<PAGE>
[COLONIAL LOGO]
COLONIAL
TAX-EXEMPT FUND
SEMIANNUAL REPORT
MAY 31, 1996
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
<PAGE>
COLONIAL TAX-EXEMPT FUND HIGHLIGHTS
DECEMBER 1, 1995 - MAY 31, 1996
INVESTMENT OBJECTIVE: Colonial Tax-Exempt Fund seeks as high a level of
after-tax total return as is consistent with prudent risk, by pursuing current
income exempt from federal income tax and opportunities for long-term
appreciation from a portfolio primarily invested in investment-grade municipal
bonds.
THE FUND IS DESIGNED TO OFFER:
- Potential for high monthly tax-free income and long-term growth
- Diversification
- Emphasis on quality
PORTFOLIO MANAGER COMMENTARY: "We believe the Fund is positioned to produce
attractive returns in the coming months. The Fund holds a good blend of high
quality, low coupon bonds that will perform well in a declining rate environment
and lower quality, high coupon bonds that will support the net asset value in a
rising rate environment."
COLONIAL TAX-EXEMPT FUND PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
Inception dates 11/21/78 5/5/92
Distributions declared per share* $ 0.379 $ 0.328
SEC Yields on May 31, 1996** 5.56% 5.08%
Taxable-equivalent SEC yields*** 9.21% 8.41%
Total returns, assuming reinvestment
of all distributions and no sales charge or
contingent deferred sales charge (CDSC)
6 months (1.43)% (1.80)%
Net asset value per share at 5/31/96 $13.15 $13.15
</TABLE>
*A portion of the Fund's income may be subject to the alternative minimum tax.
**The 30-day SEC yields on May 31, 1996, reflect the portfolio's earning power,
net of expenses, expressed as an annualized percentage of the maximum offering
price per share at the end of the period.
***Taxable-equivalent SEC yields are based on the maximum federal income tax
rate of 39.6%.
<TABLE>
<CAPTION>
QUALITY BREAKDOWN MATURITY BREAKDOWN
<S> <C> <C> <C> <C> <C>
AAA 50.1% 0-1 year 0.4% 10-15 years 8.5%
AA 14.5% 1-3 years 0.5% 15-20 years 25.0%
A 8.8% 3-5 years 2.2% 20-25 years 28.3%
BBB 8.1% 5-7 years 0.8% 25 years+ 32.6%
BB 0.4% 7-10 years 1.7%
B 0.2%
Non-rated 17.9%
</TABLE>
Because the Fund is actively managed, quality and maturity weightings will
change.
2
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[PHOTO OF HAROLD W. COGGER, PRESIDENT]
I am pleased to present your Fund's semiannual report for the period ended May
31, 1996. First, however, I would like to extend my thanks to President John A.
McNeice, Jr., who has retired after a career with Colonial that spanned 40
years. We look forward to his continued involvement on the executive committee
of the board of directors at our parent company, Liberty Financial Companies,
Inc.
In my new position, I am directing Colonial's focus on the delivery of superior
investment performance over the long term. To achieve this mission, we will
continue to seek the optimal combination of talented people and effective
investment disciplines.
The receipt of your semiannual report is a good time to reflect on market
conditions and the performance of your Fund during the past 6 months. Falling
interest rates and minimal inflation helped the economy grow at a comfortable
pace throughout 1995 and created a positive environment for fixed income
investments. After a difficult 1994, investors who stayed the course during 1995
were amply rewarded.
While there may be some current market volatility, we expect slow growth and low
inflation to continue. In the following pages you'll find detailed information
on your Fund's performance as well as an in-depth discussion with the portfolio
manager.
With over 12 years of service at Colonial and more than 25 years in the
industry, I am enthusiastic about -- and dedicated to achieving -- Colonial's
mission of providing you with competitive investment returns. In my new role, I
look forward to communicating with you regarding your Colonial investment. We
appreciate the opportunity to help you meet your investment goals.
Respectfully,
/s/Harold W. Cogger
- -------------------------
Harold W. Cogger
President
July 11, 1996
Because market conditions change frequently, there can be no assurance that the
trends described here will continue, come to pass, or affect Fund performance.
3
<PAGE>
PORTFOLIO MANAGEMENT REPORT
BONNY BOATMAN AND ROBERT WAAS are co-portfolio managers of the Colonial
Tax-Exempt Fund. Ms. Boatman is senior vice president of Colonial Management
Associates, Inc. and is the director of the Tax-Exempt Bond Group. Mr. Waas is
vice president of Colonial Management Associates, Inc.
Q: WHAT WAS YOUR INVESTMENT STRATEGY DURING THE PAST SIX MONTHS?
BB: "We implemented a two-part strategy near the beginning of the period. First,
we reduced our investments in 30-year discount bonds that are priced to maturity
and increased our investments in 30-year premium bonds that are priced to the
call. Callable bonds have maturities that are effectively the same as the call
date, typically much earlier than the 30-year final maturity. Second, to the
extent that we chose to own discount bonds, we exchanged those with 30-year
maturities for securities with 15-20 year maturities. Both moves had the effect
of increasing the Fund's holdings of shorter effective maturities, and reducing
the expected price swings in response to interest rate changes."
Q: WHAT FACTORS CONTRIBUTED TO PERFORMANCE DURING THIS PERIOD?
RW: "The biggest factor was the sudden, sharp upward move in interest rates that
began mid-February. This had a negative effect on fixed income investments. From
February 12, 1996 to May 31, 1996, long-term interest rates, as tracked by the
30-year Treasury bond, rose from 6.03% to 6.99% in reaction to reports of
stronger than expected economic activity.
"A positive contributor to performance was an increase in the Fund's holdings in
single family housing bonds, which currently represent about 9% of the
portfolio. These bonds perform best in a rising interest rate environment
because there is a higher likelihood that interest payments will be collected
over longer periods; homeowners are less likely to refinance and prepay their
mortgage when rates are rising. We purchased additional bonds in this sector at
very attractive prices early in the period when rates were declining and the
bonds were out of favor."
Q: HOW DID THE FUND'S SIX MONTH PERFORMANCE COMPARE TO THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX?
RW: "The Fund underperformed the Lehman Brothers Municipal Bond Index, a
broad-based, unmanaged index that tracks the performance of the municipal bond
market. The total return for the Fund's Class A shares, based on net asset
value, was down 1.43% while the return on the Index was down 0.58%.
"This level of underperformance was due, in large part, to the time it took to
implement our investment strategy. At the time of the sudden reversal of
interest rates, we had only about three quarters of our strategy in place, and
the Fund was still more sensitive to interest rates than the Index. However, we
continued to pursue our objectives and we were able to reverse some of the early
period losses by the end of May."
4
<PAGE>
Q: WHAT IS YOUR OUTLOOK FOR THE TAX-EXEMPT BOND MARKET?
BB: "A number of recent economic releases indicate stronger economic growth than
we previously expected, instilling fears of inflation, which is negative for
bond prices. We believe that the tax-exempt bond market may continue to
experience lower prices and higher yields in the months ahead, so the Fund is
positioned defensively. Tax reform may still present a source of some concern,
although the market has already felt most of the negative effect of proposed
changes. As a result, we believe municipal bonds are still slightly undervalued
and may present a buying opportunity."
COLONIAL TAX-EXEMPT FUND'S PERFORMANCE VS.
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
Change in Value of $10,000 from 5/86 -5/96
Based on NAV and MOP for Class A Shares
<TABLE>
<CAPTION>
Label A B C
- --------------------------------------------------------------------------
Label Lehman Muni Lo NAV MOP
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 May 31, 86 10000 10000 9525
- --------------------------------------------------------------------------
2 Jun 30, 86 10086.26 10065.79 9587.66
- --------------------------------------------------------------------------
3 Jul 31, 86 10166.17 10109.32 9629.13
- --------------------------------------------------------------------------
4 Aug 31, 86 10698.03 10488.66 9990.44
- --------------------------------------------------------------------------
5 Sep 30, 86 10673.69 10494.41 9995.93
- --------------------------------------------------------------------------
6 Oct 31, 86 10855.74 10685.68 10178.11
- --------------------------------------------------------------------------
7 Nov 30, 86 11116.11 10862.66 10346.68
- --------------------------------------------------------------------------
8 Dec 31, 86 11101.82 10836.37 10321.64
- --------------------------------------------------------------------------
9 Jan 31, 87 11475.44 11100.82 10573.53
- --------------------------------------------------------------------------
10 Feb 28, 87 11507.19 11168.31 10637.82
- --------------------------------------------------------------------------
11 Mar 31, 87 11337.84 11108.54 10580.89
- --------------------------------------------------------------------------
12 Apr 30, 87 10701.2 10604.01 10100.32
- --------------------------------------------------------------------------
13 May 31, 87 10583.71 10541.22 10040.51
- --------------------------------------------------------------------------
14 Jun 30, 87 10920.82 10779.31 10267.29
- --------------------------------------------------------------------------
15 Jul 31, 87 11021.9 10863.32 10347.31
- --------------------------------------------------------------------------
16 Aug 31, 87 11070.59 10915.92 10397.41
- --------------------------------------------------------------------------
17 Sep 30, 87 10618.64 10538.79 10038.19
- --------------------------------------------------------------------------
18 Oct 31, 87 10618.11 10518.95 10019.3
- --------------------------------------------------------------------------
19 Nov 30, 87 10957.86 10802.85 10289.72
- --------------------------------------------------------------------------
20 Dec 31, 87 11100.22 10885.34 10368.29
- --------------------------------------------------------------------------
21 Jan 31, 88 11543.7 11249.63 10715.28
- --------------------------------------------------------------------------
22 Feb 28, 88 11679.18 11367.62 10827.66
- --------------------------------------------------------------------------
23 Mar 31, 88 11511.95 11236.01 10702.3
- --------------------------------------------------------------------------
24 Apr 30, 88 11602.97 11303.41 10766.5
- --------------------------------------------------------------------------
25 May 31, 88 11615.14 11344.88 10806
- --------------------------------------------------------------------------
26 Jun 30, 88 11841.64 11518.97 10971.82
- --------------------------------------------------------------------------
27 Jul 31, 88 11921.02 11587.75 11037.33
- --------------------------------------------------------------------------
28 Aug 31, 88 11968.12 11617.23 11065.42
- --------------------------------------------------------------------------
29 Sep 30, 88 12239.08 11781.72 11222.09
- --------------------------------------------------------------------------
30 Oct 31, 88 12517.97 11956.37 11388.44
- --------------------------------------------------------------------------
31 Nov 30, 88 12383.55 11886.25 11321.65
- --------------------------------------------------------------------------
32 Dec 31, 88 12598.94 12017.36 11446.54
- --------------------------------------------------------------------------
33 Jan 31, 89 12895.3 12158.47 11580.94
- --------------------------------------------------------------------------
34 Feb 28, 89 12714.84 12114.91 11539.45
- --------------------------------------------------------------------------
35 Mar 31, 89 12725.42 12108.31 11533.16
- --------------------------------------------------------------------------
36 Apr 30, 89 13098.51 12308.61 11723.95
- --------------------------------------------------------------------------
37 May 31, 89 13401.75 12481.8 11888.92
- --------------------------------------------------------------------------
38 Jun 30, 89 13606.03 12627.47 12027.67
- --------------------------------------------------------------------------
39 Jul 31, 89 13785.96 12726.03 12121.54
- --------------------------------------------------------------------------
40 Aug 31, 89 13576.39 12642.16 12041.65
- --------------------------------------------------------------------------
41 Sep 30, 89 13534.58 12654.77 12053.67
- --------------------------------------------------------------------------
42 Oct 31, 89 13713.45 12735.81 12130.86
- --------------------------------------------------------------------------
43 Nov 30, 89 14005.05 12876.28 12264.65
- --------------------------------------------------------------------------
44 Dec 31, 89 14108.25 12988.03 12371.1
- --------------------------------------------------------------------------
45 Jan 31, 90 13965.89 12921.28 12307.52
- --------------------------------------------------------------------------
46 Feb 28, 90 14123.07 13044.68 12425.06
- --------------------------------------------------------------------------
47 Mar 31, 90 14137.89 13057.79 12437.54
- --------------------------------------------------------------------------
48 Apr 30, 90 13965.37 12969.45 12353.4
- --------------------------------------------------------------------------
49 May 31, 90 14359.63 13207.2 12579.85
- --------------------------------------------------------------------------
50 Jun 30, 90 14500.93 13333.61 12700.27
- --------------------------------------------------------------------------
51 Jul 31, 90 14756.54 13512.44 12870.6
- --------------------------------------------------------------------------
52 Aug 31, 90 14405.67 13369.82 12734.75
- --------------------------------------------------------------------------
53 Sep 30, 90 14382.91 13393.78 12757.58
- --------------------------------------------------------------------------
54 Oct 31, 90 14687.74 13544.45 12901.09
- --------------------------------------------------------------------------
55 Nov 30, 90 15059.78 13770.55 13116.45
- --------------------------------------------------------------------------
56 Dec 31, 90 15126.46 13823.96 13167.33
- --------------------------------------------------------------------------
57 Jan 31, 91 15329.68 13974.26 13310.48
- --------------------------------------------------------------------------
58 Feb 28, 91 15437.11 14104.19 13434.24
- --------------------------------------------------------------------------
59 Mar 31, 91 15474.15 14147.72 13475.7
- --------------------------------------------------------------------------
60 Apr 30, 91 15713.88 14333.8 13652.95
- --------------------------------------------------------------------------
61 May 31, 91 15898.57 14455.13 13768.51
- --------------------------------------------------------------------------
62 Jun 30, 91 15868.4 14455.13 13768.51
- --------------------------------------------------------------------------
63 Jul 31, 91 16113.95 14622.37 13927.81
- --------------------------------------------------------------------------
64 Aug 31, 91 16345.74 14824.37 14120.21
- --------------------------------------------------------------------------
65 Sep 30, 91 16582.83 14993.65 14281.46
- --------------------------------------------------------------------------
66 Oct 31, 91 16755.88 15118.53 14400.4
- --------------------------------------------------------------------------
67 Nov 30, 91 16776.52 15164.31 14444.01
- --------------------------------------------------------------------------
68 Dec 31, 91 17176.07 15446.31 14712.61
- --------------------------------------------------------------------------
69 Jan 31, 92 17166.01 15452.15 14718.18
- --------------------------------------------------------------------------
70 Feb 29, 92 17192.47 15504.47 14768.01
- --------------------------------------------------------------------------
71 Mar 31, 92 17235.87 15521.95 14784.65
- --------------------------------------------------------------------------
72 Apr 30, 92 17400.45 15645.42 14902.26
- --------------------------------------------------------------------------
73 May 31, 92 17655 15816.96 15065.65
- --------------------------------------------------------------------------
74 Jun 30, 92 17996.34 16060.75 15297.87
- --------------------------------------------------------------------------
75 Jul 31, 92 18656.27 16533.39 15748.05
- --------------------------------------------------------------------------
76 Aug 31, 92 18405.95 16358.9 15581.86
- --------------------------------------------------------------------------
77 Sep 30, 92 18487.45 16473.7 15691.2
- --------------------------------------------------------------------------
78 Oct 31, 92 18178.92 16260.94 15488.54
- --------------------------------------------------------------------------
79 Nov 30, 92 18690.67 16572.78 15785.57
- --------------------------------------------------------------------------
80 Dec 31, 92 18933.58 16723.45 15929.08
- --------------------------------------------------------------------------
81 Jan 31, 93 19111.92 16912.01 16108.69
- --------------------------------------------------------------------------
82 Feb 28, 93 20000.46 17412.23 16585.15
- --------------------------------------------------------------------------
83 Mar 31, 93 19759.67 17278.02 16457.31
- --------------------------------------------------------------------------
84 Apr 30, 93 20030.1 17431.77 16603.76
- --------------------------------------------------------------------------
85 May 31, 93 20195.74 17485.22 16654.67
- --------------------------------------------------------------------------
86 Jun 30, 93 20575.71 17738.55 16895.97
- --------------------------------------------------------------------------
87 Jul 31, 93 20596.88 17801.87 16956.28
- --------------------------------------------------------------------------
88 Aug 31, 93 21123.97 18121.7 17260.92
- --------------------------------------------------------------------------
89 Sep 30, 93 21399.69 18314.44 17444.51
- --------------------------------------------------------------------------
90 Oct 31, 93 21440.97 18340.52 17469.35
- --------------------------------------------------------------------------
91 Nov 30, 93 21181.13 18196.92 17332.57
- --------------------------------------------------------------------------
92 Dec 31, 93 21727.28 18518.63 17638.99
- --------------------------------------------------------------------------
93 Jan 31, 94 21982.89 18723.63 17834.26
- --------------------------------------------------------------------------
94 Feb 28, 94 21254.17 18270.95 17403.08
- --------------------------------------------------------------------------
95 Mar 31, 94 19984.59 17524.83 16692.4
- --------------------------------------------------------------------------
96 Apr 30, 94 20138.06 17573.08 16738.36
- --------------------------------------------------------------------------
97 May 31, 94 20373.03 17714.65 16873.21
- --------------------------------------------------------------------------
98 Jun 30, 94 20127.56 17601.51 16765.44
- --------------------------------------------------------------------------
99 Jul 31, 94 20645.66 17880.15 17030.84
- --------------------------------------------------------------------------
100 Aug 31, 94 20689.58 17942.56 17090.29
- --------------------------------------------------------------------------
101 Sep 30, 94 20210.11 17677.66 16837.97
- --------------------------------------------------------------------------
102 Oct 31, 94 19589.34 17302.63 16480.75
- --------------------------------------------------------------------------
103 Nov 30, 94 19072.3 16907.92 16104.79
- --------------------------------------------------------------------------
104 Dec 31, 94 19749.69 17357.91 16533.41
- --------------------------------------------------------------------------
105 Jan 31, 95 20618.13 17935.22 17083.3
- --------------------------------------------------------------------------
106 Feb 28, 95 21457.99 18515.08 17635.62
- --------------------------------------------------------------------------
107 Mar 31, 95 21716.25 18703.35 17814.94
- --------------------------------------------------------------------------
108 Apr 30, 95 21705.67 18709 17820.32
- --------------------------------------------------------------------------
109 May 31, 95 22629.68 19282.77 18366.84
- --------------------------------------------------------------------------
110 Jun 30, 95 22212.66 18973.73 18072.48
- --------------------------------------------------------------------------
111 Jul 31, 95 22326.44 19051 18146.08
- --------------------------------------------------------------------------
112 Aug 31, 95 22641.85 19258.13 18343.37
- --------------------------------------------------------------------------
113 Sep 30, 95 22819.14 19379.51 18458.99
- --------------------------------------------------------------------------
114 Oct 31, 95 23370.58 19734.28 18796.9
- --------------------------------------------------------------------------
115 Nov 30, 95 24503.63 20178.35 19219.88
- --------------------------------------------------------------------------
116 Dec 31, 95 24348.04 20419.8 19449.86
- --------------------------------------------------------------------------
117 Jan 31, 96 24451.77 20514.28 19539.85
- --------------------------------------------------------------------------
118 Feb 29, 96 24154.35 20296.64 19332.55
- --------------------------------------------------------------------------
119 Mar 31, 96 23711.4 19974.15 19025.38
- --------------------------------------------------------------------------
120 Apr 30, 96 23616.14 19887.57 18942.91
- --------------------------------------------------------------------------
121 May 31, 96 23626.72 19890.28 18945.49
- --------------------------------------------------------------------------
</TABLE>
A $10,000 investment in Class B shares made on 5/5/92 at net asset value (NAV)
would have been valued at $12,328 on 5/31/96. The same investment based on CDSC
would have grown to $12,030 on 5/31/96.
AVERAGE ANNUAL TOTAL RETURNS
As of 6/30/96 (Most Recent Quarter End)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
Inception 11/21/78 Inception 5/5/92
NAV MOP NAV w/CDSC
- ----------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1 YEAR 5.80% 0.78% 5.02% 0.02%
- ----------------------------------------------------------------------------
5 YEARS 6.79% 5.75% -- --
- ----------------------------------------------------------------------------
10 YEARS 7.15% 6.63% -- --
- ----------------------------------------------------------------------------
SINCE INCEPTION -- -- 5.38% 4.97%
- ----------------------------------------------------------------------------
</TABLE>
The Lehman Brothers Municipal Bond Index is a broad-based, unmanaged index that
tracks the performance of the municipal bond market. The performance of the
Index does not reflect fees or expenses and is not available for investment.
Return and value of an investment will vary, resulting in a gain or loss on
sale. All results shown assume reinvestment of distributions. NAV returns do not
include sales charges or CDSC. MOP returns includes the maximum sales charge of
4.75%. The CDSC returns reflects the maximum charge of 5% for one year and 2%
since inception.
5
<PAGE>
INVESTMENT PORTFOLIO
MAY 31, 1996 (UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
MUNICIPAL BONDS - 98.9% PAR VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 8.4%
EDUCATION - 6.3%
AL State University Revenue,
Auburn University,
7.000% 06/01/11 $ 1,000 $ 1,093
AZ State University,
6.625% 06/01/09 1,000 1,059
IL Chicago Board Education:
Series 1992-A:
6.000% 01/01/20(a) 4,000 3,940
6.250% 01/01/15(a) 4,400 4,538
Series 1996:
6.250% 12/01/11 2,830 2,957
6.250% 12/01/12 1,500 1,568
IN Purdue University,
Student Fee, Series B,
6.700% 07/01/15 1,100 1,185
MA State Health and Educational Facilities Authority:
Amherst College, Series E,
6.750% 11/01/15 1,000 1,075
Berklee College of Music, Series C,
6.875% 10/01/21 4,380 4,604
Lowell General Hospital, Series 1991-A,
8.400% 06/01/11 2,500 2,728
MA State College Building Authority Project,
Series A,
7.500% 05/01/11 1,500 1,779
NY State Dormitory Authority:
City University:
Series 1990-C,
7.000% 07/01/14 2,050 2,268
7.500% 07/01/10 13,000 14,723
Series 1993-A:
5.750% 07/01/13 5,000 4,738
6.000% 07/01/20 21,850 21,003
Series F,
5.000% 07/01/14 4,700 4,019
Cornell University,
6.875% 07/01/14 1,355 1,384
Court Facilities Lease, City of New York:
Series B,
5.000% 05/15/18 22,020 18,414
Series C,
5.400% 05/15/23 16,000 13,920
</TABLE>
6
<PAGE>
Investment Portfolio/May 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Series 1993-A:
5.500% 05/15/08 $ 6,000 $ 5,730
5.500% 05/15/13 33,805 31,143
5.625% 05/15/13 8,000 7,340
5.875% 05/15/17 33,240 32,077
6.000% 07/01/20 6,140 6,232
New York City University,
Series 1995-A,
5.625% 07/01/16 5,500 5,081
State University of New York:
Series 1989-B,
7.250% 05/15/15 425 472
Series 1990-A,
7.500% 05/15/13 8,000 9,020
Series 1990-B,
7.000% 05/15/16 1,000 1,048
--------
205,138
--------
SCHOOL DISTRICT GENERAL OBLIGATIONS - 1.5%
AZ Apache County School District
Number 010 Round Valley
Project of 1987, Series 1990-C:
9.875% 07/01/05 1,500 1,639
10.800% 07/01/96 800 802
10.800% 07/01/97 800 837
10.800% 07/01/98 1,000 1,084
10.800% 07/01/99 1,000 1,063
FL State Board of Education, Series 1993-D:
5.125% 06/01/22 14,500 12,778
5.200% 06/01/23 10,140 8,949
TX Hurst Euless Bedford
Independent School District,
6.500% 08/15/24 20,000 20,875
--------
48,027
--------
STUDENT LOANS - 0.6%
CO Student Obligation Authority,
Series II-B,
6.200% 12/01/08 1,500 1,491
NM State Educational Assistance
Foundation, Series II-A:
5.400% 12/01/06 1,000 994
5.500% 12/01/07 1,000 994
SD Student Loan Finance Corporation ,
6.550% 08/01/20(b) 15,400 15,400
</TABLE>
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - CONT.
STUDENT LOANS - CONT.
VT State Student Assistance Financing
Program, Series B,
6.700% 12/15/12 $ 2,000 $ 2,088
-------
20,967
-------
- --------------------------------------------------------------------------------------
HEALTH - 14.2%
HOSPITALS - 7.7%
AL Alabama Special Care Facilities Authority,
Montgomery-Healthcare,
Series 1989,
11.000% 10/01/19 15,760 16,075
CA State Health Facilities Financing
Authority, Kaiser Permanente,
Series 1989-A,
7.000% 10/01/18 6,250 6,633
CT State Health & Educational
Facilities Authority,
New Britain Hospital, Series 1991-A,
7.750% 07/01/22 905 944
DE State Economic Development Authority,
Riverside Hospital, Series 1992-A,
9.500% 01/01/22 1,165 1,516
FL St. Petersburg Health Facilities
Authority, Allegany Health System,
St. Joseph's Hospital, Inc., Series 1985-A,
7.000% 12/01/15 2,000 2,197
GA Clayton Hospital Authority,
The Woodlands Foundation, Inc.,
Series 1991-A,
9.750% 05/01/21 6,680 5,678
IA Ottumwa,
Ottumwa Regional Health Center,
Series 1985,
9.625% 11/01/10 1,890 1,977
IL Health Facilities Authority:
Edgewater Medical Center, Series A,
9.250% 07/01/24 8,435 9,078
Edward Hospital Association Project:
Series 1992,
7.000% 02/15/22 1,000 1,036
RIB (variable rate),
Series 1992-B,
9.618% 05/01/21 4,800 5,340
</TABLE>
8
<PAGE>
Investment Portfolio/May 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
IL Naperville Economic Development,
Series 81,
13.000% 08/01/08 $ 5,563 $ 5,834
ME State Health & Higher Educational
Facilities Authority, Maine Medical
Center, Series C,
5.000% 11/15/13 16,500 14,644
MI State Hospital Finance Authority,
Central Michigan Community Hospital,
Series 1993-A,
6.000% 10/01/08 1,500 1,478
MO Hannibal Industrial Development,
Medical Systems of Northeast Missouri,
Series 1992,
9.500% 03/01/22 4,250 4,850
MS Hospital Equipment & Facilities
Authority, Pooled Loan Program,
7.500% 08/01/16 18,900 19,514
MT State Health Facility Authority,
Hospital Facilities, Series 1994,
6.577% 02/15/25 6,000 4,785
NJ Health Care Facilities Financing
Authority, Raritan Bay Medical Center
7.250% 07/01/14 4,000 4,040
NM Grant County Hospital Facility,
Gila Regional Medical Center,
Series 1986,
10.000% 02/01/12 2,185 2,261
NV Reno Hospital, St. Mary's Regional
Medical Center, Series 1991-A,
6.700% 07/01/21 1,700 1,800
OH Westmoreland County Redevelopment
Authority, First Mortgage, Harmon
House, Series A,
(c) 08/15/28 37,300 3,124
OK Oklahoma City Industrial & Cultural
Facilities Trust, Hillcrest Health Center,
6.400% 08/01/14 4,320 4,147
PA Philadelphia Hospital & Higher
Educational Facilities Authority:
Chestnut Hill Hospital,
6.500% 11/15/22 2,000 1,993
MR Project, Series 1986,
8.625% 08/01/11 1,000 1,027
</TABLE>
9
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH - CONT.
HOSPITALS - CONT.
SC Greenville, Series 1996-A,
5.600% 05/01/10 $ 3,835 $ 3,744
TN Chattanooga Health Education
& Housing Facilities Board,
North Park Hospital Project, Series 1993,
8.500% 02/01/23 42,380 42,645
TN Metropolitan Government, Nashville
& Davidson Counties:
Health & Education Facilities,
Central States, Series 1989,
10.250% 11/01/19 770 747
Meharry Medical College,
6.875% 12/01/24(d) 29,750 32,911
Volunteer Healthcare Systems,
Series 1988-A,
10.750% 06/01/18(e) 18,880 5,664
TX Harris County Health Facilities
Development Corp., Hermann
Hospital Project,
6.375% 10/01/24 18,000 18,878
TX Tarrant County Health Facility Development,
10.125% 04/01/21 9,200 3,220
VA Dickenson County Industrial Development
Authority, Volunteer Healthcare Systems,
Inc., Series 1988-A,
10.750% 06/01/18 2,500 750
VA Norfolk Industrial Development
Authority, Sentra Hospital, Series A,
6.500% 11/01/13(e) 2,500 2,591
VA Southampton County Industrial
Authority, Medical Facility of
America XLIII Project, Series 1986,
8.375% 12/15/26 3,010 3,123
VT Educational & Health Buildings
Financing Agency, Springfield
Hospital, Series A,
7.750% 01/01/13 1,975 2,111
WA State Health Care Facilities Authority,
7.875% 08/15/11 5,000 5,363
WA Washington State Health Care
Facility, Grays Harbor Community
Hospital, Series 1993:
7.200% 07/01/03 1,185 1,237
8.025% 07/01/20 6,380 6,715
</TABLE>
10
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<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C>
WI State Health & Educational
Facilities Authority, St. Luke's
Medical Center Project, Series 1991,
7.100% 08/15/19 $ 2,550 $ 2,754
-------------
252,424
-------------
INTERMEDIATE CARE FACILITIES - 0.5%
IL Champaign,
Hoosier Care Inc.,
Series 1989-A,
9.750% 08/01/19 1,485 1,576
IN Wabash First Mortgage, Hoosier
Care, Inc., Series 1989-A,
9.750% 08/01/19 5,900 6,232
MA State Health & Educational
Facilities Authority, Corporation
for Independent Living,
8.100% 07/01/18 1,295 1,272
TN Shelby County, Health, Education,
& Housing Facilities Board, Open Arms
Development Center, Series 1992-A:
9.750% 08/01/19 4,295 4,864
9.750% 08/01/19 4,290 4,858
-------------
18,802
-------------
NURSING HOMES - 6.0%
CA San Diego Industrial Development,
8.750% 12/01/16 5,500 5,878
CO Health Facility:
American Housing Foundation I,
Series 1990,
10.250% 12/01/20 2,500 2,769
Birchwood Manor, Series 1991-A,
7.625% 04/01/26 1,835 1,888
DE State Economic Development Authority,
Churchman Village Project,
Series A,
10.000% 03/01/21 7,245 8,404
DE Sussex County, Healthcare Facility,
Delaware Health Corporation,
Series 1994-A,
7.600% 01/01/24 14,230 13,696
FL Collier County Industrial
Development Authority,
Beverly Enterprises, Inc., Series 1991,
10.750% 03/01/03 1,060 1,220
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1996
--------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
--------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTH - CONT.
NURSING HOMES - CONT.
FL Flagler County Industrial
Development Authority,
South Florida Properties, Series 1988,
10.500% 12/01/18 $ 8,925 $ 8,981
FL Gadsden County Industrial
Development Authority,
Florida Properties, Inc., Series 1988-A,
10.450% 10/01/18 6,135 6,331
FL Palm Beach County:
Beverly Enterprises, Inc.,
Series 1984,
10.000% 06/01/11 2,735 3,036
Hillcrest Manor Project,
10.250% 12/01/16 3,190 3,324
FL Volusia County Industrial
Development Authority,
Beverly Enterprises-Florida, Inc.,
Series 1987,
9.800% 12/01/07 875 908
IA Marion,
Kentucky Iowa Corporation Project,
Series 1990,
10.250% 01/01/20 990 1,030
IA State Finance Authority,
Care Initiatives Project,
Series 1996,
9.250% 07/01/25 7,600 8,123
IN Gary Industrial Economic Development,
West Side Health Care Center,
Series 1987-A,
11.500% 10/01/17 1,985 1,945
KS Washington County Industrial
Development Authority, Central
States, Series 1989,
10.250% 11/01/19 3,440 3,337
MA Boston, St. Joseph Nursing Care
Center, Inc., Series 1990,
10.000% 01/01/20(f) 310 340
MA State Industrial Finance Agency:
American Health Foundation Inc.,
Series 1989,
10.125% 03/01/19 3,220 3,381
Belmont Home Care Project:
Series A,
7.970% 01/01/99 290 295
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C>
GF/Massachusetts, Inc.,
Series 1994,
8.300% 07/01/23 $ 13,000 $ 12,626
Mary Ann Morse Nursing Home, Inc.,
Series 1991-I,
10.000% 01/01/21 1,715 2,109
Seacoast Nursing Home:
Series 1991,
9.625% 12/01/21 4,945 5,421
Series 1995-A,
9.270% 01/01/25 10,405 10,899
MO St. Louis County Industrial
Development Authority,
Cardinal Carberry Health Center,
Series 1991,
7.125% 03/20/23 2,000 2,128
NM Albuquerque Industrial Development
Authority, Manor Nursing Home,
12.000% 05/15/14 3,179 3,652
OH Ashtabula County,
First Mortgage, Village Square
Nursing Center, Inc., 1985,
12.000% 12/01/15 1,275 1,311
OH Franklin County,
Columbus West Health Care Co.,
Series 1986,
10.000% 09/01/16 3,015 2,864
OH Lucas County,
Gericare, Inc.,
Series 1988-B,
10.500% 06/01/18 2,995 2,980
OH Montgomery County,
Grafton Oaks Limited Partners,
Series 1986,
9.750% 12/01/16 695 660
OH Perry County First Mortgage,
New Lexington Health,
9.875% 09/01/10 2,545 2,627
OH Trumbull County,
12.000% 12/01/15 2,215 2,290
OH Washington County Industrial
Development, Marie Antoinette Care
Center, Series 1983,
6.867% 12/01/13 5,370 4,840
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1996
--------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
--------------------------------------------------------------------------------------------------
<S> <C> <C>
HEALTH - CONT.
NURSING HOMES - CONT.
PA Cambria County Industrial Development
Authority, Beverly Enterprises,
10.000% 06/18/12 $ 1,900 $ 2,335
PA Chester County Industrial Development,
Pennsylvania Nursing Home, Inc., Series 1989
10.125% 05/01/19 10,611 10,943
PA Delaware County Authority, Main
Line and Haverford Nursing, Series 1992,
9.000% 08/01/22 9,420 10,079
PA Lackawanna County Industrial Authority,
Greenridge Nursing Center,
10.500% 12/01/10 1,950 2,128
PA Luzerne County Industrial
Development Authority:
Beverly Enterprises,
Pennsylvania, Series 1983,
10.125% 11/01/08 870 962
Millville Nursing Center,
10.500% 12/01/12 3,870 3,677
PA Montgomery County Higher Education
& Health Authority,
Roslyn-Hatboro, Inc. Project,
9.000% 11/15/22 12,465 12,808
PA Philadelphia Authority for
Industrial Development:
First Mortgage, The Care Pavilion,
Series 1988,
10.250% 02/01/18 5,950 6,069
RHA/Philadelphia Project,
10.250% 11/01/18 9,460 9,778
PA Warren County Housing Finance
Corporation, Allegheny Manor,
7.500% 02/01/21 1,405 1,445
PA Wilkins Area Industrial Development
Authority, Oakmont Nursing Center,
Series 1984,
10.000% 07/01/11 1,150 1,297
TN Sumner County, Health, Education,
& Housing Facilities Board, Gallatin
Health Care, Series 1986:
9.750% 12/01/03(e) 160 104
9.750% 12/01/04(e) 175 114
9.750% 12/01/05(e) 225 146
9.750% 12/01/06(e) 220 143
10.250% 12/01/16(e) 2,400 1,560
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C>
TX Whitehouse Health Facilities
Development Corporation, Oak Brook
Health Care Center, Series 1989,
10.000% 12/01/19 $ 1,815 $ 1,842
VA Beach Development Authority,
Beverly Enterprises, Series 1985,
10.000% 04/01/10 935 1,034
-------------
195,757
-------------
..................................................................................................
HOUSING - 14.7%
ASSISTED LIVING/SENIOR - 0.5%
MN Roseville,
Care Institute, Inc.,
Series 1993,
7.750% 11/01/23 2,975 2,845
MS Lamar County Wesley Manor II:
8.750% 08/01/20 1,000 1,043
8.750% 02/01/29 1,610 1,678
PA Montgomery County Industrial
Development Authority, Assisted
Living Facility, Series 1993-A,
8.250% 05/01/23 1,470 1,488
TX Bell County Health Facilities
Development Corp., Care Institutions, Inc.,
9.000% 11/01/24 7,585 8,078
-------------
15,132
-------------
MULTI-FAMILY - 5.4%
AZ Maricopa County Industrial Development
Authority, Advantage Point, Series 1996-A,
6.625% 07/01/26(b) 2,750 2,716
AZ Mohave County Industrial Development
Authority, Multi-family, Kingman
Station Apartments,
8.125% 10/01/26 2,865 2,997
AZ Phoenix Industrial Development
Authority, Chris Ridge Village
Project, Series 1992:
6.750% 11/01/12 650 669
6.800% 11/01/25 2,750 2,812
DE Quaker Hill Housing Corp.,
Quaker Hill Apartments, Series A,
7.550% 08/01/21 6,225 6,599
FL Clearwater Housing Authority,
Hampton Apartments, Series 1994,
8.250% 05/01/24 3,475 3,605
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1996
--------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
--------------------------------------------------------------------------------------------------
<S> <C> <C>
HOUSING - CONT.
MULTI-FAMILY - CONT.
FL Hialeah Housing Authority,
Series 1991,
9.500% 11/01/21 $ 10,600 $ 10,931
FL State Housing Finance Agency,
Windsong Apartments, Series 1993-C,
9.250% 01/01/19 1,230 1,228
GA Augusta Housing Authority Mortgage,
Mountain Ridge Holdings II, Series A,
8.960% 09/01/24(e) 3,620 2,715
GA Savannah Housing Authority,
Multi-family Housing, Plantation Oaks
Apartments Project, Series 1986,
9.625% 02/01/27 2,905 3,072
IL Carbondale,
Mill Street Apartments,
Series 1979,
7.375% 09/01/20 848 868
IL Charleston Non-Profit Corp.,
Cougills Manor Project,
6.875% 07/01/20 1,793 1,810
IL Chicago,
Jeffery Apartments,
Series 1987,
8.125% 08/01/30 2,385 2,451
IL East Moline Housing Finance Corp.,
Deerfield Woods Apartments,
7.500% 08/01/21 2,400 2,472
IL Housing Development Authority,
Series 1990-A,
8.000% 06/01/26 680 704
IL Rockford:
8.700% 08/20/07 635 652
8.700% 08/20/26 4,455 4,572
LA Jefferson Housing Development
Corp., Multi-family,
Concordia Project, Series A,
7.700% 08/01/22 2,570 2,734
LA New Orleans Housing Development
Corp., Multi-family Housing
Mortgage, Southwood Patio, Series 1990-A,
7.700% 02/01/22 2,375 2,458
MA State Housing Finance Agency,
Series 1988-A,
8.400% 08/01/21 740 758
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C>
MN Washington County Housing &
Redevelopment Authority,
Cottages of Aspen, Series 1992,
9.250% 06/01/22 $ 1,945 $ 1,981
MN White Bear Lake,
Birch Lake Townhomes Project:
Series 1989-A,
9.750% 07/15/19 2,185 2,182
Series 1989-B,
(g) 07/15/19 310 489
MO St. Louis Area Housing Finance
Corp., Wellington Arms III,
Series 1979,
7.500% 01/01/21 2,060 2,085
MS Biloxi Urban Renewal,
Biloxi Apartments Project,
Series 1985:
9.500% 12/01/05 1,185 1,216
9.500% 12/01/10 1,235 1,269
9.500% 12/01/15 1,970 2,024
NC Eastern Carolina Regional Housing
Authority, New River Apartments-
Jacksonville, Series 1994,
8.250% 09/01/14 2,880 2,887
NE Omaha Housing Development
Corp., Mortgage Notes, North
Omaha Homes,
7.375% 03/01/21 1,406 1,444
NJ State Housing & Mortgage Finance
Agency,
6.950% 11/01/13 5,090 5,294
NY Nyack Housing Assistance Corp.,
Plaza Apartments,
7.375% 06/01/21 3,018 3,048
NY Yorktown Housing Corp.,
Beaveridge Apartments,
Series 1979,
7.375% 06/01/21(h) 3,429 3,432
Pass Through Certificates, Series
1993-A,
8.500% 12/01/16(h) 61,712 62,869
TN Knoxville Community Development
Corp., Multi-family Housing,
Maple Oak Apartment Project, Series 1992,
6.375% 10/15/08 2,510 2,557
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1996
--------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
--------------------------------------------------------------------------------------------------
<S> <C> <C>
HOUSING - CONT.
MULTI-FAMILY - CONT.
TX Galveston Pass Health Facilities Center,
Pass Through Certificates,
8.000% 08/01/23 $ 1,850 $ 1,861
TX Laredo Housing Development Corp.,
Number 1,
7.375% 03/05/21 2,113 2,130
UT Salt Lake City Housing Authority,
Hartland Apartments Project,
Series 1987-A,
8.875% 12/20/27 7,720 7,913
VA Alexandria Redevelopment
& Housing Authority, Courthouse
Commons Apartments:
Series 1990-A,
10.000% 01/01/21 760 763
Series 1990-B,
(c) 01/01/21 974 1,652
VA Norfolk Redevelopment & Housing
Authority, Multi-family Housing,
Dockside, Series 1991-A:
7.300% 12/01/16 1,315 1,377
7.375% 12/01/28 1,940 2,037
VA Roanoke Redevelopment & Housing
Authority, First Mortgage, Mountain
Ridge,
9.250% 11/01/22(e) 1,800 1,710
WA Washington Housing Development
Corp., Parkview Apartments
Project,
7.500% 04/01/21 1,690 1,740
WA Washington State Housing Finance
Commission, Multi-family Housing,
Series 1988-A,
7.900% 07/01/30 1,455 1,504
WI Milwaukee Housing Authority
Mortgage, Windsor Court Project,
Series 1986,
8.700% 08/21/21 1,985 2,050
WY Rock Springs Housing Finance
Corp., Bicentennial Association II,
7.500% 05/01/20 1,150 1,182
-----------
175,519
-----------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1996
--------------------------------------------------------------------------------------------------
<S> <C> <C>
SINGLE-FAMILY - 8.8%
AK State Housing Finance Corp.:
First Series 1991,
7.800% 12/01/30 $ 2,430 $ 2,485
Series 1992-A,
6.600% 12/01/23 11,750 12,866
AL State Housing Finance Authority,
Series 1990-C,
7.550% 04/01/16 700 731
AZ Maricopa County Industrial Development,
Single-family, Series 1984,
(c) 02/01/16 10,055 2,966
CA Pomona, Series A,
7.600% 05/01/23 10,000 12,075
CA Riverside County,
8.300% 11/01/12 10,000 12,600
CA State Housing Finance Authority,
Series 1984-B,
(c) 08/01/16 325 35
CO El Paso County Home Mortgage:
Series 1987-C,
8.300% 09/20/18 2,161 2,363
Series 1987-D,
8.150% 09/20/14 1,104 1,194
Series 1988-A,
8.375% 03/25/19 2,123 2,340
CO Housing Finance Authority:
Series C-1,
7.650% 12/01/25 5,000 5,569
Series D-1,
7.375% 06/01/26 5,000 5,462
Series 1991-A,
7.500% 05/01/29 4,745 4,929
Series 1991 C-1,
7.200% 02/01/18 840 877
Series 1996-A,
7.400% 11/01/27 5,500 6,029
Single-family Housing, Series A,
7.150% 11/01/14 2,350 2,476
CT State Housing Finance Authority,
Housing Mortgage Finance Program,
Series B-1, Sub Series B-1,
7.550% 11/15/08 35 36
FL Brevard County,
Housing Finance Authority,
Single-family Mortgage, Series 1985,
(c) 04/01/17 7,455 895
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1996
--------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
--------------------------------------------------------------------------------------------------
<S> <C> <C>
HOUSING - CONT.
SINGLE-FAMILY - CONT.
FL Lee County, Single Family Mortgage,
7.350% 03/01/27 $ 6,680 $ 7,139
GA Atlanta, Urban Residential Finance
Authority, Single-family Housing
Mortgage, Series 1988,
8.250% 10/01/21 1,165 1,172
GA State Residential Finance Authority:
Home Ownership Mortgage,
Series C,
7.500% 01/01/18 745 779
Series 1989-C,Sub Series C-3,
7.800% 06/01/21 5,880 6,189
IA Finance Authority Single-family:
Series 1992-B,
6.950% 07/01/24 9,915 10,299
Single-family Mortgage Revenue,
Series A,
7.250% 07/01/16 1,075 1,125
IL Rockford,
9.250% 02/01/00 890 907
IL State Housing Development Authority:
Series B,
7.250% 08/01/17 1,290 1,342
Series C,
7.500% 08/01/17 220 228
IN State Housing Finance Authority:
GNMA Collateral Mortgage Program:
Series A-1,
7.850% 07/01/16 135 142
Series B-1,
7.600% 01/01/16 1,015 1,062
Single-family Housing,
Series 1987-C,
9.125% 07/01/18 3,315 3,456
KY Louisville Residential,
Series 1984,
(c) 07/01/16 955 101
LA Calcasieu Parish:
Series 1987-A,
8.125% 12/01/12 1,384 1,406
Series 1988-B,
8.250% 06/01/12 3,360 3,440
</TABLE>
20
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Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
LA Housing Financing Agency,
Series 1988,
8.300% 11/01/20 $ 2,600 $ 2,685
LA Jefferson Parish Home Mortgage
Authority, Single-family,
8.300% 04/01/20 2,315 2,425
MA State Housing Finance Agency:
Series 1987-A,
9.000% 12/01/18 1,595 1,657
Series 1988-B,
8.100% 08/01/23 840 880
MD State Community Development Administration,
Department of Housing and Community
Development, Single-family Program:
1st Series,
7.300% 04/01/17 450 470
3rd Series,
7.250% 04/01/27 960 994
MN State Housing Finance Agency:
Series 1988-D,
8.250% 08/01/20 1,950 1,964
Series 1991-C,
7.100% 07/01/11 675 711
MO State Housing Development, Single Family:
7.200% 09/01/26 7,820 8,387
Series C:
6.900% 07/01/18 855 883
7.250% 09/01/26 4,590 4,923
MS Canton Housing,
8.400% 08/15/21 1,542 1,575
NE Investment Finance Authority,
Single-family Mortgage:
Series 1990-B,
11.293% 03/15/22 7,600 8,379
Series 1990-2,
11.278% 09/10/30 3,900 4,280
NH State Housing Finance Authority,
Single-family Resources Mortgage,
Series 1989-B,
7.700% 07/01/29 2,600 2,736
NY State Mortgage Agency,
Home Owner Mortgage:
6.450% 10/01/14 4,900 5,084
6.450% 10/01/17 5,080 5,156
Series BB-2,
7.950% 10/01/15 1,395 1,446
</TABLE>
21
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
PAR VALUE
<S> <C> <C>
MUNICIPAL BONDS - CONT.
HOUSING - CONT.
SINGLE-FAMILY - CONT.
Series H-2,
7.850% 04/01/22 $ 1,500 $ 1,577
Series 1988-C,
8.125% 03/01/20 945 989
Series 46,
6.650% 10/01/25 10,000 10,387
OH State Housing Finance Agency,
Series A2,
9.868% 03/24/31 6,500 6,719
PA Pittsburgh Urban Redevelopment
Authority, Sidney Square Project,
7.800% 08/01/28 5,255 5,414
PA State Housing Finance Authority,
Series 39-B,
6.750% 04/01/16 5,700 5,907
SC State Housing Authority,
Homeownership Mortgage, Series 1988-A,
8.500% 07/01/08 2,000 2,067
TX Bexar County Housing Finance Corp.,
GNMA Collateralized Mortgage,
Series 1989-A,
8.200% 04/01/22 4,055 4,339
TX Corpus Christi Housing Finance Corp.,
Single-family Mortgage,
Lomas and Nettleton, Series C,
10.000% 10/01/07 1,025 1,053
TX Harris County Housing Finance
Corp., Single-family,
Series 1987,
8.875% 12/01/17 2,520 2,592
TX Lubbock Housing Finance Corporation,
Single-family Series:
Series 1988-C,
8.375% 12/01/20 5,845 5,940
Series 1988-D,
8.375% 12/01/20 1,115 1,140
TX State Department Housing &
Community Affairs, Collateralized
Home Mortgage, Series 1992-B2,
9.764% 06/18/23 9,000 9,101
TX State Housing Agency Mortgage,
Single-family, Series A,
7.150% 09/01/12 785 824
</TABLE>
22
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
TX Tarrant County Single-family,
(c) 09/15/16 $ 54,040 $ 15,536
UT State Housing Finance Agency,
Single-family Mortgage:
Senior A-1,
6.900% 07/01/12 985 1,023
Senior Issue A,
7.200% 07/01/13 180 185
Senior Issue B-1,
7.500% 07/01/16 175 184
Senior Issue B-2:
7.000% 07/01/16 365 377
7.700% 07/01/15 35 36
Senior Issue D-2,
7.250% 07/01/11 485 510
Senior Series F-1,
7.400% 07/01/09 465 476
Series E-1,
6.950% 07/01/11 1,670 1,739
Series 1990-C2,
7.950% 07/01/10 375 397
VA State Housing Development
Authority, Commonwealth Mortgage:
Series A,
7.100% 01/01/17 1,000 1,050
Series B, Sub Series B-4,
6.850% 07/01/17 5,180 5,381
Series C-2,
8.000% 01/01/38 1,000 1,041
Series 1988-C, Sub Series C-1,
7.800% 01/01/38 11,500 11,902
VT Housing Finance Agency, Home
Mortgage Purchase, Series 1989-A,
7.850% 12/01/29 3,920 4,091
WI State Housing & Economic
Development Authority,
Series A,
7.000% 09/01/09 985 1,035
WV State Housing Development Fund,
Series 1992-B,
7.200% 11/01/20 10,000 10,450
WY Community Development Authority,
Single-family Mortgage:
Series 1987-A,
7.875% 06/01/18 2,130 2,205
</TABLE>
23
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
PAR VALUE
<S> <C> <C>
MUNICIPAL BONDS - CONT.
HOUSING - CONT.
SINGLE-FAMILY - CONT.
Series 1988-G,
7.250% 06/01/21 $ 4,500 $ 4,764
----------
289,781
----------
OTHER - 9.2 %
PUBLIC FACILITIES IMPROVEMENT - 1.9%
AK State Industrial Development
Authority, Series 1986:
8.625% 04/01/02 3,100 3,260
8.750% 04/01/07 3,870 4,074
FL Tampa Capital Improvement Program,
RaboBank, Series B,
8.375% 10/01/18 10,000 10,650
MI Detroit Economic Development:
District Court Madison Center,
Series 1984,
10.625% 02/01/11 5,000 5,149
Series 1990-A,
8.700% 04/01/10 10,000 11,550
NY State Urban Development Corp.:
5.700% 04/01/10 11,225 10,509
5.750% 04/01/11 2,000 1,910
PR Commonwealth of Puerto Rico,
Infrastructure Finance Authority,
Series 1988-A,
7.900% 07/01/07 2,500 2,672
SC Charleston County, Charleston
Public Facilities Corp., Series 1995:
6.000% 12/01/07 3,110 3,246
6.000% 12/01/08 3,295 3,414
6.000% 12/01/09 3,495 3,595
6.000% 12/01/10 3,710 3,803
----------
63,832
----------
PUBLIC INFRASTRUCTURE - 0.4%
CA San Diego County,
5.485% 09/01/12 13,000 12,594
----------
REFUNDED/ESCROW/SPECIAL OBLIGATION (i) - 6.9%
AZ Pima County Industrial
Development Authority,
8.200% 09/01/21 12,370 15,942
AZ State University Revenue,
7.500% 07/01/16 200 204
</TABLE>
24
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<S> <C> <C>
CA Los Angeles County Transportation,
Series 1988-A,
8.000% 07/01/18 $ 3,500 $ 3,824
CO Mesa County,
(c) 12/01/11 5,905 2,325
DC District Columbia Hospital,
Washington Hospital Center Corp.,
Series 1990-A:
8.750% 01/01/15(d) 10,000 11,625
9.000% 01/01/08 1,780 2,091
DE Wilmington, Riverside Hospital,
Series 1988-A,
10.000% 10/01/03 300 340
FL Dade County,
7.375% 07/01/19 500 551
FL State Board of Education,
Public Education, Series B,
7.750% 06/01/16 300 317
IL Chicago Public Commerce Building,
Series 1990-A,
7.125% 01/01/15 4,010 4,346
IL Du Pager Water Commission,
Series 1987,
6.875% 05/01/14 3,775 3,948
IL Health Facility Authority:
Lutheran Healthcare Systems,
Series 1989-B,
7.375% 04/01/08 5,055 5,516
United Medical Center,
Series 1991:
8.125% 07/01/06 3,175 3,568
8.375% 07/01/12 1,500 1,789
IN Hamilton County Public Building
Corp.,
7.000% 02/01/12 2,525 2,755
IN Indianapolis Local Public
Improvement Bond Bank,
United Airlines Maintenance Facility,
6.700% 01/01/17 4,000 4,410
IN St. Joseph County Hospital Authority,
South Bend Memorial Hospital,
9.400% 06/01/10 3,190 4,079
IN State University,
Student Fee,
7.000% 08/01/09 2,680 2,924
</TABLE>
25
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
PAR VALUE
<S> <C> <C>
MUNICIPAL BONDS - CONT.
OTHER - CONT.
REFUNDED/ESCROW/SPECIAL OBLIGATION - CONT.
KS Olathe Labette County,
Series 1984-A,
(c) 02/01/16 $ 43,175 $ 13,006
KY Louisville & Jefferson County,
Metropolitan Sewer District,
7.350% 05/01/19 500 555
KY State Turnpike Authority:
7.250% 05/15/10 1,500 1,655
Series A,
7.875% 01/01/04 200 205
LA State Public Facilities Authority,
Tulane University,
6.625% 11/15/21 455 503
MA Bay Transportation Authority,
General Transportation System:
Series A,
7.000% 03/01/11 1,000 1,110
Series 1990-A,
7.000% 03/01/10 1,500 1,620
Series 1990-B,
7.800% 03/01/10 3,300 3,774
MA Boston,
Boston City Hospital Facilities,
Series 1990-A,
7.625% 02/15/21(d) 12,000 13,545
MA Bonds:
Series C,
7.000% 08/01/12 2,000 2,230
Series 1989-C:
7.000% 06/01/04 6,500 7,077
7.000% 06/01/09 500 544
Series 1991-A,
7.625% 06/01/08 5,000 5,712
Series 1991-C,
6.750% 08/01/09 3,865 4,126
MI Huron Valley School District,
Series 1991,
(c) 05/01/20 95,750 20,706
MO State Health & Educational
Facilities Authority, Series 1988-A,
7.750% 06/01/16 2,000 2,172
MS Home Corporation Residual,
Series 1990-C,
(c) 09/01/13 20,000 7,100
</TABLE>
26
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
NC Lincoln County,
Lincoln County Hospital,
9.000% 05/01/07 $ 505 $ 606
NC State Municipal Power Agency,
Catawba No. 1, Series 1990,
5.500% 01/01/13 24,430 24,125
NV State,
Series A,
6.800% 07/01/12 2,500 2,757
NY State Power Authority,
Series V,
8.000% 01/01/17 400 431
PA Convention Center Authority,
Series 1989-A,
6.000% 09/01/19 5,000 5,025
PA State Industrial Development
Authority, Economic Development,
Series A,
7.000% 01/01/11 5,595 6,217
PA State University:
6.750% 07/01/09 750 810
6.750% 07/01/14 2,750 2,970
PA Westmoreland County Municipal
Authority, Special Obligation, Series
1985,
9.125% 07/01/10(e) 5,000 6,006
SC State Public Service Authority:
Electric System Expansion Revenue,
Santee Cooper Project, Series 1986-A,
8.000% 07/01/19 500 516
Series C,
7.300% 07/01/21 1,950 1,994
TX Hidalgo County Health Services,
Mission Hospital Inc., Series A,
10.250% 02/01/25 4,785 5,838
TX San Antonio Water System Revenue,
Series 1990-A,
7.350% 05/01/07 525 562
UT Uintah County Pollution Control,
Series 1984-F2,
10.500% 06/15/14 6,900 8,599
WV State Parkways Economic
& Tourism Authority, Series 1989,
7.125% 07/01/19 1,990 2,174
----------
224,824
----------
</TABLE>
27
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
PAR VALUE
<S> <C> <C>
MUNICIPAL BONDS - CONT.
OTHER REVENUE - 6.8%
AMUSEMENTS & RECREATION - 0.1%
MN Mille Lacs
Capital Improvement
Infrastructure, Band of Chippewa,
Series 1992-A,
9.250% 11/01/12 $ 1,485 $ 1,645
NM Red River Sports Facility, Red
River Ski Area, Series 1985,
12.000% 06/01/07 3,145 3,198
----------
4,843
----------
CHEMICALS - 0.1%
IL Southwestern Illinois Development
Authority, Sewer Facilities, Monsanto
Company, Series 1991,
7.300% 07/15/15 3,000 3,304
----------
HOTELS/CAMPS/LODGING - 0.3%
IL Metropolitan Pier McCormick Hotel,
7.000% 07/01/26 5,500 5,809
MN Burnsville Commercial Development,
Holiday Inn Project,
10.600% 06/01/06 1,400 1,437
MN Minneapolis Commercial Development,
Hometel Associates, Limited, Series 1988,
10.500% 06/01/03 1,500 1,515
----------
8,761
----------
JUSTICE & PUBLIC ORDER - 3.2%
CA State Public Works Board:
Department of Corrections-Corcoran II,
Series 1996-A:
5.500% 01/01/15 5,145 4,894
5.500% 01/01/17 6,000 5,692
Judicial Facilities, Series 1991-A,
9.500% 04/15/14 9,000 10,553
State Prison-Fresno,
Series 1993-B,
5.375% 12/01/19(d) 17,000 15,619
CO Jefferson County, Certificates
of Participation,
5.250% 12/01/10 6,590 6,335
NY State Correctional Facilities:
Series A,
6.500% 01/01/10 14,595 15,763
6.500% 01/01/11 8,500 9,169
</TABLE>
28
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
Series 1993-A,
5.250% 01/01/21 $ 15,000 $ 12,844
5.500% 01/01/14 10,000 9,225
Series 4,
5.375% 01/01/23 10,000 8,662
State Facilities, Series 1991,
7.500% 04/01/20 4,950 5,618
----------
104,374
----------
MANUFACTURING - 0.3%
CO Mesa County Industrial Development
Joy Technologies, Inc.,
Series 1992,
8.500% 09/15/06 1,000 1,051
MN Brooklyn Park,
TL Systems Corp.,
Series 1991,
10.000% 09/01/16 325 400
MN Buffalo, Von Ruden
Manufacturing, Inc.,
Series 1989,
10.500% 09/01/14 1,445 1,618
OH Cuyahoga County,
Joy Technologies, Inc.,
Series 1992,
8.750% 09/15/07 1,340 1,427
PA Bucks County,
Industrial Development:
Hechinger Company, Series 1984,
11.375% 11/15/04 2,420 2,478
Jorgensen Steel,
9.000% 06/01/05 4,000 4,055
----------
11,029
----------
MISCELLANEOUS RETAIL - 0.4%
DE Sussex County, Economic Development,
Rehoboth Mall Project,
7.250% 10/15/12 4,885 5,221
PA Philadelphia Authority for
Industrial Development, Hechinger
Company, Series 1983,
11.375% 12/01/04 3,875 3,957
UT West Jordan Industrial Development,
7.875% 12/15/11 2,000 2,078
</TABLE>
29
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
PAR VALUE
<S> <C> <C>
MUNICIPAL BONDS - CONT.
OTHER REVENUE - CONT.
MISCELLANEOUS RETAIL - CONT.
VA Halifax County Industrial Development
Authority, Series 1988,
8.250% 10/01/08 $ 1,000 $ 1,077
----------
12,333
----------
OTHER REVENUE - 0.1%
MD Baltimore, Park Charles Project,
Series 1986,
8.000% 01/01/10 1,660 1,708
----------
PAPER PRODUCTS - 2.2%
GA Rockdale County Development
Authority, Solid Waste Disposal, Visy
Paper, Inc., Series 1993,
7.500% 01/01/26 14,000 13,930
GA Wayne County Development Authority,
Solid Waste Disposal, ITT Rayonier,
Inc., Series 1990,
8.000% 07/01/15 2,500 2,728
IA Cedar Rapids,
Weyerhaeuser Company Project,
9.000% 08/01/14 1,000 1,336
LA De Soto Parish,
International Paper Company,
Series A,
7.700% 11/01/18 1,250 1,391
MI State Strategic Fund:
Blue Water Fiber Project,
Series 1994,
8.000% 01/01/12 16,200 14,337
Great Lakes Pulp & Fibre Project,
Series 1994,
10.250% 12/01/16 28,000 24,430
SC Richland County, Solid Waste
Disposal Facilities Revenue,
Union Camp Corp.,
6.750% 05/01/22 3,500 3,644
WA Walla Walla Public Corp.,
Ponderosa Fibers Project,
9.125% 01/01/26 10,000 9,662
----------
71,458
----------
PETROLEUM REFINING - 0.1%
TX Lower Neches Valley Authority,
Mobil Oil Refining Corp.,
6.850% 05/01/12 3,570 3,707
----------
30
</TABLE>
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<S> <C> <C> <C> <C>
RESOURCE RECOVERY - 0.7%
CO-GENERATION - 0.3%
FL Martin County Industrial
Development Authority,
Indiantown Co-Generation Project,
Series 1994-A,
7.875% 12/15/25 $ 7,500 $ 8,325
--------
MISCELLANEOUS DISPOSAL - 0.1%
CT State Development Authority,
Pfizer Inc. Project, Series 1994,
7.000% 07/01/25 3,000 3,262
MA Boston Industrial Development
Finance Authority,
Jet-A-Way, Inc.,
10.500% 01/01/11 1,500 1,667
--------
4,929
--------
RESOURCE RECOVERY - 0.3%
VA Fairfax County Economic Development,
Ogden Martin Systems,
Series 1987-A,
7.750% 02/01/11 4,395 4,757
WA Spokane Regional Solid Waste
Management System, Series 1989-A:
7.750% 01/01/11 3,000 3,229
7.875% 01/01/07 2,500 2,678
--------
10,664
--------
................................................................................
TAX-BACKED - 7.6%
GENERAL OBLIGATION - 3.0%
CT City of Bridgeport:
6.500% 09/01/07 5,540 5,935
6.500% 09/01/08 1,435 1,530
CT State:
5.300% 05/15/10 4,540 4,415
5.300% 05/15/11 4,000 3,885
MA City of Boston, Series 1992-A,
6.500% 07/01/12 4,400 4,653
MA City of Holyoke,
School Project Loan,
7.650% 08/01/09 1,250 1,347
MA City of Lawrence,
4.750% 02/15/14 6,250 5,289
MA City of Lowell:
8.000% 01/15/00 1,105 1,211
8.400% 01/15/09 1,000 1,135
</TABLE>
31
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
PAR VALUE
<S> <C> <C> <C> <C>
MUNICIPAL BONDS - CONT.
TAX-BACKED - CONT.
GENERAL OBLIGATION - cont.
MI City of Detroit,
Series 1990-B,
8.250% 04/01/10 $ 5,000 $ 5,375
NV State,
Colorado River Commission,
Hoover Dam Project, Series 1992,
6.600% 10/01/16 5,000 5,275
NY New York City:
6.950% 08/15/12 4,000 4,415
Series 1991-D:
8.000% 08/01/16 60 68
8.000% 08/01/18 5,160 5,976
NY State Various Purpose,
3.000% 03/15/01 405 366
TN Shelby County, Public Improvement:
Series 1992-A:
(c) 05/01/10 15,750 6,910
(c) 05/01/11 10,000 4,087
(c) 05/01/12 15,130 5,787
(c) 05/01/13 5,000 1,788
TN Shelby County School:
Series 1992-A,
(c) 05/01/10 7,065 3,100
(c) 05/01/13 2,500 894
TX State,
7.625% 12/01/13 5,375 5,805
WA State:
Series A,
6.250% 02/01/11 6,400 6,736
Series B,
5.500% 05/01/18 12,130 11,675
--------
97,657
--------
SALES & EXCISE TAX - 2.3%
CA Los Angeles County Transportation
Authority:
Series 1993-A,
5.000% 07/01/21 42,555 36,438
Series B,
5.250% 07/01/23 10,000 8,962
CA Riverside County Transportation
Commission, Series A,
6.500% 06/01/09 6,500 7,117
</TABLE>
32
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<S> <C> <C> <C> <C>
IL Development Finance Authority:
Care Institute, Inc.,
8.250% 06/01/25 $ 10,000 $ 10,187
City of Marion Project, Series 1991,
9.625% 09/15/21 5,755 5,798
IL Metropolitan Pier & Exposition
Authority, McCormick Place Expansion
Project, Series 1992-A,
(c) 06/15/11 20,000 8,175
IL State Sales Tax, Series N,
6.900% 06/15/09 1,000 1,086
--------
77,763
--------
TAX ALLOCATION - 2.3%
CA San Jose Redevelopment Agency,
Merged Area Redevelopment Project,
Series 1993,
5.000% 08/01/21 30,000 26,025
NY State Local Government Assistance Corp.:
Series D,
5.000% 04/01/23 36,425 31,098
Series 1993-C,
5.500% 04/01/17 18,475 17,551
--------
74,674
--------
................................................................................
TRANSPORTATION - 9.8%
AIR TRANSPORTATION - 0.5%
CA Los Angeles Regional Airport
Improvement, Los Angeles
International Airport:
6.800% 01/01/27 1,400 1,397
Series 1995,
11.250% 11/01/25 10,000 10,473
IN Indianapolis Airport Authority,
Federal Express Project,
7.100% 01/15/17 2,000 2,073
TN Memphis-Shelby County, Airport
Authority Special Facilities, Express
Airlines I, Inc., Series 1986,
10.000% 12/01/16 750 763
--------
14,706
--------
</TABLE>
33
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
PAR VALUE
<S> <C> <C> <C> <C>
MUNICIPAL BONDS - CONT.
TRANSPORTATION - CONT.
AIRPORT - 4.2%
CO Denver City & County Airport:
Series C,
6.500% 11/15/12 $ 10,625 $ 11,528
Series D,
7.750% 11/15/21(d) 25,000 27,938
Series 1991-A,
8.750% 11/15/23 5,485 6,445
Series 1992-B,
7.250% 11/15/23 5,500 5,796
Stapleton International Airport,
Series 1990-A,
8.500% 11/15/23 5,000 5,719
FL Hillsborough County Aviation Authority,
Tampa International Airport,
Series A,
6.900% 10/01/11 1,500 1,605
HI State, Airport System Revenue:
Series 1991,
6.900% 07/01/12 4,250 4,702
Series 2,
7.000% 07/01/18 8,770 9,362
IL Chicago O'Hare Airport:
6.380% 01/01/12 4,980 5,210
Special Facility, Senior Lien,
Series A,
5.000% 01/01/16 15,000 13,181
IN Indianapolis Airport Authority:
9.000% 07/01/15 250 256
Series A,
6.750% 11/01/11 2,000 2,075
PA Allegheny County Airport,
Greater Pittsburgh International,
Series 1988-C,
8.250% 01/01/16 11,985 12,794
TX Dallas-Fort Worth Regional Airport,
Series A,
7.375% 11/01/11 5,000 5,594
VA Capital Region Airport,
8.125% 07/01/14 17,200 20,705
VA Metro Washington DC Airport,
7.600% 10/01/14 3,400 3,719
--------
136,629
--------
</TABLE>
34
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<S> <C> <C> <C> <C>
TRANSPORTATION - 2.9%
NJ State Transportation Trust Fund
Authority, Series B,
7.000% 06/15/12 $ 47,000 $ 53,874
NY Metro Transportation Authority,
Series 5,
6.900% 07/01/06 3,015 3,219
NY Port Authority, Series 1992:
4.750% 01/15/29 20,000 16,600
6.500% 11/01/26 5,000 5,094
PA Erie-Western Port Authority,
Series 1990,
8.625% 06/15/10 1,850 1,966
SC State Port Authority,
Series 1991,
6.750% 07/01/21 11,250 11,841
WA Port of Seattle, Series 1990-B,
7.700% 12/01/11 3,000 3,319
--------
95,913
--------
TURNPIKE/TOLLROAD/BRIDGE - 2.2%
CA Foothill/Eastern Transportation
Corridor Agency, Series 1995-A,
5.000% 01/01/35 4,865 3,862
FL State Mid-Bay Bridge Authority,
Series A,
6.875% 10/01/22 2,000 2,228
MA State Turnpike Authority,
Series A,
5.000% 01/01/20 30,765 26,535
NJ State Turnpike Authority,
Series 1991-C,
6.500% 01/01/16 15,870 17,358
NY State Thruway Authority Service
Contract, Local Highway,
5.250% 04/01/13 10,000 8,875
NY Triborough Bridge & Tunnel
Authority:
General Purpose, Series A,
5.200% 01/01/20 15,095 13,642
Series L,
8.000% 01/01/07 300 322
Series T,
7.000% 01/01/11 750 833
--------
73,655
--------
</TABLE>
35
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
<S> <C> <C> <C> <C>
UTILITY - 27.5%
INDIVIDUAL POWER PRODUCER - 0.3%
PA Economic Development Finance
Authority, Colver Project, Series D,
7.150% 12/01/18 $ 10,000 $ 10,213
--------
INVESTOR OWNED - 5.8%
CA California Pollution Control
Financing Authority, Pacific Gas &
Electric Co., Series 1992-A,
6.625% 06/01/09 5,350 5,604
DE Economic Delmarva Power & Light,
7.600% 03/01/20(a) 5,000 5,450
FL Pinellas County,
Florida Power Corp.,
7.200% 12/01/14 1,000 1,081
GA Bartow County Development Authority,
State Power Company Bowen Plant,
7.250% 07/01/21 1,000 1,022
HI State Department Budget & Finance Electric:
6.550% 12/01/22 6,130 6,299
RIB (variable rate), Series 1993-B,
6.943% 12/15/23 10,000 8,075
IL Development Financial Authority:
Central Illinois Public Service Co.:
Series A,
7.600% 03/01/14 750 820
Series B,
7.600% 09/01/13 750 820
Commonwealth Edison Co. Project,
Series D,
6.750% 03/01/15 3,400 3,600
Pollution Control, Series 1991,
7.250% 06/01/11 5,625 5,934
IN Mt. Vernon, Southern Indiana Gas &
Electric Co., Series 1984-A,
7.250% 03/01/14 4,500 4,888
IN Petersburg, Indiana Power &
Light Co., Series B,
5.400% 08/01/17 5,000 4,581
IN Sullivan Pollution Control, Merom
Station Project, Series 1991,
7.100% 04/01/19 10,000 10,588
KY Jefferson County Pollution Control
Revenue, Louisville Gas & Electric Co.,
Series A,
7.450% 06/15/15 750 813
</TABLE>
36
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<S> <C> <C> <C> <C>
KY Trimble County,
Louisville Gas & Electric Co.,
Series B,
6.550% 11/01/20 $ 1,000 $ 1,025
MI Monroe County, Detroit Edison Co.,
Fermi 2 Project:
Series CC,
7.500% 12/01/19 6,565 7,213
Series 1990-I,
7.650% 09/01/20(a) 8,000 8,820
MS Claiborne County Pollution Control,
Middle South Energy, Inc.,
Series 1984-C,
9.875% 12/01/14 1,250 1,402
MT Forsyth, The Washington Power Co.,
Series 1989,
7.125% 12/01/13(a) 8,000 8,640
NV Clark County Industrial Development,
Nevada Power Company, Series 1990,
7.800% 06/01/20 4,250 4,744
NV Humboldt County Pollution Control
Revenue, Idaho Power Co. Project,
8.300% 12/20/14 1,875 2,177
NY State Energy Research & Development
Authority:
Brooklyn Union Gas Co., Series 1993-A,
RIB, (variable rate)
8.769% 04/01/20 13,000 13,471
Consolidated Edison Co.:
7.500% 01/01/26 4,250 4,601
Series 1989-C,
7.250% 11/01/24 7,000 7,359
Series 1991-A,
7.500% 01/01/26 4,000 4,290
Series 1992-A,
6.750% 01/15/27 4,265 4,500
Series 1993-B,
RIB, (variable rate)
5.250% 08/15/20 23,500 21,326
OH State Air Quality Development
Authority:
The Cleveland Electric
Illuminating Co., Series 1992,
8.000% 12/01/13 6,545 7,690
Ohio Power Co. Project,
Series B,
7.400% 08/01/09 450 475
</TABLE>
37
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
<S> <C> <C> <C> <C>
UTILITY - CONT.
INVESTOR OWNED - CONT.
OK Muskogee,
Oklahoma Gas & Electric Project,
Series A,
7.000% 03/01/17 $ 1,300 $ 1,340
TX Brazos River Authority:
Collateralized Pollution Control Bonds,
Texas Utilities Electric Co., Series 1989-C,
8.250% 01/01/19 13,000 13,959
Houston Light & Power Co.,
Series A:
6.700% 03/01/17 12,140 13,051
7.625% 05/01/19 900 974
WV Mason County Pollution Control,
Appalachian Power Co., Series G,
7.400% 01/01/14 400 431
WY Sweetwater County Pollution
Control Revenue, Idaho Power Company:
Series A,
7.625% 12/01/13 350 363
Series B,
7.625% 12/01/13 400 415
--------
187,841
--------
JOINT POWER AUTHORITY - 7.2%
CA Southern California Public Power
Authority:
Palo Verde Power Project, Series 1993,
5.350% 07/01/12 14,200 13,259
San Juan Power, Series 1993-A,
5.375% 01/01/11 10,290 9,878
FL State Municipal Power Agency:
St. Lucie Project,
5.250% 10/01/21 12,000 10,875
Series 1993,
5.100% 10/01/25 38,150 33,191
GA Burke County Development
Authority, Oglethorpe Power Corp.,
Series 1992,
8.000% 01/01/22 11,000 12,856
GA Municipal Electric Authority Power:
Series O,
7.400% 01/01/01 1,675 1,767
8.125% 01/01/17 10,000 10,725
</TABLE>
38
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<S> <C> <C> <C> <C>
Series Z,
5.500% 01/01/20(d) $ 24,000 $ 22,890
Series 1993-C,
5.700% 01/01/19 20,000 19,500
MA State Municipal Wholesale
Electric Co., Series 1994-A,
5.447% 07/01/16 22,900 17,891
MN Southern Municipal Power
Agency, Series A,
5.000% 01/01/16 6,000 5,190
SC Piedmont Municipal Power Agency,
Electric System:
Series 1986-A
7.250% 01/01/22 2,000 2,015
Series 1988,
(c) 01/01/13 44,455 16,671
Series 1993,
5.375% 01/01/25 14,055 12,931
TX State Municipal Power Agency:
(c) 09/01/13 12,440 4,432
5.000% 09/01/11 17,675 16,239
UT Intermountain Power Agency,
State Power Supply:
Series A,
7.000% 07/01/21 1,000 1,089
Series B,
7.625% 07/01/08 100 107
WA State Public Power Supply, Series B
5.625% 07/01/12 13,030 12,216
WA State, Public Power Supply System
Nuclear Project No. 3, Series 1993-C,
5.400% 07/01/12 14,000 12,688
--------
236,410
--------
MUNICIPAL ELECTRIC - 6.8%
AZ Salt River Project, Agricultural
Improvement & Power District,
Series 1992-C,
6.200% 01/01/12 5,500 5,644
AZ Salt River Project, Agricultural
Improvement & Power District
Electric System:
Series A,
6.625% 01/01/12 1,500 1,577
Series 1993-B,
5.250% 01/01/19 11,000 9,996
</TABLE>
39
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
<S> <C> <C> <C> <C>
UTILITY - CONT.
MUNICIPAL ELECTRIC - CONT.
CA Los Angeles Department Water & Power
5.375% 09/01/23 $ 5,000 $ 4,563
FL Orlando Utilities Commission:
5.000% 10/01/23 6,200 5,278
RIB, (variable rate) Series 1993-B,
6.937% 10/06/13 5,000 4,619
Series A,
5.000% 10/01/20 15,000 12,956
Series 1993-A,
5.250% 10/01/23 11,525 10,300
Series 1993-B,
5.250% 10/01/23 14,835 13,259
SC State Public Service Authority:
5.125% 01/01/32 27,150 23,417
Series C:
5.000% 01/01/18 10,000 8,825
5.125% 01/01/21 23,300 20,766
Series 1993-C,
5.000% 01/01/25 10,000 8,538
SD Heartland Consumers Power District,
Series 1992,
6.000% 01/01/12 3,650 3,764
TN Metro Government, Nashville &
Davidson Counties, Series 1996-A,
Davidson County:
(c) 05/15/09 8,500 4,016
(c) 05/15/10 3,300 1,473
(c) 05/15/11 2,125 887
TX Austin Utilities System Revenue:
6.750% 05/15/12 3,500 3,627
Series A,
7.800% 11/15/12 200 220
TX Brownsville,
5.250% 09/01/15 7,345 6,776
TX San Antonio Electric & Gas,
5.000% 02/01/12 25,000 23,000
5.000% 02/01/17 9,000 7,909
TX San Antonio Electric & Gas Revenue:
Series 1988,
8.000% 02/01/16 175 189
Series 1989-B,
5.000% 02/01/16 10,000 8,825
WA Chelan County Public Utilities,
Series 1989-A, Division I,
7.750% 07/01/21 4,500 4,832
</TABLE>
40
<PAGE>
Investment Portfolio/May 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
WA Tacoma Electric System,
RIB (variable rate):
6.514% 01/02/15 $ 12,000 $ 12,435
Series 1991-C,
8.972% 01/02/15 10,000 10,600
WI Public Power, Inc.,
Series 1993-B,
5.440% 07/01/14 5,400 5,009
--------
223,300
--------
WATER & SEWER - 7.4%
CA Fresno,
Series 1993-A,
5.250% 09/01/19 10,065 9,209
CA Los Angeles Wastewater Systems,
Series 1993-D,
5.200% 11/01/21 10,000 8,850
FL Hillsborough County,
Series 1991-A,
7.000% 08/01/14 5,000 5,394
FL Reedy Creek Improvement District,
Series 1994-1,
5.000% 10/01/19 23,190 20,320
ID State Water Resource Board,
Boise Water Corporation, Series 1991,
7.250% 12/01/21 6,000 6,360
LA Public Facility Belmont Water
Authority:
9.000% 03/15/24 1,460 1,495
Series A,
6.750% 09/01/06 2,000 2,095
MA State Water Resources Authority:
Series B,
5.000% 03/01/22 36,200 30,906
Series C,
4.750% 12/01/23 15,680 12,720
Series 1990-A,
7.625% 04/01/14 2,000 2,240
Series 1993-C,
5.250% 12/01/15 24,825 22,839
MS Five Lakes Utility District,
8.250% 07/15/24 760 767
NY City Water Finance Authority
Sewer System,
5.500% 06/15/15 10 9
</TABLE>
41
<PAGE>
Investment Portfolio/May 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITY - CONT.
WATER & SEWER - CONT.
NY New York Municipal Water Finance
Authority, Series 1994,
5.350% 06/15/13 $ 7,000 $ 6,536
NY State Environmental Facilities Corp.:
Series E,
6.875% 06/15/10 15,000 16,350
Pollution Control, New York City Municipal
Water Finance Authority,
5.750% 06/15/12 19,260 19,019
NY Suffolk County Water Authority,
7.375% 06/01/12 200 217
PA Philadelphia, Water & Waste Water
Revenue, Series 1993,
5.000% 06/15/16 15,000 13,238
TN Jackson Water & Sewer Revenue,
Series 1984,
10.375% 07/01/12 2,000 2,351
TN Metropolitan Government, Nashville
& Davidson County, Series 1996:
5.500% 01/01/13(b) 5,920 5,713
5.500% 01/01/14(b) 5,710 5,474
TX Coastal Industrial Water Authority,
Bayport Water System, Series 1978,
7.000% 12/15/03 2,400 2,400
TX Houston Water & Sewer
System Revenue:
5.000% 12/01/18 24,755 21,908
Series A,
7.125% 12/01/16 850 881
Series B,
6.750% 12/01/08 2,155 2,311
Series C,
(c) 12/01/12 38,000 14,298
VA Roanoke County, Water System
Revenue, Series 1993,
5.000% 07/01/21 10,000 8,763
----------
242,663
----------
TOTAL MUNICIPAL BONDS (Cost of $3,160,547) 3,239,656
----------
</TABLE>
42
<PAGE>
Investment Portfolio/May 31,1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
OPTIONS - 0.0%
- --------------------------------------------------------------------------------
<S> <C> <C>
July 106 Put on Treasury Bond Future
Strike price 106, expiration 6/22/96, (cost of $1,036) 86,800 $ 475
September 106 Put on Treasury Bond Future
Strike price 106, expiration 8/24/96, (cost of $482) 24,400 355
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS - 98.9% (cost of $3,162,065) (j) 3,240,486
----------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM OBLIGATIONS - 0.1% PAR
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
VARIABLE RATE DEMAND NOTES (k)
CA Irvine Ranch Water District,
3.500% 01/01/21 $ 160 160
IL State Development Finance Authority,
Ulhich Children's Home Project,
3.750% 04/01/07 1,400 1,400
IL State Health Facilities Authority,
Franciscan Sisters Health Center,
Series 1992,
3.800% 01/01/18 1,740 1,740
----------
TOTAL SHORT-TERM OBLIGATIONS 3,300
----------
OTHER ASSETS & LIABILITIES, NET- 1.0% 33,101
- --------------------------------------------------------------------------------
NET ASSETS - 100.0% $3,276,887
----------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) These securities, or a portion thereof, with a total market value of
$132,322 are being used to collateralize open futures contracts.
(b) This security has been purchased on a delayed delivery basis for
settlement at a future date beyond the customary settlement time.
(c) Zero coupon bond.
(d) This security is being used to collateralize the delayed delivery
purchases indicated in note (b) above.
(e) Non-income producing.
(f) This is a restricted security which was acquired on April 2, 1990 at a
cost of $5,450. This security represents 0.0% of the Fund's net assets
at May 31, 1996.
(g) Accrued interest accumulates in the value of the security and is
payable at redemption.
(h) Security is exempt from registration under rule 144-A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. As of May 31,
1996, the value of these securities amounted to $66,301 or 2.0% of net
assets.
(i) The Fund has been informed that each issuer has placed direct
obligations of the U.S. Government in an irrevocable trust, solely for
the payment of the interest and principal.
43
<PAGE>
Investment Portfolio/May 31,1996
- --------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT:
- --------------------------------------------------------------------------------
(j) Cost for federal income tax purposes is $3,163,492.
(k) Variable rate deamand notes are considered short-term obligations.
Interest rates change periodically on specified dates. These securities
are payable on demand and are secured by either letters of credit or
other credit support agreements from banks. The rates listed are as of
May 31, 1996.
<TABLE>
<CAPTION>
Acronym Name
------- ----------------------
<S> <C>
RIB Residual Interest Bond
</TABLE>
Short futures contracts open at May 31, 1996:
<TABLE>
<CAPTION>
Par Value Unrealized
covered by Expiration appreciation
Type contracts month at 5/31/96
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Treasury bond 25,000 June $448
</TABLE>
See notes to financial statements.
44
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
MAY 31, 1996 (UNAUDITED)
(in thousands except for per share amounts and footnotes)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $3,162,065) $ 3,240,486
Short-term obligations 3,300
------------
3,243,786
Cash $29,210
Receivable for:
Interest 65,919
Investments sold 17,380
Fund shares sold 1,074
Variation margin on futures 242
Other 84 113,909
------- ------------
Total Assets 3,357,695
LIABILITIES
Payable for:
Investments purchased 53,041
Distributions 15,258
Fund shares repurchased 12,151
Accrued:
Deferred Trustees fees 21
Other 337
--------
Total Liabilities 80,808
------------
NET ASSETS $ 3,276,887
------------
Net asset value & redemption price per share -
Class A ($2,843,666/216,326) $ 13.15
------------
Maximum offering price per share - Class A
($13.15/0.9525) $ 13.81(a)
------------
Net asset value & offering price per share -
Class B ($433,221/32,956) $ 13.15(b)
------------
COMPOSITION OF NET ASSETS
Capital paid in $ 3,266,253
Undistributed net investment income 1,902
Accumulated net realized loss (70,137)
Net unrealized appreciation on:
Investments 78,421
Open futures contracts 448
------------
$ 3,276,887
------------
</TABLE>
(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.
45
<PAGE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
(in thousands)
INVESTMENT INCOME
Interest $ 113,519
EXPENSES
Management fee $ 9,072
Service fee 4,313
Distribution fee - Class B 1,712
Transfer agent 2,757
Bookkeeping fee 382
Registration fee 52
Custodian fee 151
Audit fee 40
Trustees fee 99
Reports to shareholders 23
Legal fee 223
Other 181 19,005
--------- ---------
Net Investment Income 94,514
---------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 19,877
Closed futures contracts (7,850)
---------
Net Realized Gain 12,027
Net unrealized appreciation (depreciation)
during the period on:
Investments (163,689)
Open futures contracts 6,468
---------
Net Unrealized Loss (157,221)
---------
Net Loss (145,194)
---------
Net Decrease in Net Assets from Operations $ (50,680)
---------
</TABLE>
See notes to financial statements.
46
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(Unaudited)
Six months ended Year ended
(in thousands) May 31 November 30
----------- -----------
INCREASE (DECREASE) IN NET ASSETS 1996 1995
<S> <C> <C>
Operations:
Net investment income $ 94,514 $ 201,105
Net realized gain (loss) 12,027 (17,179)
Net unrealized appreciation (depreciation) (157,221) 423,407
----------- -----------
Net Increase (Decrease) from Operations (50,680) 607,333
Distributions:
From net investment income - Class A (84,194) (177,765)
From net investment income - Class B (11,078) (23,492)
----------- -----------
(145,952) 406,076
----------- -----------
Fund Share Transactions:
Receipts for shares sold - Class A 195,396 395,136
Receipts for shares issued in the acquisition
of Liberty Financial Tax-Free Bond Fund -- 224,575
Value of distributions reinvested - Class A 47,170 98,351
Cost of shares repurchased - Class A (383,172) (817,386)
----------- -----------
(140,606) (99,324)
----------- -----------
Receipts for shares sold - Class B 13,308 34,958
Value of distributions reinvested - Class B 6,077 13,028
Cost of shares repurchased - Class B (35,957) (72,909)
----------- -----------
(16,572) (24,923)
----------- -----------
Net Decrease from Fund Share
Transactions (157,178) (124,247)
----------- -----------
Total Increase (Decrease) (303,130) 281,829
NET ASSETS
Beginning of period 3,580,017 3,298,188
----------- -----------
End of period (including undistributed
net investment income of
$1,902 and $2,504, respectively.) $ 3,276,887 $ 3,580,017
----------- -----------
NUMBER OF FUND SHARES
Sold - Class A 14,551 30,093
Issued in the acquisition of Liberty
Financial Tax-Free Bond Fund -- 17,000
Issued for distributions reinvested - Class A 3,472 7,510
Repurchased - Class A (28,442) (62,434)
----------- -----------
(10,419) (7,831)
----------- -----------
Sold - Class B 984 2,673
Issued for distributions reinvested - Class B 447 996
Repurchased - Class B (2,671) (5,573)
----------- -----------
(1,240) (1,904)
----------- -----------
</TABLE>
See notes to financial statements.
47
<PAGE>
NOTES TO FINANCIAL STATEMENTS
May 31, 1996 (UNAUDITED)
NOTE 1. INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In the opinion of management of Colonial Tax-Exempt Fund (the Fund), a series of
Colonial Trust IV, the accompanying financial statements contain all normal and
recurring adjustments necessary for the fair presentation of the financial
position of the Fund at May 31, 1996, and the results of its operations, the
changes in its net assets and the financial highlights for the six months then
ended.
NOTE 2. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: The Fund 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 objective is to seek income
exempt from federal income tax and preservation of capital. The Fund may issue
an unlimited number of shares. The Fund offers Class A shares sold with a
front-end sales charge and Class B shares which 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.
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: Debt securities generally are valued by a
pricing service based upon market transactions for normal, institutional-size
trading units of similar securities. When management deems it appropriate, an
over-the-counter or exchange bid quotation is used.
Options are valued at the last reported sale price, or in the absence of a sale,
the mean between the last quoted bid and asking price.
Futures contracts are valued based on the difference between the last sale price
and the opening price of the contract.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
Portfolio positions which cannot be valued as set forth above 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.
48
<PAGE>
Notes to Financial Statements/May 31, 1996
- --------------------------------------------------------------------------------
Cost is determined and gains (losses) are based upon the specific identification
method for both financial statement and federal income tax purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class B distribution fee), realized and unrealized
gains (losses), are allocated to each class proportionately on a daily basis for
purposes of determining the net asset value of each class.
Class B 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 annualized distribution fee applicable to Class B 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 and tax-exempt
income, no federal income tax has been accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on the
accrual basis. Original issue discount is accreted to interest income over the
life of a security with a corresponding increase in the cost basis; market
discount is not accreted. Premium is amortized against interest income with a
corresponding decrease in the cost basis.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions daily
and pays monthly.
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.
NOTE 3. 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 based on each Fund's pro rata portion of the
combined average net assets of the Fund, Colonial Tax-Exempt Insured Fund and
Colonial High Yield Municipal Fund as follows:
49
<PAGE>
Notes to Financial Statements/May 31, 1996
- --------------------------------------------------------------------------------
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES - CONT.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Average Net Assets Annual Fee Rate
------------------ ---------------
<S> <C>
First $1 billion 0.60%
Next $2 billion 0.55%
Next $1 billion 0.50%
Over $4 billion 0.45%
</TABLE>
Effective July, 1, 1995 the management fee applicable to the Fund was reduced by
0.05% annually of the average net assets of the Fund between $2 billion and $3
billion.
In addition, a further reduction will be made based on the following schedule:
<TABLE>
<CAPTION>
Cumulative Annualized
Effective Date Reduction
--------------- ----------------------
<S> <C>
January 1, 1996 0.01%
April 1, 1996 0.02%
July 1, 1996 0.03%
October 1, 1996 0.04%
</TABLE>
BOOKKEEPING FEE: The Adviser provides bookkeeping and pricing services for
$27,000 per year plus a percentage of the Fund's average net assets as follows:
<TABLE>
<CAPTION>
Average Net Assets Annual Fee Rate
------------------ ---------------
<S> <C>
First $50 million No charge
Next $950 million 0.035%
Next $1 billion 0.025%
Next $1 billion 0.015%
Over $3 billion 0.001%
</TABLE>
TRANSFER AGENT: Colonial Investors Service Center, Inc. (the Transfer Agent), an
affiliate of the Adviser, provides shareholder services for a monthly fee equal
to 0.14% annually of the Fund's average net assets and receives a reimbursement
for certain out of pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. During the six months ended May 31, 1996, the Fund has
been advised that the Distributor retained net underwriting discounts of
$129,998 on sales of the Fund's Class A shares and received contingent deferred
sales charges (CDSC) of $648,829 on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires it to pay the Distributor a
service fee equal to 0.25% annually of the Fund's 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.
50
<PAGE>
Notes to Financial Statements/May 31, 1996
- --------------------------------------------------------------------------------
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.
OTHER: The Fund pays no compensation to its officers, all of whom are employees
of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 4. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the six months ended May 31, 1996, purchases and
sales of investments, other than short-term obligations, were $636,337,430 and
$773,192,358, respectively.
Unrealized appreciation (depreciation) at May 31, 1996, based on cost of
investments for federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $136,181,439
Gross unrealized depreciation (59,187,497)
------------
Net unrealized appreciation $ 76,993,942
------------
</TABLE>
CAPITAL LOSS CARRYFORWARDS: At November 30, 1995, capital loss carryforwards
available (to the extent provided in regulations) to offset future realized
gains were approximately as follows:
<TABLE>
<CAPTION>
Year of Capital loss
expiration carryforward
---------- ------------
<S> <C>
1999 $ 3,641,000
2001 1,897,000
2002 61,394,000
2003 4,486,000
-----------
$71,418,000
-----------
</TABLE>
Of the loss carryforwards expiring in 2001 and 2002, $1,897,000 and $3,200,000,
respectively, were acquired in the merger with Liberty Financial Tax-Free Bond
Fund. Their availability may be limited in a given year.
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: The Fund has greater than 10% of its net assets at May 31, 1996 invested
in New York.
51
<PAGE>
Notes to Financial Statements/May 31, 1996
- --------------------------------------------------------------------------------
NOTE 4. PORTFOLIO INFORMATION - CONT.
- --------------------------------------------------------------------------------
There are certain risks arising from geographic concentration in any state.
Certain revenue or tax related events in a state may impair the ability of
certain issuers of municipal securities to pay principal and interest on their
obligations.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
The Fund may purchase or sell municipal and Treasury bond futures contracts and
purchase and write options on futures. The Fund will invest in these instruments
to hedge against the effects of changes in value of portfolio securities due to
anticipated changes in interest rates and/or market conditions, for duration
management, or when the transactions are economically appropriate to the
reduction of risk inherent in the management of the Fund and not for trading
purposes. The use of futures contracts and options involves certain risks, which
include (1) imperfect correlation between the price movement of the instruments
and the underlying securities, (2) inability to close out positions due to
different trading hours or the temporary absence of a liquid market for either
the instrument or the underlying securities or (3) an inaccurate prediction by
the Adviser of the future direction of interest rates. Any of these risks may
involve amounts exceeding the amount recognized in the Fund's Statement of
Assets and Liabilities at any given time.
NOTE 5. LINE OF CREDIT
- --------------------------------------------------------------------------------
The Fund may borrow up to 10% of its net assets 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 funds
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 six months ended May 31, 1996.
NOTE 6. MERGER INFORMATION
- --------------------------------------------------------------------------------
On March 24, 1995 Liberty Financial Tax-Free Bond Fund (LFTFBF) was merged into
the Fund by a non-taxable exchange of 17,000,007 Class A shares of the Fund
(value at $224,575,100) for 21,866,611 of LFTFBF shares then outstanding. The
assets of LFTFBF acquired included unrealized appreciation of $7,546,857. The
aggregate net assets of the Fund and LFTFBF immediately after the merger were
$3,663,697,413.
52
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
(Unaudited)
Six
months ended
May 31 Year ended November 30
------------------------ ------------------------
1996 1995
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $13.720 $13.720 $12.180 $12.180
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.377 0.326 0.771 0.673
Net realized and
unrealized gain (loss) (0.568) (0.568) 1.535 1.535
------- ------- ------- -------
Total from Investment
Operations (0.191) (0.242) 2.306 2.208
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.379) (0.328) (0.766) (0.668)
------- ------- ------- -------
Net asset value -
End of period $13.150 $13.150 $13.720 $13.720
------- ------- ------- -------
Total return (a) (1.43%)(b) (1.80%)(b) 19.35% 18.47%
------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.00%(c)(d) 1.75%(c)(d) 1.01%(c) 1.76%(c)
Net investment income 5.57%(c)(d) 4.82%(c)(d) 5.82%(c) 5.07%(c)
Portfolio turnover 37%(d) 37%(d) 41% 41%
Net assets at end
of period (in millions) $ 2,844 $ 433 $ 3,111 $ 469
</TABLE>
(a) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(b) Not annualized.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(d) Annualized.
53
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Selected data for a share of each class outstanding throughout each
period are as follows:
<TABLE>
<CAPTION>
Year ended November 30
-------------------------------------------------
1994 1993
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $13.920 $13.920 $13.480 $13.480
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.795 0.695 0.842 0.740
Net realized and
unrealized gain (loss) (1.744) (1.744) 0.451 0.451
------- ------- ------- -------
Total from Investment
Operations (0.949) (1.049) 1.293 1.191
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.791) (0.691) (0.853) (0.751)
From capital paid in --- --- --- ---
------- ------- ------- -------
Total Distributions
Declared to Shareholders (0.791) (0.691) (0.853) (0.751)
------- ------- ------- -------
Net asset value -
End of period $12.180 $12.180 $13.920 $13.920
------- ------- ------- -------
Total return (b) (7.08%) (7.78%) 9.80% 9.00%
------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.01% 1.76% 1.02% 1.77%
Net investment income 6.00% 5.25% 6.06% 5.31%
Portfolio turnover 56% 56% 28% 28%
Net assets at end
of period (in millions) $ 2,858 $ 440 $ 3,357 $ 430
</TABLE>
(a) Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.
(b) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(c) Because of differences between book and tax basis accounting, there was no
return of capital for federal income tax purposes.
(d) Not annualized.
(e) Annualized.
54
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
<TABLE>
<CAPTION>
Year ended November 30
---------------------------------------
1992 1991
Class A Class B (a) Class A
------- -------- -------
<S> <C> <C> <C>
Net asset value -
Beginning of period $13.190 $ 13.230 $12.890
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.913 0.462 0.955
Net realized and
unrealized gain (loss) 0.277 0.248 0.305
------- ------- -------
Total from Investment
Operations 1.190 0.710 1.260
------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.900) (0.460) (0.955)
From capital paid in --- --- (0.005)(c)
------- ------- -------
Total Distributions
Declared to Shareholders (0.900) (0.460) (0.960)
------- ------- -------
Net asset value -
End of period $13.480 $13.480 $13.190
------- ------- -------
Total return (b) 9.29% 9.29%(d) 10.12%
------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 1.05% 1.80%(e) 1.03%
Net investment income 6.81% 6.06%(e) 7.29%
Portfolio turnover 14% 14% 10%
Net assets at end
of period (in millions) $ 2,899 $ 137 $ 2,486
</TABLE>
(a) Class B shares were initially offered on May 5, 1992. Per share amounts
reflect activity from that date.
(b) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(c) Because of differences between book and tax basis accounting, there was no
return of capital for federal income tax purposes.
(d) Not annualized.
(e) Annualized.
55
<PAGE>
SHAREHOLDER SERVICES
TO MAKE INVESTING EASIER
Colonial has one of the most extensive selections of shareholder services
available. Your financial adviser can help you arrange for any of these
services, or you can call Colonial directly at 1-800-345-6611.
AFFORDABLE ADDITIONAL INVESTMENTS: Add to your account with as little as $50;
$25 for an IRA account.
FREE EXCHANGES*: Exchange all or part of your account into the same share class
of another Colonial fund, by phone or mail, as your needs change over time.
EASY ACCESS TO YOUR MONEY*: Make withdrawals from your account by phone, by mail
or, for certain funds, by check.
ONE-YEAR REINSTATEMENT PRIVILEGE: If you need access to your money, but then
choose to return it to Colonial within one year, you can reinvest in any
Colonial fund of the same share class without any penalty or sales charge.
FUNDAMATIC: Make periodic investments as low as $50 from your checking account
to your Colonial account.
SYSTEMATIC WITHDRAWAL PLAN (SWP): Receive monthly, quarterly, or semiannual
payments via check or bank transmission. There is a $5,000 account value
required, but no minimum for the payment amount. The maximum annual withdrawal
is 12% of account balance at time SWP is established. SWPs by check are
processed on the 10th of each month.
AUTOMATED DOLLAR COST AVERAGING: Transfer money on a monthly basis from any
Colonial fund with a balance of $5,000 into the same share class of up to four
other Colonial funds. Minimum for each transfer is $100.
LOW COST IRAS: Choose from a broad range of retirement plans, including IRAs.
* Redemptions and exchanges are made at the next determined net asset value
after the request is received by Colonial. Proceeds may be more or less than
your original cost. The exchange privilege may be terminated at any time.
Investors who purchase Class B or Class D shares (for applicable funds), or $1
million or more of Class A shares, may be subject to a contingent deferred sales
56
<PAGE>
HOW TO REACH COLONIAL
BY PHONE OR BY MAIL
BY TELEPHONE
COLONIAL 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 Colonial 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 am to 8:00 pm ET, and Saturdays from February through
mid-April, 10:00 am to 2:00 pm ET.
COLONIAL TELEPHONE TRANSACTION DEPARTMENT - 1-800-422-3737
To purchase, exchange, or sell shares by telephone, call Monday to Friday, 9:00
am to 8:00 pm ET. Transactions received after the close of the New York Stock
Exchange will receive the next business day's closing price.
COLONIAL LITERATURE DEPARTMENT - 1-800-248-2828
To request literature on any Colonial fund, call Monday to Friday, 8:30 am to
6:30 pm ET.
BY MAIL
COLONIAL INVESTORS SERVICE CENTER, INC.
P.O. BOX 1722
BOSTON, MA 02105-1722
57
<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
Colonial 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.
COLONIAL SHAREHOLDER NEWS: 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.)
58
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Tax-Exempt Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial Tax-Exempt Fund mails one shareholder report to each shareholder
address. If you would like more than one report, please call our Literature
Department at 1-800-248-2828 and additional reports will be sent to you.
This report has been prepared for shareholders of Colonial Tax-Exempt 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>
[COLONIAL MUTUAL FUNDS LOGO]
Mutual Funds for
Planned Portfolios
TRUSTEES
ROBERT J. BIRNBAUM
Trustee (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.)
TOM BLEASDALE
Trustee (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Trustee (formerly Chairman of the Board, Bank of New England-Worcester)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
WILLIAM E. MAYER
Dean, College of Business and Management, University of Maryland (formerly Dean,
Simon Graduate School of Business, University of Rochester; Chairman and Chief
Executive Officer, C.S. First Boston Merchant Bank; and President and Chief
Executive Officer, The First Boston Corporation)
JAMES L. MOODY, JR.
Chairman of the Board, Hannaford Bros. Co. (formerly Chief Executive Officer,
Hannaford Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
GEORGE L. SHINN
Financial Consultant (formerly Chairman, Chief Executive Officer and Consultant,
The First Boston Corporation)
ROBERT L. SULLIVAN
Management Consultant (formerly Management Consultant, Saatchi and Saatchi
Consulting Ltd. and Principal and International Practice Director, Management
Consulting, Peat Marwick Main & Co.)
SINCLAIR WEEKS, JR.
Chairman of the Board, Reed & Barton Corporation
COLONIAL INVESTMENT SERVICES, INC., Distributor (C)1996
One Financial Center, Boston, Massachusetts 02111-2621, 617-426-3750
TE-03/365C-0596 M (7/96)
