<PAGE>
[COLONIAL LOGO]
COLONIAL
MASSACHUSETTS TAX-EXEMPT FUND
[PICTURE]
SEMIANNUAL REPORT
JULY 31,1996
NOT FDIC- MAY LOSE VALUE
INSURED NO BANK GUARANTEE
<PAGE>
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND HIGHLIGHTS
FEBRUARY 1, 1996 - JULY 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: "The Fund is currently invested in a mixture of
high quality bonds that tend to track the market and could provide total return
potential, and lower quality, high coupon bonds that could provide the Fund with
a stable, high income component." - Maureen Newman
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B
Inception dates 4/10/87 6/8/92
<S> <C> <C>
Distributions declared per share* $0.203 $0.174
SEC yields on 7/31/96** 4.86% 4.34%
Taxable-equivalent SEC yields*** 9.14% 8.17%
Total returns, assuming reinvestment of all
distributions and no sales charge or
contingent deferred sales charge (CDSC)
6 months (1.52)% (1.90)%
Net asset value per share at 7/31/96 $ 7.71 $ 7.71
</TABLE>
*A portion of the Fund's income may be subject to the alternative minimum tax.
**The 30-day SEC yields on July 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 4.80% and the yield for Class B shares would have been
4.28%.
***Taxable-equivalent SEC yields are based on the maximum effective 46.8%
federal and Massachusetts income tax rates.
<TABLE>
<CAPTION>
QUALITY BREAKDOWN TOP FIVE SECTORS
(as of 7/31/96) (as of 7/31/96)
<S> <C> <C> <C>
AAA .......................... 44.9% Water & Sewer ................ 15.8%
AA ........................... 9.9% Education .................... 15.2%
A ............................ 32.7% General Obligations .......... 14.6%
BBB .......................... 3.6% Transportation ............... 9.9%
Non-rated .................... 7.8% Housing ...................... 8.3%
Cash & Equivalents ........... 1.1%
</TABLE>
Sector classifications are based upon Colonial's defined criteria as used in the
investment process. Because the Fund is actively managed, quality and sector
weightings will change.
2
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[PICTURE OF HAROLD W. COGGER]
I am pleased to present your Fund's semiannual report for the period ended July
31, 1996. Your receipt of this report provides us with the opportunity to
reflect on the investment environment of the past six months. It also allows me
to introduce Maureen Newman as the new Massachusetts Portfolio Manager. Prior to
joining Colonial, Ms. Newman was with Fidelity Investments for eleven years
where she acted in both the capacity of an analyst and a portfolio manager.
In the bond market, significantly stronger than expected economic indicators
early in the period stirred inflation fears and propelled long-term interest
rates upward. The Federal Reserve Board lowered short-term interest rates in
January, but failed to continue the easing trend that the market anticipated. As
a result, long-term interest rates rose during the period, eliminating almost
half of the ground gained during 1995's bond market rally. Bond market
volatility continues, based upon receipt of conflicting economic reports and
changing expectations of Federal Reserve Board activity.
While market conditions put pressure on municipal bond prices as well, there was
some good news for the tax-exempt sector. Some of the significant reasons that
municipal bonds outperformed Treasury bonds were technical, such as low supply
and strong retail market support. Others were fundamental, such as the easing of
fears generated by tax-reform proposals, particularly those promoting a flat
tax.
In the stock market, generally favorable conditions prevailed throughout most of
the period, with both large company and small company stocks posting strong
performance until July, when a price correction took place. As a result of that
correction, stock indices generally posted negative total returns for July.
Our expectations for the remainder of 1996 include a moderating economy. We do
believe that the economy will continue to grow, although at a slower pace than
was indicated earlier this year. The lack of any appreciable wage and price
pressure should put the bond market's fears of inflation to rest. Therefore, we
are optimistic that market psychology will shift and volatility will decline by
year-end.
As always, we thank you for the opportunity to help you meet your investment
goals through the Colonial family of funds.
Respectfully,
/s/ Harold W. Cogger
Harold W. Cogger
President
September 11, 1996
3
<PAGE>
PORTFOLIO MANAGEMENT REPORT
MAUREEN NEWMAN is portfolio manager of the Colonial Massachusetts Tax-Exempt
Fund. Ms. Newman is vice president of Colonial Management Associates, Inc. and
is the Manager of Tax-Exempt Credit Research.
Q: WHAT WAS THE FUND'S STRATEGY DURING THE PAST SIX MONTHS?
A: Our strategy had two major themes during the period. First, we shortened the
effective maturity of the portfolio in order to reduce the Fund's sensitivity to
interest rates and to take advantage of the flat yield curve. The yield curve is
a graphical representation of interest rates for bonds of different maturities.
In the municipal market, the recent difference between the yield of a 15-year
bond and a 30-year bond has been low, which is one example of a flat yield
curve. When this occurs, the Fund's volatility can be reduced without
significantly reducing the yield. Second, we have been upgrading the overall
credit quality of the portfolio because credit quality spreads have been narrow.
This means there is little yield advantage for taking additional risks on lower
quality bonds. We will reverse this strategy if the yield advantage of
lower-rated bonds increases.
Q: HOW DID THE FUND'S SIX MONTH PERFORMANCE COMPARE TO THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX?
A: The Fund underperformed the Lehman Brothers Municipal Bond Index, a
broad-based, unmanaged index that measures the performance of the municipal bond
market. The Index's holdings represent many states, not just Massachusetts. The
total return for the Fund's Class A shares, based on net asset value, was down
1.52%, while the return on the Index was down 0.30%.
Q: WHAT FACTORS CONTRIBUTED TO PERFORMANCE DURING THIS PERIOD?
A: The biggest factor was a number of stronger than expected economic reports
that resulted in interest rates moving up close to 100 basis points over the
period. Because bond prices fall when interest rates rise, this had a negative
effect on fixed income investments. Other factors included a tight supply of
Massachusetts bonds, which created a challenging environment for implementing
the Fund's strategy and shifting its focus towards bonds with shorter effective
maturities.
Q: HOW IS THE STATE'S ECONOMY FARING?
A: Our outlook on the Commonwealth of Massachusetts remains positive.
Unemployment is well below the national average and many companies are
reportedly seeking skilled employees from other states. The primary growth areas
continue to be health care services and construction, which is benefiting from
the "Big Dig" construction project, expected to last well into the next decade.
We continued to keep a watchful eye on consolidation in the health care sector.
We also closely monitored the progress of some large employers lobbying for tax
breaks to offset the high cost of doing business in the Commonwealth, most
notably Raytheon Corp. and the mutual fund industry.
4
<PAGE>
Q: WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 1996?
A: A number of recent reports indicate stronger economic growth than we
previously expected. Despite these growth indicators, we have not seen any
appreciable wage and price pressure, and believe the market's fears of inflation
should be calmed. We do expect continued volatility and fluctuating interest
rates through the end of the year, and we are continuing to reduce the effective
maturity of the Fund due to the flatness of the yield curve. We will also
continue to look for opportunities to upgrade credit quality where the yield
differential between higher and lower rated bonds is narrow.
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND INVESTMENT PERFORMANCE
Change in Value of $10,000 from 4/87 to 7/96
Based on Net Asset Value (NAV) and
Maximum Offering Price (MOP) for Class A Shares
<TABLE>
<CAPTION>
CMATEF NAV MOP Lehman
- -------- ------ ------ ------
<S> <C> <C> <C>
4/30/87 10,000 9,525 10,000
5/31/87 9,890 9,421 9,950
6/30/87 10,152 9,670 10,243
7/31/87 10,301 9,811 10,347
8/31/87 10,322 9,831 10,370
9/30/87 9,714 9,253 9,988
10/31/87 9,790 9,325 10,023
11/30/87 10,105 9,625 10,285
12/31/87 10,242 9,756 10,434
1/31/88 10,620 10,116 10,806
2/29/88 10,760 10,249 10,920
3/31/88 10,614 10,109 10,793
4/30/88 10,710 10,201 10,875
5/31/88 10,638 10,132 10,844
6/30/88 10,904 10,386 11,002
7/31/88 10,971 10,450 11,074
8/31/88 11,022 10,499 11,084
9/30/88 11,152 10,622 11,284
10/31/88 11,362 10,823 11,483
11/30/88 11,288 10,752 11,378
12/31/88 11,420 10,878 11,495
1/31/89 11,635 11,082 11,732
2/28/89 11,510 10,963 11,598
3/31/89 11,498 10,952 11,571
4/30/89 11,749 11,191 11,846
5/31/89 11,918 11,352 12,091
6/30/89 12,039 11,467 12,256
7/31/89 12,128 11,552 12,423
8/31/89 12,032 11,460 12,301
9/30/89 12,054 11,481 12,264
10/31/89 12,110 11,534 12,414
11/30/89 12,286 11,702 12,631
12/31/89 12,378 11,790 12,735
1/31/90 12,316 11,731 12,675
2/28/90 12,445 11,854 12,788
3/31/90 12,417 11,827 12,791
4/30/90 12,265 11,682 12,699
5/31/90 12,609 12,010 12,976
6/30/90 12,705 12,101 13,090
7/31/90 12,928 12,314 13,283
8/31/90 12,665 12,063 13,090
9/30/90 12,617 12,018 13,098
10/31/90 12,789 12,181 13,336
11/30/90 13,090 12,468 13,604
12/31/90 13,168 12,543 13,663
1/31/91 13,339 12,705 13,846
2/28/91 13,473 12,833 13,967
3/31/91 13,533 12,891 13,972
4/30/91 13,727 13,075 14,158
5/31/91 13,865 13,206 14,284
6/30/91 13,849 13,191 14,270
7/31/91 14,065 13,397 14,444
8/31/91 14,224 13,549 14,634
9/30/91 14,365 13,682 14,825
10/31/91 14,525 13,836 14,958
11/30/91 14,549 13,858 15,000
12/31/91 14,887 14,180 15,322
1/31/92 14,887 14,180 15,357
2/29/92 14,927 14,218 15,362
3/31/92 14,947 14,237 15,368
4/30/92 15,069 14,353 15,504
5/31/92 15,273 14,547 15,687
6/30/92 15,518 14,781 15,950
7/31/92 16,013 15,252 16,428
8/31/92 15,867 15,113 16,268
9/30/92 15,950 15,193 16,374
10/31/92 15,740 14,993 16,213
11/30/92 16,119 15,353 16,504
12/31/92 16,314 15,539 16,672
1/31/93 16,504 15,720 16,866
2/28/93 17,082 16,271 17,476
3/31/93 16,952 16,147 17,291
4/30/93 17,102 16,290 17,466
5/31/93 17,188 16,371 17,564
6/30/93 17,468 16,638 17,857
7/31/93 17,486 16,655 17,880
8/31/93 17,812 16,966 18,253
9/30/93 18,030 17,174 18,461
10/31/93 18,072 17,213 18,497
11/30/93 17,910 17,059 18,333
12/31/93 18,242 17,375 18,720
1/31/94 18,463 17,586 18,934
2/28/94 18,049 17,192 18,444
3/31/94 17,336 16,513 17,693
4/30/94 17,446 16,617 17,843
5/31/94 17,600 16,764 17,997
6/30/94 17,501 16,670 17,887
7/31/94 17,822 16,975 18,215
8/31/94 17,862 17,013 18,278
9/30/94 17,573 16,739 18,010
10/31/94 17,168 16,352 17,691
11/30/94 16,732 15,937 17,370
12/31/94 17,202 16,385 17,753
1/31/95 17,817 16,971 18,260
2/28/95 18,317 17,447 18,791
3/31/95 18,478 17,600 19,007
4/30/95 18,517 17,637 19,030
5/31/95 19,044 18,139 19,637
6/30/95 18,738 17,848 19,465
7/31/95 18,850 17,954 19,649
8/31/95 19,110 18,202 19,899
9/30/95 19,271 18,356 20,024
10/31/95 19,659 18,725 20,316
11/30/95 20,073 19,120 20,653
12/31/95 20,361 19,394 20,851
1/31/96 20,472 19,500 21,009
2/29/96 20,227 19,267 20,867
3/31/96 19,856 18,912 20,600
4/30/96 19,764 18,825 20,542
5/31/96 19,775 18,835 20,534
6/30/96 19,994 19,044 20,758
7/31/96 20,160 19,202 20,946
</TABLE>
A $10,000 investment in Class B shares made on 6/92 (inception) at NAV would
have been valued at $12,786 on 7/31/96. The same investment after deducting the
applicable contingent deferred sales charge (CDSC) would have grown to $12,586
on 7/31/96.
AVERAGE ANNUAL TOTAL RETURNS
As of June 30, 1996 (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 6.69% 1.63% 5.90% 0.90%
- --------------------------------------------------------------------------------
5 YEARS 7.62% 6.58% -- --
- --------------------------------------------------------------------------------
SINCE INCEPTION 7.64% 7.07% 6.03% 5.41%
- --------------------------------------------------------------------------------
</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% for one year and 3% 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
JULY 31, 1996 (UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
MUNICIPAL BONDS - 98.0% PAR VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EDUCATION - 17.5%
Education - 15.1%
State College Building Authority,
Series 1994 A,
7.500% 05/01/14 $1,825 $ 2,188
Southeastern University,
Series 1995 A,
5.750% 05/01/16 1,250 1,247
State Health & Educational
Facilities Authority:
Amherst College, Series E,
6.800% 11/01/21 500 537
Berkley College of Music, Series C,
6.875% 10/01/21 1,000 1,069
Boston College, Series K:
5.250% 06/01/18 6,000 5,535
5.250% 06/01/23 5,850 5,316
Boston University, Series 1991 L,
RIB, (variable rate),
9.490% 10/01/31 1,000 1,076
Community Colleges Program, Series A,
6.600% 10/01/22 1,250 1,277
Harvard University, Series N,
6.250% 04/01/20 9,250 9,897
Suffolk University, Series B,
6.250% 07/01/12 1,000 1,019
Tufts University, Series 1988 D,
7.700% 08/01/08 400 432
Worcester Polytechnical Institute, Series E,
6.625% 09/01/17 500 519
6.750% 09/01/11 500 533
State Industrial Finance Agency:
Babson College,
Series 1992 A,
6.375% 10/01/09 1,000 1,061
Concord Academy,
Series 1991,
6.900% 09/01/21 400 428
Emerson College,
Series 1991 A,
8.900% 01/01/18 500 549
Holy Cross College,
5.500% 03/01/05 1,375 1,420
</TABLE>
6
<PAGE>
Investment Portfolio/July 31,1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Milton Academy,
Series 1993 B,
5.250% 09/01/19 $1,000 $ 924
Phillips Academy,
Series 1993,
5.375% 09/01/23 2,050 1,927
University of Massachusetts
Building Authority,
Series 1991 A,
7.200% 05/01/04 400 451
--------
37,405
--------
SCHOOL DISTRICT GENERAL OBLIGATION - 0.4%
Nauset Regional School District:
Series A:
6.400% 06/15/09 220 231
6.400% 06/15/10 220 230
Series B:
6.400% 09/15/09 260 273
6.400% 09/15/10 260 273
--------
1,007
--------
STUDENT LOAN - 2.0%
New England Educational Loan Marketing
Corp., Student Loan, Series 1993-A,
5.700% 07/01/05 5,000 5,038
--------
- -------------------------------------------------------------------------------------------------
HEALTH - 12.2%
HEALTH SERVICES - 0.3%
State Industrial Finance Agency,
Harvard Community Health Plan, Inc.,
Series 1988 B,
8.125% 10/01/17 640 682
--------
HOSPITALS - 7.8%
State Health & Educational
Facilities Authority,
Berkshire Health System, Series C,
6.000% 10/01/20 1,000 877
Beth Israel Hospital, Series D,
7.800% 07/01/14 250 272
Beverly Hospital, Series D,
7.300% 07/01/13 1,000 1,085
Capital Asset Program, Series 1989 F,
7.300% 10/01/18 750 816
Charlton Memorial Hospital, Series B:
7.250% 07/01/07 500 538
7.250% 07/01/13 500 528
Children's Hospital, Series E:
5.500% 10/01/19 3,500 3,316
6.200% 10/01/16 2,000 2,032
</TABLE>
7
<PAGE>
Investment Portfolio/July 31,1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HEALTH - CONT.
HOSPITALS - CONT.
Dana Farber Cancer Institute:
Series C,
6.650% 12/01/15 $ 250 $ 256
Series 1995 G1,
5.500% 12/01/27 6,000 5,370
Lowell General Hospital, Series 1991 A,
8.400% 06/01/11 500 548
Medical Center of Central Mass., Series A,
7.000% 07/01/12 1,000 1,042
St. Elizabeth's Hospital, Series E,
9.746% 08/15/21 1,000 1,092
Spaulding Rehabilitation Hospital, Series A,
7.625% 07/01/21 400 423
University Hospital, Series C,
7.250% 07/01/19 1,000 1,091
--------
19,286
--------
INTERMEDIATE CARE FACILITIES - 0.1%
State Health & Educational
Facilities Authority,
Corp. for Independent Living,
8.100% 07/01/18 295 291
--------
NURSING HOMES - 4.0%
Boston,
St. Joseph Nursing Care Center, Inc.
Series 1990,
10.000% 01/01/20(a) 495 541
Deutsches Altenheim, Inc., Series A,
7.700% 11/01/31 985 1,050
Fairview Extended Care Service, Inc., Series A,
10.250% 01/01/21 500 564
State Industrial Finance Agency:
American Health Foundation Inc.,
Series 1989,
10.125% 03/01/19 1,785 1,872
Belmont Home Care,
Series 1995 A,
9.270% 01/01/25 2,000 2,092
GF/Massachusetts Inc.,
Series 1994,
8.300% 07/01/23 2,475 2,401
Seacoast Nursing Home,
Series 1991,
9.625% 12/01/21 1,260 1,378
--------
9,898
--------
</TABLE>
8
<PAGE>
Investment Portfolio/July 31,1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
HOUSING - 8.6%
ASSISTED LIVING/SENIOR - 0.4%
State Industrial Finance Agency,
Heights Crossing Ltd.,
Series 1995,
6.000% 02/01/15 $1,125 $ 1,124
--------
MULTI - FAMILY - 3.1%
Boston-Mount Pleasant
Development Corp.,
Section 8 Assisted, Series A,
6.750% 08/01/23 1,680 1,739
Framingham Housing Authority,
Beaver Terrace Apartments,
Series 1992 A,
6.600% 08/20/16 655 668
State Housing Finance Agency:
Series 1988 A,
8.400% 08/01/21 1,210 1,240
Series 1989 A,
7.600% 12/01/16 690 726
Series 1990 A,
8.150% 02/01/29 135 143
Series 1992 C,
6.875% 11/15/11 3,000 3,217
--------
7,733
--------
SINGLE - FAMILY - 5.1%
State Housing Finance Agency:
Series 3,
7.875% 06/01/14 400 410
Series 5,
8.375% 06/01/15 500 519
Series 6,
8.100% 12/01/14 495 521
Series 7,
8.100% 06/01/20 420 442
Series 8,
7.700% 06/01/17 575 604
Series 9,
8.100% 12/01/21 500 530
Series 12,
7.600% 12/01/13 250 261
Series 13,
7.950% 06/01/23 1,450 1,517
Series 18,
7.350% 12/01/16 1,000 1,055
Series 1987 4,
7.375% 06/01/14 705 723
Series 1987 A,
9.000% 12/01/18 215 223
</TABLE>
9
<PAGE>
Investment Portfolio/July 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING -CONT.
SINGLE - FAMILY - CONT.
Series 1987 B,
8.500% 08/01/20 $ 10 $ 10
Series 1988 B,
8.100% 08/01/23 455 477
Series 1989 A:
8.200% 08/01/15 245 257
8.200% 08/01/27 330 346
Series 1994 A,
6.750% 07/01/28 4,500 4,708
--------
12,603
--------
- -------------------------------------------------------------------------------------------------
OTHER - 8.8%
PUBLIC FACILITIES IMPROVEMENT - 0.7%
PR Commonwealth of Puerto Rico,
Public Buildings Authority, Series 1993-M,
stepped coupon, (5.700% 07/01/98)
3.750% 07/01/16(b) 2,000 1,777
--------
PUBLIC INFRASTRUCTURE - 0.1%
State Industrial Finance Agency,
Series 1987 G,
7.875% 05/01/07 100 101
VI Public Finance Authority,
Series 1992 A,
7.000% 10/01/02 250 271
--------
372
--------
REFUNDED/ESCROW/SPECIAL OBLIGATIONS (c) - 8.0%
Bay Transportation Authority,
General Transportation System,
Series 1990-B,
7.875% 03/01/21(d) 4,000 4,595
Boston Water & Sewer Commission,
Series 1991 A,
7.000% 11/01/18 2,700 3,037
Leominster,
7.500% 04/01/09 1,075 1,200
Lynn,
7.850% 01/15/11 1,000 1,179
Palmer,
Series 1990 B,
7.700% 10/01/10 1,000 1,135
Southern Berkshire Regional
School District,
7.000% 04/15/11 500 565
</TABLE>
10
<PAGE>
Investment Portfolio/July 31,1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
State Health & Educational
Facilities Authority:
Carney Hospital, Series C,
7.750% 07/01/14 $ 500 $ 566
Cooley Dickinson Hospital, Series A,
7.125% 11/15/18 1,920 2,201
Framingham Union Hospital, Series B,
8.500% 07/01/20 1,000 1,154
Mt. Auburn Hospital, Series 1988 A,
7.875% 07/01/18 250 272
St. John's Hospital, Series 1990 B,
8.375% 12/01/20 500 582
Winchester Hospital, Series C,
7.550% 07/01/11 500 570
State Housing Finance Agency:
Series A,
8.700% 05/15/14 230 254
Series 1990,
9.000% 10/01/20 485 571
State Industrial Finance Agency,
Mary Ann Morse Nursing Home, Inc.:
Series 1991 I,
10.000% 01/01/21 925 1,138
University of Lowell Building
Authority,
Series 1987 A,
7.600% 11/01/11 200 213
University of Massachusetts
Building Authority:
Series 1976 A,
7.500% 05/01/11 100 116
Worcester,
6.900% 05/15/07 415 467
--------
19,815
--------
- -------------------------------------------------------------------------------------------------
OTHER REVENUE - 1.1%
JUSTICE & PUBLIC ORDER - 0.4%
Plymouth County Correctional Facility,
Series A,
7.000% 04/01/22 1,000 1,089
--------
MANUFACTURING - 0.7%
State Industrial Finance Agency,
House of Bianchi Inc.,
8.750% 06/01/18 1,725 1,768
--------
</TABLE>
11
<PAGE>
Investment Portfolio/July 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RESOURCE RECOVERY - 1.4%
LAND FILL - 1.0%
State Industrial Finance Agency,
Peabody Monofill Associates, Inc.,
Series 1995,
9.000% 09/01/05 $2,300 $ 2,403
--------
MISCELLANEOUS DISPOSAL - 0.2%
Boston Industrial Development
Finance Authority,
Jet-A-Way, Inc.,
10.500% 01/01/11 400 444
--------
RESOURCE RECOVERY - 0.2%
Agawam,
Springfield Resource Recovery Project,
Series 1986,
8.500% 12/01/08 500 519
--------
- -------------------------------------------------------------------------------------------------
TAX-BACKED - 14.4%
GENERAL OBLIGATION - 14.4%
Amherst,
Series 1992,
6.500% 01/15/12 695 734
Andover Old Town Hall,
Series 1989,
7.700% 12/15/04 1,255 1,371
Boston,
Series 1992 A,
6.500% 07/01/12 4,340 4,644
Fall River,
7.200% 06/01/10 1,250 1,373
Groveland,
Series 1991,
6.900% 06/15/08(d) 250 271
Haverhill,
8.200% 08/15/09 935 1,021
Holyoke:
School Project Loan,
7.650% 08/01/09 500 541
Series,1996 A,
6.000% 06/15/07 1,345 1,412
Lowell,
8.400% 01/15/09 1,000 1,138
Mansfield,
6.700% 01/15/11 1,000 1,068
Nantucket, Series 1991,
6.800% 12/01/11 1,000 1,091
</TABLE>
12
<PAGE>
Investment Portfolio/July 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
Peabody:
6.900% 08/01/07 $ 485 $ 526
6.950% 08/01/08 500 542
State:
Series B,
7.000% 07/01/09 4,385 5,015
Series 1991 B:
(e) 06/01/07 450 256
6.500% 08/01/11 2,000 2,122
Series 1991 C,
6.500% 08/01/11 1,250 1,327
Series 1992 B,
6.500% 08/01/08 1,000 1,110
Swansea,
School Project Loan:
6.800% 01/15/09 250 261
6.800% 01/15/10 125 130
6.800% 01/15/11 210 219
Weymouth,
Series 1992:
6.700% 06/15/09 200 209
6.700% 06/15/10 200 209
6.700% 06/15/11 155 162
6.700% 06/15/12 140 146
Woburn,
7.200% 04/01/04 130 141
Worcester,
Series C,
5.750% 10/01/13 1,000 1,008
PR Commonwealth of Puerto Rico
Public Building Authority,
Series 1993 M,
5.600% 07/01/08 2,500 2,556
PR Commonwealth of Puerto Rico,
Series 1994,
6.500% 07/01/23 5,000 5,238
--------
35,841
--------
- -------------------------------------------------------------------------------------------------
TRANSPORTATION - 11.8%
TRANSPORTATION - 9.8%
Massachusetts Bay Transportation
Authority:
Series 1991 A,
7.000% 03/01/21 1,500 1,740
Series 1992 B:
5.500% 08/01/21(d) 2,000 1,895
6.200% 03/01/16 3,700 3,931
Series 1994 A:
7.000% 03/01/10 5,000 5,700
</TABLE>
13
<PAGE>
Investment Portfolio/July 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRANSPORTATION - CONT.
Series 1994 A:
7.000% 03/01/11 $4,270 $ 4,953
7.000% 03/01/14 1,250 1,455
Massachusetts Bay Transportation
Authority,
Series 1988,
7.750% 01/15/06 250 285
State Port Authority,
Series 1993 B,
5.000% 07/01/18 5,000 4,313
--------
24,272
--------
TURNPIKE/TOLL ROAD/BRIDGE - 2.0%
PR Commonwealth of Puerto Rico
Highway & Transportation Authority,
Series W,
5.500% 07/01/09 660 667
Series 1996 Z,
6.250% 07/01/05 4,000 4,365
--------
5,032
--------
- -------------------------------------------------------------------------------------------------
UTILITY - 22.2%
INVESTOR OWNED - 0.6%
State Industrial Finance Agency,
Nantucket Electric Co.,
Series 1996 A,
6.750% 07/01/05 1,400 1,537
--------
JOINT POWER AUTHORITY - 4.5%
State Municipal Wholesale
Electric Co.:
Series 1994 A,
5.000% 07/01/17(d) 5,000 4,456
Series 1994 A, RIB, (variable rate)
6.180% 07/01/16 4,000 3,200
Series 1994 B,
4.750% 07/01/10(d) 2,000 1,798
4.750% 07/01/11 2,000 1,780
--------
11,234
--------
MUNICIPAL ELECTRIC - 1.4%
PR Commonwealth of Puerto Rico
Electric Power Authority:
Series 1995 Y,
7.000% 07/01/07 1,500 1,725
Series 1989 O,
5.000% 07/01/12 2,000 1,818
--------
3,543
--------
</TABLE>
14
<PAGE>
Investment Portfolio/July 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
WATER & SEWER - 15.7%
Boston Water & Sewer Commission:
Series 1992 A,
5.750% 11/01/13 $1,000 $ 1,007
Series 1993 A,
5.250% 11/01/19 4,750 4,364
Essex Sewer District,
Series 1996 A,
5.250% 06/15/18 5,440 5,046
State Industrial Finance Agency,
Massachusetts Environmental Services,
Series 1994 A,
8.750% 11/01/21 3,000 3,019
State Water Pollution Abatement Trust,
Massachusetts Water Resources Authority:
Series 1992 A:
6.500% 07/15/09 2,000 2,208
6.500% 07/15/19 5,000 5,456
Series 1993 B,
5.500% 03/01/17 1,000 956
Series 1993 C:
5.250% 12/01/15 2,750 2,564
5.250% 12/01/15 1,000 949
5.250% 12/01/20 5,025 4,554
Series 1995 A,
5.000% 08/01/14 1,500 1,374
Series 1995 B,
6.250% 12/01/13 5,000 5,331
Series 1996 A,
6.000% 02/01/06 1,000 1,059
PR Commonwealth of Puerto Rico
Aqueduct & Sewer Authority,
Series 1995,
6.250% 07/01/13 1,000 1,050
--------
38,937
--------
TOTAL MUNICIPAL BONDS (cost of $230,127) 243,650
--------
<CAPTION>
OPTIONS - 0.0 % CONTRACTS
----------------------------------------------------------------------------------------------
<S> <C> <C>
September 1996 Treasury Bond Puts:
Strike price 106, expiration 9/10/96
(cost of $178) 90 30
--------
TOTAL INVESTMENTS (cost of $230,305)(f) 243,680
--------
</TABLE>
15
<PAGE>
Investment Portfolio/July 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
SHORT - TERM OBLIGATIONS -1.0%
- -------------------------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (g)
Pinellas County Health Facilities
Authority,
Series 1985,
3.750% 12/01/15 $2,400 $ 2,400
--------
OTHER ASSETS & LIABILITIES, NET - 1.0% 2,386
- -------------------------------------------------------------------------------------------------
NET ASSETS - 100% $248,466
--------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
(a) 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 as
of July 31, 1996.
(b) Shown parenthetically is the interest rate to be paid and the date the
Fund will begin accruing this rate.
(c) The Fund has been informed that each issuer has placed direct
obligations of the U.S. Government in an irrevocable trust, solely for
the payment of the interest and principal.
(d) These securities, or a portion thereof, with a total market value of
$12,744, are being used to collateralize open futures contracts.
(e) Zero coupon bond.
(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
July 31, 1996.
Short futures contracts open at July 31, 1996:
<TABLE>
<CAPTION>
Par value Unrealized
covered by Expiration depreciation
Type contracts month at 7/31/96
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Treasury Bond $9,700 September 146
</TABLE>
Acronym Name
- ------- ----------------------
RIB Residual Interest Bond
See notes to financial statements.
16
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
JULY 31, 1996 (UNAUDITED)
(in thousands except for per share amounts and footnotes)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $230,305) $ 243,680
Short-term obligations 2,400
----------
246,080
Receivable for:
Interest $3,318
Investments sold 1,044
Fund shares sold 186
Other 41 4,589
------ ----------
Total Assets 250,669
LIABILITIES
Payable for:
Fund shares repurchased 1,069
Distributions 1,060
Variation margin on futures 67
Payable to adviser 5
Accrued Deferred Trustees fees 2
------
Total Liabilities 2,203
----------
NET ASSETS $ 248,466
----------
Net asset value & redemption price per share -
Class A ($190,096/24,644) $ 7.71
----------
Maximum offering price per share - Class A
($7.71/0.9525) $ 8.09(a)
----------
Net asset value & offering price per share -
Class B ($58,370/7,567) $ 7.71(b)
----------
COMPOSITION OF NET ASSETS
Capital paid in $ 238,248
Undistributed net investment income 201
Accumulated net realized loss (3,212)
Net unrealized appreciation (depreciation) on:
Investments 13,375
Open futures contracts (146)
----------
$ 248,466
----------
</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 SIX MONTHS ENDED JULY 31, 1996 (UNAUDITED)
(in thousands)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest $ 7,914
EXPENSES
Management fee $ 683
Service fee 179
Distribution fee - Class B 218
Transfer agent 201
Bookkeeping fee 49
Trustees fee 12
Custodian fee 6
Audit fee 15
Legal fee 4
Registration fee 6
Reports to shareholders 4
Other 10
--------
1,387
Fees waived by the Adviser (43)
--------
Net Investment Income 1,344
--------
6,570
--------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain on:
Investments 2,395
Closed futures contracts 369
--------
Net Realized Gain
Net unrealized depreciation during 2,764
the period on:
Investments (13,637)
Open futures contracts (153)
--------
Net Unrealized Loss (13,790)
--------
Net Loss (11,026)
--------
Net Decrease in Net Assets from Operations $ (4,456)
--------
</TABLE>
See notes to financial statements.
18
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(Unaudited)
Six months
ended Year ended
(in thousands) July 31 January 31
---------- ----------
INCREASE (DECREASE) IN NET ASSETS 1996 1996
--------- ---------
<S> <C> <C>
Operations:
Net investment income $ 6,570 $ 13,964
Net realized gain (loss) 2,764 (1,354)
Net unrealized appreciation (depreciation) (13,790) 23,521
--------- ---------
Net Increase (Decrease) from Operations (4,456) 36,131
Distributions:
From net investment income - Class A (5,120) (11,196)
From net investment income - Class B (1,311) (2,783)
--------- ---------
(10,887) 22,152
--------- ---------
Fund Share Transactions:
Receipts for shares sold - Class A 5,188 20,583
Value of distributions reinvested - Class A 2,732 6,014
Cost of shares repurchased - Class A (17,146) (29,356)
--------- ---------
(9,226) (2,759)
--------- ---------
Receipts for shares sold - Class B 4,237 8,695
Value of distributions reinvested - Class B 764 1,601
Cost of shares repurchased - Class B (4,832) (8,555)
--------- ---------
169 1,741
--------- ---------
Net Increase (Decrease) from Fund Share
Transactions (9,057) (1,018)
--------- ---------
Total Increase (Decrease) (19,944) 21,134
NET ASSETS
Beginning of period 268,410 247,276
--------- ---------
End of period (including undistributed
net investment income of $201 and $34,
respectively) $ 248,466 $ 268,410
--------- ---------
NUMBER OF FUND SHARES
Sold - Class A 671 2,677
Issued for distributions reinvested - Class A 355 780
Repurchased - Class A (2,218) (3,796)
--------- ---------
(1,192) (339)
--------- ---------
Sold - Class B 549 1,132
Issued for distributions reinvested - Class B 100 208
Repurchased - Class B (624) (1,106)
--------- ---------
25 234
--------- ---------
</TABLE>
See notes to financial statements.
19
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996 (UNAUDITED)
NOTE 1. INTERIM FINANCIAL STATEMENTS
In the opinion of management of Colonial Massachusetts Tax-Exempt Fund (the
Fund), a series of Colonial Trust V, the accompanying financial statements
contain all normal and recurring adjustments necessary for the fair presentation
of the financial position of the Fund at July 31, 1996, and the results of its
operations, the changes in its net assets and the financial highlights for the
six months then ended.
NOTE 2. ACCOUNTING POLICIES
ORGANIZATION: The Fund is a 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 is a summary of
significant accounting policies that are consistently followed by the Fund in
the preparation of its financial statements.
SECURITY VALUATION AND TRANSACTIONS: Debt securities generally are valued by a
pricing service based upon market transactions for normal, institutional-size
trading units of similar securities. When management deems it appropriate, an
over-the-counter or exchange bid quotation is used.
Futures contracts are valued based on the difference between the last sale price
and the opening price of the contract.
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.
20
<PAGE>
Notes to Financial Statements/July 31, 1996
Cost is determined and gains (losses) are based upon the specific identification
method for both financial statement and federal income tax purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class B distribution fee), realized and unrealized
gains (losses), are allocated to each class proportionately on a daily basis for
purposes of determining the net asset value of each class.
Class B per share data and ratios are calculated by adjusting the expense and
net investment income per share data and ratios for the Fund for the entire
period by the distribution fee applicable to Class B shares only.
FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable and tax exempt
income, no federal income tax has been accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on the
accrual basis. Original issue discount is accreted to interest income over the
life of a security with a corresponding increase in the cost basis; market
discount is not accreted. Premium is amortized against interest income with a
corresponding decrease in the cost basis.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions daily
and pays monthly.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser) is the
investment Adviser of the Fund and furnishes accounting and other services and
office facilities for a monthly fee based on each Fund's pro rata portion of the
combined average net assets of Trust V as follows:
21
<PAGE>
Notes to Financial Statements/July 31, 1996
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES - CONT.
<TABLE>
<CAPTION>
Average Net Assets Annual Fee Rate
------------------ ---------------
<S> <C>
First $1 billion 0.55%
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>
BOOKKEEPING FEE: The Adviser provides bookkeeping and pricing services for
$27,000 per year plus 0.035% of the Fund's average net assets over $50 million.
TRANSFER AGENT FEE: Colonial Investors Service Center, Inc., (the Transfer
Agent), an affiliate of the Adviser, provides shareholder services for a monthly
fee equal to 0.14% annually of the Fund's average net assets and receives a
reimbursement for certain out of pocket expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. During the six months ended July 31, 1996, the Fund has
been advised that the Distributor retained net underwriting discounts of $18,315
on sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $138,086 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:
Valuation of shares Annual
outstanding on the 20th of Fee
each month which were issued Rate
---------------------------- ------
Prior to November 30, 1994 0.10%
On or after December 1, 1994 0.25%
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
22
<PAGE>
Notes to Financial Statements/July 31, 1996
EXPENSE LIMITS: The Adviser has agreed, until further notice, to waive fees and
bear certain Fund expenses to the extent that total expenses (exclusive of
service and distribution fees, brokerage commissions, interest, taxes, and
extraordinary expenses, if any) exceed 0.75% annually of the Fund's average net
assets.
OTHER: The Fund pays no compensation to its officers, all of whom are employees
of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 4. PORTFOLIO INFORMATION
INVESTMENT ACTIVITY: During the six months ended July 31, 1996, purchases and
sales of investments, other than short-term obligations were $48,018,719 and
$57,736,728, respectively.
Unrealized appreciation (depreciation) at July 31, 1996, based on cost of
investments for both financial statement and federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $14,360,754
Gross unrealized depreciation (985,334)
-----------
Net unrealized appreciation $13,375,420
-----------
</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>
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.
23
<PAGE>
Notes to Financial Statements/July 31, 1996
NOTE 4. PORTFOLIO INFORMATION - CONT.
The Fund may purchase or sell municipal and Treasury bond futures contracts and
purchase and write options on futures. The Fund will invest in these instruments
to hedge against the effects of changes in the value of portfolio securities due
to anticipated changes in interest rates and/or market conditions, for duration
management, or when the transactions are economically appropriate to the
reduction of risk inherent in the management of the Fund and not for trading
purposes. The use of futures contracts and options involves certain risks which
include (1) imperfect correlation between the price movement of the instruments
and the underlying securities, (2) inability to close out a position due to
different trading hours, or the temporary absence of a liquid market for either
the instrument or the underlying securities or (3) an inaccurate prediction by
the Adviser of the future direction of interest rates. Any of these risks may
involve amounts exceeding the variation margin recognized in the Fund's
Statement of Assets and Liabilities at any given time.
NOTE 5. LINE OF CREDIT
The Fund may borrow up to 10% of its net assets under a line of credit for
temporary or emergency purposes. Any borrowings bear interest at one of the
following options determined at the inception of the loan: (1) federal funds
rate plus 1/2 of 1%, (2) the lending bank's base rate or (3) IBOR offshore loan
rate plus 1/2 of 1%. There were no borrowings under the line of credit during
the six months ended July 31, 1996.
24
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
(Unaudited)
Six months ended Year ended
July 31 January 31
---------------------------- -------------------------
1996 1996
Class A Class B Class A Class B
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 8.040 $ 8.040 $ 7.390 $ 7.390
-------- ------- -------- -------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment
income(a) 0.209 0.180 0.424 0.367
Net realized and
unrealized gain (loss) (0.336) (0.336) 0.650 0.650
-------- ------- -------- -------
Total from Investment
Operations (0.127) (0.156) 1.074 1.017
-------- ------- -------- -------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net
investment income (0.203) (0.174) (0.424) (0.367)
-------- ------- -------- -------
Net asset value -
End of period $ 7.710 $ 7.710 $ 8.040 $ 8.040
-------- ------- -------- -------
Total return(b)(c) (1.52)%(d) (1.90)%(d) 14.90% 14.05%
-------- ------- -------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.89%(e)(f) 1.64%(e)(f) 0.85%(e) 1.60%(e)
Net investment
income 5.38%(e)(f) 4.63%(e)(f) 5.49%(e) 4.74%(e)
Fees and expenses waived
or borne by the
Adviser 0.03%(d) 0.03%(d) 0.06% 0.06%
Portfolio turnover 20%(d) 20%(d) 21% 21%
Net assets at end
of period (000) $190,096 $58,370 $207,759 $60,651
(a) Net of fees and expenses waived or
borne by the Adviser which
amounted to $ 0.001 $ 0.001 $ 0.005 $ 0.005
</TABLE>
(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) Not annualized
(e) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(f) Annualized.
25
<PAGE>
FINANCIAL HIGHLIGHTS - continued
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended January 31
---------------------------------------------------------------------
1995 1994
Class A Class B Class A Class B
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 8.130 $ 8.130 $ 7.700 $ 7.700
------------ ------------ ------------ ------------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income(a) 0.444 0.388 0.453 0.395
Net realized and
unrealized gain (loss) (0.738) (0.738) 0.439 0.439
------------ ------------ ------------ ------------
Total from Investment
Operations (0.294) (0.350) 0.892 0.834
------------ ------------ ------------ ------------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net
investment income (0.446) (0.390) (0.462) (0.404)
In excess of net
investment income -- -- -- --
From net realized gains -- -- -- --
In excess of net
realized gains -- -- -- --
------------ ------------ ------------ ------------
Total from Distributions
Declared to Shareholders (0.446) (0.390) (0.462) (0.404)
------------ ------------ ------------ ------------
Net asset value -
End of period $ 7.390 $ 7.390 $ 8.130 $ 8.130
------------ ------------ ------------ ------------
Total return(c)(d) (3.49%) (4.21%) 11.86% 11.05%
------------ ------------ ------------ ------------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.72% 1.47% 0.64% 1.39%
Net investment income 5.93% 5.18% 5.68% 4.93%
Fees and expenses waived
or borne by the Adviser 0.12% 0.12% 0.21% 0.21%
Portfolio turnover 58% 58% 7% 7%
Net assets at end
of period (000) $ 193,303 $ 53,973 $ 225,636 $ 51,819
(a) Net of fees and expenses waived or
borne by the Adviser which
amounted to $ 0.009 $ 0.009 $ 0.016 $ 0.016
</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) Annualized.
26
<PAGE>
FINANCIAL HIGHLIGHTS - continued
<TABLE>
<CAPTION>
Period ended
Year ended January 31 January 31
------------------------------- ------------
1993 1992
Class A Class B(b) Class A
------------ ------------ ------------
<S> <C> <C>
$ 7.420 $ 7.450 $ 7.120
------------ ------------ ------------
0.481 0.272 0.505
0.301 0.275 0.295
------------ ------------ ------------
0.782 0.547 0.800
------------ ------------ ------------
(0.479) (0.274) (0.500)
------------ ------------ ------------
(0.002) (0.002) --
(0.021) (0.021) --
------------ ------------ ------------
(0.502) (0.297) (0.500)
------------ ------------ ------------
$ 7.700 $ 7.700 $ 7.420
------------ ------------ ------------
10.87% 1.11%(e) 11.61%
------------ ------------ ------------
0.54% 1.29%(f) 0.46%
6.38% 5.63%(f) 6.89%
0.33% 0.33% 0.43%
7% 7% 14%
$ 186,526 $ 17,282 $ 145,957
$ 0.025 $ 0.016 $ 0.032
</TABLE>
27
<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.
28
<PAGE>
HOW TO REACH COLONIAL
BY PHONE OR BY MAIL
BY TELEPHONE
Colonial Customer Connection - 1-800-345-6611
For 24-hour account information, call from your touch-tone phone. (Rotary
callers will be automatically connected to a representative during business
hours.) A recorded message will guide you through the menu:
For fund prices, dividends, and capital gains information ............ press 1
For account information .............................................. press 2
To speak to a Colonial representative ................................ press 3
For yield and total return information ............................... press 4
For duplicate statements or new supply of checks ..................... press 5
To order duplicate tax forms and year-end statements ................. press 6
(February through May)
To review your options at any time during your call .................. press *
To speak with a shareholder services representative about your account, call
Monday to Friday, 8:00 am to 8:00 pm ET, and Saturdays from February through
mid-April, 10:00 am to 2:00 pm ET.
COLONIAL TELEPHONE TRANSACTION DEPARTMENT - 1-800-422-3737
To purchase, exchange, or sell shares by telephone, call Monday to Friday, 9:00
am to 8:00 pm ET. Transactions received after the close of the New York Stock
Exchange will receive the next business day's closing price.
COLONIAL LITERATURE DEPARTMENT - 1-800-248-2828
To request literature on any Colonial fund, call Monday to Friday, 8:30 am to
6:30 pm ET.
BY MAIL
COLONIAL INVESTORS SERVICE CENTER, INC.
P.O. BOX 1722
BOSTON, MA 02105-1722
29
<PAGE>
SHAREHOLDER COMMUNICATIONS
TO KEEP YOU INFORMED
To make recordkeeping easy and keep you up-to-date on the performance of your
investments, you can expect to receive the following information about your
Colonial account:
TRANSACTION CONFIRMATIONS: Each time you make a purchase, sale, or exchange, you
receive a confirmation statement within just a few days.
QUARTERLY STATEMENTS: Every three months, if any transactions are made that
affect your share balance, this statement reports on your account activity
during the quarter (including any reinvestment of dividends). This statement
also provides year-to-date information.
COLONIAL SHAREHOLDER NEWS: Mailed with your quarterly account statements, this
newsletter highlights timely investment strategies, portfolio manager
commentary, and shareholder service updates.
TAX FORMS AND YEAR-END TAX GUIDE: Easy-to-use forms and timely information are
designed to make tax reporting simpler. (Usually mailed in January.)
AVERAGE COST BASIS STATEMENTS: If you sold or exchanged shares during the year,
this statement may help you calculate your gain/loss for tax purposes. (Usually
mailed in February.)
30
<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.
31
<PAGE>
[COLONIAL MUTUAL FUNDS LOGO]
Mutual Funds for
Planned Portfolios
TRUSTEES
ROBERT J. BIRNBAUM
Trustee (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.)
TOM BLEASDALE
Trustee (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Trustee (formerly Chairman of the Board, Bank of New England-Worcester)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
WILLIAM E. MAYER
Dean, College of Business and Management, University of Maryland (formerly Dean,
Simon Graduate School of Business, University of Rochester; Chairman and Chief
Executive Officer, CS First Boston Merchant Bank; and President and Chief
Executive Officer, The First Boston Corporation)
JAMES L. MOODY, JR.
Chairman of the Board, Hannaford Bros. Co. (formerly Chief Executive Officer,
Hannaford Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
GEORGE L. SHINN
Financial Consultant (formerly Chairman, Chief Executive Officer and Consultant,
The First Boston Corporation)
ROBERT L. SULLIVAN
Management Consultant (formerly Management Consultant, Saatchi and Saatchi
Consulting Ltd. and Principal and International Practice Director, Management
Consulting, Peat Marwick Main & Co.)
SINCLAIR WEEKS, JR.
Chairman of the Board, Reed & Barton Corporation
COLONIAL INVESTMENT SERVICES, INC., Distributor (C) 1996
One Financial Center, Boston, Massachusetts 02111-2621, 617-426-3750
MA-03/509C-0796 M (9/96)
