<PAGE>
COLONIAL
MICHIGAN TAX-EXEMPT FUND
SEMIANNUAL REPORT
JULY 31, 1996
NOT FDIC-INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
<PAGE>
COLONIAL MICHIGAN TAX-EXEMPT FUND HIGHLIGHTS
FEBRUARY 1, 1996 - JULY 31, 1996
INVESTMENT OBJECTIVE: Colonial Michigan Tax-Exempt Fund seeks as high a level of
after-tax total return, as is consistent with prudent risk, by pursuing current
income exempt from federal and Michigan income tax and opportunities for
long-term appreciation from a portfolio primarily invested in investment grade
municipal bonds. Fund shares are also intended to be exempt from the Michigan
intangibles tax.
THE FUND IS DESIGNED TO OFFER:
- High monthly double-tax-free income
- Long-term appreciation
- Emphasis on quality
PORTFOLIO MANAGER COMMENTARY: "A favorable economic and fiscal environment in
Michigan during the past few years has positioned the State well to make a
smooth transition to a slower economy. Substantial reserves and conservative
budgeting should result in continued good performance for Michigan tax-exempt
bonds." - Brian Hartford
COLONIAL MICHIGAN TAX-EXEMPT FUND PERFORMANCE
CLASS A CLASS B
Inception dates 9/26/86 8/4/92
Distributions declared per share* $0.180 $0.154
SEC yields on 7/31/96** 4.85% 4.33%
Taxable-equivalent SEC yields*** 8.42% 7.51%
Total returns, assuming reinvestment
of all distributions and no sales charge or
contingent deferred sales charge (CDSC)
6-months (0.79)% (1.16)%
Net asset value per share at 7/31/96 $6.89 $6.89
*A portion of the Fund's income may be subject to the alternative minimum tax.
**The 30-day SEC yields on 7/31/96 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 4.72% and the yield for Class B shares would have been
4.20%.
***Taxable-equivalent SEC yields are based on the maximum effective 42.4%
federal and Michigan income tax rates.
QUALITY BREAKDOWN
(as of 7/31/96)
AAA 50.9%
AA 12.4%
A 25.5%
BBB 5.3%
Non-rated 5.2%
Cash & Equivalents 0.7%
TOP FIVE SECTORS
(as of 7/31/96)
School General Obligations 18.3%
Hospitals 17.4%
Water & Sewer 10.3%
Public Improvement 8.5%
Housing 8.2%
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>
[PHOTO]
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
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.
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
BRIAN HARTFORD is portfolio manager of the Colonial Michigan Tax-Exempt Fund.
Mr. Hartford is vice president of Colonial Management Associates, Inc. and is
the Quantitative Risk Manager for Colonial's tax-exempt investments.
Q: WHAT WAS THE FUND'S STRATEGY DURING THE PAST SIX MONTHS?
A: We started the period with a positive outlook for fixed income investments,
based on expectations of a slowing economy and low inflation levels. However,
early in the period, stronger than expected reports of economic strength caused
interest rates to reverse direction and move upwards. We then implemented a
strategy designed to reduce the Fund's sensitivity to interest rates. First, we
reduced our investment in current coupon 30-year bonds that are priced to
maturity and moved into more defensive premium bonds that are priced to the
call. Callable bonds have maturities that are effectively the same as the call
date, typically much earlier than the 30-year final maturity. Second, we moved
down the yield curve by exchanging bonds with 30-year maturities for bonds with
15 to 20-year maturities. Both moves had the effect of increasing the Fund's
holdings of shorter effective maturities, reducing the expected price swings in
response to interest rate changes.
Q: HOW DID THE FUND'S SIX MONTH PERFORMANCE COMPARE TO THE LEHMAN BROTHERS
MUNICIPAL BOND INDEX?
A: The Fund modestly underperformed the Lehman Brothers Municipal Bond Index, a
broad-based, unmanaged index that tracks the performance of the municipal bond
market. The Index's holdings represent many states, not just Michigan. The total
return for the Fund's Class A shares, based on net asset value, was down 0.79%,
while the return on the Index was down 0.30%. This underperformance is
attributable to the Fund's narrower range of investments.
Q: WHAT FACTORS CONTRIBUTED TO PERFORMANCE DURING THIS PERIOD?
A: The biggest factor was the increase in interest rates over the period, which
had a negative effect on fixed income investments. Other factors included an
investment in paper de-inking companies. This sector has been weak recently due
to the commodity nature of the end-product, increased competition in the
industry, and new technology that has prevented some of these companies from
achieving their objectives. A positive factor was the improved performance of a
bond that previously missed an interest payment and suffered a serious price
decline. That bond returned to accrual and experienced a significant 10 point
increase in price.
Q: HOW IS THE STATE'S ECONOMY FARING?
A: Our outlook for the State of Michigan remains positive, and the State's
general obligation bond rating was raised during the past year. However, we
expect the State's growth to moderate as we near the end of the current business
cycle. Because the State's economy tends to be relatively cyclical, we are
focusing on essential service revenue bonds, which are less dependent on tax
revenue collections, and on issuers in the western part of the State, which is
less dependent on the automobile industry.
We have improved our outlook on the City of Detroit, which has benefited from
private investment, seasoned revitalization projects, and a stabilization of the
population of individuals and corporations. Accordingly, the Fund now holds an
investment in selected Detroit tax-backed bonds.
4
<PAGE>
Q: WHAT IS YOUR OUTLOOK FOR THE REMAINDER OF 1996?
A: Despite reports during the period indicating stronger economic growth than we
expected, we have not seen any appreciable wage and price pressure, and believe
the market's fears of inflation should be calmed. We anticipate that these
issues will be resolved by the market as we see more signs of slow, steady
economic growth, leading to less market volatility by the end of the third
quarter. In addition, we believe that interest rates will be lower by year-end.
COLONIAL MICHIGAN TAX-EXEMPT FUND INVESTMENT PERFORMANCE
Change in Value of $10,000 from 9/86 to 7/96
Based on Net Asset Value (NAV) and
Maximum Offering Price (MOP) for Class A Shares
<TABLE>
<CAPTION>
NAV MOP LEHMAN
------- ------- ------
<S> <C> <C> <C>
Sep 30, 86 10000 9525 10000
Oct 31, 86 10047 9570 10173
Nov 30, 86 10179 9696 10374
Dec 31, 86 10099 9619 10345
Jan 31, 87 10418 9923 10657
Feb 28, 87 10510 10010 10710
Mar 31, 87 10386 9892 10596
Apr 30, 87 9577 9123 10065
May 31, 87 9451 9002 10015
Jun 30, 87 9703 9242 10309
Jul 31, 87 9807 9341 10414
Aug 31, 87 9778 9314 10437
Sep 30, 87 9224 8786 10053
Oct 31, 87 9222 8784 10088
Nov 30, 87 9602 9146 10351
Dec 31, 87 9755 9291 10501
Jan 31, 88 10139 9657 10876
Feb 29, 88 10232 9746 10991
Mar 31, 88 10071 9593 10863
Apr 30, 88 10145 9663 10945
May 31, 88 10140 9659 10914
Jun 30, 88 10386 9893 11073
Jul 31, 88 10441 9945 11146
Aug 31, 88 10433 9937 11155
Sep 30, 88 10618 10114 11357
Oct 31, 88 10788 10276 11557
Nov 30, 88 10731 10221 11452
Dec 31, 88 10870 10354 11569
Jan 31, 89 11059 10534 11808
Feb 28, 89 11002 10479 11673
Mar 31, 89 10993 10471 11645
Apr 30, 89 11168 10638 11922
May 31, 89 11312 10775 12169
Jun 30, 89 11236 10702 12335
Jul 31, 89 11330 10791 12503
Aug 31, 89 11270 10734 12381
Sep 30, 89 11295 10759 12343
Oct 31, 89 11373 10832 12494
Nov 30, 89 11537 10989 12713
Dec 31, 89 11567 11017 12817
Jan 31, 90 11491 10945 12756
Feb 28, 90 11591 11040 12870
Mar 31, 90 11585 11035 12874
Apr 30, 90 11436 10893 12781
May 31, 90 11681 11126 13060
Jun 30, 90 11801 11241 13175
Jul 31, 90 11978 11409 13369
Aug 31, 90 11735 11177 13175
Sep 30, 90 11673 11119 13182
Oct 31, 90 11851 11289 13422
Nov 30, 90 12086 11512 13692
Dec 31, 90 12116 11541 13751
Jan 31, 91 12296 11712 13936
Feb 28, 91 12401 11812 14057
Mar 31, 91 12450 11859 14062
Apr 30, 91 12652 12051 14250
May 31, 91 12761 12154 14376
Jun 30, 91 12714 12110 14362
Jul 31, 91 12862 12251 14537
Aug 31, 91 13010 12392 14729
Sep 30, 91 13158 12533 14921
Oct 31, 91 13249 12620 15055
Nov 30, 91 13261 12631 15097
Dec 31, 91 13550 12906 15421
Jan 31, 92 13540 12897 15456
Feb 29, 92 13570 12926 15461
Mar 31, 92 13560 12916 15467
Apr 30, 92 13651 13003 15604
May 31, 92 13825 13168 15788
Jun 30, 92 14019 13354 16053
Jul 31, 92 14464 13777 16534
Aug 31, 92 14308 13628 16373
Sep 30, 92 14381 13698 16480
Oct 31, 92 14160 13487 16318
Nov 30, 92 14507 13818 16610
Dec 31, 92 14746 14045 16780
Jan 31, 93 14900 14192 16975
Feb 28, 93 15396 14665 17589
Mar 31, 93 15252 14527 17403
Apr 30, 93 15365 14635 17578
May 31, 93 15414 14681 17677
Jun 30, 93 15615 14873 17973
Jul 31, 93 15642 14899 17996
Aug 31, 93 15910 15155 18371
Sep 30, 93 16092 15328 18580
Oct 31, 93 16143 15376 18616
Nov 30, 93 16037 15275 18452
Dec 31, 93 16378 15600 18841
Jan 31, 94 16564 15777 19056
Feb 28, 94 16097 15332 18563
Mar 31, 94 15400 14668 17807
Apr 30, 94 15497 14761 17958
May 31, 94 15662 14918 18114
Jun 30, 94 15622 14880 18003
Jul 31, 94 15905 15149 18333
Aug 31, 94 15980 15221 18397
Sep 30, 94 15730 14983 18127
Oct 31, 94 15364 14634 17805
Nov 30, 94 15015 14302 17482
Dec 31, 94 15403 14671 17867
Jan 31, 95 15956 15198 18378
Feb 28, 95 16418 15638 18913
Mar 31, 95 16544 15758 19130
Apr 30, 95 16502 15718 19153
May 31, 95 16871 16070 19764
Jun 30, 95 16510 15726 19591
Jul 31, 95 16566 15779 19776
Aug 31, 95 16791 15994 20027
Sep 30, 95 16968 16162 20154
Oct 31, 95 17345 16521 20447
Nov 30, 95 17723 16881 20787
Dec 31, 95 17950 17098 20986
Jan 31, 96 18052 17194 21145
Feb 29, 96 17825 16978 21002
Mar 31, 96 17574 16739 20733
Apr 30, 96 17523 16690 20675
May 31, 96 17549 16715 20667
Jun 30, 96 17755 16912 20892
Jul 31, 96 17910 17059 21081
</TABLE>
A $10,000 investment in Class B shares made on 8/92 (inception) at NAV would
have been valued at $12,049 on 7/31/96. The same investment after deducting the
applicable contingent deferred sales charge (CDSC) would have grown to $11,751
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 9/26/86 Inception 8/4/92
NAV MOP NAV w/CDSC
- ---------------------------------------------------------------------------
<C> <C> <C> <C> <C>
1 YEAR 7.54% 2.43% 6.74% 1.74%
- ---------------------------------------------------------------------------
5 YEARS 6.91% 5.87% -- --
- ---------------------------------------------------------------------------
SINCE INCEPTION 6.05% 5.52% 4.67% 4.00%
- ---------------------------------------------------------------------------
</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)
MUNICIPAL BONDS - 99.7% PAR VALUE
- -------------------------------------------------------------------------------
Education - 22.2%
EDUCATION - 4.0%
Western Michigan University,
Series 1993 A,
5.000% 07/15/21 $2,500 $2,200
------
SCHOOL DISTRICT GENERAL OBLIGATION - 18,2%
Big Rapids Public School District,
Series 1995,
5.625% 05/01/25 (a) 2,000 1,910
Grand Ledge Public School District,
Series 1995,
5.375% 05/01/24 1,000 940
Mona Shores School District,
Series 1995,
5.500% 05/01/14 (a) 2,400 2,331
Okemos Public School District,
Series 1993,
(b) 05/01/12 500 204
Redford Unified School District,
Series 1996,
6.350% 05/01/09 1,065 1,155
Romulus Community Schools,
Series 1993,
(b) 05/01/18 3,985 1,121
(b) 05/01/21 2,075 477
Williamston Community School District,
Series 1996,
5.500% 05/01/25 1,725 1,680
-------
9,818
-------
- --------------------------------------------------------------------------------
Healthcare - 19.2%
HOSPITAL - 17.3%
Dickinson County,
Memorial Hospital System,
Series 1994,
8.125% 11/01/24 550 608
Kalamazoo Hospital Finance Authority:
Borgess Medical Center,
Series 1994 A:
5.250% 06/01/17 (a) 1,000 925
6.250% 06/01/14 1,785 1,890
6
<PAGE>
Investment Portfolio/July 31, 1996
- --------------------------------------------------------------------------------
Bronson Methodist Hospital,
Series 1992 A,
6.250% 05/15/12 $1,500 $1,517
Royal Oak Hospital Finance Authority,
William Beaumont Hospital,
Series 1993 G,
5.250% 11/15/19 2,000 1,805
Saginaw Hospital Finance Authority,
Saginaw General Hospital,
Series 1989,
7.625% 10/01/19 175 184
State Hospital Finance Authority:
Central Michigan Community Hospital,
Series 1993 A,
6.000% 10/01/08 500 499
Crittenton Hospital,
Series 1992 A,
6.700% 03/01/07 750 794
Daughters of Charity-Providence,
Series 1991,
7.000% 11/01/21 1,000 1,065
Detroit Medical Center,
Series 1988 A,
8.125% 08/15/12 50 53
------
9,340
------
NURSING HOME - 1.9%
Cheboygan County Economic
Development Corp.,
Metro Health Foundation Project,
Series 1993,
10.000% 11/01/22 (c) 600 480
Warren Economic Development Corp,
Autumn Woods Project,
Series 1992,
6.900% 12/20/22 500 528
------
1,008
------
- --------------------------------------------------------------------------------
Housing - 8.1%
MULTI-FAMILY - 4.3%
Grand Rapids Housing Finance Authority,
Series A,
7.625% 09/01/23 1,500 1,620
State Housing Development Authority:
Series 1990 A,
7.700% 04/01/23 500 530
Series 1991 B,
7.050% 10/01/12 200 211
------
2,361
------
7
<PAGE>
Investment Portfolio/July 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
HOUSING - CONT.
SINGLE-FAMILY - 3.8%
State Housing Development Authority,
Series 1994 D,
6.850% 06/01/26 $1,975 $2,042
------
- --------------------------------------------------------------------------------------
OTHER REVENUE - 3.6%
MANUFACTURING - 0.9%
Monroe County,
North Star Steel Co.,
Series A,
6.875% 07/01/08 470 472
------
OTHER REVENUE - 1.5%
Detroit Economic Development Corp.,
E.H. Assoc. Limited Partnership,
Series 1992,
7.000% 06/01/12 750 795
------
PAPER PRODUCTS - 1.2%
State Strategic Fund:
Blue Water Fiber Project,
Series 1994,
8.000% 01/01/12 360 269
Great Lakes Pulp & Fibre Project,
Series 1994,
10.250% 12/01/16 500 384
------
653
------
- --------------------------------------------------------------------------------------
PUBLIC FACILITIES IMPROVEMENT - 8.5%
Commonwealth of Puerto Rico
Public Building Authority:
Series 1993-M, stepped coupon,
(5.700% 07/01/98) 3.750% 07/01/16(d) 750 667
Series 1995 A,
6.250% 07/01/14(a) 1,200 1,293
Detroit,
Cobo Hall Expansion Project,
Series 1993,
5.250% 09/30/12 1,000 923
Grand Rapids Building Authority,
Series 1993,
5.500% 04/01/13 1,000 991
Redford Township Building Authority,
Series 1992,
6.500% 11/01/13 675 690
------
4,564
------
</TABLE>
8
<PAGE>
Investment Portfolio/July 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PUBLIC INFRASTRUCTURE - 4.0%
State Municipal Bond Authority,
Local Government Loan Program:
Series 1992 D,
6.650% 05/01/12 $1,000 $1,062
Series 1994 G,
(b) 05/01/19 2,000 515
Series 1994 G,
(b) 05/01/20 1,855 445
Virgin Islands Public Finance
Authority, Series 1992 A,
7.000% 10/01/02 125 135
------
2,157
------
- ---------------------------------------------------------------------------------------
REFUNDED/ESCROW/SPECIAL
OBLIGATION (e) - 2.5%
Rockford Public Schools,
Series 1990,
7.375% 05/01/19 250 276
Western Townships Utilities
Authority, Series 1989,
8.200% 01/01/18 1,000 1,095
------
1,371
------
- ---------------------------------------------------------------------------------------
TAX-BACKED - 9.4%
GENERAL OBLIGATION - 4.2%
Commonwealth of Puerto Rico,
Series 1995,
5.650% 07/01/15 500 506
Grand Rapids Community College,
5.000% 05/01/14 770 696
Kent County, Series 1987,
8.400% 11/01/10 750 791
Pontiac, Series 1987,
8.300% 06/01/99 250 261
------
2,254
------
SPECIAL ASSESSMENT - 3.6%
Detroit Downtown Development Authority,
Area No. 1 Projects:
Series 1996 C,
6.200% 07/01/17 1,000 988
Series 1996 D,
6.500% 07/01/10 700 713
Oakland County,
Pebble Creek Drainage District,
5.000% 05/01/11 300 271
------
1,972
------
</TABLE>
9
<PAGE>
Investment Portfolio/July 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TAX-BACKED - CONT.
TAX ALLOCATION - 1.6%
Battle Creek,
7.650% 05/01/22 $ 750 $ 865
------
- --------------------------------------------------------------------------------------
TRANSPORTATION - 3.9%
AIRPORT - 1.9%
Wayne Charter County,
Detroit Metropolitan Airport,
Series 1994 B,
6.125% 12/01/24 1,000 1,009
------
TURNPIKE/TOLLROAD/BRIDGE - 2.0%
Commonwealth of Puerto Rico
Highway & Transportation Authority,
Series 1996 Y,
6.250% 07/01/14 1,000 1,058
------
- --------------------------------------------------------------------------------------
UTILITY - 17.3%
INVESTOR OWNED - 6.3%
St. Clair County Economic
Development Corp.,
Detroit Edison Co., Series 1933 AA,
6.400% 08/01/24(a) 1,000 1,055
State Strategic Fund,
Detroit Edison Co., Series BB,
7.000% 05/01/21(a) 2,000 2,347
------
3,402
------
MUNICIPAL ELECTRIC - 0.8%
Puerto Rico Electric Power Authority,
Series 1989 O,
5.000% 07/01/12 500 454
------
WATER & SEWER - 10.2%
Commonwealth of Puerto Rico
Aqueduct & Sewer Authority,
Series 1995:
6.250% 07/01/12 1,000 1,054
5.000% 07/01/15 1,500 1,335
Detroit Sewer Disposal,
Series 1995 B,
5.250% 07/01/21 1,000 925
Detroit Water Supply:
Series 1995-A,
5.500% 07/01/25 1,000 946
Series 1995-B,
5.550% 07/01/12(a) 1,250 1,251
------
5,511
------
</TABLE>
10
<PAGE>
Investment Portfolio/July 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TOTAL MUNICIPAL BONDS (cost of $52,090) (f) $53,306
-------
SHORT-TERM OBLIGATIONS - 0.6%
- ----------------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (g)
MI Flint Hospital Building Authority,
Hurley Medical Center,
Series 1995 B,
3.500% 07/01/15 300 300
-------
OTHER ASSETS & LIABILITIES, NET - 0.7% 415
--------------------------------------------------------------------------------------
NET ASSETS - 100.0% $54,021
-------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) These securities, or a portion thereof, with a total market value of
$11,112 are being used to collateralize open futures contracts.
(b) Zero coupon bond.
(c) Security is exempt from registration under Rule 144A of the Securities Act
of 1933. This security may be resold in transactions exempt from
registration normally to qualified institutional buyers. At July 31, 1996,
the value of this security amounted to $480 or 0.9% of net assets.
(d) Shown parenthetically is the interest rate to be paid and the date the
Fund will begin accruing this rate.
(e) The Fund has been informed that each issuer has placed direct obligations
of the U.S. Government in an irrevocable trust, solely for the payment of
the interest and principal.
(f) Cost for federal income tax purposes is the same.
(g) Variable rate demand notes are considered short-term obligations. Interest
rates change periodically on specified dates. This security is payable on
demand and is secured by either letters of credit or other credit support
agreements from banks. The rate listed is as of July 31, 1996.
Short futures contracts open at July 31, 1996:
<TABLE>
<CAPTION>
Par value Unrealized
covered Expiration depreciation
Type by contracts month at 7/31/96
- ----------------------------------------------------------------
<S> <C> <C> <C>
Treasury Bond $7,200 September $168
</TABLE>
See notes to financial statements.
11
<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 $52,090) $53,306
Short-term obligations 300
-------
53,606
Receivable for:
Interest 655
Fund shares sold 20
Other 60 735
--- -------
Total Assets 54,341
LIABILITIES
Payable for:
Distributions 225
Variation margin on futures 50
Fund shares repurchased 37
Payable to Adviser 7
Accrued Deferred Trustees fees 1
---
Total Liabilities 320
-------
NET ASSETS $54,021
-------
Net asset value & redemption price per share -
Class A ($40,258/5,845) $ 6.89
-------
Maximum offering price per share - Class A
($6.89/0.9525) $ 7.23 (a)
-------
Net asset value & offering price per share -
Class B ($13,763/1,998) $ 6.89 (b)
-------
COMPOSITION OF NET ASSETS
Capital paid in $53,596
Undistributed net investment income 17
Accumulated net realized loss (640)
Net unrealized appreciation (depreciation) on:
Investments 1,216
Open futures contracts (168)
-------
$54,021
=======
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
See notes to financial statements.
12
<PAGE>
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 1996 (UNAUDITED)
(in thousands)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest $ 1,694
EXPENSES
Management fee $ 150
Service fee 36
Distribution fee - Class B 54
Transfer agent 46
Bookkeeping fee 14
Trustees fee 5
Custodian fee 2
Audit fee 17
Legal fee 4
Registration fee 11
Reports to shareholders 5
Other 2
-------
346
Fees waived by the adviser (46) 300
------- -------
Net Investment Income 1,394
-------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain on:
Investments 4
Closed futures contracts 666
-------
Net Realized Gain 670
Net unrealized depreciation during
the period on:
Investments (2,522)
Open futures contracts (160)
-------
Net Unrealized Depreciation (2,682)
-------
Net Loss (2,012)
-------
Net Decrease in Net Assets from Operations $ (618)
-------
</TABLE>
See notes to financial statements.
13
<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 $ 1,394 $ 2,943
Net realized gain (loss) 670 (716)
Net unrealized appreciation (depreciation) (2,682) 4,744
------- -------
Net Increase (Decrease) from Operations (618) 6,971
Distributions:
From net investment income - Class A (1,078) (2,375)
From net investment income - Class B (320) (697)
------- -------
(2,016) 3,899
------- -------
Fund Share Transactions:
Receipts for shares sold - Class A 1,522 2,362
Value of distributions reinvested - Class A 607 1,345
Cost of shares repurchased - Class A (3,692) (5,144)
------- -------
(1,563) (1,437)
------- -------
Receipts for shares sold - Class B 252 1,668
Value of distributions reinvested - Class B 159 361
Cost of shares repurchased - Class B (1,355) (1,935)
------- -------
(944) 94
------- -------
Net Decrease from Fund Share Transactions (2,507) (1,343)
------- -------
Total Increase (Decrease) (4,523) 2,556
NET ASSETS
Beginning of period 58,544 55,988
------- -------
End of period (including undistributed net
investment income of $17 and $18, respectively) $54,021 $58,544
======= =======
NUMBER OF FUND SHARES
Sold - Class A 222 343
Issued for distributions reinvested - Class A 89 196
Repurchased - Class A (538) (749)
------- -------
(227) (210)
------- -------
Sold - Class B 37 242
Issued for distributions reinvested - Class B 23 53
Repurchased - Class B (198) (282)
------- -------
(138) 13
------- -------
</TABLE>
See notes to financial statements.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JULY 31, 1996 (UNAUDITED)
NOTE 1. INTERIM FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In the opinion of management of Colonial Michigan 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 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.
15
<PAGE>
Notes to Financial Statements/July 31, 1996
- --------------------------------------------------------------------------------
NOTE 2. ACCOUNTING POLICIES - CONT.
- --------------------------------------------------------------------------------
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:
<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>
16
<PAGE>
Notes to Financial Statements/July 31, 1996
- --------------------------------------------------------------------------------
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 $6,201
on sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $26,886 on Class B share redemptions.
The Fund has adopted a 12b-1 plan which requires the payment of a distribution
fee to the Distributor equal to 0.75% annually of the Fund's average net assets
attributable to Class B shares. The plan also requires the payment of a service
fee to the Distributor as follows:
<TABLE>
<CAPTION>
Valuation of shares Annual
outstanding on the 20th of Fee
each month which were issued Rate
---------------------------- ------
<S> <C>
Prior to November 30, 1994 0.10%
On or after December 1, 1994 0.25%
</TABLE>
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
17
<PAGE>
Notes to Financial Statements/July 31, 1996
- --------------------------------------------------------------------------------
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES - CONT.
- --------------------------------------------------------------------------------
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 soley out of the
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 $7,556,227 and
$9,837,990, 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 $1,926,002
Gross unrealized depreciation (709,772)
----------
Net unrealized appreciation $1,216,230
==========
</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>
1998 $ 19,000
1999 98,000
2003 196,000
--------
$313,000
========
</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.
18
<PAGE>
Notes to Financial Statements/July 31, 1996
- --------------------------------------------------------------------------------
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 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 recorded 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.
19
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
(Unaudited)
Six months
ended
July 31 Year ended January 31
-------------------------- -----------------------
1996 1996
Class A Class B Class A Class B
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 7.130 $ 7.130 $ 6.660 $ 6.660
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 0.180 0.154 0.368 0.317
Net realized and
unrealized gain (loss) (0.240) (0.240) 0.484 0.484
------- ------- ------- -------
Total from Investment
Operations (0.060) (0.086) 0.852 0.801
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.180) (0.154) (0.382) (0.331)
------- ------- ------- -------
Net asset value -
End of period $ 6.890 $ 6.890 $ 7.130 $ 7.130
======= ======= ======= =======
Total return (b)(c) (0.79)%(d) (1.16)%(d) 13.13 % 12.30 %
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses 0.89 %(e)(f) 1.64 %(e)(f) 0.80 %(f) 1.55 %(f)
Net investment income 5.21 %(e)(f) 4.46 %(e)(f) 5.34 %(f) 4.59 %(f)
Fees and expenses
waived or borne
by the Adviser 0.16 %(e) 0.16 %(e) 0.25 % 0.25 %
Portfolio turnover 14 %(d) 14 %(d) 48 % 48 %
Net assets at end
of period (000) $40,258 $13,763 $43,308 $15,236
(a) Net of fees and expenses waived or borne by the Adviser which amounted to:
$ 0.006 $ 0.006 $ 0.017 $ 0.017
</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) 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.
20
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
<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 $ 7.340 $ 7.340 $ 6.970 $ 6.970
------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 0.410 0.359 0.404 0.351
Net realized and
unrealized gain (loss) (0.689) (0.689) 0.356 0.356
------- ------- ------- -------
Total from Investment
Operations (0.279) (0.330) 0.760 0.707
------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.401) (0.350) (0.390) (0.337)
------- ------- ------- -------
Net asset value -
End of period $ 6.660 $ 6.660 $ 7.340 $ 7.340
======= ======= ======= =======
Total return (b)(c) (3.66)% (4.39)% 11.16 % 10.36 %
======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses 0.62 % 1.37 % 0.66 % 1.41 %
Net investment income 6.08 % 5.33 % 5.61 % 4.86 %
Fees and expenses
waived or borne
by the Adviser 0.32 % 0.32 % 0.33 % 0.33 %
Portfolio turnover 40 % 40 % 7 % 7 %
Net assets at end
of period (000) $41,844 $14,144 $45,570 $15,030
(a) Net of fees and expenses waived or borne by the Adviser which amounted to:
$ 0.022 $ 0.022 $ 0.024 $ 0.024
</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) 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.
21
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended January 31
--------------------------------------
1993 1992
Class A Class B(b) Class A
-------- ------- -------
<S> <C> <C> <C>
Net asset value -
Beginning of period $ 6.730 $ 6.950 $ 6.520
-------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income(a) 0.405 0.167 0.432
Net realized and
unrealized gain (loss) 0.250 0.029 0.208
-------- ------- -------
Total from Investment
Operations 0.655 0.196 0.640
-------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net
investment income (0.407) (0.168) (0.430)
From capital paid in (0.008) (0.008) --
-------- ------- -------
Total Distributions
Declared to Shareholders (0.415) (0.176) (0.430)
-------- ------- -------
Net asset value -
End of period $ 6.970 $ 6.970 $ 6.730
-------- ------- -------
Total return(c)(d) 10.04 % 0.98 %(e) 10.12 %
-------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.88 % 1.63 %(f) 0.95 %
Net investment income 5.86 % 5.11 %(f) 6.50 %
Fees and expenses waived
or borne by the Adviser 0.32 % 0.32 %(f) 0.35 %
Portfolio turnover 14 % 14 % 5 %
Net assets at end
of period (000) $ 36,024 $ 6,670 $28,608
(a) Net of fees and expenses waived or borne by the Adviser which amounted to:
$ 0.022 $ 0.009 $ 0.023
</TABLE>
(b) Class B shares were initially offered on August 4, 1992. Per share amounts
reflect activity from that date.
(c) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(d) Had the Adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
(e) Not annualized.
(f) Annualized
22
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Michigan Tax-Exempt Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial Michigan Tax-Exempt Fund mails one shareholder report to each
shareholder address. If you would like more than one report, please call our
Literature Department at 1-800-248-2828 and additional reports will be sent to
you.
This report has been prepared for shareholders of Colonial Michigan Tax-Exempt
Fund. This report may also be used as sales literature when preceded or
accompanied by the current prospectus which provides details of sales charges,
investment objectives, and operating policies of the Fund.
23
<PAGE>
[COLONIAL MUTUAL FUNDS LOGO]
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, 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
MI-03/510C-0796 M (9/96)
