<PAGE>
COLONIAL
MICHIGAN TAX-EXEMPT FUND
[PICTURE]
ANNUAL REPORT
JANUARY 31, 1996
<PAGE>
COLONIAL MICHIGAN TAX-EXEMPT FUND HIGHLIGHTS
FEBRUARY 1, 1995 - JANUARY 31, 1996
INVESTMENT OBJECTIVE: Colonial Michigan Tax-Exempt Fund seeks as high a level of
after-tax total return, as is consistent with prudent risk, by pursuing current
income exempt from federal and Michigan income tax and opportunities for
long-term appreciation from a portfolio primarily invested in investment grade
municipal bonds. Fund shares are also intended to be exempt from the Michigan
intangibles tax.
THE FUND IS DESIGNED TO OFFER:
- High monthly double-tax-free income
- Long-term appreciation
- Emphasis on quality
PORTFOLIO MANAGER COMMENTARY: "In 1995 we were in the right sectors at the right
time, taking advantage of developments in communications, energy and those high
quality bonds that were tied to the U.S. Treasury market."
COLONIAL MICHIGAN TAX-EXEMPT FUND PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
Inception dates 9/26/86 8/4/92
Distributions declared per share* $ 0.382 $ 0.331
SEC yields on 1/31/96** 4.50% 3.96%
Taxable-equivalent SEC yields*** 7.81% 6.87%
12-month total returns, assuming
reinvestment of all distributions and
no sales charge or contingent deferred
sales charge (CDSC) 13.13% 12.30%
Net asset value per share at 1/31/96 $ 7.13 $ 7.13
</TABLE>
*A portion of the Fund's income may be subject to the alternative minimum tax.
**The 30-day SEC yields on January 31, 1996 reflect the portfolio's earning
power, net of expenses, expressed as an annualized percentage of the maximum
offering price per share at the end of the period. If the Adviser had not waived
or borne certain Fund expenses, SEC yields would have been lower; the yield for
Class A shares would have been 4.25% and the yield for Class B shares would have
been 3.71%.
***Taxable-equivalent SEC yields are based on the maximum effective 42.4%
federal and Michigan income tax rates.
<TABLE>
<CAPTION>
QUALITY BREAKDOWN TOP FIVE SECTORS
(as of 1/31/96) (as of 1/31/96)
<S> <C> <C> <C>
AAA ............................ 57.3% General Obligations ........ 24.9%
AA ............................. 16.1% Hospitals .................. 20.8%
A .............................. 17.5% Multi-Family Housing ....... 9.4%
BBB ............................ 3.7% Public Improvement ......... 9.0%
Non-rated ...................... 5.1% Water & Sewer .............. 8.0%
Cash & Equivalents ............. 0.3%
</TABLE>
Because the Fund is actively managed, quality and sector weightings will change.
2
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[PHOTO OF HAROLD W. COGGER, PRESIDENT]
I am pleased to present your Fund's annual report for the period ended January
31, 1996. First, however, I would like to extend my thanks to President John A.
McNeice, Jr., who is retiring this month after a career with Colonial that
spanned 40 years. We look forward to his continued involvement on the executive
committee of the board of directors at our parent company, Liberty Financial
Companies, Inc.
In my new position, I will direct Colonial's focus on the delivery of superior
investment performance over the long term. To achieve this mission, we will
continue to seek the optimal combination of talented people and effective
investment disciplines.
The receipt of your annual report is a good time to reflect on market conditions
and the performance of your Fund during the past 12 months. Falling interest
rates and minimal inflation helped the economy grow at a comfortable pace in
1995 and created a positive environment for fixed income and municipal
investments. After a difficult 1994, investors who stayed the course during 1995
were amply rewarded.
We expect slow growth and low inflation to continue in 1996, and believe that
further reductions in interest rates may take place later in the year. In the
following pages you'll find detailed information on your Fund's performance as
well as an in-depth discussion with the portfolio manager.
I am enthusiastic about -- and dedicated to achieving -- Colonial's mission of
providing you with competitive investment returns. In my new role, I look
forward to communicating with you regarding your Colonial investment.
We appreciate the opportunity to help you meet your investment goals.
Respectfully,
/s/ Harold W. Cogger
- --------------------
Harold W. Cogger
President
March 13, 1996
Because market conditions change frequently, there can be no assurance that the
trends described here will continue, come to pass, or affect Fund performance.
3
<PAGE>
PORTFOLIO MANAGEMENT REPORT
BRIAN HARTFORD is a Vice President, Quantitative Specialist and Risk Manager for
Colonial's tax-exempt investments. He is Portfolio Manager of Colonial Michigan
Tax-Exempt Fund and two other Colonial tax-exempt funds.
Q: HOW DID MUNICIPAL BONDS PERFORM DURING THE YEAR?
A: Municipal bonds had strong performance during the 12-month period. Early in
the year it became clear that the much talked about "soft landing" of the U.S.
economy had arrived, which created a positive environment for bonds. Slower
economic growth combined with low inflation led to a decline of interest rates,
which contributed to price increases in the fixed income markets. The only
significant negative factor was talk about tax reform, which slightly dampened
the price appreciation of municipal bonds relative to other fixed income
securities.
Q: WHAT FACTORS HAD THE GREATEST EFFECT ON MUNICIPAL BOND PERFORMANCE?
A: The key to higher returns in 1995 was duration. Duration is a measure that
helps determine a portfolio's exposure to changes in interest rates. The longer
the duration, the greater the potential gains and losses when interest rates
change. In last year's declining interest rate environment, bonds with longer
durations had greater gains, regardless of sector. As a result of continuing
compression of credit spreads, lower quality bonds outperformed their higher
quality counterparts.
Q: WHAT WAS YOUR INVESTMENT STRATEGY DURING THE PERIOD?
A: We remained fully invested in municipal bonds. The relatively long duration
of the Fund's portfolio, in the 9-year range, contributed to strong performance.
We extended duration during the year to take advantage of the declining interest
rate environment, and we consolidated some of our positions to increase
liquidity.
Q: HOW DID THE FUND PERFORM COMPARED TO THE LEHMAN MUNICIPAL BOND INDEX AND WHY?
A: The Fund underperformed the Lehman Municipal Bond Index, which is comprised
of long bonds representing a number of states, not just Michigan. The Fund's
Class A shares returned 13.13% for the period while the Index returned 15.06%. A
portion of the difference is attributable to the Fund's narrower range of
investments. The Fund also held a bond that missed one coupon payment and
subsequently experienced a price decline. The bond is now back on accrual and we
expect to recoup the loss over time.
Q: HOW WOULD YOU DESCRIBE THE MUNICIPAL MARKET IN MICHIGAN?
A: Strength in the automobile industry helped propel the Michigan economy over
the past few years. Recently, the state has enjoyed budget surpluses and now has
a reserve of about $1 billion and is in the best fiscal shape in years. We
expect the Michigan economy to moderate this year, in line with national trends,
but we believe the reserve combined with conservative budgetary management will
help smooth the transition to slower economic growth.
Q: WHAT IS YOUR OUTLOOK FOR 1996?
A: For the short and intermediate term, we are cautiously optimistic. Lower
interest rates, negligible inflation and a slow growing economy should con-
4
<PAGE>
tinue to have a favorable impact on the municipal market, although we do not
expect to see a repeat of last year's strong performance. We believe the
uncertainty surrounding various tax-reform proposals has already been priced
into the market, and can be viewed as a buying opportunity for investors willing
to withstand some price volatility. Going forward, we would expect to see a
greater percentage of total return derived from income rather than from price
gains. We believe that the Fund will continue to provide returns consistent with
its investment objective.
COLONIAL MICHIGAN TAX-EXEMPT FUND INVESTMENT PERFORMANCE
Change in Value of $10,000 from 9/86 (inception) to 1/96
Based on Net Asset Value (NAV) and
Maximum Offering Price (MOP) for Class A Shares
<TABLE>
<CAPTION>
Label A B C
----- --- --- ------
Label CMITEF NAV MOP Lehman
- ----- ------ --- --- ------
<S> <C> <C> <C>
1 10000 9525 10000
2 10047 9570 10172
3 10179 9696 10374
4 10099 9619 10345
5 10418 9923 10657
6 10510 10010 10709
7 10386 9892 10596
8 9577 9123 10064
9 9451 9002 10014
10 9703 9242 10308
11 9807 9341 10413
12 9778 9314 10437
13 9224 8786 10052
14 9222 8784 10088
15 9602 9146 10351
16 9755 9291 10501
17 10139 9657 10875
18 10232 9746 10990
19 10071 9593 10862
20 10145 9663 10945
21 10140 9659 10913
22 10386 9893 11073
23 10441 9945 11145
24 10433 9937 11155
25 10618 10114 11357
26 10788 10276 11557
27 10731 10221 11451
28 10870 10354 11568
29 11059 10534 11808
30 11002 10479 11673
31 10993 10471 11645
32 11168 10638 11922
33 11312 10775 12169
34 11236 10702 12334
35 11330 10791 12502
36 11270 10734 12380
37 11295 10759 12343
38 11373 10832 12494
39 11537 10989 12712
40 11567 11017 12816
41 11491 10945 12756
42 11591 11040 12870
43 11585 11035 12874
44 11436 10893 12781
45 11681 11126 13059
46 11801 11241 13174
47 11978 11409 13369
48 11735 11177 13174
49 11673 11119 13182
50 11851 11289 13421
51 12086 11512 13691
52 12116 11541 13750
53 12296 11712 13935
54 12401 11812 14057
55 12450 11859 14061
56 12652 12051 14249
57 12761 12154 14376
58 12714 12110 14362
59 12862 12251 14536
60 13010 12392 14728
61 13158 12533 14920
62 13249 12620 15054
63 13261 12631 15096
64 13550 12906 15420
65 13540 12897 15455
66 13570 12926 15460
67 13560 12916 15466
68 13651 13003 15604
69 13825 13168 15788
70 14019 13354 16052
71 14464 13777 16534
72 14308 13628 16372
73 14381 13698 16480
74 14160 13487 16317
75 14507 13818 16610
76 14746 14045 16779
77 14900 14192 16975
78 15396 14665 17589
79 15252 14527 17403
80 15365 14635 17578
81 15414 14681 17677
82 15615 14873 17972
83 15642 14899 17995
84 15910 15155 18370
85 16092 15328 18580
86 16143 15376 18615
87 16037 15275 18451
88 16378 15600 18841
89 16564 15777 19056
90 16097 15332 18562
91 15400 14688 17806
92 15497 14761 17958
93 15662 14918 18113
94 15622 14880 18002
95 15905 15149 18332
96 15980 15221 18396
97 15730 14983 18126
98 15364 14634 17804
99 15015 14302 17482
100 15403 14671 17867
101 15956 15198 18378
102 16418 15638 18912
103 16544 15758 19130
104 16502 15718 19152
105 16871 16070 19763
106 16510 15726 19590
107 16566 15779 19776
108 16791 15994 20027
109 16968 16162 20153
110 17345 16521 20446
111 17723 16881 20786
112 17950 17098 20986
113 18052 17195 21144
</TABLE>
LEHMAN
$21,145
NAV
$18,052
MOP
$17,195
9/86 1/96
A $10,000 investment in Class B shares made on 8/92 (inception) at NAV would
have been valued at $12,191 on January 31, 1996. The same investment after
deducting the applicable contingent deferred sales charge (CDSC) would have
grown to $11,891 on January 31, 1996.
AVERAGE ANNUAL TOTAL RETURNS AS OF DECEMBER 31, 1995 (MOST RECENT QUARTER END)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES
Inception 9/26/86 Inception 8/4/92
NAV MOP NAV w/CDSC
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR 16.54% 11.00% 15.68% 10.68%
- --------------------------------------------------------------------------------
5 YEARS 8.18% 7.13% -- --
- --------------------------------------------------------------------------------
SINCE INCEPTION 6.51% 5.96% 5.82% 5.05%
- --------------------------------------------------------------------------------
</TABLE>
The Lehman Brothers Municipal Bond Index is a broad-based, unmanaged index that
tracks the performance of the municipal bond market. The performance of the
Index does not reflect fees or expenses associated with an actual investment.
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. NAV return does not include sales charges
or CDSC. MOP return includes the maximum sales charge of 4.75%. The CDSC return
reflects the maximum charge of 5.00% for one year and 3.00% since inception. If
the Adviser had not waived or borne certain Fund expenses, total returns would
have been lower.
Performance for different share classes will vary based on differences in sales
charges and fees associated with each class.
5
<PAGE>
INVESTMENT PORTFOLIO
JANUARY 31, 1996 (IN THOUSANDS)
<TABLE>
<CAPTION>
MUNICIPAL BONDS - 99.2% PAR VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 6.9%
Romulus Township School District,
Series 1993:
(a) 05/01/18 $ 3,985 $ 1,191
(a) 05/01/21 2,075 513
Western Michigan University,
Series 1993-A,
5.000% 07/15/21 2,500 2,366
--------
4,070
--------
- --------------------------------------------------------------------------------------
GENERAL OBLIGATIONS - 24.9%
Big Rapids Public School District,
Series 1995,
5.625% 05/01/25 (b) 3,000 3,022
Chippewa Valley Schools,
Series 1993,
5.000% 05/01/21 2,500 2,363
Grand Ledge Public School District,
Series 1995,
5.375% 05/01/24 2,500 2,459
Grand Rapids Community College,
5.000% 05/01/14 770 721
Kent County,
Series 1987,
8.400% 11/01/10 750 807
Mona Shores School District,
Series 1995,
5.500% 05/01/14 2,400 2,430
Okemos Public School District,
Series 1993,
(a) 05/01/12 500 210
Pontiac,
Series 1987,
8.300% 06/01/99 250 267
PR Commonwealth of Puerto Rico,
Series 1995,
5.650% 07/01/15 500 529
Williamston Community School District,
Series 1996,
5.500% 05/01/25 1,725 1,785
--------
14,593
--------
- --------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
Investment Portfolio/January 31, 1996
<TABLE>
- --------------------------------------------------------------------------------------
<CAPTION>
HEALTH - 22.4% PAR VALUE
<S> <C> <C> <C> <C>
HOSPITALS - 20.8%
Dickinson County
Memorial Hospital System,
Series 1994,
8.125% 11/01/24 $ 550 $ 605
Kalamazoo Hospital Finance Authority:
Borgess Medical Center,
Series 1994-A:
5.250% 06/01/17 1,000 978
6.250% 06/01/14 (b) 1,785 1,986
Bronson Methodist Hospital,
Series 1992-A,
6.250% 05/15/12 1,500 1,568
Royal Oak Hospital Finance Authority,
William Beaumont Hospital,
Series 1993-G,
5.250% 11/15/19 2,500 2,353
Saginaw Hospital Finance Authority,
Saginaw General Hospital,
Series 1989,
7.625% 10/01/19 175 187
State Hospital Finance Authority:
Central Michigan Community Hospital,
Series 1993-A,
6.000% 10/01/08 500 514
Crittenton Hospital,
Series 1992-A,
6.700% 03/01/07 750 816
Daughters of Charity-Providence,
Series 1991,
7.000% 11/01/21 1,000 1,085
Detroit Medical Center,
1988-A,
8.125% 08/15/12 50 54
Henry Ford Health System,
Series 1992-A,
5.750% 09/01/17 2,000 2,020
--------
12,166
--------
NURSING HOMES - 1.6%
Cheboygan County Economic
Development Corp.,
Metro Health Foundation Project,
Series 1993,
10.000% 11/01/22 (c) 600 420
</TABLE>
7
<PAGE>
Investment Portfolio/January 31, 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
HEALTH - CONT.
NURSING HOMES - CONT.
Warren Economic Development Corp.,
Autumn Woods Project, Series 1992,
6.900% 12/20/22 $ 500 $ 542
-------
962
-------
- --------------------------------------------------------------------------------
HOUSING - 10.7%
MULTI-FAMILY - 9.4%
Grand Rapids Building Authority:
Series A,
7.625% 09/01/23 1,500 1,652
Series 1993,
5.500% 04/01/13 1,000 1,028
Redford Township Building Authority,
Series 1992,
6.500% 11/01/13 675 705
State Housing Development Authority,
Series 1994-D,
6.850% 06/01/26 2,000 2,100
-------
5,485
-------
SINGLE-FAMILY - 1.3%
State Housing Development Authority:
Series 1990-A,
7.700% 04/01/23 500 526
Series 1991-B,
7.050% 10/01/12 225 241
-------
767
-------
- --------------------------------------------------------------------------------
MANUFACTURING - 2.3%
PAPER PRODUCTS - 1.5%
State Strategic Fund:
Blue Water Fiber Project, Series 1994,
8.000% 01/01/12 360 347
Great Lakes Pulp & Fibre Project,
Series 1994,
10.250% 12/01/16 500 515
-------
862
-------
PRIMARY SMELTING - 0.8%
Monroe County,
North Star Steel Co., Series A,
6.875% 07/01/08 470 473
-------
- --------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
Investment Portfolio/January 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
PUBLIC FACILITIES IMPROVEMENT - 9.0%
Detroit Convention Facilities,
Cobo Hall Expansion Project,
Series 1993,
5.250% 09/30/12 $1,000 $ 941
PR Commonwealth of Puerto Rico,
Public Building Authority, Series 1993-M,
stepped coupon, (5.700% 07/01/98)
3.750% 07/01/16(d) 750 720
Series 1995-A,
6.250% 07/01/14 1,200 1,361
State Municipal Bond Authority,
Local Government Loan Program:
Series 1992-D,
6.650% 05/01/12 1,000 1,093
Series 1994-G,
(a) 05/01/19 2,000 555
Series 1994-G,
(a) 05/01/20 1,855 482
VI Public Finance Authority,
Series 1992-A,
7.000% 10/01/02 125 137
------
5,289
------
................................................................................
PUBLIC INFRASTRUCTURE - 1.8%
AIRPORTS
Wayne Charter County,
Detroit Metropolitan Airport,
Series 1994 B,
6.125% 12/01/24 1,000 1,043
------
................................................................................
REFUNDED/ESCROW/SPECIAL OBLIGATIONS (e) - 2.4%
Rockford Public Schools, Series 1990,
7.375% 05/01/19 250 284
Western Townships Utilities Authority,
Series 1989,
8.200% 01/01/18 1,000 1,108
------
1,392
------
................................................................................
STATE & COMMUNITY LEASE - 1.4%
Detroit Economic Development Corp.,
E.H. Associates Limited Partnership,
Series 1992,
7.000% 06/01/12 750 815
------
</TABLE>
9
<PAGE>
Investment Portfolio/January 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
TAX ALLOCATION - 1.5%
Battle Creek, Downtown Tax Revenue,
7.650% 05/01/22 $ 750 $ 859
-------
................................................................................
UTILITY - 7.9%
INVESTOR OWNED - 1.9%
St. Clair County Economic
Development Corp.,
Detroit Edison Co., Series 1993-AA,
6.400% 08/01/24(b) 1,000 1,101
-------
MUNICIPAL ELECTRIC - 6.0%
State Strategic Fund,
Detroit Edison Co.:
Series 1994-AA,
5.875% 04/01/24 1,000 1,023
Series 1994-BB,
7.000% 05/01/21 2,000 2,490
-------
3,513
-------
................................................................................
WATER & SEWER - 8.0%
Detroit Sewer Disposal,
Series 1995-B,
5.250% 07/01/21 1,000 981
Detroit Water Supply:
Series 1995-A,
5.500% 07/01/25 1,000 994
Series 1995-B,
5.550% 07/01/12(b) 1,250 1,298
Oakland County,
Pebble Creek Drainage District,
5.000% 05/01/11 300 284
PR Commonwealth of Puerto Rico,
Aqueduct & Sewer Authority,
Series 1995,
6.250% 07/01/12 1,000 1,103
-------
4,660
-------
TOTAL MUNICIPAL BONDS (cost of $54,284) 58,050
-------
<CAPTION>
OPTIONS - 0.0% CONTRACTS
- --------------------------------------------------------------------------------
<S> <C> <C>
March 1996 Municipal Bond Puts,
Strike price 117, expiration 3/20/96 (cost of $40) 32 12
-------
TOTAL INVESTMENTS - 99.2% (cost of $54,324) (f) 58,062
-------
</TABLE>
10
<PAGE>
Investment Portfolio/January 31, 1996
<TABLE>
<S> <C> <C>
- --------------------------------------------------------------------------------
SHORT-TERM OBLIGATIONS - 0.3%
- --------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (g)
Flint Hospital Building Authority,
Hurley Medical Center,
Series 1995-B,
3.300% 07/01/15 $ 200 $ 200
-------
OTHER ASSETS & LIABILITIES, NET - 0.5% 282
- --------------------------------------------------------------------------------
NET ASSETS - 100.0% $58,544
-------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Zero coupon bond.
(b) These securities, or a portion thereof, with a total market value of $6,417
are being used to collateralize open futures contracts.
(c) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At January 31,
1996, the value of this security amounted to $420 or 0.7% of net assets.
(d) Shown parenthetically is the interest rate to be paid and the date the Fund
will begin accruing this rate.
(e) 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.
(f) Cost for federal income tax purposes is the same.
(g) Variable rate demand notes are considered short-term obligations. Interest
rates change periodically on specified dates. This security is payable on
demand and is secured by either letters of credit or other credit support
agreements from banks. The rate listed is as of January 31, 1996.
Short futures contracts open at January 31, 1996:
<TABLE>
<CAPTION>
Par value Unrealized
covered Expiration depreciation
Type by contracts month at 1/31/96
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal bond $4,000 March $8
</TABLE>
See notes to financial statements.
11
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
JANUARY 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $54,324) $ 58,062
Short-term obligations 200
---------
58,262
Receivable for:
Interest 755
Fund shares sold 12
Other 28 795
--------- ---------
Total Assets 59,057
LIABILITIES
Payable for:
Fund shares repurchased 247
Distributions 242
Variation margin on futures 10
Payable to adviser 10
Accrued:
Deferred Trustees fees 1
Other 3
---------
Total Liabilities 513
---------
NET ASSETS $ 58,544
---------
Net asset value & redemption price per share -
Class A ($43,308/6,072) $7.13
---------
Maximum offering price per share - Class A
($7.13/0.9525) $7.49(a)
---------
Net asset value & offering price per share -
Class B ($15,236/2,136) $7.13(b)
---------
COMPOSITION OF NET ASSETS
Capital paid in $ 56,106
Undistributed net investment income 18
Accumulated net realized loss (1,310)
Net unrealized appreciation (depreciation) on:
Investments 3,738
Open futures contracts (8)
---------
$ 58,544
---------
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
See notes to financial statements.
12
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1996
<TABLE>
<CAPTION>
<S> <C> <C>
(in thousands)
INVESTMENT INCOME
Interest $ 3,507
EXPENSES
Management fee $ 309
Service fee - Class A 52
Service fee - Class B 17
Distribution fee - Class B 109
Transfer agent 96
Bookkeeping fee 30
Trustees fee 15
Custodian fee 14
Audit fee 32
Legal fee 7
Registration fee 12
Reports to shareholders 8
Other 6
---------
707
Fees waived by the adviser (143) 564
--------- ---------
Net Investment Income 2,943
---------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 1,289
Closed futures contracts (2,005)
---------
Net Realized Loss (716)
Net unrealized appreciation during the period on:
Investments 4,393
Open futures contracts 351
---------
Net Unrealized Appreciation 4,744
---------
Net Gain 4,028
---------
Net Increase in Net Assets from Operations $ 6,971
---------
</TABLE>
See notes to financial statements.
13
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(in thousands) Year ended January 31
----------------------------
INCREASE (DECREASE) IN NET ASSETS 1996 1995
<S> <C> <C>
Operations:
Net investment income $ 2,943 $ 3,384
Net realized gain (loss) (716) 404
Net unrealized appreciation (depreciation) 4,744 (6,303)
--------- ---------
Net Increase (Decrease) from Operations 6,971 (2,515)
Distributions:
From net investment income - Class A (2,375) (2,541)
From net investment income - Class B (697) (770)
--------- ---------
3,899 (5,826)
--------- ---------
Fund Share Transactions:
Receipts for shares sold - Class A 2,362 4,363
Value of distributions reinvested - Class A 1,345 1,397
Cost of shares repurchased - Class A (5,144) (5,158)
--------- ---------
(1,437) 602
--------- ---------
Receipts for shares sold - Class B 1,668 3,284
Value of distributions reinvested - Class B 361 379
Cost of shares repurchased - Class B (1,935) (3,051)
--------- ---------
94 612
--------- ---------
Net Increase (Decrease) from Fund Share Transactions (1,343) 1,214
--------- ---------
Total Increase (Decrease) 2,556 (4,612)
NET ASSETS
Beginning of period 55,988 60,600
--------- ---------
End of period (including undistributed net
investment income of $18 and $134, respectively) $ 58,544 $ 55,988
--------- ---------
NUMBER OF FUND SHARES
Sold - Class A 343 638
Issued for distributions reinvested - Class A 196 208
Repurchased - Class A (749) (773)
--------- ---------
(210) 73
--------- ---------
Sold - Class B 242 480
Issued for distributions reinvested - Class B 53 56
Repurchased - Class B (282) (461)
--------- ---------
13 75
--------- ---------
</TABLE>
See notes to financial statements.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION: Colonial Michigan Tax-Exempt Fund (the Fund), a series of Colonial
Trust V, is a non-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, as is consistent with prudent risk. The
Fund may issue an unlimited number of shares. The Fund offers Class A shares
sold with a front-end sales charge and Class B shares which are subject to an
annual distribution fee and a contingent deferred sales charge. Class B shares
will convert to Class A shares when they have been outstanding approximately
eight years.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The following significant
accounting policies 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.
Options are valued at the last reported sale price, or in the absence of a sale,
the mean between the last quoted bid and asking price.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
Portfolio positions which cannot be valued as set forth above are valued at fair
value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains (losses) are based upon the specific identification
method for both financial statement and federal income tax purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class A and Class B service fees and 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.
15
<PAGE>
Notes to Financial Statements/January 31, 1996
NOTE 1. ACCOUNTING POLICIES - CONT.
Class A and 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 service fee applicable to Class A and Class B and 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. 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 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 based on each Fund's pro rata portion of the
combined average net assets of Trust V as follows:
<TABLE>
<CAPTION>
Average Net Assets Annual Fee Rate
------------------ ---------------
<S> <C>
First $1 billion 0.55%
Next $1 billion 0.50%
Over $2 billion 0.45%
</TABLE>
Effective January 1, 1996, the management fee applicable to the Trust is being
reduced based on the following schedule for the first $1 billion in combined
average net assets.
<TABLE>
<CAPTION>
Cumulative Annualized
Effective Date Reduction
--------------- ---------------------
<S> <C>
January 1, 1996 0.0125%
April 1, 1996 0.0250%
July 1, 1996 0.0375%
October 1, 1996 0.0500%
</TABLE>
16
<PAGE>
Notes to Financial Statements/January 31, 1996
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: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. During the year ended January 31, 1996, the Fund has been
advised that the Distributor retained net underwriting discounts of $9,871 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $43,544 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 Fund's average net assets
attributable to Class B shares. The plan also requires the payment of a service
fee to the Distributor as follows:
<TABLE>
<CAPTION>
Valuation of shares Annual
outstanding on the 20th of Fee
each month which were issued Rate
---------------------------- ------
<S> <C>
Prior to November 30, 1994 0.10%
On or after December 1, 1994 0.25%
</TABLE>
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: Effective August 1, 1995, 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 0.75% annually of
the Fund's average net assets. Through July 31, 1995 the expense limit was 0.60%
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
the Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
INVESTMENT ACTIVITY: During the year ended January 31, 1996, purchases and sales
of investments, other than short-term obligations, were $27,115,243 and
$29,993,644, respectively.
17
<PAGE>
Notes to Financial Statements/January 31, 1996
NOTE 3. PORTFOLIO INFORMATION - CONT.
Unrealized appreciation (depreciation) at January 31, 1996, based on cost of
investments for both financial statement and federal income tax purposes was:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation $4,004,190
Gross unrealized depreciation (266,071)
----------
Net unrealized appreciation $3,738,119
==========
</TABLE>
CAPITAL LOSS CARRYFORWARDS: At January 31, 1996, 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>
1997 $131,000
1998 49,000
1999 98,000
2003 196,000
--------
$474,000
========
</TABLE>
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 value of portfolio securities due to
anticipated changes in interest rates and/or market conditions, for duration
management, or when the transactions are economically appropriate to the
reduction of risk inherent in the management of the Fund and not for trading
purposes. The use of futures contracts and options involves certain risks, which
include (1) imperfect correlation between the price movement of the instruments
and the underlying securities, (2) inability to close out positions due to
different trading hours or the temporary absence of a liquid market for either
the instrument or the underlying securities or (3) an inaccurate prediction by
the Adviser of the future direction of interest rates. Any of these risks may
involve amounts exceeding the amount recognized in the Fund's Statement of
Assets and Liabilities at any given time.
18
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended January 31
----------------------------------------------------------
1996 1995
Class A Class B Class A Class B
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 6.660 $ 6.660 $ 7.340 $ 7.340
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.368 0.317 0.410 0.359
Net realized and
unrealized gain (loss) 0.484 0.484 (0.689) (0.689)
------- ------- ------- -------
Total from Investment
Operations 0.852 0.801 (0.279) (0.330)
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.382) (0.331) (0.401) (0.350)
From capital paid in -- -- -- --
------- ------- ------- -------
Total Distributions
Declared to Shareholders (0.382) (0.331) (0.401) (0.350)
------- ------- ------- -------
Net asset value -
End of period $ 7.130 $ 7.130 $ 6.660 $ 6.660
======= ======= ======= =======
Total return (b)(c) 13.13% 12.30% (3.66)% (4.39)%
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80%(d) 1.55%(d) 0.62% 1.37%
Net investment income 5.34%(d) 4.59%(d) 6.08% 5.33%
Fees and expenses waived
or borne by the Adviser 0.25% 0.25% 0.32% 0.32%
Portfolio turnover 48% 48% 40% 40%
Net assets at end
of period (000) $43,308 $15,236 $41,844 $14,144
(a) Net of fees and expenses waived or borne by the Adviser which amounted to:
$ 0.017 $ 0.017 $ 0.022 $ 0.022
(b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or
contingent deferred sales charge.
(c) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody and directed brokerage arrangements had no impact. Prior years'
ratios are net of benefits received, if any.
</TABLE>
- --------------------------------------------------------------------------------
Federal income tax information (unaudited)
All of the distributions will be treated as exempt income
for federal income tax purposes.
- --------------------------------------------------------------------------------
19
<PAGE>
FINANCIAL HIGHLIGHTS - CONTINUED
<TABLE>
<CAPTION>
Year ended January 31
-----------------------------------------------------------
1994 1993 1992
Class A Class B Class A Class B(b) Class A
------- ------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 6.970 $ 6.970 $ 6.730 $ 6.950 $ 6.520
------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.404 0.351 0.405 0.167 0.432
Net realized and
unrealized gain (loss) 0.356 0.356 0.250 0.029 0.208
------- ------- ------- ------- -------
Total from Investment
Operations 0.760 0.707 0.655 0.196 0.640
------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.390) (0.337) (0.407) (0.168) (0.430)
From capital paid in -- -- (0.008) (0.008) --
------- ------- ------- ------- -------
Total Distributions
Declared to Shareholders (0.390) (0.337) (0.415) (0.176) (0.430)
------- ------- ------- ------- -------
End of period $ 7.340 $ 7.340 $ 6.970 $ 6.970 $ 6.730
======= ======= ======= ======= =======
Total return (c)(d) 11.16% 10.36% 10.04% 0.98%(e) 10.12%
======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.66% 1.41% 0.88% 1.63%(f) 0.95%
Net investment income 5.61% 4.86% 5.86% 5.11%(f) 6.50%
Fees and expenses waived
or borne by the Adviser 0.33% 0.33% 0.32% 0.32%(f) 0.35%
Portfolio turnover 7% 7% 14% 14% 5%
Net assets at end
of period (000) $45,570 $15,030 $36,024 $ 6,670 $28,608
(a) Net of fees and expenses waived or borne by the Adviser which amounted to:
0.024 0.024 0.022 0.009 0.023
(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
contingent deferred sales charge.
(d) Had the Adviser not waived or reimbursed a portion of expenses, total return would have been reduced.
(e) Not annualized.
(f) Annualized.
</TABLE>
20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
T0 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, 1996, 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, 1996 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 13, 1996
21
<PAGE>
SHAREHOLDER SERVICES
TO MAKE INVESTING EASIER
Colonial has one of the most extensive selections of shareholder services
available. Your financial adviser can help you arrange for any of these
services, or you can call Colonial directly at 1-800-345-6611.
AFFORDABLE ADDITIONAL INVESTMENTS: Add to your account with as little as $50;
$25 for an IRA account.
FREE EXCHANGES*: Exchange all or part of your account into the same share class
of another Colonial fund, by phone or mail, as your needs change over time.
EASY ACCESS TO YOUR MONEY*: Make withdrawals from your account by phone, by mail
or, for certain funds, by check.
ONE-YEAR REINSTATEMENT PRIVILEGE: If you need access to your money, but then
choose to return it to Colonial within one year, you can reinvest in any
Colonial fund of the same share class without any penalty or sales charge.
FUNDAMATIC: Make periodic investments as low as $50 from your checking account
to your Colonial account.
SYSTEMATIC WITHDRAWAL PLAN (SWP): Receive monthly, quarterly, or semiannual
payments via check or bank transmission. There is a $5,000 account value
required, but no minimum for the payment amount. The maximum annual withdrawal
is 12% of account balance at time SWP is established. SWPs by check are
processed on the 10th of each month.
AUTOMATED DOLLAR COST AVERAGING: Transfer money on a monthly basis from any
Colonial fund with a balance of $5,000 into the same share class of up to four
other Colonial funds. Minimum for each transfer is $100.
LOW COST IRAs: Choose from a broad range of retirement plans, including IRAs.
* Redemptions and exchanges are made at the next determined net asset value
after the request is received by Colonial. Proceeds may be more or less than
your original cost. The exchange privilege may be terminated at any time.
Investors who purchase Class B or Class D shares (for applicable funds), or $1
million or more of Class A shares, may be subject to a contingent deferred sales
charge.
22
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Michigan Tax-Exempt Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
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.
This report has been prepared for shareholders of Colonial Michigan Tax-Exempt
Fund. This report may also be used as sales literature when preceded or
accompanied by the current prospectus which provides details of sales charges,
investment objectives, and operating policies of the Fund.
23
<PAGE>
[LOGO]
COLONIAL MUTUAL FUNDS
Mutual Funds for Planned Portfolios
TRUSTEES
ROBERT J. BIRNBAUM
Trustee (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.)
TOM BLEASDALE
Trustee (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Trustee (formerly Chairman of the Board, Bank of New England-Worcester)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
WILLIAM E. MAYER
Dean, College of Business and Management, University of Maryland (formerly Dean,
Simon Graduate School of Business, University of Rochester; Chairman and Chief
Executive Officer, C.S. First Boston Merchant Bank; and President and Chief
Executive Officer, The First Boston Corporation)
JAMES L. MOODY, JR.
Chairman of the Board, Hannaford Bros. Co. (formerly Chief Executive Officer,
Hannaford Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
GEORGE L. SHINN
Financial Consultant (formerly Chairman, Chief Executive Officer and Consultant,
The First Boston Corporation)
ROBERT L. SULLIVAN
Management Consultant (formerly Management Consultant, Saatchi and Saatchi
Consulting Ltd. and Principal and International Practice Director, Management
Consulting, Peat Marwick Main & Co.)
SINCLAIR WEEKS, JR.
Chairman of the Board, Reed & Barton Corporation
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
COLONIAL INVESTMENT SERVICES, INC., Distributor (C)1996
One Financial Center, Boston, Massachusetts 02111-2621, 617-426-3750
MI-02/846B-0196 (3/96)
