<PAGE>
COLONIAL
MASSACHUSETTS TAX-EXEMPT FUND
ANNUAL REPORT
JANUARY 31, 1996
<PAGE>
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND HIGHLIGHTS
FEBRUARY 1, 1995 - JANUARY 31, 1996
INVESTMENT OBJECTIVE: Colonial Massachusetts 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 Massachusetts state personal income tax.
The Fund also provides opportunities for long-term appreciation from a portfolio
primarily invested in investment grade municipal bonds.
THE FUND IS DESIGNED TO OFFER:
- High monthly double-tax-free income
- Long-term appreciation
- Emphasis on quality
PORTFOLIO MANAGER COMMENTARY: "Declining interest rates during the Fund's fiscal
year had a favorable impact on performance. Your Fund's portfolio has a high
concentration of education bonds. Massachusetts municipal education bonds, which
are of relatively high quality, benefited as interest rates moved lower."
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
Inception dates 4/10/87 6/8/92
Distributions declared per share* $0.424 $0.367
SEC yields on 1/31/96** 4.50% 3.97%
Taxable-equivalent SEC yields*** 8.47% 7.47%
12-month total returns, assuming
reinvestment of all distributions and
no sales charge or contingent deferred
sales charge (CDSC) 14.90% 14.05%
Net asset value per share at 1/31/96 $8.04 $8.04
</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 4.46% and the yield for Class B shares would have
been 3.93%.
***Taxable-equivalent SEC yields are based on the maximum effective 51.6%
federal and Massachusetts 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 .................... 40.5% Education ............... 15.8%
AA ..................... 9.5% Water & Sewer ........... 14.3%
A ...................... 37.9% Hospitals ............... 13.2%
BBB .................... 4.4% General Obligations ..... 11.4%
Non-rated .............. 7.5% Transportation .......... 11.0%
Cash & Equivalents ..... 0.2%
</TABLE>
Because the Fund is actively managed, quality and sector weightings will change.
2
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[PHOTO]
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
ROBERT WAAS is a Vice President of Colonial Management Associates, Inc., and
Portfolio Manager of Colonial Massachusetts Tax-Exempt Fund and five other
Colonial tax-exempt funds.
Q: HOW DID THE FUND PERFORM FOR THE 12 MONTH PERIOD ENDED 1/31/96 RELATIVE TO
THE LEHMAN BROTHERS MUNICIPAL BOND INDEX AND WHY?
A: The Fund earned a total return of 14.90% at net asset value for Class A
shares. That compared to total returns of 13.80% for the average Massachusetts
municipal debt fund tracked by Lipper Analytical Services, Inc.* The Fund,
however, slightly underperformed the Lehman Municipal Bond Index, which is
comprised of long bonds representing a number of states, not just Massachusetts.
The Index posted a return of 15.06%. The difference is attributable the Fund's
narrower range of investments.
The Fund's strong performance is due to the portfolio's position in discount and
non-callable bonds. About 51% of the holdings were invested in discount bonds,
which produced strong gains for the Fund. We also had 25% of the Fund in
non-callable bonds. Discount and non-callable securities appreciate faster when
rates decline because they are safe from early redemptions.
Q: WHAT INFLUENCED THE FUND'S STRONG PERFORMANCE DURING THE PERIOD?
A: It was a combination of a favorable economic backdrop and a well-targeted
portfolio. Interest rates dropped significantly in 1995, as the economy slowed
and the threat of inflation subsided. In anticipation of this scenario, we
purchased discount and non-callable bonds, which are very sensitive to interest
rate declines and enhance the potential for price appreciation. Of course, such
strategies carry more downside risk when rates rise.
Q: WHAT WAS THE PORTFOLIO'S QUALITY AND SECTOR COMPOSITION?
A: More than 90% of the securities were rated investment grade, with almost 41%
rated AAA, the highest quality rating. The largest sectors were education,
general obligation bonds, and healthcare, about half of which were AAA-rated.
Q: HOW DID YOUR INVESTMENT STRATEGY CHANGE DURING THE PERIOD?
A: We became more cautious later in the year, as the rally matured. We began
buying higher-coupon issues, which are less volatile and can help enhance the
Fund's current yield. We also shifted to shorter maturities, in the 15- to
20-year range, since the yield incentives of longer bonds are now too small to
compensate for the higher risk.
*Lipper Analytical Services, Inc. is an independent research organization;
rankings vary over time and do not reflect the effects of sales charges.
4
<PAGE>
Q: WHAT IS YOUR OUTLOOK FOR 1996?
A: Given the most recent price declines, we believe the bond market has already
discounted stronger economic growth and higher inflation expectations. We are,
therefore, cautiously optimistic about our interest rate outlook going forward.
Additionally, the fear of tax reform is beginning to subside and municipal bonds
are well positioned to outperform taxable securities.
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND INVESTMENT PERFORMANCE
Change in Value of $10,000 from 4/87 (inception) to 1/96
Based on Net Asset Value (NAV) and
Maximum Offering Price (MOP) for Class A Shares
<TABLE>
<CAPTION>
NAV MOP LEHMAN
<S> <C> <C>
10000 9525 10000
9890 9421 9950
10152 9670 10242
10301 9811 10346
10322 9831 10370
9714 9253 9988
9790 9325 10023
10105 9625 10284
10242 9756 10434
10620 10116 10805
10760 10249 10920
10614 10109 10792
10710 10201 10874
10638 10132 10843
10904 10386 11002
10971 10450 11074
11022 10499 11083
11152 10622 11284
11362 10823 11483
11288 10752 11378
11420 10878 11494
11635 11082 11732
11510 10963 11598
11498 10952 11570
11749 11191 11845
11918 11352 12091
12039 11467 12255
12128 11552 12422
12032 11460 12301
12054 11481 12264
12110 11534 12414
12286 11702 12631
12378 11790 12734
12316 11731 12674
12445 11854 12787
12417 11827 12791
12265 11682 12699
12609 12010 12976
12705 12101 13090
12928 12314 13283
12665 12063 13090
12617 12018 13097
12789 12181 13335
13090 12468 13603
13168 12543 13662
13339 12705 13846
13473 12833 13966
13533 12891 13971
13727 13075 14158
13865 13206 14283
13849 13191 14269
14065 13397 14443
14224 13549 14634
14365 13682 14824
14525 13826 14957
14549 13858 14999
14887 14180 15321
14887 14180 15356
14927 14218 15361
14947 14237 15367
15069 14353 15504
15273 14547 15686
15518 14781 15949
16013 15252 16428
15867 15113 16267
15950 15193 16374
15740 14993 16213
16119 15353 16503
16314 15339 16672
16504 15720 16866
17082 16271 17476
16952 16147 17291
17102 16290 17465
17188 16371 17563
17468 16638 17857
17486 16655 17880
17812 16966 18252
18030 17174 18461
18072 17213 18496
17910 17059 18333
18242 17375 18720
18463 17586 18934
18049 17192 18443
17336 16513 17692
17446 16617 17842
17600 16764 17997
17501 16670 17887
17822 16975 18215
17862 17013 18278
17573 16739 18010
17168 16352 17690
16732 15937 17370
17202 16385 17752
17817 16971 18260
18317 17447 18791
18478 17600 19007
18517 17637 19029
19044 18139 19636
18738 17848 19465
18850 17954 19649
19100 18202 19898
19271 18356 20024
19659 18725 20315
20073 19120 20653
20361 19394 20851
20472 19500 21008
</TABLE>
A $10,000 investment in Class B shares made on 6/92 (inception) at NAV would
have been valued at $13,033 on January 31, 1996. The same investment after
deducting the applicable contingent deferred sales charge (CDSC) would have
grown to $12,733 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 4/10/87 Inception 6/8/92
NAV MOP NAV w/CDSC
- --------------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1 YEAR 18.36% 12.74% 17.49% 12.49%
- --------------------------------------------------------------------------------
5 YEARS 9.11% 8.05% -- --
- --------------------------------------------------------------------------------
SINCE INCEPTION 8.32% 7.71% 7.56% 6.86%
- --------------------------------------------------------------------------------
</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 - 99.0% PAR VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
CERTIFICATES OF PARTICIPATION - 0.1%
Massachusetts Bay Transportation
Authority, Series 1988,
7.750% 01/15/06 $ 250 $ 297
-------
- ------------------------------------------------------------------------
CONSTRUCTION - 0.0%
BUILDING CONSTRUCTION
State Industrial Finance Agency,
Series 1987 G,
7.875% 05/01/07 100 101
-------
- ------------------------------------------------------------------------
EDUCATION - 15.8%
State College Building Authority:
Series 1994 A,
7.500% 05/01/14 1,825 2,304
Southeastern University,
Series 1995 A,
5.750% 05/01/16 1,250 1,294
State Health & Educational
Facilities Authority:
Amherst College, Series E,
6.800% 11/01/21 500 550
Bentley College, Series I,
6.125% 07/17/17 1,250 1,317
Berkley College of Music, Series C,
6.875% 10/01/21 1,000 1,106
Boston College, Series K:
5.250% 06/01/18 6,000 5,955
5.250% 06/01/23 5,850 5,762
Boston University, Series 1991 L,
RIB, (variable rate),
9.092% 10/01/31 1,000 1,157
Community Colleges Program, Series A,
6.600% 10/01/22 1,250 1,337
Harvard University:
Series M,
5.500% 12/01/15 1,500 1,534
Series N,
6.250% 04/01/20 9,250 10,776
Suffolk University, Series B:
6.250% 07/01/12 1,000 1,054
6.350% 07/01/22 1,000 1,049
Tufts University, Series 1988 D,
7.700% 08/01/08 400 442
</TABLE>
6
<PAGE>
Investment Portfolio/January 31, 1996
- ------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Worcester Polytechnical Institute, Series E,
6.625% 09/01/17 $ 500 $ 542
6.750% 09/01/11 500 547
State Industrial Finance Agency:
Babson College,
Series 1992 A,
6.375% 10/01/09 1,000 1,100
Concord Academy,
Series 1991,
6.900% 09/01/21 400 446
Emerson College,
Series 1991 A,
8.900% 01/01/18 500 564
Milton Academy,
Series 1993 B,
5.250% 09/01/19 1,000 984
Phillips Academy,
Series 1993,
5.375% 09/01/23 2,050 2,060
University of Massachusetts
Building Authority,
Series 1991 A,
7.200% 05/01/04 400 469
-------
42,349
-------
- ------------------------------------------------------------------------
GENERAL OBLIGATIONS - 11.4%
Amherst,
Series 1992,
6.500% 01/15/12 695 749
Andover, Andover Old Town Hall,
Series 1989,
7.700% 12/15/04 1,255 1,407
Boston,
Series 1992 A,
6.500% 07/01/12 1,340 1,459
Fall River,
7.200% 06/01/10 1,250 1,408
Groveland,
Series 1991,
6.900% 06/15/08 (a) 250 277
Haverhill,
8.200% 08/15/09 935 1,051
Holyoke,
School Project Loan,
7.650% 08/01/09 500 548
Lowell,
8.400% 01/15/09 1,000 1,169
Mansfield,
6.700% 01/15/11 1,000 1,085
Nantucket, Series 1991,
6.800% 12/01/11 1,000 1,119
</TABLE>
7
<PAGE>
Investment Portfolio/January 31, 1996
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
GENERAL OBLIGATIONS - CONT
Nauset Regional School District:
Series A:
6.400% 06/15/09 $ 220 $ 236
6.400% 06/15/10 220 235
Series B:
6.400% 09/15/09 260 279
6.400% 09/15/10 260 279
Peabody:
6.900% 08/01/07 485 538
6.950% 08/01/08 500 555
PR Commonwealth of Puerto Rico,
Series 1994,
6.500% 07/01/23 5,000 5,394
Southern Berkshire Regional
School District,
7.000% 04/15/11 500 569
State:
Series 1990 A,
7.250% 06/01/96 500 506
Series 1990 B,
7.000% 07/01/09 4,385 5,213
Series 1991 B:
(b) 06/01/07 450 260
6.500% 08/01/11 2,000 2,167
Series 1991 C,
6.500% 08/01/11 1,250 1,355
Series 1992 B,
6.500% 08/01/08 1,000 1,141
Swansea,
School Project Loan:
6.800% 01/15/09 250 268
6.800% 01/15/10 125 134
6.800% 01/15/11 210 225
Weymouth,
Series 1992:
6.700% 06/15/09 200 214
6.700% 06/15/10 200 214
6.700% 06/15/11 155 166
6.700% 06/15/12 140 149
Woburn,
7.200% 04/01/04 130 144
-------
30,513
-------
- ------------------------------------------------------------------------
HEALTH - 17.1%
HOSPITALS - 13.2%
State Health & Educational
Facilities Authority,
Addison Gilbert Hospital, Series 1993 C,
5.750% 07/01/14 2,000 1,892
</TABLE>
8
<PAGE>
Investment Portfolio/January 31, 1996
- ------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Berkshire Health System, Series C,
6.000% 10/01/20 $1,000 $ 927
Beth Israel Hospital, Series D,
7.800% 07/01/14 250 271
Beverly Hospital, Series D,
7.300% 07/01/13 1,000 1,104
Capital Asset Program, Series 1989 F,
7.300% 10/01/18 750 844
Charlton Memorial Hospital, Series B:
7.250% 07/01/07 500 551
7.250% 07/01/13 500 534
Children's Hospital, Series E:
5.500% 10/01/19 3,500 3,474
6.200% 10/01/16 2,000 2,092
Dana Farber Cancer Institute:
Series 1992 F,
6.000% 12/01/15 1,000 1,052
Series 1995 C:
5.500% 12/01/27 6,000 5,663
6.650% 12/01/15 250 261
Holyoke Hospital, Series B,
6.000% 07/01/23 2,000 2,052
Lahey Clinic, Series 1993 B,
5.375% 07/01/23 5,100 5,087
Lowell General Hospital, Series 1991 A,
8.400% 06/01/11 500 561
Massachusetts General Hospital, Series F,
6.250% 07/01/20 2,500 2,653
Medical Center of Central Mass., Series A,
7.000% 07/01/12 1,000 1,070
St. Elizabeth's Hospital, Series E,
9.746% 08/15/21 1,000 1,179
Spaulding Rehabilitation Hospital, Series A,
7.625% 07/01/21 400 431
University Hospital, Series C,
7.250% 07/01/19 1,000 1,125
Valley Regional Health System, Series 1994,
5.750% 07/01/18 2,000 2,030
State Industrial Finance Agency,
Harvard Community Health Plan, Inc.,
Series 1988 B,
8.125% 10/01/17 640 696
-------
35,549
-------
NURSING HOMES - 3.9%
Boston,
St. Joseph Nursing Care Center, Inc.
Series 1990,
10.000% 01/01/20(c) 495 549
</TABLE>
9
<PAGE>
Investment Portfolio/January 31, 1996
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
- -------------------------------------------------------------------------
<S> <C> <C>
HEALTH - CONT
NURSING HOMES - CONT
State Health & Educational
Facilities Authority:
Corporation for Independent Living,
8.100% 07/01/18 $ 300 $ 306
Deutsches Altenheim, Inc., Series A,
7.700% 11/01/31 985 1,075
Fairview Extended Care Service, Inc., Series A,
10.250% 01/01/21 500 573
State Industrial Finance Agency:
American Health Foundation Inc.,
Series 1989,
10.125% 03/01/19 1,805 1,911
Belmont Home Care,
Series 1995 A,
9.270% 01/01/25 2,000 2,128
GF/Massachusetts Inc.,
Series 1994,
8.300% 07/01/23 2,500 2,481
Seacoast Nursing Home,
Series 1991,
9.625% 12/01/21 1,260 1,399
-------
10,422
-------
- -------------------------------------------------------------------------
HOUSING - 9.0%
ASSISTED LIVING/SENIOR - 0.4%
State Industrial Finance Agency,
Heights Crossing Ltd.,
Series 1995,
6.000% 02/01/15 1,125 1,129
-------
MULTI - FAMILY - 5.3%
Boston-Mount Pleasant
Development Corp.,
Section 8 Assisted, Series A,
6.750% 08/01/23 1,700 1,783
Framingham Housing Authority,
Beaver Terrace Apartments,
Series 1992 A,
6.600% 08/20/16 655 676
State Housing Finance Agency:
Series 1987 B,
8.500% 08/01/20 10 10
Series 1988 B,
8.100% 08/01/23 455 478
Series 1989 A,
7.600% 12/01/16 690 736
Series 1990 A,
8.150% 02/01/29 135 145
Series 1992 C,
6.875% 11/15/11 3,000 3,236
</TABLE>
10
<PAGE>
Investment Portfolio/January 31, 1996
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Series 1993 A,
6.100% 06/01/26 $2,340 $ 2,352
Series 1994 A,
6.750% 07/01/28 4,500 4,731
-------
14,147
-------
SINGLE - FAMILY - 3.3%
State Housing Finance Agency:
Series 3,
7.875% 06/01/14 400 415
Series 5,
8.375% 06/01/15 500 523
Series 6,
8.100% 12/01/14 495 520
Series 7,
8.100% 06/01/20 420 440
Series 8,
7.700% 06/01/17 575 609
Series 9,
8.100% 12/01/21 500 526
Series 12,
7.600% 12/01/13 250 263
Series 13,
7.950% 06/01/23 1,455 1,542
Series 18,
7.350% 12/01/16 1,000 1,070
Series 1987 4,
7.375% 06/01/14 705 727
Series 1987 A,
9.000% 12/01/18 215 225
Series 1988 A,
8.400% 08/01/21 1,210 1,254
Series 1989 A:
8.200% 08/01/15 245 254
8.200% 08/01/27 330 349
-------
8,717
-------
- -------------------------------------------------------------------------
PUBLIC ADMINISTRATION - 0.4%
JUSTICE & PUBLIC ORDER
Plymouth County Correctional Facility,
Series A,
7.000% 04/01/22 1,000 1,099
-------
- -------------------------------------------------------------------------
PUBLIC FACILITIES IMPROVEMENT - 0.8%
PR Commonwealth of Puerto Rico,
Public Buildings Authority, Series 1993-M,
stepped coupon, (5.700% 07/01/98)
3.750% 07/01/16(d) 2,000 1,920
</TABLE>
11
<PAGE>
Investment Portfolio/January 31, 1996
- ------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
- ------------------------------------------------------------------------
<S> <C> <C>
PUBLIC FACILITIES IMPROVEMENT - CONT
VI Virgin Islands Public Finance
Authority,
Series 1992 A,
7.000% 10/01/02 $ 250 $ 274
------
2,194
------
- -----------------------------------------------------------------------
PUBLIC INFRASTRUCTURE - 3.3%
TURNPIKES/TOLL ROADS/BRIDGES
PR Commonwealth of Puerto Rico
Highway & Transportation Authority,
Series W,
5.500% 07/01/09 660 685
State Turnpike Authority,
Series 1993 A:
5.000% 01/01/20 6,000 5,633
5.125% 01/01/23 2,500 2,422
------
8,740
------
- -----------------------------------------------------------------------
REFUNDED/ESCROW/SPECIAL OBLIGATIONS (e) - 7.6%
Bay Transportation Authority,
General Transportation System,
Series 1990-B,
7.875% 03/01/21 4,000 4,740
Boston Water & Sewer Commission,
Series 1991 A,
7.000% 11/01/18 2,700 3,132
Leominster,
7.500% 04/01/09(a) 1,075 1,234
Lynn,
7.850% 01/15/11 1,000 1,219
Palmer,
Series 1990 B,
7.700% 10/01/10 1,000 1,170
State College Building Authority,
Southeastern University,
Series 1986 A,
7.800% 05/01/16 650 670
State Health & Educational
Facilities Authority:
Carney Hospital, Series C,
7.750% 07/01/14 500 583
Cooley Dickinson Hospital, Series A,
7.125% 11/15/18 1,920 2,270
Framingham Union Hospital, Series B,
8.500% 07/01/20 1,000 1,190
Mt. Auburn Hospital, Series 1988 A,
7.875% 07/01/18 250 277
St. John's Hospital, Series 1990 B,
8.375% 12/01/20 500 601
</TABLE>
12
<PAGE>
Investment Portfolio/January 31, 1996
------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Winchester Hospital, Series C,
7.550% 07/01/11 $ 500 $588
State Housing Finance Agency,
Series A,
8.700% 05/15/14 235 265
State Industrial Finance Agency,
Mary Ann Morse Nursing Home, Inc.:
Series 1991 I,
0.000% 01/01/21 925 1,178
University of Lowell Building
Authority,
Series 1987 A,
7.600% 11/01/11 200 217
University of Massachusetts
Building Authority:
Series 1976 A,
7.500% 05/01/11 100 122
Series 1986 A,
7.500% 05/01/11 500 515
Worcester,
6.900% 05/15/07 415 482
------
20,453
------
- -------------------------------------------------------------------
RETAIL TRADE - 0.7%
APPAREL & ACCESSORY STORES
State Industrial Finance Agency,
House of Bianchi Inc.,
8.750% 06/01/18 1,760 1,868
------
- -------------------------------------------------------------------
SOLID WASTE - 1.3%
LAND FILLS - 0.9%
State Industrial Finance Agency,
Peabody Monofill Associates, Inc.,
Series 1995,
9.000% 09/01/05 2,300 2,475
------
MISCELLANEOUS DISPOSAL - 0.2%
Boston Industrial Development
Finance Authority,
Jet-A-Way, Inc.,
10.500% 01/01/11 400 455
------
RESOURCE RECOVERY - 0.2%
Agawam,
Springfield Resource Recovery Project,
Series 1986,
8.500% 12/01/08 500 528
------
- -------------------------------------------------------------------
</TABLE>
13
<PAGE>
Investment Portfolio/January 31, 1996
<TABLE>
<CAPTION>
----------------------------------------------------------
MUNICIPAL BONDS - CONT. PAR VALUE
----------------------------------------------------------
TRANSPORTATION - 11.0%
Massachusetts Bay Transportation
Authority:
<S> <C> <C> <C>
Series 1991 A,
7.000% 03/01/21 $1,500 $1,828
Series 1992 B:
5.500% 03/01/21(a) 5,000 4,931
6.200% 03/01/16 3,700 4,098
Series 1994 A:
7.000% 03/01/10 5,000 5,919
7.000% 03/01/11 4,270 5,049
7.000% 03/01/14 1,250 1,500
State Industrial Finance Agency,
Series 1990,
9.000% 10/01/20 485 590
State Port Authority:
Series 1992 B,
6.000% 07/01/23 1,000 1,040
Series 1993 B,
5.000% 07/01/18 5,000 4,681
------ ------
29,636
------
----------------------------------------------------------
UTILITY - 6.2%
JOINT POWER AUTHORITY - 4.3%
State Municipal Wholesale
Electric Co.:
Series 1992 C,
6.625% 07/01/10 1,435 1,555
Series 1994 A,
5.000% 07/01/17 5,000 4,794
Series 1994 A, RIB, (variable rate)
5.447% 07/01/16 4,000 3,675
Series 1994 B,
5.000% 07/01/17 1,500 1,438
------
11,462
-------
MUNICIPAL ELECTRIC - 1.9%
PR Commonwealth of Puerto Rico
Electric Power Authority,
Series 1994 T,
5.500% 07/01/20 5,000 4,969
------
----------------------------------------------------------
WATER & SEWER - 14.3%
Boston Water & Sewer Commission:
Series 1992 A,
5.750% 11/01/13 1,000 1,049
Series 1993 A,
5.250% 11/01/19 4,750 4,673
State Industrial Finance Agency,
Massachusetts Environmental Services,
Series 1994 A,
8.750% 11/01/21 3,000 3,128
</TABLE>
14
<PAGE>
Investment Portfolio/January 31, 1996
-----------------------------------------------------------
<TABLE>
<S> <C> <C>
State Water Pollution Abatement Trust,
Massachusetts Water Resources Authority:
Series 1992 A:
6.500% 07/15/09 $ 2,000 $ 2,278
6.500% 07/15/19 5,000 5,788
Series 1992 B,
5.500% 11/01/15 5,000 4,931
Series 1993 B,
5.500% 03/01/17 1,000 1,006
Series 1993 C:
5.250% 12/01/15 2,750 2,716
5.250% 12/01/15 1,000 1,008
5.250% 12/01/20 5,025 4,855
Series 1995 A,
5.000% 08/01/14 1,500 1,446
Series 1995 B,
6.250% 12/01/13 5,000 5,613
------
38,491
------
TOTAL MUNICIPAL BONDS (cost of $238,582)(f) 265,594
-------
SHORT - TERM OBLIGATIONS - 0.2%
-----------------------------------------------------------
VARIABLE RATE DEMAND NOTES (g)
State Health & Educational
Facilities Authority,
Series 1985 D,
3.650% 01/01/35 600 600
-------
OTHER ASSETS & LIABILITIES, NET - 0.8% 2,216
-----------------------------------------------------------
NET ASSETS - 100% $268,410
--------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
------------------------------------------------------------
(a) These securities, or a portion thereof, with a total market value
of $5,456, are being used to collateralize open futures
contracts.
(b) Zero coupon bond.
(c) This is a restricted security which was acquired on April 2, 1990
at a cost of $495. This security represents 0.2% of the Fund's
net assets at January 31, 1996.
(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 approximately the same.
(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 January 31, 1996.
15
<PAGE>
Investment Portfolio/January 31, 1996
--------------------------------------------------------------------
NOTES TO INVESTMENT PORTFOLIO - CONT.
--------------------------------------------------------------------
Short futures contracts open at January 31, 1996:
<TABLE>
<CAPTION>
Par value Unrealized
covered by Expiration appreciation
Type contracts month at 1/31/96
-------------------------------------------------------------------
<S> <C> <C> <C>
Municipal bond $ 3,700 March $7
</TABLE>
ACRONYM NAME
----------- -------------------------------
RIB Residual Interest Bond
See notes to financial statements.
16
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
JANUARY 31, 1996
(in thousands except for per share amounts and footnotes)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $238,582) $ 265,594
Short-term obligations 600
---------
266,194
Receivable for:
Interest $ 3,407
Fund shares sold 151
Other 51 3,609
--------- ---------
Total Assets 269,803
LIABILITIES
Payable for:
Distributions 1,098
Fund shares repurchased 256
Variation margin on futures 9
Payable to adviser 15
Accrued:
Deferred Trustees fees 2
Other 13
--------
Total Liabilities 1,393
---------
NET ASSETS $ 268,410
---------
Net asset value & redemption price per share -
Class A ($207,759/25,836) $ 8.04
---------
Maximum offering price per share - Class A
($8.04/0.9525) $ 8.44(a)
---------
Net asset value & offering price per share -
Class B ($60,651/7,542) $ 8.04(b)
---------
COMPOSITION OF NET ASSETS
Capital paid in $ 247,302
Undistributed net investment income 34
Accumulated net realized loss (5,945)
Net unrealized appreciation on:
Investments 27,012
Open futures contracts 7
---------
$ 268,410
---------
</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.
17
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1996
(in thousands)
<TABLE>
INVESTMENT INCOME
<S> <C> <C>
Interest $ 16,637
EXPENSES
Management fee $ 1,414
Service fee - Class A 258
Service fee - Class B 74
Distribution fee - Class B 440
Transfer agent 419
Bookkeeping fee 101
Trustees fee 22
Custodian fee 13
Audit fee 34
Legal fee 8
Registration fee 11
Reports to shareholders 7
Other 25
--------
2,826
Fees waived by the Adviser (153) 2,673
-------- --------
Net Investment Income 13,964
--------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 2,218
Closed futures contracts (3,572)
--------
Net Realized Loss (1,354)
Net unrealized appreciation during the period on:
Investments 22,566
Open futures contracts 955
--------
Net Unrealized Gain 23,521
--------
Net Gain 22,167
--------
Net Increase in Net Assets from Operations $ 36,131
--------
</TABLE>
See notes to financial statements.
18
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended
(in thousands) January 31
----------------------
INCREASE (DECREASE) IN NET ASSETS 1996 1995
--------- -------
<S> <C> <C>
Operations:
Net investment income $ 13,964 $ 14,749
Net realized loss (1,354) (2,999)
Net unrealized appreciation (depreciation) 23,521 (22,859)
-------- ---------
Net Increase (Decrease) from Operations 36,131 (11,109)
Distributions:
From net investment income - Class A (11,196) (12,074)
From net investment income - Class B (2,783) (2,748)
-------- ---------
22,152 (25,931)
-------- ---------
Fund Share Transactions:
Receipts for shares sold - Class A 20,583 23,448
Value of distributions reinvested - Class A 6,014 6,522
Cost of shares repurchased - Class A (29,356) (41,484)
-------- ---------
(2,759) (11,514)
-------- ---------
Receipts for shares sold - Class B 8,695 13,955
Value of distributions reinvested - Class B 1,601 1,534
Cost of shares repurchased - Class B (8,555) (8,223)
-------- ---------
1,741 7,266
-------- ---------
Net Decrease from Fund Share Transaction (1,018) (4,248)
-------- ---------
Total Increase (Decrease) 21,134 (30,179)
NET ASSETS
Beginning of period 247,276 277,455
------- ---------
End of period (including undistributed
net investment income of $34 and $31,
respectively) $ 268,410 $ 247,276
--------- ---------
NUMBER OF FUND SHARES
Sold - Class A 2,677 3,110
Issued for distributions reinvested - Class A 780 872
Repurchased - Class A (3,796) (5,556)
-------- ---------
(339) (1,574)
-------- ---------
Sold - Class B 1,132 1,841
Issued for distributions reinvested - Class B 208 205
Repurchased - Class B (1,106) (1,111)
-------- ---------
234 935
-------- ---------
</TABLE>
See notes to financial statements.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1996
NOTE 1. ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
ORGANIZATION: Colonial Massachusetts 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 investment objective of the Fund 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
20
<PAGE>
Notes to Financial Statements/January 31, 1996
- -------------------------------------------------------------------------------
each class proportionately on a daily basis for purposes of determining the net
asset value of each class.
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 shares 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
-------------------- ---------------
<C> <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
-------------------- --------------
<C> <C>
January 1, 1996 0.0125%
April 1, 1996 0.0250%
July 1, 1996 0.0375%
October 1, 1996 0.0500%
</TABLE>
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.
21
<PAGE>
Notes to Financial Statements/January 31, 1996
- -------------------------------------------------------------------------------
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
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 $50,799 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $241,822 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
---------------------------- ------
<C> <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 0.70%
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
- -------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended January 31, 1996, purchases and sales
of investments, other than short-term obligations, were $53,892,104 and
$58,091,771, respectively.
Unrealized appreciation (depreciation) at January 31, 1996, based on cost of
investments for federal income tax purposes was:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation $ 27,099,649
Gross unrealized depreciation (88,163)
-------------
Net unrealized appreciation $ 27,011,486
-------------
</TABLE>
22
<PAGE>
Notes to Financial Statements/January 31, 1996
- -------------------------------------------------------------------------------
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
---------- ------------
<C> <C>
2002 $ 173,000
2003 1,749,000
2004 1,201,000
-------------
$3,123,000
=============
</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 instruments 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.
23
<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 $ 7.390 $ 7.390 $ 8.130 $ 8.130
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.424 0.367 0.444 0.388
Net realized and
unrealized gain (loss) 0.650 0.650 (0.738) (0.738)
-------- -------- -------- --------
Total from Investment
Operations 1.074 1.017 (0.294) (0.350)
-------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.424) (0.367) (0.446) (0.390)
From net realized gains -- -- -- --
In excess of net realized gains -- -- -- --
-------- -------- -------- --------
Total from Distributions
Declared to Shareholders (0.424) (0.367) (0.446) (0.390)
-------- -------- -------- --------
Net asset value -
End of period $ 8.040 $ 8.040 $ 7.390 $ 7.390
-------- -------- -------- --------
Total return (c)(d) 14.90% 14.05% (3.49)% (4.21)%
-------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.85%(f) 1.60%(f) 0.72% 1.47%
Net investment income 5.49%(f) 4.74%(f) 5.93% 5.18%
Fees and expenses waived
or borne by the Adviser 0.06% 0.06% 0.12% 0.12%
Portfolio turnover 21% 21% 58% 58%
Net assets at end
of period (000) $207,759 $ 60,651 $193,303 $ 53,973
(a) Net of fees and expenses waived or borne by the Adviser
which amounted to .................... $ 0.005 $ 0.005 $ 0.009 $ 0.009
</TABLE>
(b) Class B shares were initially offered on June 8, 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) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(g) Annualized.
24
<PAGE>
FINANCIAL HIGHLIGHTS - continued
Year ended January 31
-------------------------------------------------------------------------
1994 1993 1992
Class A Class B Class A Class B(b) Class A
-------- ------- ------- --------- -------
$ 7.700 $ 7.700 $ 7.420 $ 7.450 $ 7.120
-------- ------- -------- ------- --------
0.453 0.395 0.481 0.272 0.505
0.439 0.439 0.301 0.275 0.295
-------- ------- -------- ------- --------
0.892 0.834 0.782 0.547 0.800
-------- ------- -------- ------- --------
(0.462) (0.404) (0.479) (0.274) (0.500)
(0.002) (0.002)
--- --- (0.021) (0.021) -
-------- ------- -------- ------- --------
(0.462) (0.404) (0.502) (0.297) (0.500)
-------- ------- -------- ------- --------
$ 8.130 $ 8.130 $ 7.700 $ 7.700 $ 7.420
-------- ------- -------- ------- --------
11.86% 11.05% 10.87% 1.11(e) 11.61%
--------- ---------- -------- ------- --------
0.64% 1.39% 0.54% 1.29(g) 0.46%
5.68% 4.93% 6.38% 5.63(g) 6.89%
0.21% 0.21% 0.33% 0.33% 0.43%
7% 7% 7% 7% 14%
$225,636 $ 51,819 $186,526 $ 17,282 $145,957
$ 0.016 $ 0.016 $ 0.025 $ 0.016 $ 0.032
--------------------------------------------------------------
Federal income tax information (unaudited) All of the distributions will be
treated as exempt income for federal income tax purposes.
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
T0 THE TRUSTEES OF COLONIAL TRUST V AND THE SHAREHOLDERS OF
COLONIAL MASSACHUSETTS 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 Massachusetts 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
26
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Massachusetts Tax-Exempt Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial Massachusetts 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 Massachusetts
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.
27
<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
MA-02/843B-0196 (3/96)
