<PAGE>
LETTER FROM THE PRESIDENT
- --------------------------------------------------------------------------------
Dear Shareholder:
I am pleased to present Colonial Michigan Tax-Exempt Fund's annual
report for the 12 months ended January 31, 1995. The Fund pursues its
objective through investments primarily in investment-grade Michigan municipal
bonds.
<TABLE>
<CAPTION>
FUND PERFORMANCE (2/1/94 - 1/31/95)1
- ----------------------------------------------------------
CLASS A CLASS B
INCEPTION 9/26/86 8/4/92
- ----------------------------------------------------------
<S> <C> <C>
Distributions declared
per share2 $0.401 $0.350
- ----------------------------------------------------------
SEC yield on 1/31/95 5.69% 5.22%
- ----------------------------------------------------------
Taxable-equivalent yield
on 1/31/95, at the
maximum offering price 10.20% 9.35%
- ----------------------------------------------------------
12-month total return, assuming
reinvestment of all distributions
and no sales charge or CDSC -3.66% -4.39%
- ----------------------------------------------------------
Net asset value per share
on 1/31/95 $6.66 $6.66
- ----------------------------------------------------------
</TABLE>
ECONOMIC/MARKET OVERVIEW
The pace of economic growth during the fiscal year was stronger than
expected, as demonstrated by the preliminary 1994 gross domestic product of
4.0%. This activity generated renewed concerns about inflation, prompting the
Federal Reserve Board to raise short-term interest rates six times to keep
inflation under control. The yield on the bellwether 30-year Treasury bond
also moved higher, increasing from 6.26% to 7.70% from the beginning to the end
of the period, and long-term tax-exempt bonds followed suit.
The automotive industry was one of the biggest beneficiaries of the
recovery in the national economy. While Michigan's dependence on this sector
is a source of concern during periods of economic weakness, over the course of
the fiscal year this relationship helped jump-start the state's economy. This
was reflected in the state's unemployment rate, which declined from 8.0% at the
end of 1993 to 4.5% in 1994. As more people returned to work, the state's tax
revenues increased. As a result, the overall credit quality of Michigan's
bonds improved. This development was recognized by Standard & Poor's
Corporation (S&P), which revised its estimate of Michigan's economic outlook
from negative to stable.
Another promising development has been the improving economic prospects
of the City of Detroit. Detroit was designated a target city under the federal
government's empowerment zone program. The city will receive a $100 million
grant, to be administered over 10 years. Among the more than 80 projects
scheduled to be funded with this money are the conversion of the city's east
side into a manufacturing center and the development of the Cass Corridor into
a model "comeback" neighborhood. The city is also benefiting from the
initiatives of its new mayor, Dennis Archer. He is working with private
industry to finance additional grants that will support a variety of civic
development projects.
[PHOTO]
John A. McNeice, Jr.
President
INVESTMENT STRATEGY
Management's strategy was to remain fully invested at all times, with
assets allocated in a diverse selection of Michigan municipal bonds. On
January 31, the Fund owned 73 individual issues in 12 public sectors. More than
95% of the securities in the portfolio were rated investment grade, with
approximately 41% rated Aaa, the highest quality rating available.
Several steps were taken to reduce the impact of interest rate
volatility. Investments were focused on higher quality securities. These
performed especially well as the gap between higher and lower quality bonds
widened toward the end of the fiscal year. The Fund also invested on a
selective basis in lower-rated and non-rated bonds. Because of their shorter
durations, these securities may be less sensitive to fluctuating interest rates
than some other municipal bonds.
Colonial management is optimistic about the long-term prospects for the
municipal bond market. For further information about how you can take
advantage of additional tax-exempt investment opportunities offered by
Colonial, please contact your full-service financial adviser or call Colonial
at 1-800-426-3750.
Sincerely,
/S/
John A. McNeice, Jr.
President
March 10, 1995
1Refer to the footnote on page two.
2$0.011 per share will be treated as taxable income.
1
<PAGE>
REPORT FROM COLONIAL MANAGEMENT
============================================================================
During Colonial Michigan Tax-Exempt Fund's fiscal year ended January 31,
1995, developments in the municipal bond market presented mixed messages to
investors. Like most fixed-income investments, these securities felt the
impact of rising interest rates. As prices declined, yields for all
municipal bonds generally increased.
Although returns in the municipal bond market were lower than we would have
liked, municipal bonds still performed better than comparable U.S. Treasury
securities. For example, during the fiscal year the yield for a sample
long-term municipal security with a Aaa rating -- the highest quality rating
available -- increased by 1.2 percentage points, from 5.02% to 6.22%. Although
this was a relatively sharp increase, compared to Treasury securities the rise
in municipal yields was quite moderate. Over the same period, the yield for a
comparable Treasury bond increased by almost 1.5 percentage points.
Despite the higher interest rates that plagued municipal bonds, there were
some positive developments in the market's supply/demand dynamic. In fact,
over the long term, these developments should offset the negative impact from
1994's interest rate increases.
SUPPLY AND DEMAND
As interest rates moved higher, the refinancing activity that had generated
record volumes of municipal securities in 1992 and 1993 subsided -- during 1994
Michigan's new issue supply was down 49.1%. Lead Portfolio Manager Brian
Hartford believes this trend will continue in 1995 -- supply is expected to drop
to $2.7 billion, down from $7.3 billion in 1993. Low supply should be
complemented by strong demand for tax-exempt securities. The combination of
coupon payments and maturing bonds will generate more than $200 billion (out of
a total of approximately $1.2 trillion in municipal bonds currently outstanding
in the market) that will likely be reinvested in the municipal market. This
supply/demand dynamic should have a favorable impact on prices.
INVESTMENT OBJECTIVE
The Fund's Trustees recently approved modifying your Fund's investment
objective to more precisely describe the Fund's investment goals and approach.
Please note that the Fund's manager and fundamental policies remain unchanged.
As of 5/31/95, the Fund will seek as high a level of after-tax total return, as
is consistent with prudent risk, by pursuing current income exempt from federal
and Michigan personal income tax and opportunities for long-term appreciation
from a portfolio primarily invested in investment-grade municipal bonds. The
Fund's shares are intended to be exempt from Michigan's intangibles tax.
- ------------------------------------------------------------------------------
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/95
<CAPTION>
CLASS A CLASS B
NAV MOP NAV W/CDSC
<S> <C> <C> <C> <C>
1 year -3.66% -8.24% -4.39% -8.92%
5 years 6.79% 5.75% -- --
Since inception 5.75% 5.14% 3.34% 2.24%
- -------------------------------------------------------------------------------
</TABLE>
<TABLE>
COMPARISON OF THE CHANGE IN VALUE OF $10,000
Hypothetical investment in Class A shares of Colonial Michigan
Tax-Exempt Fund, the Lehman Brothers Municipal Bond Index, and
the Lehman Brothers 20-year Municipal Bond Index
LEHMAN 20-YEAR: $19,281
LEHMAN MUNICIPAL: $18,373
CLASS A NAV: $15,957
CLASS A MOP: $15,199
<CAPTION>
CNYTEF MOP NAV LEHMAN 20-YEAR
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
9/86 9525 10000 10000 10000
12/87 9332 9797 10500 10418
12/88 10346 10862 11566 11815
12/89 11138 11693 12814 13201
12/90 11732 12317 13748 14141
12/91 13221 13880 15418 15889
12/92 14344 15059 16777 17509
12/93 16095 16898 18836 20025
12/94 14829 15568 17862 18556
</TABLE>
The Lehman Brothers Municipal Bond Index and The Lehman Brothers 20-Year
Municipal Bond Index are Unmanaged Indexes that track the performance of the
Municipal Bond Market. A portion of the Fund's income may be subject to the
Alternative Minimum Tax. The 30-Day SEC Yield on 1/31/95, of 5.69% for Class A
Shares and 5.22% for Class B Shares reflects the Portfolio's Earning Power, Net
of Expenses, and does not include changes in Fund Price. SEC Yield on 2/28/95
was 5.45% for Class A Shares and 4.97% for Class B Shares. If the Adviser had
not borne certain Fund Expenses, Total Returns for Class A and Class B Shares
would have been lower; Yield for Class A Shares would have been 5.52%, and
Yield for Class B Shares would have been 5.04%. Taxable-Equivalent Yields are
based on the Maximum Combined 44.2% Federal and Michigan Income Tax Rates.
Past performance cannot predict future results. Return 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) Return does not
include Sales Charges or Contingent Deferred Sales Charges (CDSC). Maximum
Offering Price (MOP) return includes the Maximum Sales Charge Of 4.75%. The
CDSC Return reflects the Applicable Contingent Deferred Sales Charge (One Year
5.00%, since Inception 3.00%). Performance for different Share Classes will
vary based on differences in Sales Charges and Fees associated with each
Class.
2
<PAGE>
INVESTMENT PORTFOLIO (IN THOUSANDS) JANUARY 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - 98.1% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
EDUCATION - 13.2%
Brighton Area School District, Series 1,
5.250% 05/01/14(a). . . . . . . $ 500 $ 438
Central University,
5.500% 10/01/15(a). . . . . . . 1,300 1,170
Romulus Township School District,
Series 1993,
(b) 05/01/21. . . . . . . . . 2,075 368
State Higher Education Facilities
Authority, Aquinas College,
Series 1991,
7.350% 05/01/11. . . . . . . . . 1,000 1,113
University of Michigan,
Major Capital Projects, Series 1993-A,
5.500% 04/01/12. . . . . . . . . 475 444
Wayne State University,
Series 1993,
5.650% 11/15/15(a). . . . . . . 750 684
Western Michigan University:
Series 1993-A,
5.500% 07/15/16. . . . . . . . . 1,250 1,122
Series A,
5.000% 07/15/21. . . . . . . . . 2,500 2,031
-----
7,370
- -------------------------------------------------------------------------------
ELECTRIC - 7.8%
Commonwealth of Puerto Rico,
Electric Power Authority, Series T,
5.500% 07/01/20. . . . . . . . . 1,000 861
Grand Haven, Series 1993,
5.250% 07/01/13(a). . . . . . . 1,355 1,182
St. Clair County Economic
Development Corp., Detroit Edison Co.,
Series 1993-A,
6.400% 08/01/24(a). . . . . . . 1,000 994
State Public Power Agency,
Belle River Project, Series 1993-A,
5.500% 01/01/13. . . . . . . . . 500 449
State Strategic Fund,
Pollution Control Project,
Series 1994-AA,
5.875% 04/01/24(a). . . . . . . 1,000 885
-----
4,371
- -------------------------------------------------------------------------------
GENERAL OBLIGATIONS - 20.8%
Chippewa Valley Schools,
General Obligation, Series 1993,
5.000% 05/01/21(a). . . . . . . 2,500 2,044
Clintondale Community School:
5.250% 05/01/15. . . . . . . . . 2,000 1,712
5.750% 05/01/16. . . . . . . . . 1,000 910
Detroit, General Obligation,
Series 1988-A,
7.875% 04/01/08. . . . . . . . . 750 782
Grand Rapids Community College,
5.000% 05/01/14. . . . . . . . .$ 770 $ 637
Kent County, General Obligation,
Series 1987,
8.400% 11/01/10. . . . . . . . . 750 808
Okemos Public School District:
Series 1993,
(b) 05/01/12(a). . . . . . . 500 166
(b) 05/01/18(a). . . . . . . 1,700 376
Pontiac, General Obligation,
Series 1987,
8.300% 06/01/99. . . . . . . . . 250 268
Romulus Township School District:
Series 1993,
(b) 05/01/17. . . . . . . . . 2,580 610
(b) 05/01/18(a). . . . . . . 3,985 887
South Lyon Community Schools,
Series 1992,
6.375% 05/01/18. . . . . . . . . 1,500 1,470
Warren Economic Development Corp.,
Autumn Woods Project, Series 1992,
6.900% 12/20/22. . . . . . . . . 500 511
Woodhaven School District,
6.000% 05/01/17(a). . . . . . . 500 476
------
11,657
- -------------------------------------------------------------------------------
HOSPITALS & HEALTH CARE - 15.6%
Dickinson County Memorial Hospital,
8.125% 11/01/24. . . . . . . . . 550 555
Kalamazoo Hospital Finance Authority:
Borgess Medical Center,
Series 1994-A,
5.250% 06/01/17(a). . . . . . . 1,400 1,181
Bronson Methodist Hospital,
Series 1992-A,
6.250% 05/15/12. . . . . . . . . 1,500 1,421
Royal Oak Hospital Finance Authority,
William Beaumont Hospital,
Series 1993-G,
5.250% 11/15/19. . . . . . . . . 1,000 825
Saginaw Hospital Finance Authority,
General Hospital, Series 1989,
7.625% 10/01/19. . . . . . . . . 175 179
State Hospital Finance Authority:
Central Michigan Community Hospital,
Series 1993-A,
6.000% 10/01/08. . . . . . . . . 500 466
Crittenton Hospital, Series 1992-A,
6.700% 03/01/07. . . . . . . . . 750 758
Daughters of Charity-Providence,
Series 1991,
7.000% 11/01/21. . . . . . . . . 1,000 1,021
</TABLE>
See notes to investment portfolio.
3
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
HOSPITALS AND HEALTH CARE - CONT.
Detroit Medical Center:
Series 1988-A,
8.125% 08/15/12. . . . . . . $ 50 $ 53
Series 1993-A,
6.250% 08/15/13. . . . . . . 500 466
Henry Ford Health System,
Series 1992-A,
5.750% 09/01/17. . . . . . . 2,000 1,825
-----
8,750
- -------------------------------------------------------------------------------
HOUSING - 13.1%
MULTI-FAMILY - 11.1%
Grand Rapids Building Authority,
Series 1993,
5.500% 04/01/13. . . . . . . 1,000 914
Grand Rapids Housing Finance
Authority, Multi-family Housing,
Series A,
7.625% 09/01/23. . . . . . . 1,500 1,605
Redford Township Building Authority,
6.500% 11/01/13. . . . . . . 675 657
State Housing Development Authority:
Multi-family Housing,
6.850% 06/01/26. . . . . . . 2,000 1,965
Series 1987-A,
8.375% 07/01/19(a) . . . . . 1,000 1,038
-----
6,179
SINGLE-FAMILY - 2.0%
State Housing Development Authority:
Rental Housing:
Series 1990-A,
7.700% 04/01/23. . . . . . . 500 512
Series 1991-B,
7.050% 10/01/12. . . . . . . 225 231
Single-family Housing:
Series 1989-A,
7.700% 12/01/16. . . . . . . 225 233
Series 1989-B,
8.000% 06/01/18. . . . . . . 145 148
-----
1,124
- -------------------------------------------------------------------------------
IN-SUBSTANCE DEFEASED (C) - 1.6%
Bloomingdale Public School
District No. 16,
7.125% 05/01/19. . . . . . . 300 318
Kent Hospital Finance Authority,
Butterworth Hospital, Series 1990-A
7.250% 01/15/12. . . . . . . 250 273
Rockford Public Schools,
Series 1990,
7.375% 05/01/19. . . . . . . 250 272
-----
863
- -------------------------------------------------------------------------------
NURSING HOMES - 1.1%
Cheboygan County Economic
Development Corp.
Metro Health Foundation Project
10.000% 11/01/22. . . . . . . $600 $629
- -------------------------------------------------------------------------------
POLLUTION CONTROL REVENUE - 0.8%
Monroe County,
North Star Steel Co., Series A,
6.875% 07/01/08. . . . . . . 470 471
- -------------------------------------------------------------------------------
PUBLIC FACILITY & IMPROVEMENT - 16.2%
Detroit Convention Facilities,
Cobo Hall Expansion Project,
5.250% 09/30/12. . . . . . . 1,000 851
Grand Rapids & Kent Counties
Joint Building Authority,
6.000% 10/01/10. . . . . . . 500 474
State Building Authority,
Series 1991-2,
6.250% 10/01/20. . . . . . . 3,000 2,914
Series 1992-2A,
6.250% 10/01/12. . . . . . . 500 492
State Municipal Bond Authority,
Local Government Loan Project:
(b) 05/01/19. . . . . . . 2,000 408
(b) 05/01/20. . . . . . . 1,855 350
Series 1986-A,
7.700% 11/01/10(a) . . . . . 200 216
Series 1992-D,
6.650% 05/01/12. . . . . . . 1,000 1,025
Virgin Islands Public Finance
Authority, Series 1992-A,
7.000% 10/01/02. . . . . . . 125 130
Wayne County, Detroit Metropolitan Airport:
Series 1993-B,
5.250% 12/01/13(a) . . . . . 1,500 1,283
Series 1994-B,
6.125% 12/01/24(a) . . . . . 1,000 939
-----
9,082
- -------------------------------------------------------------------------------
REDEVELOPMENT AGENCIES & TAX ALLOCATION - 1.4%
Battle Creek, Downtown Tax Revenue,
7.650% 05/01/22. . . . . . . 750 770
- -------------------------------------------------------------------------------
TRANSPORTATION - 0.9%
Wayne County, Detroit Metropolitan
Airport, Series 1990-A,
7.000% 12/01/20. . . . . . . 500 524
- -------------------------------------------------------------------------------
WASTE DISPOSAL- 1.5%
Strategic Fund Limited,
Great Lakes Pulp & Fibre Project,
10.250% 12/01/16. . . . . . . 500 514
State Strategic Fund,
Blue Water Fiber Project, Series 1994,
8.000% 01/01/12. . . . . . . 360 344
-----
858
- -------------------------------------------------------------------------------
<FN>
See notes to investment portfolio.
</TABLE>
4
<PAGE>
INVESTMENT PORTFOLIO - CONTINUED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
WATER & SEWER - 2.7%
Monroe County,
Frenchtown Charter, Series 1991,
5.750% 05/01/11................ $ 225 $ 213
Oakland County, Pebble Creek
Drainage District,
5.000% 05/01/11................. 300 254
Western Townships Utilities
Authority, Sewer Systems & Disposal,
Series 1989,
8.200% 01/01/18................. 1,000 1,065
------
1,532
- ------------------------------------------------------------------------
OTHER - 1.4%
Detroit Economic Development
Corp., E.H. Associates
Limited Partnership,
7.000% 06/01/12................. 750 779
- ------------------------------------------------------------------------
Total investments (cost $55,614) (d) 54,959
- ------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 1.1%
- ------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (e)
IL Health Facilities Authority,
Memorial Medical Center, Series C,
4.250% 01/01/16................. 200 200
Grand Rapids
4.200% 01/01/20................. 400 400
- ------------------------------------------------------------------------
Total short-term obligations 600
- ------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET - 0.8% 429
- ------------------------------------------------------------------------
NET ASSETS - 100.0% $ 55,988
- ------------------------------------------------------------------------
Notes to investment portfolio:
(a) These securities, or a portion thereof, with a total market value
of $13,258, are being used to collateralize open futures contracts.
(b) Zero coupon bond.
(c) 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.
(d) Cost for federal income tax purposes is the same.
(e) 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
January 31,1995.
Short futures contracts open at January 31,1995:
Par value Unrealized
covered Expiration depreciation
Type by contracts month at 1/31/95
- -------------------------------------------------------------------------------
Treasury bond $10,900 March $359
- -------------------------------------------------------------------------------
See notes to financial statements.
5
<PAGE>
FINANCIAL STATEMENTS
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS & LIABILITIES
January 31, 1995
(in thousands except for per share amounts and footnote)
- --------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments at value (cost $55,614)........................ $54,959
Short-term investments..................................... 600
-------
55,559
Receivable for:
Interest............................ $ 823
Fund shares sold..................... 26
Other.................................. 17 866
------ -------
Total assets...................................... 56,425
LIABILITIES
Payable for:
Distributions......................... 265
Fund shares repurchased............... 111
Variation margin on futures........... 51
Payable to adviser...................... 4
Accrued:
Deferred Trustee fees................. 2
Other................................. 4
------
Total liabilities................................... 437
-------
NET ASSETS................................................ $55,988
=======
Net asset value & redemption price per share -
Class A ($41,844/6,282)................................. $ 6.66
=======
Maximum offering price per share - Class A
($6.66/0.9525)........................................... $ 6.99*
=======
Net asset value & offering price per share -
Class B ($14,144/2,123)................................. $ 6.66
=======
COMPOSITION OF NET ASSETS
Capital paid in.......................................... $58,190
Undistributed net investment income...................... 134
Accumulated net realized loss............................ (1,322)
Net unrealized depreciation on:
Investments............................................ (655)
Open futures contracts................................. (359)
-------
$55,988
=======
</TABLE>
<TABLE>
- --------------------------------------------------------------------------------
<S> <C> <C>
STATEMENT OF OPERATIONS
Year ended January 31, 1995
(in thousands)
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest.................................................. $ 3,851
EXPENSES
Management fee......................... $ 326
Service fee............................ 10
Distribution fee - Class B............. 112
Transfer agent......................... 96
Bookkeeping fee........................ 30
Trustees fees.......................... 12
Custodian fee.......................... 5
Audit fee.............................. 31
Legal fee.............................. 5
Registration fees...................... 14
Reports to shareholders................ 3
Other.................................. 8
------
652
Fees waived by the adviser............. (185) 467
------ -------
Net investment income....................... 3,384
-------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments............................ (54)
Closed futures contracts............... 458
------
Net realized gain....................................... 404
Net unrealized depreciation
during the period on:
Investments........................... (5,944)
Open futures contracts................ (359)
------
Net unrealized depreciation............................ (6,303)
-------
Net loss............................................. (5,899)
-------
Net decrease in net assets from
operations............................................. $(2,515)
=======
<FN>
* On sales of $50,000 or more the offering price is reduced.
</TABLE>
See notes to financial statements.
6
<PAGE>
FINANCIAL STATEMENTS-CONTINUED
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
(in thousands)
- --------------------------------------------------------------------------------
Year ended January 31
---------------------
1995 1994
--------- --------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income............................ $ 3,384 $ 2,857
Net realized gain(loss).......................... 404 (412)
Net unrealized appreciation (depreciation)....... (6,303) 2,921
--------- --------
Net increase (decrease) from operations.......... (2,515) 5,366
Distributions
From net investment income - Class A............. (2,541) (2,233)
From net investment income - Class B............. (770) (522)
--------- --------
(5,826) 2,611
--------- --------
Fund share transactions
Receipts for shares sold - Class A............... 4,363 9,471
Value of distributions reinvested - Class A...... 1,397 1,256
Cost of shares repurchased - Class A............. (5,158) (3,248)
--------- --------
602 7,479
--------- --------
Receipts for shares sold - Class B............... 3,284 9,510
Value of distributions reinvested - Class B...... 379 201
Cost of shares repurchased - Class B............. (3,051) (1,895)
--------- --------
612 7,816
--------- --------
Net increase from Fund share transactions..... 1,214 15,295
--------- --------
Total increase (decrease)................. (4,612) 17,906
Net assets
Beginning of period.............................. 60,600 42,694
--------- --------
End of period (including undistributed
net investment income of $134 and $58,
respectively)................................... $ 55,988 $ 60,600
========= ========
Number of Fund shares
Sold - Class A................................... 638 1,319
Issued for distributions reinvested - Class A.... 208 175
Repurchased - Class A............................ (773) (452)
--------- --------
73 1,042
--------- --------
Sold - Class B................................... 480 1,322
Issued for distributions reinvested - Class B.... 56 34
Repurchased - Class B............................ (461) (265)
--------- --------
75 1,091
--------- --------
Net increase in shares outstanding............ 148 2,133
Outstanding at
Beginning of period.............................. 8,257 6,124
--------- --------
End of period.................................... 8,405 8,257
========= ========
See notes to financial statements.
7
<PAGE>
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. ACCOUNTING POLICIES
Colonial Michigan Tax-Exempt Fund (the Fund), a series of Colonial
Trust V, is a Massachusetts business trust, registered under the Investment
Company Act of 1940, as amended, as amended, as a non-diversified, open-end,
management investment company. 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 Class A shares when they
have been outstanding approximately eight years. The following significant
accounting policies are consistently followed by the Fund in the preparation of
its financial statements and conform to generally accepted accounting
principles.
- --------------------------------------------------------------------------------
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 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 or sold.
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 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 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.
- --------------------------------------------------------------------------------
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE
Colonial Management Associates, Inc. (the Adviser) is the investment
adviser of the Fund and furnishes accounting and other services and office
facilities for a monthly fee. Through June 30, 1994,
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
this fee was 0.60% annually of the Fund's average net assets. Effective July 1,
1994, the monthly fee is based on each Fund's pro rata portion of the combined
average net assets of Trust V as follows:
Average Net Assets Annual Fee Rate
----------------------- -------------------
First $1 billion 0.55%
Next $1 billion 0.50%
Over $2 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
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
The Adviser, through Colonial Investment Services, Inc. (the
Distributor), is the Fund's principal underwriter. During the year ended
January 31, 1995, the Distributor retained net underwriting discounts of
$11,936 on sales of the Fund's Class A shares and received contingent deferred
sales charges (CDSC) of $67,771 on Class B share redemptions."
The Fund has adopted a 12b-1 plan which 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. Effective December 1, 1994, the plan
was amended to include payment by the Fund of a service fee applicable to both
Class A and Class B, to the Distributor as follows:
Valuation of shares Annual
outstanding on the 20th of Fee
each month which were issued Rate
- ------------------------------------------- ----------
Prior to November 30, 1994................. 0.10%
On or after December 1, 1994............... 0.25%
The CDSC and the fees received from the 12b-1 plan are used principally
as repayment to the Distributor for amounts paid by the Distributor to dealers
who sold such shares.
- --------------------------------------------------------------------------------
EXPENSE LIMITS
The Adviser has agreed, until further notice to waive fees and bear
certain Fund expenses to the extent that total expenses (exclusive of service
and distribution fees, brokerage commissions, interest, taxes, and extraordinary
expenses, if any) exceed 0.60% annually of the Fund's average net assets.
- --------------------------------------------------------------------------------
OTHER
The Fund pays no compensation to its officers, all of whom are employees
of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan
which may be terminated at any time. Obligations of the plan will be paid
solely out of the Fund's assets.
- --------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION
During the year ended January 31, 1995, purchases and sales of
investments, other than short-term obligations, were $24,345,863 and
$22,869,086, respectively.
Unrealized appreciation (depreciation) at January 31, 1995, based on
cost of investments for both financial statement and federal income tax purposes
was:
Gross unrealized appreciation.................... $1,172,513
Gross unrealized depreciation..................... (1,827,160)
-----------
Net unrealized depreciation.................... $ (654,647)
===========
- --------------------------------------------------------------------------------
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS - continued
================================================================================
CAPITAL LOSS CARRYFORWARDS
At January 31, 1995, capital loss carryforwards available (to the
extent provided in regulations) to offset future realized gains were
approximately as follows:
Year of Capital loss
expiration carryforward
------------ --------------
1996........ $910,000
1997........ 131,000
1998........ 49,000
1999........ 98,000
2003........ 196,000
--------------
$1,384,000
==============
Expired capital loss carryforwards, if any, are recorded as a
reduction of capital paid in.
To the extent loss carryforwards are used to offset any future
realized gains, it is unlikely that such gains would be distributed since they
may be taxable to shareholders as ordinary income.
- --------------------------------------------------------------------------------
OTHER
There are certain 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 sells municipal and Treasury bond futures contracts to manage
overall portfolio interest rate exposure and not for trading purposes. The
use of futures contracts involves certain risks, which include (1) imperfect
correlation between the price movement of the contracts 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 contract 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 initial or variation margin recorded in the Fund's Statement of
Assets and Liabilities at any given time.
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Approximately $0.390 of Class A and $0.339 of Class B distributions
will be treated as exempt income for federal income tax purposes and $0.011 of
the distributions will be treated as distributions from taxable income.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are as follows:
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year ended January 31
==============================================================================================
1995 1994 1993 1992 1991
================== ================== ================== ======= =======
Class A Class B Class A Class B Class A Class B (b) Class A Class A
======= ======= ======= ======= ======= ======= ======= =======
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - Beginning
of period..................... $ 7.340 $ 7.340 $ 6.970 $ 6.970 $ 6.730 $6.950 $6.520 $6.520
------------------ ------------------ ------------------ ------- -------
Income (loss) from investment
operations:
Net investment income (a)..... 0.410 0.359 0.404 0.351 0.405 0.167 0.432 0.441
Net realized and unrealized
gain (loss) on investments... (0.689) (0.689) 0.356 0.356 0.250 0.029 0.208 (0.001)
------------------ ------------------ ------------------ ------- -------
Total from investment
operations................... (0.279) (0.330) 0.760 0.707 0.655 0.196 0.640 0.440
------------------ ------------------ ------------------ ------- -------
Less distributions declared
to shareholders:
From net investment income.. (0.401) (0.350) (0.390) (0.337) (0.407) (0.168) (0.430) (0.440)
In excess of net
investment income......... -- -- -- -- (0.008) (0.008) -- --
------------------ ------------------ ------------------ ------- -------
Total distributions
declared to shareholders..... (0.401) (0.350) (0.390) (0.337) (0.415) (0.176) (0.430) (0.440)
------------------ ------------------ ------------------ ------- -------
Net asset value - End of period $ 6.660 $ 6.660 $ 7.340 $ 7.340 $ 6.970 $6.970 $6.730 $6.520
================== ================== ================== ======= =======
Total return (c)(d)............ (3.66)% (4.39)% 11.16% 10.36% 10.04% 0.98% (f) 10.12% 7.01%
================== ================== ================== ======= =======
Ratios to average net assets:
Expenses...................... 0.62%(e) 1.37% (e) 0.66% 1.41% 0.88% 1.63% (g) 0.95% 1.00%
Net investment income......... 6.08% 5.33% 5.61% 4.86% 5.86% 5.11% (g) 6.50% 6.79%
Fees and expenses waived
or borne by the adviser....... 0.32% 0.32% 0.33% 0.33% 0.32% 0.32% 0.35% 0.40%
Portfolio turnover............. 40% 40% 7% 7% 14% 14% 5% 18%
Net assets at end of period
(000)......................... $41,844 $14,144 $45,570 $15,030 $ 36,024 $ 6,670 $28,608 $24,273
<FN>
(a) Net of fees and expenses
waived or borne by the
adviser which amounted to.. $ 0.022 $ 0.022 $ 0.024 $ 0.024 $ 0.022 $ 0.009 $0.023 $ 0.026
(b) Class B shares were initially offered on August 4, 1992. Per share amounts reflect activity from that date .
(c) Total return at net asset value assuming all distributions reinvested and no initial sales charge or CDSC.
(d) Had the adviser not waived or reimbursed a portion of expenses total return would have been reduced.
(e) Includes service fee since its inception on December 1, 1994, of 0.02% (not annualized).
(f) Not annualized.
(g) Annualized.
</TABLE>
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
- -------------------------------------------------------------------------------
TO THE TRUSTEES OF COLONIAL TRUST V AND THE SHAREHOLDERS OF COLONIAL MICHIGAN
TAX-EXEMPT FUND
In our opinion, the accompanying statement of assets and liabilities,
including the investment portfolio, and the related statements of operations
and of changes in net assets and the financial highlights present fairly, in
all material respects, the financial position of Colonial Michigan Tax-Exempt
Fund (a series of Colonial Trust V) at January 31, 1995, the results of its
operations, the changes in its net assets and the financial highlights for the
periods indicated, in conformity with generally accepted accounting principles.
These financial statements and the financial highlights (hereafter referred to
as "financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included
confirmation of portfolio positions at January 31, 1995 by correspondence with
the custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 10, 1995
12
<PAGE>
TRUSTEES
- --------------------------------------------------------------------------------
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
WILLIAM D. IRELAND, JR.
Trustee (formerly Chairman of the Board, Bank of New England - Worcester)
JOHN A. MCNEICE, JR.
Chairman of the Board, Chief Executive Officer and Director, The Colonial
Group, Inc. and Colonial Management Associates, Inc.
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
SINCLAIR WEEKS, JR.
Chairman of the Board, Reed &Barton Corporation
13
<PAGE>
- ------------------------------------------------------------------------------
[GRAPHIC]
ABOUT OUR COVER...
The symbol on the cover of this Report represents the Fund's primary investment
focus on municipal bonds.
- ------------------------------------------------------------------------------
Colonial Michigan 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.
SHAREHOLDER SERVICES AND TRANSFER AGENT
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
This material may be used with potential investors if it is preceded or
accompanied by a current Fund prospectus containing more complete information
including fees, risks, and expenses.
14
<PAGE>
LEFT BLANK INTENTIONALLY
15
<PAGE>
[LOGO]COLONIAL
MUTUAL FUNDS
[GRAPHIC]
COLONIAL
MICHIGAN
TAX-EXEMPT FUND
ANNUAL REPORT
JANUARY 31, 1995
[LOGO]COLONIAL
MUTUAL FUNDS
[RECYCLE LOGO]
[SOY INK LOGO]
COLONIAL INVESTMENT SERVICES Copy Right 1995
One Financial Center, Boston, Massachusetts 02111-2621
Printed on Recycled Paper
MI-02/639A-0195
