<PAGE>
COLONIAL HIGH YIELD MUNICIPAL FUND SEMIANNUAL REPORT
May 31, 1998
NOT FDIC
INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
<PAGE>
COLONIAL HIGH YIELD MUNICIPAL FUND HIGHLIGHTS
DECEMBER 1, 1997 - MAY 31, 1998
INVESTMENT OBJECTIVE: Colonial High Yield Municipal Fund seeks a high level of
after-tax total return by pursuing current income exempt from ordinary federal
income tax and opportunities for long-term appreciation from a portfolio
primarily invested in medium-to lower-grade municipal bonds.
PORTFOLIO MANAGER COMMENTARY: "We entered this period with the portfolio
structured to benefit from declining interest rates. Though
stronger-than-expected economic growth in the first quarter of 1998 resulted in
some interest rate volatility, rates did decline modestly from the beginning of
the period to the end. In this environment, your Fund provided solid returns."
-- Maureen Newman
Colonial High Yield Municipal Fund Performance
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Inception dates 9/1/94 6/8/92 8/1/97
Six-month distributions declared per share(1) $ 0.285 $ 0.246 $ 0.254
SEC yields on 5/31/98(2) 4.64% 4.11% 4.26%
Taxable-equivalent SEC yields(3) 7.68% 6.80% 7.05%
Six-month total returns, assuming reinvestment 4.44% 4.05% 4.13%
of all distributions and no sales charge or
contingent deferred sales charge (CDSC)
Net asset value per share on 5/31/98 $ 10.51 $ 10.51 $ 10.51
</TABLE>
QUALITY BREAKDOWN (as of 5/31/98)
<TABLE>
<CAPTION>
<S> <C>
AAA ................ 7.3%
AA ................. 4.5%
A .................. 12.3%
BBB ................ 28.1%
BB ................. 3.6%
B .................. 0.7%
Non-rated .......... 43.4%
Cash and equivalents 0.1%
</TABLE>
Quality weightings are calculated as a percentage of total investments,
including short-term obligations. Because the Fund is actively managed, there
can be no guarantee the Fund will continue to maintain these quality weightings
in the future.
(1) A portion of the Fund's income may be subject to the alternative
minimum tax.
(2) The 30-day SEC yields on May 31, 1998 reflect the portfolio's earning power,
net of expenses, expressed as an annualized percentage of the public offering
price per share at the end of the period. If the Distributor had not waived
certain Fund expenses, the SEC yield for Class C shares would have been 4.11%.
(3) Taxable-equivalent SEC yields are based on the maximum federal income tax
rate of 39.6%.
The Fund may at times purchase tax-exempt securities at a
discount, and some or all of this discount may be included in the Fund's
ordinary income which will be taxable when distributed.
(4) Performance results reflect any voluntary waivers or reimbursement of Fund
expenses by the Adviser or Distributor. Absent these waivers or reimbursement
arrangements, performance results would have been lower.
2
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
(PHOTO OF STEPHEN E. GIBSON)
In June 1998, Harold Cogger retired as president of Colonial High Yield
Municipal Fund's Board of Trustees. I would like to take this opportunity to
thank him for his guidance over the past few years and to wish him well. As the
new president of the Fund, I am pleased to present the semiannual report for
Colonial High Yield Municipal Fund for the six-month period ended May 31, 1998.
A variety of factors caused bond prices to seesaw during the period, as
different sectors of the economy provided mixed signals to fixed-income
investors. The economic turmoil in Southeast Asia, with its potential to slow
U.S. economic growth, and the possibility of interest rate increases by the
Federal Reserve Board were strong contributors to price volatility. By the end
of the period, fixed-income investors saw something they liked. With hints that
growth might slow, investors' fear of inflation was reduced. As interest rates
dropped, bond prices finished on a positive note.
The tax-exempt market in which the Fund invests followed a similar pattern. In
addition to the trends mentioned above, supply and demand factors contributed
toward rising and declining prices during the period. While the environment was
a challenging one for municipal bond fund managers, the Fund posted favorable
returns relative to its peers over the six-month period. The following portfolio
management report expands on these issues, provides details on the Fund's
strategies and performance, and offers some insight for the investment period
ahead.
For investors seeking competitive levels of tax-free income and the
potential for long-term price appreciation, Colonial High Yield Municipal Fund
remains a sensible option for their investment portfolio.
Thank you for choosing Colonial High Yield Municipal Fund and for giving us the
opportunity to serve your investment needs.
Respectfully,
/S/ Stephen E. Gibson
Stephen E. Gibson
President
July 10, 1998
Because market and economic conditions change, there can be no assurance that
the trends discussed above or on the following pages will continue.
3
<PAGE>
PORTFOLIO MANAGEMENT REPORT
MAUREEN NEWMAN is portfolio manager of Colonial High Yield Municipal Fund and is
vice president of Colonial Management Associates, Inc. The following is a
discussion of the Fund's performance for the six-month period ended May 31,
1998.
ECONOMIC AND MARKET FACTORS VARIED DURING THE PERIOD
Conditions for fixed-income investments varied during the period as investors
weighed the fundamental strength of the U.S. economy against the potential for
an economic slowdown caused by the crisis in Southeast Asia. Market sentiment
regarding the likelihood of an interest rate increase by the Federal Reserve
changed several times during the period. Uncertainty about the ability of the
U.S. economy to continue to grow, without igniting inflation, caused bond prices
to alternately rise and decline for much of period. However, by the end of the
period, bond prices finished above the levels of early December.
The tax-exempt bond market experienced price volatility similar to that of the
Treasury bond market. Lower interest rates helped increase the supply of
municipal bonds, as issuers refunded higher coupon debt and financed new
projects as well. The high level of supply caused municipal bonds to
underperform Treasury bonds in the early months of 1998. As the yields on
municipal bonds became increasingly attractive relative to Treasury bonds,
ensuing demand helped push prices higher toward the end of the period.
For the six-month period, the Fund generated a total return of 4.44% for Class A
shares, based on net asset value. This compares favorably with the performance
of the Fund's Lipper peer group average with a total return of 3.99% for the
same period.(1)
FUND WAS POSITIONED TO BENEFIT FROM DECLINING INTEREST RATES
Based on our long-term outlook for low inflation and modest economic growth, we
structured the Fund to take advantage of a potential decline in interest rates.
As interest rates fell, two factors in particular contributed positively toward
the Fund's performance during the period: refunding and our duration management
strategy.
The refunding of some of our non-rated and lower-quality callable bonds helped
boost the Fund's value during the period. As rates fall, issuers seeking to take
advantage of lower rates may "refund" their bonds. In doing so, new bonds are
issued and their proceeds are used to buy Treasury bonds with cash flows
targeted to pay the debt service on the refunded bonds. Since Treasury bonds now
back the original bonds, the credit rating of those bonds can be upgraded to
AAA. This generally increases the value of the bonds.
Duration management is a tool designed to help predict and control the degree to
which a fund's share price will fluctuate in response to a change in interest
rates. It takes into account a variety of factors, including the maturity of the
4
<PAGE>
bonds held in the portfolio. In general, the longer a fund's duration, the more
movement you would expect in its share price. By maintaining a duration that was
slightly longer than that of the competition, your Fund's share price
appreciated when interest rates fell during the period.
OUTLOOK FOR A POSITIVE ECONOMIC AND MARKET ENVIRONMENT
Our long-term outlook remains positive. We expect that low inflation and modest
economic growth will continue. Sustained high levels of productivity and global
competition are likely to keep inflation pressure low. The economic slowdown in
Asia should help keep the U.S. economy from growing too fast. The current
federal budget surplus may limit the government's need to borrow money, and
thus, the need to issue U.S. government securities. This could help create
higher demand for alternative fixed-income investments, including municipal
bonds.
We will continue to de-emphasize investments in highly cyclical industries like
steel and airlines, which tend to underperform when growth rates decline. On the
other hand, we intend to increase our holdings related to basic services such as
schools and hospitals. These sectors tend to maintain their value better in an
economic downturn. Considering these factors, the Fund will remain positioned
for a declining interest rate environment. However, we do anticipate some
variability in interest rates in the months to come. Therefore, we will continue
to actively manage all aspects of the Fund to decrease the potential negative
effects of rate volatility.
(1) Source: Lipper Analytical Services, Inc. Lipper rankings are based on the
Lipper High Yield Municipal Debt Funds Category. The Fund's Class A share
ranking is in the first quartile for the six-month period (ranked 8 out of 50
funds) and in the second quartile for the one-year period (18 out of 47 funds).
Lipper does not rank the Fund's Class A shares for periods longer than three
years.
5
<PAGE>
COLONIAL HIGH YIELD MUNICIPAL FUND INVESTMENT PERFORMANCE
VS. THE LEHMAN BROTHERS MUNICIPAL BOND INDEX
Change in Value of $10,000 from 6/30/92 - 5/31/98
Based on NAV and POP for Class A Shares
(GRAPH)
<TABLE>
<CAPTION>
Label A B
- --------------------------------------------------------------------
<S> <C> <C> <C>
Label
1 Lehman Brothers Nav
2 $10,000 $10,000
3 10,300 10,251.34 $ 9,764 A
4 10,200 10,194.34 9,710 A
5 10,266 10,227.46 9,742 A
6 10,165 10,179.73 9,696 A
7 10,347 10,263.83 9,776 A
8 10,453 10,368.82 9,876 A
9 10,575 10,433.26 9,938 A
10 10,957 10,652.64 10,147 A
11 10,841 10,624.52 10,120 A
12 10,950 10,710.79 10,202 A
13 11,012 10,745.3 10,235 A
14 11,196 10,874.46 10,358 A
15 11,211 10,909.07 10,391 A
16 11,444 11,102.97 10,576 A
17 11,575 11,202.26 10,670 A
18 11,597 11,237.94 10,704 A
19 11,494 11,186.7 10,655 A
20 11,737 11,261.29 10,726 A
21 11,871 11,369.42 10,829 A
22 11,564 11,226.66 10,693 A
23 11,093 10,850.82 10,335 A
24 11,187 10,826.84 10,313 A
25 11,284 10,901.7 10,384 A
26 11,215 10,921.84 10,403 A
27 11,420 11,076.86 10,551 A
28 11,460 11,097.48 10,570 A
29 11,292 11,023 10,500 N
30 11,091 10,904 10,386 N
31 10,891 10,748 10,238 N
32 11,130 10,905 10,387 N
33 11,449 11,166 10,636 N
34 11,782 11,441 10,898 N
35 11,917 11,577 11,027 N
36 11,931 11,596 11,045 N
37 12,312 11,910 11,345 N
38 12,204 11,881 11,317 N
39 12,320 11,960 11,392 N
40 12,476 12,074 11,501 N
41 12,555 12,202 11,622 N
42 12,737 12,378 11,790 N
43 12,949 12,605 12,006 N
44 13,073 12,747 12,141 N
45 13,172 12,803 12,195 N
46 13,083 12,761 12,154 N
47 12,916 12,615 12,016 N
48 12,879 12,619 12,020 N
49 12,874 12,755 12,024 N
50 13,015 12,624 12,149 N
51 13,132 12,822 12,213 N
52 13,129 12,865 12,254 N
53 13,313 13,010 12,392 N
54 13,463 13,157 12,532 N
55 13,710 13,344 12,711 N
56 13,652 13,322 12,689 N
57 13,678 13,352 12,718 N
58 13,804 13,486 12,845 N
59 13,619 13,379 12,743 N
60 13,734 13,459 12,820 N
61 13,940 13,621 12,974 N
62 14,089 13,782 13,127 N
63 14,479 14,109 13,438 N
64 14,343 14,040 13,373 N
65 14,513 14,203 13,529 N
66 14,607 14,312 13,632 N
67 14,693 14,405 13,721 N
68 14,907 14,652 13,956 N
69 15,061 14,859 14,153 N
70 15,065 14,870 14,164 N
71 15,079 14,880 14,174 N
72 15,011 14,834 14,130 N
73 5/30/98 15,248 15,044 14,330 N
</TABLE>
VALUE OF A $10,000 INVESTMENT
MADE ON 6/30/92 AT 5/31/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS A CLASS B CLASS C
NAV POP NAV w/CDSC NAV w/CDSC
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$15,044 $14,330 $14,630 $14,530 $14,648 $14,648
- --------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS
As of 5/31/98
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES
INCEPTION 9/1/94 6/8/92 8/1/97
NAV POP NAV w/CDSC NAV w/CDSC
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 YEAR 10.45% 5.21% 9.63% 4.63% 9.77% 8.77%
- --------------------------------------------------------------------------------
5 YEARS 6.96 5.93 6.37 6.05 6.39 6.39
- --------------------------------------------------------------------------------
LIFE 7.27 6.40 6.77 6.65 6.79 6.79
- --------------------------------------------------------------------------------
</TABLE>
Returns and value of an investment will vary, resulting in a gain or loss on
sale. All results shown assume reinvestment of distributions. Net asset value
(NAV) returns do not include sales charges or contingent deferred sales charges
(CDSC). Public offering price (POP) returns include the maximum sales charges of
4.75%. The CDSC returns reflect the maximum charges of 5% for one year, 2% for
five years and 1% since inception for Class B and 1% for one year for Class C
shares. Past performance cannot predict future results.
Performance results reflect any voluntary waivers or reimbursement of Fund
expenses by the Adviser or Distributor. Absent these waivers or reimbursement
arrangements, performance results would have been lower.
Performance for different share classes will vary based on differences in sales
charges and fees associated with each class.
Class A and Class C shares (newer class shares) performance information includes
returns of the Fund's Class B shares (the oldest existing fund class) for
periods prior to the inception dates of the newer class shares. These Class B
share returns are not restated to reflect any expense differential (e.g., Rule
12b-1 fees) between Class B and the newer class shares.
The Lehman Brothers Municipal Bond Index is a broad-based, unmanaged index that
tracks the performance of the municipal bond market. Unlike mutual funds,
indexes are not investments, do not incur fees or expenses and it is not
possible to invest in an index.
6
<PAGE>
<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO
MAY 31, 1998 (UNAUDITED, IN THOUSANDS)
MUNICIPAL BONDS - 98.2% PAR VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
EDUCATION - 2.3%
EDUCATION - 1.0%
MI Southfield Economic Development Corp.,
Lawrence Tech University,
Series 1998-A,
5.400% 02/01/18 $ 1,000 $ 996
NM Santa Fe, College of
Santa Fe, Series 1998-A,
5.500% 10/01/28 250 249
VT State Educational & Health Buildings
Finance Agency, Norwich University,
Series 1998,
5.750% 07/01/13 600 617
--------------
1,862
--------------
STUDENT LOANS - 1.3%
OH Cincinnati Student Loan Funding
Corp., Series B,
6.750% 01/01/07 2,450 2,603
--------------
- -----------------------------------------------------------------------------------------------------------------------
HEALTHCARE - 18.4%
HEALTH SERVICES - 0.2%
IL State Health Facilities Authority,
Midwest Physician Group, Ltd.,
Series 1998,
5.500% 11/15/19 325 316
--------------
HOSPITALS - 8.2%
AL Alabama Special Care Facilities Authority,
Montgomery Healthcare, Series 1989,
11.000% 10/01/19 295 301
CO State Health Care Facilities Authority,
National Jewish Medical & Research Center,
Series 1998,
5.375% 01/01/23 830 812
CT State Health & Educational
Facilities Authority, Hospital for
Special Care, Series B,
5.375% 07/01/17 500 494
GA Clayton Hospital Authority,
The Woodlands Foundation, Inc.,
Series 1991-A,
9.750% 05/01/21 (a) 1,500 975
7
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTHCARE - CONT.
HOSPITALS - CONT.
IL State Health Facilities Authority,
Thorek Hospital & Medical Center,
5.375% 08/15/28 $ 500 $ 488
MI Flint Hospital Building Authority,
Hurley Medical Center,
Series 1998-A,
5.375% 07/01/20 625 611
MI Tawas City Finance Authority,
St. Joseph Health System,
Series 1998-A,
5.750% 02/15/23 450 450
MN Monticello-Big Lake Community
Hospital District,
5.750% 12/01/19 1,000 1,036
MO State Housing Development Commission,
Freeman Health Systems,
Series 1998:
5.250% 02/15/18 750 732
5.250% 02/15/28 500 482
MS State Hospital Equipment & Facilities
Authority, Rush Medical Foundation Project,
6.000% 01/01/22 500 519
NJ Health Care Facilities Financing
Authority, Raritan Bay Medical Center,
7.250% 07/01/27 2,000 2,184
NY State Dormitory Authority,
Bronx-Lebanon Hospital Center,
Series 1998-E,
5.200% 02/15/14 1,000 998
OH Marion County,
Community Hospital,
Series 1996,
6.375% 05/15/11 1,000 1,095
OH Sandusky County Memorial Hospital,
Series 1998,
5.150% 01/01/10 250 248
PA Allegheny County Hospital Development,
Ohio Valley General Hospital,
Series 1998-A,
5.450% 01/01/28 1,550 1,536
8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PA Cambria County Hospital Authority,
Conemaugh Valley Memorial Hospital,
Series 1988-A,
8.875% 07/01/18 $ 165 $ 169
PA Pottsville Hospital Authority,
5.625% 07/01/24 1,000 994
TX Denison Hospital Authority,
Texama Medical Center Project,
6.125% 08/15/17 1,000 1,053
VT State Educational & Health
Buildings Authority,
Springfield Hospital, Series A,
7.750% 01/01/13 605 685
--------------
15,862
--------------
INTERMEDIATE HEALTH CARE FACILITIES - 1.3%
IL Champaign,
Hoosier Care, Inc.,
Series 1989-A,
9.750% 08/01/19 485 513
IN Wabash First Mortgage, Hoosier
Care, Inc., Series 1989-A,
9.750% 08/01/19 485 514
MA State Health & Educational
Facilities Authority,
Corporation for Independent Living,
8.100% 07/01/18 600 677
TN Shelby County, Health, Education,
& Housing Facilities Board, Open Arms
Development Center:
Series 1992-A,
9.750% 08/01/19 335 398
Series 1992-C,
9.750% 08/01/19 330 393
--------------
2,495
--------------
LIFECARE - 2.6%
CO State Health Care Facilities Authority,
National Benevolent Association:
Series 1998-A,
5.250% 01/01/27 400 388
Series 1998-B,
5.250% 02/01/28 750 728
9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HEALTHCARE - CONT.
LIFECARE - CONT.
KY State Economic Development Finance
Authority, Christian Church Homes of
Kentucky, Inc.,
Series 1998,
5.500% 11/15/30 $ 800 $ 790
MN Columbia Heights,
Crest View Corp.,
Series 1998,
6.000% 03/01/33 740 742
PA Philadelphia Authority for Industrial
Development, Baptist Home of Philadelphia,
Series 1998-A,
5.500% 11/15/18 530 524
5.600% 11/15/28 860 838
TN Metropolitan Government,
Richland Place,
5.500% 05/01/23 500 512
TN Nashville and Davidson County,
Blakeford at Green Hills, Series 1998,
5.650% 07/01/24 575 565
--------------
5,087
--------------
NURSING HOME - 6.1%
DE State Economic Development Authority,
Churchman Village Project,
Series A,
10.000% 03/01/21 740 896
DE Sussex County, Healthcare Facility,
Delaware Health Corporation, Series 1994-A,
7.600% 01/01/24 1,000 1,051
FL Gadsden County Industrial
Development Authority,
Florida Properties, Inc., Series 1988-A,
10.450% 10/01/18 340 346
IA State Finance Authority,
Care Initiatives Project:
Series 1996,
9.250% 07/01/25 500 673
Series 1998-B,
5.750% 07/01/18 600 593
5.750% 07/01/28 1,475 1,431
KS Halstead Industrial Health Care Project,
10.250% 08/01/13 (a) 335 134
MA State Industrial Finance Agency,
GF/Massachusetts, Inc., Series 1994,
8.300% 07/01/23 980 1,019
10
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MI Cheboygan County Economic
Development Corp.,
Metro Health Foundation Project,
Series 1993,
10.000% 11/01/22 $ 600 $ 600
NJ Economic Development Authority
Geriatric and Medical Service, Inc.,
Series A,
10.500% 05/01/04 85 90
OH Lucas County,
Gericare, Inc.,
Series 1988-B,
10.500% 06/01/18 295 310
PA Chartiers Valley
Industrial and Commercial Authority
Beverly Enterprises, Inc., Series 1985,
10.000% 06/01/07 1,650 1,700
PA Chester County Industrial Development,
Pennsylvania Nursing Home, Inc.,
Series 1989,
10.125% 05/01/19 434 399
PA Delaware County Authority,
Main Line and Haverford Nursing,
Series 1992,
9.000% 08/01/22 50 57
PA Lackawanna County Industrial Authority,
Greenridge Nursing Center, Series 1990,
10.500% 12/01/10 190 213
PA Luzerne County Industrial
Development Authority, Series 1990,
Millville Nursing Center,
10.500% 12/01/12 225 214
PA Montgomery County Higher Education
& Health Authority,
Roslyn-Hatboro, Inc. Project,
9.000% 11/15/22 300 240
TX Kirbyville Health Facilities Development
Corp.,
Heartway III Project:
Series 1997-A,
10.000% 03/20/18 599 602
Series 1997-B,
(b) 03/20/04 100 52
WA Kitsap County Housing Authority,
Martha & Mary Nursing Home,
7.100% 02/20/36 1,000 1,156
--------------
11,776
--------------
11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
HOUSING - 17.9%
ASSISTED LIVING/SENIOR - 5.2%
IL Clarendon Hills Residential Facilities,
Churchill Estate,
Series 1998-A,
6.750% 03/01/24 $ 1,050 $1,050
6.750% 03/01/31 1,365 1,365
IL State Development Finance Authority,
Care Institute, Inc.,
8.250% 06/01/25 2,000 2,260
MN Roseville,
Care Institute, Inc.,
Series 1993,
7.750% 11/01/23 1,270 1,286
NY Glen Cove Housing Authority,
8.250% 10/01/26 2,000 2,215
PA Montgomery County Industrial
Development Authority, Assisted
Living Facility, Series 1993-A,
8.250% 05/01/23 605 677
TX Bell County Health Facilities
Development Corp., Care Institute, Inc.
9.000% 11/01/24 1,000 1,156
--------------
10,009
--------------
MULTI-FAMILY - 7.6%
FL State Housing Finance Agency,
Windsong Apartments,
Series 1993-C,
9.250% 01/01/19 750 600
MN Lakeville,
Southfork Apartment Project,
Series 1989-A,
9.875% 02/01/20 700 707
MN Washington County Housing &
Redevelopment Authority,
Cottages of Aspen, Series 1992,
9.250% 06/01/22 495 549
MN White Bear Lake,
Birch Lake Townhomes Project,
Series 1989-A,
9.750% 07/15/19 750 764
NC Eastern Carolina Regional Housing
Authority, New River Apartments -
Jacksonville,
Series 1994,
8.250% 09/01/14 1,400 1,523
12
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Resolution Trust Corp., Pass
Through Certificates, Series 1993-A,
8.500% 12/01/16 (c) $ 4,248 $4,418
SC State Housing Finance and Development
Multi-Family Housing Finance Revenue,
Westbridge Apartments, Series A,
9.500% 09/01/20 615 635
TN Franklin Industrial Board,
Landings Apartment Project,
Series 1996-B,
8.750% 04/01/27 1,800 1,847
TX Galveston Health Facilities Center,
Pass Through Certificates,
8.000% 08/01/23 1,000 1,079
VA Alexandria Redevelopment
& Housing Authority, Courthouse
Commons Apartments, Series 1990-A,
10.000% 01/01/21 500 513
WA Vancouver Housing Authority,
Series I,
5.500% 03/01/28 2,000 2,006
--------------
14,641
--------------
SINGLE FAMILY - 5.1%
CO Housing Finance Authority,
Series D-1,
7.375% 06/01/26 2,000 2,246
CO State Housing Finance Authority,
Series 1997 A-2,
7.250% 05/01/27 800 903
MO State Housing Development Commission,
Series C,
7.250% 09/01/26 2,755 3,095
NJ State Housing & Mortgage Finance Agency,
Series 1989-D,
7.700% 10/01/29 (d) 920 960
PA State Housing Finance Agency,
Series 1994-42,
6.850% 04/01/25 (d) 2,435 2,639
--------------
9,843
--------------
- -----------------------------------------------------------------------------------------------------------------------
OTHER - 11.6%
OTHER - 3.8%
IL Bi-State Development Agency,
American Commercial Lines, Inc.,
7.750% 06/01/10 2,000 2,173
13
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1998
- ------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER - CONT.
OTHER - CONT.
IN Hammond,
American Maize Products Co.,
Series 1994,
8.000% 12/01/24 $ 2,000 $2,358
LA Port of New Orleans Industrial
Development
Continental Grain Company, Series 1993,
7.500% 07/01/13 2,000 2,212
MD Baltimore,
Park Charles Project,
Series 1986,
8.000% 01/01/10 620 675
--------------
7,418
--------------
REFUNDED/ESCROWED (e) - 7.8%
CA Colton Public Financing Authority,
Series 1995,
7.500% 10/01/20 1,000 1,166
CA San Joaquin Hills Transportation
Corridor Agency,
Series 1993,
(b) 01/01/23 5,250 1,483
CO Denver City and County Airport,
Series A,
8.500% 11/15/23 25 28
FL Clearwater Housing Authority,
Hampton Apartments,
Series 1994,
8.250% 05/01/24 2,000 2,460
ID State Health Facilities Authority,
IHC Hospitals, Inc.,
8.400% 02/15/21 (d) 1,000 1,214
IL State Health Facilities Authority,
Edgewater Medical Center,
Series A,
9.250% 07/01/24 2,000 2,545
MA State Industrial Finance Agency,
Series 1990,
9.000% 10/01/20 920 1,037
MN Mille Lacs Capital Improvement Authority,
Mille Lacs Band of Chippewa,
Series 1992-A,
9.250% 11/01/12 625 766
NC Lincoln County, Lincoln
County Hospital, Series 1991,
9.000% 05/01/07 295 355
14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PA Delaware County Authority,
Southeastern Pennsylvania Obligated Group,
Series 1996,
6.000% 12/15/26 $ 2,500 $ 2,803
WA State Health Care Facilities Authority,
Grays Harbor Community Hospital,
Series 1993,
7.200% 07/01/03 170 185
8.025% 07/01/20 960 1,068
--------------
15,110
--------------
- -----------------------------------------------------------------------------------------------------------------------
OTHER REVENUE - 19.4%
CHEMICALS - 4.2%
SC York County,
Hoechst Celanese Corp.,
Series 1994,
5.700% 01/01/24 (d) 1,535 1,568
WA Spokane County Industrial Development
Corp.,
Kaiser Aluminum & Chemical Corp.
Project,
7.600% 03/01/27 2,500 2,844
WY Sweetwater County,
FMC Corp. Project,
Series 1994-A,
7.000% 06/01/24 3,325 3,705
--------------
8,117
--------------
HOTELS - 1.3%
MN Minneapolis,
Holiday Inn Metrodome Project,
6.000% 12/01/01 400 403
PA Philadelphia Authority for Industrial
Development, Doubletree Project,
6.500% 10/01/27 2,000 2,113
--------------
2,516
--------------
INDUSTRIAL - 8.0%
GA Wayne County Development Authority,
Solid Waste Disposal, ITT Rayonier
Inc., Series 1990,
8.000% 07/01/15 500 539
IL State Development Finance Authority,
Armstrong World Industries, Inc. Project,
5.950% 12/01/24 2,000 2,202
IL Will-Kankakee Regional Development
Authority,
Flanders Corp. Precisionaire
Project,
Series 1997,
6.500% 12/15/17 1,000 1,024
15
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1998
- ------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OTHER REVENUE - CONT.
INDUSTRIAL - CONT.
MD Baltimore County,
Bethlehem Steel Corp. Project, Series B,
7.500% 06/01/15 $ 2,000 $2,243
MN Brooklyn Park,
TL Systems Corp.,
Series 1991,
10.000% 09/01/16 520 639
MN Buffalo,
Von Ruden Manufacturing, Inc.,
Series 1989,
10.500% 09/01/14 760 820
OH Cuyahoga County,
Joy Technologies, Inc.,
Series 1992,
8.750% 09/15/07 360 410
TN McKenzie Individual Development Board,
American Lantern Co., Series 1989,
10.500% 05/01/16 (a) 458 298
TX Trinity River Authority,
Texas Instruments Project,
Series 1996,
6.200% 03/01/20 2,000 2,137
WA Pilchuck Public Development Corp.,
Goodrich (B.F.) Co. Tramco Project,
Series 1993,
6.000% 08/01/23 4,500 4,650
WV Weirton Pollution Control, Weirton
Steel Corp., Series 1989,
8.625% 11/01/14 500 529
--------------
15,491
--------------
OIL AND GAS - 1.0%
WA Pierce County Economic
Development Corp.,
Occidental Petroleum Co.,
5.800% 09/01/29 2,000 2,022
--------------
PAPER PRODUCTS - 3.3%
AL Phenix City Industrial Development
Board,
Mead Coated Board, Inc.,
Series 1998 A,
5.300% 04/01/27 (d) 700 691
16
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
GA Rockdale County Development
Authority, Solid Waste Disposal, Visy
Paper, Inc., Series 1993,
7.500% 01/01/26 $ 1,800 $1,964
SC Darlington County,
Industrial Development Authority,
Sonoco Products Co. Project,
6.125% 06/01/25 (d) 2,000 2,124
Series 1996,
6.000% 04/01/26 1,500 1,589
--------------
6,368
--------------
RECREATION - 0.5%
NM Red River Sports,
6.450% 06/01/07 1,000 1,005
--------------
RETAIL - 1.1%
OH Lake County,
North Madison Properties,
Series 1993,
8.819% 09/01/11 545 626
VA Virginia Beach Development Authority,
SC Diamond Associates, Inc.,
8.000% 12/01/10 1,365 1,532
--------------
2,158
--------------
- -----------------------------------------------------------------------------------------------------------------------
RESOURCE RECOVERY - 4.2%
RECOVERY - 1.2%
PA Delaware County Industrial
Development Authority, Series A,
6.200% 07/01/19 2,225 2,423
--------------
DISPOSAL - 3.0%
CT State Development Authority,
New Haven NETCO,
Series 1996,
8.250% 12/01/06 1,000 1,055
CT State Disposal Facility,
NETCO Waterbury Ltd.,
Series 1995,
9.375% 06/01/16 1,450 1,704
GA Fulton County Development
Authority, Very, Inc.,
10.500% 12/01/07 110 114
MA State Industrial Finance Agency:
Massachusetts Environmental Services Inc.,
Series 1994-A,
8.750% 11/01/21 (a) 980 735
17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1998
- ------------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RESOURCE RECOVERY - CONT.
DISPOSAL - CONT.
Peabody Monofill Associates, Inc.,
Series 1995,
9.000% 09/01/05 $ 915 $ 1,019
UT Carbon County,
Laidlaw Environmental, Series A,
7.450% 07/01/17 1,000 1,111
-------------------------
5,738
-------------------------
- ------------------------------------------------------------------------------------------------------------------------
TAX-BACKED - 6.0%
LOCAL GENERAL OBLIGATIONS - 1.0%
CA Roseville Unified High School
District,
Series B,
(b) 06/01/20(d) 3,000 947
NY New York City,
Series 1998 F,
5.000% 08/01/23 600 574
TX Irving Independent School District,
Series 1997,
(b) 02/15/17(d) 1,190 452
-------------------------
1,973
-------------------------
SPECIAL NON-PROPERTY TAX - 1.9%
IL Metropolitan Pier & Exposition
Authority, McCormick Place Expansion,
(b) 06/15/17(d) 6,750 2,502
IL State Development Finance Authority,
City of Marion Project,
Series 1991,
9.625% 09/15/21 1,175 881
LA Jefferson Parish School Board,
Series 1998,
(b) 03/01/10 500 280
-------------------------
3,663
-------------------------
SPECIAL PROPERTY TAX - 2.6%
CA Carson, Improvement
Assessment District, Series 1992,
7.375% 09/02/22 955 1,028
CA Fontana Redevelopment Agency,
Jurupa Hills Project,
Series 1997-A,
5.500% 10/01/27 700 709
18
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1998
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CA Pleasanton Joint Powers Financing
Reassurement Subordinated Revenue,
Series 1993-B,
6.750% 09/02/17 $ 1,780 $ 1,904
CA Poway Community Facilities District,
No. 88-1 Parkway Business Center,
Series 1998,
6.750% 08/15/15 575 627
CA Riverside County Public Financing
Authority
Redevelopment Projects, Series A,
5.500% 10/01/22 700 709
-------------------------
4,977
-------------------------
STATE APPROPRIATED - 0.5%
NY State Throughway Authority,
5.000% 04/01/17 1,000 966
-------------------------
- -------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION - 8.7%
AIR TRANSPORTATION - 7.0%
CO Denver City & County Airport,
United Airlines Inc.,
Series 1992-A,
6.875% 10/01/32 3,000 3,259
Series A,
8.500% 11/15/23 225 249
Series C,
6.750% 11/15/22 985 1,069
Series D,
7.750% 11/15/21 1,585 1,763
IN Indianapolis Airport Authority,
Federal Express Corp.,
Series 1994,
7.100% 01/15/17 4,000 4,504
OH Toledo-Lucas County Port Authority,
Series 1998,
5.500% 05/15/20 590 573
TX Houston Airport System,
Continental Airline Terminal, Series B,
6.125% 07/15/17 2,000 2,095
-------------------------
13,512
-------------------------
TOLL FACILITIES - 1.7%
CA Foothill Eastern Transportation
Corridor Agency,
Series 1995-A,
(b) 01/01/15 8,000 3,263
-------------------------
19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
UTILITY - 9.7%
INDIVIDUAL POWER PRODUCER - 5.8%
FL Martin County Industrial
Development Authority,
Indiantown Co-generation Project,
Series 1994-A,
7.875% 12/15/25 $ 1,000 $ 1,174
NY New York City Industrial Development
Agency,
Brooklyn Navy Yard Partners,
Series 1997,
5.750% 10/01/36 1,100 1,112
NY Port Authority of New York & New
Jersey,
KIAC Partners,
Series 1996 IV,
6.750% 10/01/11 2,000 2,235
OH State Water Development Authority,
Bay Shore Power Project,
Series 1998-A,
5.875% 09/01/20 1,500 1,519
PA Economic Development Finance
Authority, Colver Project, Series D,
7.150% 12/01/18 3,650 4,084
PA State Economic Development Financing
Authority,
Northampton Generating,
Series A,
6.500% 01/01/13 1,000 1,061
-------------------------
11,185
-------------------------
INVESTOR OWNED - 1.8%
AZ Pima County Industrial Development
Authority,
Tucson Electric Power Co.,
Series A,
6.100% 09/01/25 760 785
NM Farmington,
San Juan Public Service Co. Project,
Series D,
6.375% 04/01/22 2,000 2,145
OH State Water Development Pollution
Control Facilities, Pennsylvania
Power Co.,
8.100% 01/15/20 500 532
-------------------------
3,462
-------------------------
JOINT POWER AUTHORITY - 0.3%
MN Southern Minnesota Municipal
Power Agency, Series 1994-A,
(b) 01/01/25(d) 2,660 681
-------------------------
MUNICIPAL ELECTRIC - 1.1%
WA Chelan County Public Utilities
District No. 1,
Columbia River Rock
Hydroelectric,
(b) 06/01/14(d) 5,000 2,209
-------------------------
20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
WATER & SEWER - 0.7%
LA Public Facilities Authority, Belmont
Water System,
9.000% 03/15/24 $ 585 $ 526
MS Five Lakes Utility District,
8.250% 07/15/24 400 320
NJ State Economic Development
Authority, Hills Development Co.,
10.500% 09/01/08 400 415
-------------------------
1,261
-------------------------
TOTAL INVESTMENTS (cost of $178,341) (f) 190,012
-------------------------
SHORT-TERM OBLIGATIONS - 0.1%
- --------------------------------------------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (g)
NC Craven County Industrial Facilities &
Pollution Control Financing Authority,
John Hancock Resource Recovery, Inc.,
4.200% 05/01/11 190 190
-------------------------
OTHER ASSETS & LIABILITIES, NET - 1.7% 3,384
- --------------------------------------------------------------------------------------------------------------------
NET ASSETS - 100.0% $ 193,586
-------------------------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) This issuer is in default of certain debt covenants. Income is not being
accrued.
(b) Zero coupon bond.
(c) These securities are exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
May 31, 1998, the value of these securities amounted to $4,418 or 2.3% of
net assets.
(d) These securities, or a portion thereof, with a total market value of
$14,849 are being used to collateralize open futures contracts.
(e) The Fund has been informed that the issuer has placed direct
obligations of the U.S. Government in an irrevocable trust,
solely for the payment of the interest and principal.
(f) Cost for federal income tax purposes is $178,359.
(g) Variable rate demand 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, 1998.
21
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/May 31, 1998
- ---------------------------------------------------------------------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT.
- ---------------------------------------------------------------------------------------------------------------------------------
Long futures contracts open at May 31, 1998:
Par value Unrealized
covered by Expiration appreciation
Type contracts month at 5/31/98
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Treasury Bond $ 10,400 June $ 198
-------------------------
</TABLE>
See notes to financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
STATEMENT OF ASSETS & LIABILITIES
MAY 31, 1998 (UNAUDITED)
(in thousands except for per share amounts and footnotes)
<S> <C> <C>
ASSETS
Investments at value (cost $178,341) $190,012
Short-term obligations 190
----------------
190,202
Receivable for:
Interest $ 3,873
Investments sold 610
Fund shares sold 291
Variation margin on futures 26
Other 38 4,838
---------------- ----------------
Total Assets 195,040
LIABILITIES
Payable for:
Distributions 794
Fund shares repurchased 652
Accrued:
Deferred Trustees fees 4
Other 4
----------------
Total Liabilities 1,454
---------------
NET ASSETS $193,586
---------------
Net asset value & redemption price per share -
Class A ($58,459/5,560) $10.51
---------------
Maximum offering price per share - Class A
($10.51/0.9525) $11.03(a)
---------------
Net asset value & offering price per share -
Class B ($134,313/12,773) $10.51(b)
---------------
Net asset value & offering price per share -
Class C ($814/78) $10.51(b)
---------------
COMPOSITION OF NET ASSETS
Capital paid in $185,400
Overdistributed net investment income (77)
Accumulated net realized loss (3,606)
Net unrealized appreciation on:
Investments 11,671
Open futures contracts 198
---------------
$193,586
===============
(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.
23
</TABLE>
<PAGE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MAY 31, 1998
(UNAUDITED)
<TABLE>
<S> <C> <C>
(in thousands)
INVESTMENT INCOME
Interest $6,413
EXPENSES
Management fee $ 551
Service fee 246
Distribution fee - Class B 525
Distribution fee - Class C 2
Transfer agent 147
Bookkeeping fee 39
Trustees fee 8
Custodian fee 3
Audit fee 15
Legal fee 16
Registration fee 21
Reports to shareholders 5
Other 7 1,585
------ ------
Net Investment Income 4,828
------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 2,218
Closed futures contracts 190
------
Net Realized Gain 2,408
Net unrealized appreciation
during the period on:
Investments 746
Open futures contracts 134
------
Net Unrealized Appreciation 880
------
Net Gain 3,288
------
Increase in Net Assets from Operations $8,116
======
</TABLE>
See notes to financial statements.
24
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(Unaudited)
Six months Year ended
(in thousands) ended May 31 November 30
--------- ---------
INCREASE (DECREASE) IN NET ASSETS 1998 1997 (a)
Operations:
<S> <C> <C>
Net investment income $ 4,828 $ 9,982
Net realized gain (loss) 2,408 (1,550)
Net unrealized appreciation 880 5,265
--------- ---------
Net Increase from Operations 8,116 13,697
Distributions:
From net investment income - Class A (1,526) (2,677)
In excess of net investment income - Class A -- (29)
From net investment income - Class B (3,280) (7,352)
In excess of net investment income - Class B -- (80)
From net investment income - Class C (13) (4)
In excess of net investment income - Class C -- --
--------- ---------
3,297 3,555
--------- ---------
Fund Share Transactions:
Receipts for shares sold - Class A 9,151 21,128
Value of distributions reinvested - Class A 639 1,026
Cost of shares repurchased - Class A (5,083) (7,723)
--------- ---------
4,707 14,431
--------- ---------
Receipts for shares sold - Class B 9,116 27,096
Value of distributions reinvested - Class B 1,417 3,211
Cost of shares repurchased - Class B (20,892) (35,777)
--------- ---------
(10,359) (5,470)
--------- ---------
Receipts for shares sold - Class C 607 354
Value of distributions reinvested - Class C 7 2
Cost of shares repurchased - Class C (148) (17)
--------- ---------
466 339
--------- ---------
Net Increase (Decrease) from Fund Share
Transactions (5,186) 9,300
--------- ---------
Total Increase (Decrease) (1,889) 12,855
NET ASSETS
Beginning of period 195,475 182,620
--------- ---------
End of period (net of overdistributed
net investment income of $77 and $93,
respectively) $ 193,586 $ 195,475
========= =========
</TABLE>
(a) Class C shares were initially offered on August 1, 1997. See
notes to financial statements.
25
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS - CONT.
<TABLE>
<CAPTION>
(Unaudited)
Six months Year ended
ended May 31 November 30
------------------ ------------------
NUMBER OF FUND SHARES 1998 1997 (a)
<S> <C> <C>
Sold - Class A 872 2,087
Issued for distributions reinvested - Class A 61 101
Repurchased - Class A (485) (761)
------------------ ------------------
448 1,427
------------------ ------------------
Sold - Class B 869 2,678
Issued for distributions reinvested - Class B 135 316
Repurchased - Class B (1,992) (3,529)
------------------ ------------------
(988) (535)
------------------ ------------------
Sold - Class C 58 35
Issued for distributions reinvested - Class C 1 (b)
Repurchased - Class C (14) (2)
------------------ ------------------
45 33
------------------ ------------------
</TABLE>
(a) Class C shares were initially offered on August 1, 1997.
(b) Rounds to less than one.
See notes to financial statements.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1998 (UNAUDITED)
NOTE 1. INTERIM FINANCIAL STATEMENTS
In the opinion of management of Colonial High Yield Municipal 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,
1998, 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
investment objective is to seek as high a level of after-tax total
return by pursuing current income exempt from ordinary federal income
tax and opportunities for long-term appreciation from a portfolio
primarily invested in medium-to-lower-grade municipal bonds. The Fund
may issue an unlimited number of shares. The Fund offers three classes
of shares: Class A, Class B, and Class C. Class A shares are sold with a
front-end sales charge and Class B shares are subject to an annual
distribution fee and a contingent deferred sales charge. Class B shares
will convert to Class A shares when they have been outstanding
approximately eight years. Class C shares are subject to a contingent
deferred sales charge on redemptions made within one year after purchase
and an annual distribution fee.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
that are consistently followed by the Fund in the preparation of its
financial statements.
SECURITY VALUATION AND TRANSACTIONS: 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.
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 for which market quotations are not readily
available are valued at fair value under procedures approved by the
Trustees.
27
<PAGE>
Notes to Financial Statements/May 31, 1998
NOTE 2. ACCOUNTING POLICIES - CONT.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains and losses are based upon the specific
identification method for both financial statement and federal income
tax purposes.
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 and Class C distribution fees),
and realized and unrealized gains (losses), are allocated to each class
proportionately on a daily basis for purposes of determining the net
asset value of each class.
Class B and Class C per share data and ratios are calculated by
adjusting the expense and net investment income per share data and
ratios for the Fund for the entire period by the distribution fee
applicable to Class B and Class C shares only.
FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable
income, no federal income tax has been accrued.
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
28
<PAGE>
Notes to Financial Statements/May 31, 1998
Tax-Exempt Fund and Colonial Tax-Exempt Insured Fund as follows:
Average Net Assets Annual Fee Rate
------------------ ---------------
First $1 billion 0.60%
Next $2 billion 0.55%
Next $1 billion 0.50%
Over $4 billion 0.45%
BOOKKEEPING FEE: The Adviser provides bookkeeping and pricing services
for $27,000 per year plus 0.035% of the Fund's average net assets over
$50 million.
TRANSFER AGENT FEE: Colonial Investors Service Center, Inc. (the
Transfer Agent), an affiliate of the Adviser, provides shareholder
services for a monthly fee equal to 0.13% annually of the Fund's average
net assets and receives reimbursement for certain out-of-pocket
expenses.
Effective January 1, 1997 and continuing through calendar year 1997, the
Transfer Agent fee was reduced by 0.01% in cumulative monthly
increments, resulting in a decrease in the fee from 0.14% to 0.13%
annually.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Liberty Funds
Distributor, Inc., formerly Liberty Financial Investments, Inc. (the
Distributor), a subsidiary of the Adviser, is the Fund's principal
underwriter. For the six months ended May 31, 1998, the Fund has been
advised that the Distributor retained net underwriting discounts of
$14,762 on sales of the Fund's Class A shares and received contingent
deferred sales charges (CDSC) of $244,623 and $397 on Class B and Class
C share redemptions respectively.
The Fund has adopted a 12b-1 plan which requires the payment of a
service fee to the Distributor equal to 0.25% annually of the Fund's net
assets as of 20th of each month. The plan also requires the payment of a
distribution fee to the Distributor equal to 0.75%, annually, of the
average net assets attributable to Class B and Class C shares. The
Distributor has voluntarily agreed, until further notice, to waive a
portion of the Class C share distribution fee so that it does not exceed
0.60% annually.
The CDSC and the fees received from the 12b-1 plan are used principally
as repayment to the Distributor for amounts paid by the Distributor to
dealers who sold such shares.
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.
29
<PAGE>
Notes to Financial Statements/May 31, 1998
NOTE 4. PORTFOLIO INFORMATION
Investment activity: During the six months ended May 31, 1998, purchases
and sales of investments, other than short-term obligations were
$32,887,231 and $36,619,323, respectively.
Unrealized appreciation (depreciation) at May 31, 1998, based on cost of
investments for federal income tax purposes was:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation $ 13,598,109
Gross unrealized depreciation (1,944,792)
---------------
Net unrealized appreciation $ 11,653,317
===============
</TABLE>
CAPITAL LOSS CARRYFORWARDS: At November 30, 1997, 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>
1998 $ 590,000
1999 364,000
2000 302,000
2002 1,731,000
2003 2,383,000
2005 1,526,000
------------
$ 6,896,000
============
</TABLE>
The loss carryforwards expiring in 1998 and 1999 were acquired in the
merger with Colonial VIP High Yield Municipal Bond Fund.
Expired capital loss carryforwards, if any, are recorded as a reduction
of capital paid in.
To the extent loss carryforwards are used to offset any future realized
gains, it is unlikely that such gains would be distributed since they
may be taxable to shareholders as ordinary income.
OTHER: There are certain 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 invest in 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 the 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,
30
<PAGE>
Notes to Financial Statements/May 31, 1998
(2) inability to close out a position 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 variation margin 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, 1998.
31
<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
---------------------------------------------
1998
Class A Class B Class C
Net asset value - --------- ----------- -----------
<S> <C> <C> <C>
Beginning of period $10.340 $ 10.340 $ 10.340
------- ---------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.286 0.247 0.255(b)
Net realized and
unrealized gain 0.169 0.169 0.169
------- ---------- ---------
Total from Investment
Operations 0.455 0.416 0.424
------- ---------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.285) (0.246) (0.254)
In excess of net
investment income - - -
------- ---------- ---------
Total Distributions Declared
to Shareholders (0.285) (0.246) (0.254)
------- ---------- ---------
Net asset value -
End of period $10.510 $ 10.510 $ 10.510
======= ========== =========
Total return (d) 4.44%(e) 4.05%(e) 4.13%(e)
======= ========== =========
RATIOS TO AVERAGE NET ASSETS
Expenses (f) 1.08%(g) 1.83%(g) 1.68%(b)(g)
Net investment income (f) 5.44%(g) 4.69%(g) 4.84%(b)(g)
Portfolio turnover 17%(e) 17%(e) 17%(e)
Net assets at end
of period (000) $58,459 $ 134,313 $ 814
</TABLE>
(a) Class C shares were initially offered on August 1, 1997. Per share
amounts reflect activity from that date.
(b) Net of fees waived by the Distributor which amounted to $0.016 per
share and 0.15% (annualized).
(c) The amount shown for a share outstanding does not correspond with the
aggregate net gain on investments for the period due to the timing of
sales and repurchases of Fund shares in relation to fluctuating market
values of the investments of the Fund.
(d) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(e) Not annualized.
32
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
<TABLE>
<CAPTION>
Year ended November 30
-----------------------------------------------
1997
Class A Class B Class C (a)
-------- -------- -----------
<S> <C> <C>
$ 10.160 $ 10.160 $ 10.320
-------- --------- -----------
0.592 0.516 0.176
0.188 0.188 0.018 (c)
======== ========= ===========
0.780 0.704 0.194
======== ========= ===========
(0.594) (0.518) (0.174)
(0.006) (0.006) -
-------- --------- -----------
(0.600) (0.524) (0.174)
-------- --------- -----------
$ 10.340 $ 10.340 $ 10.340
======== ========= ===========
7.95% 7.15% 1.90% (e)
======== ========= ===========
1.11% 1.86% 1.72% (g)
5.83% 5.08% 5.14% (g)
23% 23% 23%
$ 52,847 $ 142,287 $ 341
</TABLE>
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(g) Annualized.
33
<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
----------------------------------------------------------
1996 1995
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 10.230 $ 10.230 $ 9.330 $ 9.330
--------- --------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.624 0.548 0.656 0.583
Net realized and
unrealized gain (loss) (0.051) (0.051) 0.912 0.912
--------- --------- -------- ---------
Total from Investment
Operations 0.573 0.497 1.568 1.495
--------- --------- -------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.643) (0.567) (0.668) (0.595)
--------- --------- -------- ----------
Net asset value -
End of period $ 10.160 $ 10.160 $ 10.230 $ 10.230
========= ========= ======== =========
Total return (b) 5.86% 5.07% 17.28% 16.42%
========= ========= ======== =========
RATIOS TO AVERAGE NET ASSETS
Expenses 1.10%(d) 1.85%(d) 1.17%(d) 1.92%(d)
Net investment income 6.19%(d) 5.44%(d) 6.67%(d) 5.92%(d)
Portfolio turnover 8% 8% 26% 26%
Net assets at end
of period (000) $ 37,420 $ 145,200 $ 17,997 $ 137,893
</TABLE>
(a) Class A shares were initially offered on September 1, 1994. 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) Not annualized.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior year's ratios are net of benefits
received, if any.
(e) Annualized.
34
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
<TABLE>
<CAPTION>
Year ended November 30
--------------------------------------------
1994 1993
Class A (a) Class B Class B
----------- ------- -------
<S> <C> <C>
$ 9.800 $ 10.320 $ 10.070
--------- --------- --------
0.188 0.605 0.609
(0.496) (1.016) 0.277
--------- --------- --------
(0.308) (0.411) 0.886
--------- --------- --------
(0.162) (0.579) (0.636)
--------- --------- --------
$ 9.330 $ 9.330 $ 10.320
========= ========= ========
(3.15%)(c) (4.10%) 9.00%
========= ========= ========
1.15%(e) 1.90% 1.94%
7.19%(e) 6.44% 5.95%
25% 25% 31%
$ 6,027 $ 113,549 $120,523
</TABLE>
35
<PAGE>
SHAREHOLDER SERVICES
TO MAKE INVESTING EASIER
Your Fund has one of the most extensive selections of shareholder services
available. Your financial advisor can help you arrange for any of these
services, or you can call Colonial Investors Service Center directly at
1-800-345-6611.
AFFORDABLE ADDITIONAL INVESTMENTS: Add to your account with as little as $50 on
most funds; $25 for an IRA account.
FREE EXCHANGES (1): Exchange all or part of your account into the same share
class of another fund distributed by Liberty Fund Distributor, Inc. by phone or
mail.
EASY ACCESS TO YOUR MONEY (1): Make withdrawals from your account by phone, by
mail or, for certain funds, by check.
ONE-YEAR REINSTATEMENT PRIVILEGE: If you need access to your money, but
then choose to return it within one year, you can reinvest in any fund
distributed by Liberty Financial Investments of the same share class without any
penalty or sales charge.
FUNDAMATIC: Make periodic investments as low as $50 from your checking account
to your Fund account.
SYSTEMATIC WITHDRAWAL PLAN (SWP): Receive monthly, quarterly or semiannual
payments via check or bank transmission. There is a $5,000 account value
required, but no minimum for the payment amount. The maximum annual withdrawal
is 12% of account balance at time SWP is established. SWPs by check are
processed on the 10th calendar day of each month unless the 10th falls on a
non-business day or the first business day of the week. If this occurs, the
processing date will be the previous business day. Dividends and capital gains
must be reinvested.
AUTOMATED DOLLAR COST AVERAGING: Transfer money on a monthly basis from any fund
with a balance of $5,000 into the same share class of up to four other funds
distributed by Liberty Funds Distributor. Minimum for each transfer is $100.
RETIREMENT PLANS: Choose from a broad range of retirement plans, including IRAs.
(1) Redemptions and exchanges are made at the next determined net asset value
after the request is received by the Transfer Agent. Proceeds may be more or
less than your original cost. The exchange privilege may be terminated at any
time. Exchanges are not available on all funds. Investors who purchase Class B
or C shares, or $1 million or more of Class A shares, may be subject to a
contingent deferred sales charge.
36
<PAGE>
SHAREHOLDER COMMUNICATIONS
TO KEEP YOU INFORMED
To make recordkeeping easy and keep you up-to-date on the performance of your
investments, you can expect to receive the following information about your
account:
TRANSACTION CONFIRMATIONS: Each time you make a purchase, sale or exchange, you
receive a confirmation statement within just a few days.
QUARTERLY STATEMENTS: Every three months, if any transactions are made that
affect your share balance, this statement reports on your account activity
during the quarter (including any reinvestment of dividends). This statement
also provides year-to-date information.
LIBERTY FUNDS DISTRIBUTOR INVESTOR OPPORTUNITIES: Mailed with your quarterly
account statements, this newsletter highlights timely investment strategies,
portfolio manager commentary and shareholder service updates.
TAX FORMS AND YEAR-END TAX GUIDE: Easy-to-use forms and timely information are
designed to make tax reporting simpler. (Usually mailed in January.)
AVERAGE COST BASIS STATEMENTS: If you sold or exchanged shares during the year,
this statement may help you calculate your gain/loss for tax purposes. (Usually
mailed in February.)
37
<PAGE>
HOW TO REACH COLONIAL
BY PHONE OR BY MAIL
BY TELEPHONE
CUSTOMER CONNECTION - 1-800-345-6611
For 24-hour account information, call from your touch-tone phone. (Rotary
callers will be automatically connected to a representative during business
hours.) A recorded message will guide you through the menu:
<TABLE>
<S> <C>
For fund prices, dividends and capital gains information............... press 1
For account information ............................................... press 2
To speak to a service representative .................................. press 3
For yield and total return information ................................ press 4
For duplicate statements or new supply of checks ...................... press 5
To order duplicate tax forms and year-end statements .................. press 6
(February through May)
To review your options at any time during your call ................... press *
</TABLE>
To speak with a shareholder services representative about your account, call
Monday to Friday, 8:00 a.m. to 8:00 p.m. ET, and Saturdays from February through
mid-April, 10:00 a.m. to 2:00 p.m. ET.
COLONIAL TELEPHONE TRANSACTION DEPARTMENT - 1-800-422-3737
To purchase, exchange or sell shares by telephone, call Monday to Friday, 9:00
a.m. to 7:00 p.m. ET. Transactions received after the close of the New York
Stock Exchange will receive the next business day's closing price.
LITERATURE - 1-800-426-3750
To request literature on any fund distributed by Liberty Funds Distributor, call
Monday to Friday, 8:30 a.m. to 6:30 p.m. ET.
BY MAIL
COLONIAL INVESTORS SERVICE CENTER, INC.
P.O. BOX 1722
BOSTON, MA 02105-1722
38
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial High Yield Municipal Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial High Yield Municipal Fund mails one shareholder report to each
shareholder address. If you would like more than one report, please call
Colonial at 1-800-426-3750 and additional reports will be sent to you.
This report has been prepared for shareholders of Colonial High Yield Municipal
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 and with the most
recent copy of our performance update.
39
<PAGE>
TRUSTEES
ROBERT J. BIRNBAUM
Consultant (formerly Special Counsel, Dechert, Price & Rhoads; President and
Chief Operating Officer, New York Stock Exchange, Inc.; President, American
Stock Exchange, Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
WILLIAM E. MAYER
Partner, Development Capital, L.L.C. (formerly Dean, College of Business and
Management, University of Maryland; Dean, Simon Graduate School of Business,
University of Rochester; Chairman and Chief Executive Officer, CS First Boston
Merchant Bank; and President and Chief Executive Officer, The First Boston
Corporation)
JAMES L. MOODY, JR.
Retired (formerly Chairman of the Board and Chief Executive Officer, Hannaford
Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
ROBERT L. SULLIVAN
Retired Partner, KPMG Peat Marwick LLP (formerly Management Consultant, Saatchi
and Saatchi Consulting Ltd. and Principal and International Practice Director,
Management Consulting, Peat Marwick Main & Co.)
[LIBERTY LOGO] LIBERTY (C) 1998
COLONIAL FUNDS - STEIN ROE ADVISOR FUNDS - NEWPORT FUNDS
Liberty Funds Distributor, Inc. (C) 1998
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
Visit us at www.libertyfunds.com
HM-03/401F-0598 (7/98) 98/691
