baxter International:
5.676% 07/08/98
25,000 24,973
5.719% 07/29/98(b)
7,000 6,970
- --------
31,943
- --------
RETAIL-COSMETICS - 4.2%
Cosmair (gtd. by L'Oreal),
5.711% - 5.718% 07/28/98(b)
29,000 28,879
- --------
TELECOMMUNICATIONS - 4.7%
GTE,
5.675% -5.752% 07/07/98 - 07/08/98
32,000 31,966
- --------
TOTAL COMMERCIAL PAPER (cost of
$639,752) 639,752
- --------
</TABLE>
5
<PAGE>
Investment Portfolio/June 30, 1998
<TABLE>
<CAPTION>
VARIABLE RATE NOTE - 2.9% PAR VALUE
<S> <C> <C> <C> <C>
DIVERSIFIED FINANCIAL SERVICES - 2.9%
Morgan Stanley Dean Witter,
(cost of $20,000) 5.859% 11/16/98 $ 20,000 $ 20,000
--------
YANKEE CERTIFICATE OF DEPOSIT - 3.2%
BANKS - 3.2%
Canadian Imperial Bank,
(cost of $22,000) 5.650% 02/04/99 22,000 22,000
--------
TOTAL INVESTMENTS - 99.3% (cost of $681,752) 681,752
--------
OTHER ASSETS & LIABILITIES, NET - 0.7% 4,525
--------
NET ASSETS - 100% $686,277
--------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
(a) The interest rate is the effective rate at the date of purchase except
for variable rate notes, for which the interest rate represents the
current rate as of the most recent reset date.
(b) Represents private placement securities exempt from registration by
Section 4(2) of the Securities Act of 1933. These securities generally
are issued to investors who agree that they are purchasing the
securities for investment and not for public distribution. Any resale
by the Fund must be in an exempt transaction, normally to other
institutional investors. At June 30, 1998, the aggregate value of the
Fund's private placement securities was $354,032, which represented
51.6 percent of net assets. None of these securities were deemed
illiquid.
See notes to financial statements.
6
<PAGE>
SR&F CASH RESERVES PORTFOLIO
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1998
<TABLE>
<S> <C> <C>
(in thousands)
ASSETS
Investments at amortized cost $681,752
Cash $ 4,020
Interest receivable 660
Other assets 5 4,685
-------- --------
Total Assets 686,437
LIABILITIES
Payable to investment adviser 147
Other liabilities 13
--------
Total Liabilities 160
--------
NET ASSETS applicable to investors' beneficial interests $686,277
--------
</TABLE>
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 1998 (a)
<TABLE>
<S> <C> <C>
(in thousands)
INVESTMENT INCOME
Interest income $12,715
EXPENSES
Management fees $ 543
Accounting fees 13
Other 14 570
------- -------
Net Investment Income $12,145
-------
</TABLE>
(a) From commencement of operations on March 2, 1998.
See notes to financial statements.
7
<PAGE>
SR&F CASH RESERVES PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period ended
(in thousands) June 30
-----------
INCREASE IN NET ASSETS 1998 (a)
<S> <C>
Operations:
Net investment income $ 12,145
-----------
Transactions in investors' beneficial interests:
Contributions 1,158,202
Withdrawals (484,070)
-----------
Net transactions in investors'
beneficial interest 674,132
-----------
Net increase in net assets 686,277
NET ASSETS
Beginning of period --
-----------
End of period $ 686,277
-----------
</TABLE>
(a) From commencement of operations on March 2, 1998.
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Period ended
June 30
-------------
RATIOS TO AVERAGE NET ASSETS 1998 (a)
<S> <C>
Expenses 0.26% (b)
Net investment income 5.45% (b)
</TABLE>
(a) From commencement of operations on March 2, 1998.
(b) Annualized.
See notes to financial statements.
8
<PAGE>
SR&F CASH RESERVES PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1. ORGANIZATION OF THE SR&F CASH RESERVES PORTFOLIO
SR&F Cash Reserves Portfolio (the "Portfolio") is a separate series of SR&F Base
Trust, a Massachusetts common law trust organized under an Agreement and
Declaration of Trust dated August 23, 1993. The Declaration of Trust permits the
Trustees to issue non-transferable interests in the Portfolio. The investment
objective of the Portfolio is to seek maximum current income consistent with
capital preservation and maintenance of liquidity.
The Portfolio commenced operations on March 2, 1998. At commencement, Stein Roe
Cash Reserves Fund and Colonial Money Market Fund (formerly Colonial Government
Money Market Fund) contributed $493,223,678 and $187,536,920, respectively, in
securities and other assets in exchange for beneficial ownership of the
Portfolio. The Portfolio allocates income, expenses and realized gains and
losses to each investor on a daily basis, based on their respective percentage
of ownership. At June 30, 1998, Stein Roe Cash Reserves Fund and Colonial Money
Market Fund owned 70.3 percent and 29.7 percent, respectively, of the Portfolio.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
The following summarizes the significant accounting policies of the Portfolio.
These policies are in conformity with generally accepted accounting principles,
which require management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. Actual
results could differ from those estimates.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME:
Investment transactions are accounted for on trade date. Interest income,
including discount accretion and premium amortization, is recorded daily on the
accrual basis. Realized gains or losses from investment transactions are
reported on an identified cost basis.
The Portfolio is permitted to invest in repurchase agreements involving
securities issued or guaranteed by the U.S. Government or by its agencies or
instrumentalities. The Portfolio requires issuers of repurchase agreements to
transfer the securities underlying those agreements to the Portfolio's custodian
at the time of origination.
INVESTMENT VALUATIONS:
All securities are valued as of June 30, 1998. The Portfolio utilizes the
amortized cost method to value its investments. This technique approximates
market value and involves valuing a security initially at cost and, thereafter
assuming a constant amortization to maturity of any discount or premium,
9
<PAGE>
Notes to Financial Statements/June 30, 1998
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - CONT.
regardless of the impact of fluctuating interest rates on the market value of
the instrument. In the event that a deviation of .50 of 1 percent or more exists
between the Fund's $1.00 per-share net asset value, calculated at amortized
cost, and the net asset value calculated by reference to market quotations, the
Board of Trustees would consider what action, if any, should be taken. Other
assets are valued at fair value as determined in good faith by or under the
direction of the Board of Trustees.
FEDERAL INCOME TAXES:
No provision is made for federal income taxes because the Portfolio is treated
as a partnership for federal income tax purposes and all of its income is
allocated to its owners based on their respective percentages of ownership.
NOTE 3. PORTFOLIO COMPOSITION
Under normal market conditions, the Portfolio will invest a least 25 percent of
its total assets in securities of issuers in the financial services industry
(which includes, but is not limited to, banks, consumer and business credit
institutions, and other financial services companies). At June 30, 1998, 67.5
percent of the Portfolio's net assets were invested in the financial services
industry. See the portfolio of investments for additional information regarding
portfolio composition.
NOTE 4. TRUSTEES FEES AND TRANSACTIONS WITH AFFILIATES
The Portfolio pays a monthly management fee to Stein Roe & Farnham Incorporated
(the "Adviser"), an indirect, majority-owned subsidiary of Liberty Mutual
Insurance Company, for its services as investment adviser and manager. The
management fee for the Portfolio is computed at an annual rate of .25 of 1
percent of the first $500 million of average daily net assets, and .225 of 1
percent thereafter. The Adviser also provides accounting services.
Certain officers and trustees of the Trust are also officers of the Adviser.
Compensation is paid to trustees not affiliated with the Adviser. The
compensation of trustees not affiliated with the Adviser for the period ended
June 30, 1998, was $6,750. No remuneration was paid to any other trustee or
officer of the Trust.
10
<PAGE>
REPORT OF INDEPENDENT AUDITORS
TO THE HOLDERS OF INVESTORS' BENEFICIAL INTERESTS OF
SR&F CASH RESERVES PORTFOLIO AND THE BOARD OF
TRUSTEES OF THE SR&F BASE TRUST
We have audited the accompanying statement of assets and liabilities,
including the portfolio of investments, of SR&F Cash Reserves Portfolio as of
June 30, 1998, and the related statements of operations and changes in net
assets, and financial highlights for the period from March 2, 1998 to June 30,
1998. These financial statements and financial highlights are the responsibility
of the Portfolio's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of June
30, 1998, by correspondence with the custodian. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of SR&F Cash Reserves Portfolio at June 30, 1998, and the results of
its operations, the changes in its net assets, and the financial highlights for
the fiscal period referred to above, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Chicago, Illinois
August 7, 1998
11
<PAGE>
COLONIAL MONEY MARKET FUND
STATEMENT OF ASSETS & LIABILITIES
JUNE 30, 1998
<TABLE>
<S> <C> <C>
(in thousands except for per share amounts)
ASSETS
Investment in SR&F Cash Reserves
Portfolio $ 203,662
Receivable for:
Fund shares sold $ 6,676
Other 9 6,685
--------- ---------
Total Assets 210,347
LIABILITIES
Payable for:
Fund shares repurchased 15,781
Distributions 779
Accrued:
Deferred Trustees fees 4
Other 10
---------
Total Liabilities 16,574
---------
NET ASSETS $ 193,773
=========
Net asset value:
Class A ($128,658/128,636) $ 1.00
=========
Class B ($61,811/61,806) $ 1.00(a)
=========
Class C ($3,304/3,304) $ 1.00(a)
=========
COMPOSITION OF NET ASSETS
Capital paid in $ 193,749
Undistributed net investment income 25
Accumulated net realized loss (1)
---------
$ 193,773
=========
</TABLE>
(a) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
See notes to financial statements.
12
<PAGE>
COLONIAL MONEY MARKET FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED JUNE 30, 1998 (a)
<TABLE>
<S> <C> <C>
(in thousands)
INVESTMENT INCOME
Interest income from
SR&F Cash Reserves Portfolio $ 3,609
Interest income 5,491
Expenses allocated from
SR&F Cash Reserves Portfolio (162)
-------
8,938
EXPENSES
Administration fee $ 159
Management fee 294
Service fee - Class B 125
Service fee - Class C 7
Distribution fee - Class B 375
Distribution fee - Class C 21
Transfer agent 396
Bookkeeping fee 56
Trustees fee 17
Custodian fee 5
Audit fee 23
Legal fee 8
Registration fee 82
Reports to shareholders 15
Other 17
-------
1,600
Fee waived by the Administrator (121)
Fee waived by the Distributor - Class C (17) 1,462
------- -------
Net Investment Income $ 7,476
-------
</TABLE>
(a) The Fund changed its fiscal year end from August 31 to June 30.
Information presented is for the period September 1, 1997 through June
30, 1998.
See notes to financial statements.
13
<PAGE>
COLONIAL MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Period ended Year ended
(in thousands) June 30 (a) August 31
----------- -----------
INCREASE (DECREASE) IN 1998 1997(b)
NET ASSETS
<S> <C> <C>
Operations:
Net investment income $ 7,476 $ 8,182
----------- -----------
Distributions:
From net investment income - Class A (5,343) (5,490)
In excess of net investment income - Class A -- (28)
From net investment income - Class B (1,940) (2,585)
In excess of net investment income - Class B -- (13)
From net investment income - Class C (126) (136)
In excess of net investment income - Class C -- (1)
----------- -----------
67 (71)
----------- -----------
Fund Share Transactions:
Receipts for shares sold - Class A 1,173,914 1,511,776
Value of distributions reinvested - Class A 4,381 4,456
Cost of shares repurchased - Class A (1,193,752) (1,487,170)
----------- -----------
(15,457) 29,062
----------- -----------
Receipts for shares sold - Class B 182,273 343,510
Value of distributions reinvested - Class B 1,545 2,017
Cost of shares repurchased - Class B (192,276) (351,804)
----------- -----------
(8,458) (6,277)
----------- -----------
Receipts for shares sold - Class C 10,122 37,213
Value of distributions reinvested - Class C 104 117
Cost of shares repurchased - Class C (9,827) (38,859)
----------- -----------
399 (1,529)
----------- -----------
Net Increase (Decrease) from Fund
Share Transactions (23,516) 21,256
----------- -----------
Total Increase (Decrease) (23,449) 21,185
NET ASSETS
Beginning of period 217,222 196,037
----------- -----------
End of period (including undistributed
and net of overdistributed net investment
income of $25 and $42, respectively) $ 193,773 $ 217,222
----------- -----------
</TABLE>
(a) The Fund changed its fiscal year end from August 31 to June 30.
Information presented is for the period September 1, 1997 through June
30, 1998.
(b) Class C shares were initially offered on August 1, 1997.
Statement of Changes in Net Assets continued on following page.
See notes to financial statements.
14
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS - CONT.
<TABLE>
<CAPTION>
(in thousands) Period ended Year ended
June 30 (a) August 31
---------- ----------
NUMBER OF FUND SHARES 1998 1997(b)
<S> <C> <C>
Sold - Class A 1,173,913 1,511,776
Issued for distributions reinvested - Class A 4,381 4,456
Repurchased - Class A (1,193,752) (1,487,169)
---------- ----------
(15,458) 29,063
---------- ----------
Sold - Class B 182,273 343,507
Issued for distributions reinvested - Class B 1,545 2,017
Repurchased - Class B (192,275) (351,804)
---------- ----------
(8,457) (6,280)
---------- ----------
Sold - Class C 10,122 37,213
Issued for distributions reinvested - Class C 104 117
Repurchased - Class C (9,827) (38,858)
---------- ----------
399 (1,528)
---------- ----------
</TABLE>
(a) The Fund changed its fiscal year end from August 31 to June 30.
Information presented is for the period September 1, 1997 through June
30, 1998.
(b) Class C shares were initially offered on August 1, 1997.
See notes to financial statements.
15
<PAGE>
COLONIAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1998
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION: Colonial Money Market Fund (the Fund), formerly Colonial
Government Money Market 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 invests all of its investable assets in
interests in the SR&F Cash Reserves Portfolio (the Portfolio), a
Massachusetts common trust, having the same investment objective as the
Fund. The value of the Fund's investment in the Portfolio reflects the
Fund's proportionate interest in the net assets of the Portfolio (29.7% at
June 30, 1998). The performance of the Fund is directly affected by the
performance of the Portfolio.
The financial statements of the Portfolio, including the portfolio of
investments, are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements. The Fund may issue an
unlimited number of shares. The Fund offers three classes of shares: Class
A, Class B, and Class C shares. Class B shares are identical to Class A
shares except for an annual service and distribution fee and a contingent
deferred sales charge. Class B shares will convert to Class A shares when
they have been outstanding approximately eight years. Class C shares are
subject to a contingent deferred sales charge on redemptions made within
one year after purchase and 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
followed by the Fund in the preparation of its financial statements.
SECURITY VALUATION AND TRANSACTIONS: Valuation of securities by the
Portfolio is discussed in Note 1 of the Portfolio's Notes to Financial
Statements which are included elsewhere in this report.
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.
16
<PAGE>
Notes to Financial Statements/June 30, 1998
Class B and Class C per share data and ratios are calculated by adjusting
the net investment income per share data and ratios for the Fund for the
entire period by the service fee and 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.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions
daily and pays monthly.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE: Through March 1, 1998, Colonial Management Associates, Inc.
was the investment Adviser of the Fund furnishing accounting and other
services and office facilities for a monthly fee equal to 0.30% annually of
the Fund's average net assets. Through March 1, 1998, management fees paid
during the period amounted to $293,966.
ADMINISTRATION FEE: Colonial Management Associates, Inc. (the
Administrator) provides accounting and other services and office facilities
for a monthly fee equal to 0.25% annually of the Fund's average net assets.
The Administrator has voluntarily agreed to waive a portion of the
administration fee so that it does not exceed 0.06% annually.
BOOKKEEPING FEE: The Administrator provides bookkeeping and pricing
services for $18,000 per year plus 0.0233% 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 0.20% annually of the Fund's average net assets
and receives reimbursement for certain out-of-pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Liberty Funds
Distributor, Inc., formerly Liberty Financial Investments, Inc. (the
Distributor), an affiliate of the Administrator, is the Fund's principal
underwriter. For the period ended June 30, 1998, the Fund has been advised
that the Distributor received contingent deferred sales charges (CDSC) of
$14,954, $352,299, and $5,076 on Class A, Class B, and Class C redemptions,
respectively.
The Fund has adopted a 12b-1 plan which requires the payment of a service
fee to the Distributor 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 and Class C shares. The
Distributor has voluntarily agreed to waive a portion of the Class C share
distribution fee so that it does not exceed 0.15% annually.
17
<PAGE>
Notes to Financial Statements/June 30, 1998
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES - CONT.
EXPENSE LIMITS: The Administrator has agreed, until further notice, to
waive fees and bear certain Fund expenses to the extent that total expenses
(inclusive of the Fund's proportionate share of the Portfolio's expenses
and 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 period ended June 30, 1998, 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 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 Fund's assets.
NOTE 3. OTHER RELATED PARTY TRANSACTIONS
At June 30, 1998, Liberty Financial Investments, Inc. and Colonial
Management Associates, Inc. owned 9% and 11% respectively, of the Fund's
shares outstanding.
NOTE 4. RESULTS OF SPECIAL SHAREHOLDER MEETING (UNAUDITED)
On February 27, 1998, a Special Meeting of Shareholders was held to approve
the conversion of the Fund to the master fund/feeder fund structure with
new fundamental and non-fundamental investment policies, all as described
in the Proxy Statement for the Meeting. The conversion was effective March
2, 1998. On January 2, 1998, the record date for the meeting, the Fund had
outstanding 190,457,816 shares of beneficial interest. The votes cast at
the Meeting were as follows:
FOR AGAINST ABSTAIN
--- ------- -------
94,014,449 3,060,440 3,238,318
18
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period
are as follows:
<TABLE>
<CAPTION>
Period ended June 30
-----------------------------------------------------
1998(a)(b)
Class A Class B Class C
------------ ------------ ------------
<S> <C> <C> <C>
Net asset value -
Beginning of period $ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (c)(d) 0.041 0.032 0.037(e)
------------ ------------ ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.041) (0.032) (0.037)
------------ ------------ ------------
Net asset value -
End of period $ 1.000 $ 1.000 $ 1.000
------------ ------------ ------------
Total return (f)(g)(h) 4.17% 3.28% 3.81%
------------ ------------ ------------
RATIOS TO AVERAGE NET ASSETS
Expenses (c)(d)(i)(j) 0.69% 1.69% 1.09%(e)
Net investment
income (c)(d)(i)(j) 4.93% 3.93% 4.53%(e)
Net assets at end
of period (000) $ 128,658 $ 61,811 $ 3,304
</TABLE>
(a) The Fund changed its fiscal year end from August 31 to June 30.
Information presented is for the period September 1, 1997 through June
30, 1998.
(b) Effective March 2, 1998, SR&F became the investment Adviser of the
Fund.
(c) Net of fees waived by the Administrator which amounted to $0.001 per
share and 0.19% (annualized).
(d) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses
of SR&F Cash Reserves Portfolio.
(e) Net of fees waived by the Distributor which amounted to $0.005 per
share and 0.60% (annualized).
(f) Total return at net asset value assuming all distributions reinvested
and no contingent deferred sales charge.
(g) Not annualized.
(h) Had the Administrator and Distributor not waived a portion of
expenses, total return would have been reduced.
(i) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(j) Annualized.
19
<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
----------------------------------------------------------
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)
------------ ------------ ------------
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 0.72%(e) 1.72%(e) 1.64%(e)
Fees and expenses waived
or borne by the Adviser -- -- --
Net investment
income 4.73%(e) 3.73%(e) 3.81%(e)
Net assets at end
of period (000) $ 144,076 $ 70,242 $ 2,904
</TABLE>
(a) Net of fees and expenses waived or borne by the Adviser which amounted
to: $ -- $ -- $ --
(b) Effective July 1, 1997, Class D shares were redesignated 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) Had the Adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
(e) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years ratios' are net of benefits
received, if any.
20
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
<TABLE>
<CAPTION>
Year ended August 31
- ------------------------------------------------------------------------------------------------------------------------------
1996 1995
Class A Class B Class C Class A Class B
Class C
- ----------------------------------------------------------
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
<C>
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
$ 1.000
- ------------ ----------- ----------- ----------- -----------
- -----------
0.048 0.038 0.038 0.050
0.040 0.040
- ------------ ----------- ----------- ----------- -----------
- -----------
(0.048) (0.038) (0.038) (0.050)
(0.040) (0.040)
- ------------ ----------- ----------- ----------- -----------
- -----------
$ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
$ 1.000
- ------------ ----------- ----------- ----------- -----------
- -----------
4.93% 3.86% 3.85% 5.14%(d)
4.08%(d) 4.07%(d)
============ =========== =========== =========== ===========
===========
0.70%(e) 1.70%(e) 1.70%(e) 0.69%
1.69% 1.69%
-- -- -- 0.04%
0.04% 0.04%
4.76%(e) 3.76%(e) 3.76%(e) 4.96%
3.96% 3.96%
$ 115,063 $ 76,539 $ 4,435 $ 83,086 $ 55,441
$ 625
$ -- $ -- $ -- $ 0.000 $ 0.000
$ 0.000
</TABLE>
21
<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
---------------------------------------------------
1994
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) 0.028 0.018 0.005
----------- ----------- -----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.028) (0.018) (0.005)
----------- ----------- -----------
Net asset value -
End of period $ 1.000 $ 1.000 $ 1.000
----------- ----------- -----------
Total return (c)(d) 2.85% 1.82% 0.45%(e)
----------- ----------- -----------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.73% 1.73% 1.73%(f)
Fees and expenses waived
or borne by the Adviser 0.20% 0.20% 0.20%(f)
Net investment
income 3.01% 2.01% 2.01%(f)
Net assets at end
of period (000) $ 97,115 $ 54,535 $ 518
</TABLE>
(a) Net of fees and expenses waived or borne by the Adviser which amounted
to: 0.002 0.002 0.002
(b) Class C 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) Annualized.
22
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
<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 (c)(d) 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
$ 0.002 $ 0.002
</TABLE>
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST II AND THE SHAREHOLDERS OF
COLONIAL MONEY MARKET FUND
In our opinion, the accompanying statement of assets and liabilities 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 Money Market Fund (the "Fund"), formerly
Colonial Government Money Market Fund (a series of Colonial Trust II) at
June 30, 1998, 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 investments owned at June 30,
1998, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 11, 1998
24
<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 Funds Distributor, Inc. 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 Funds Distributor 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 Funds Distributor. 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.
25
<PAGE>
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 Funds Distributor,
Inc., 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
26
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Money Market Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial 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 and
additional reports will be sent to you.
This report has been prepared for shareholders of Colonial Money Market Fund. It
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 and with the most recent copy of the Liberty
Funds Distributor's Performance Update.
27
<PAGE>
TRUSTEES
ROBERT J. BIRNBAUM
Consultant (formerly Special Counsel, Dechert, Price & Rhoads; President and
Chief Operating Officer, New York Stock Exchange, Inc.; President, American
Stock Exchange, Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
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, Chief Executive Officer and Director,
Hannaford Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
ROBERT L. SULLIVAN
Retired Partner, KPMG Peat Marwick LLP (formerly Management Consultant, Saatchi
and Saatchi Consulting Ltd. and Principal and International Practice Director,
Management Consulting, Peat Marwick Main & Co.)
[LIBERTY LOGO]
Liberty Funds Distributor, Inc. (C)1998
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
Visit us at www.libertyfunds.com MM-02/613F-0698 (8/98) 98/800
