<PAGE>
COLONIAL
NORTH CAROLINA
TAX-EXEMPT FUND
FPO
ANNUAL REPORT
JANUARY 31, 1997
NOT FDIC- | MAY LOSE VALUE
INSURED | NO BANK GUARANTEE
<PAGE>
COLONIAL NORTH CAROLINA TAX-EXEMPT FUND HIGHLIGHTS
FEBRUARY 1, 1996 - JANUARY 31, 1997
INVESTMENT OBJECTIVE: Colonial North Carolina 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 North Carolina 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:
X High monthly double tax-free income
X Long-term appreciation
X Emphasis on quality
PORTFOLIO MANAGER COMMENTARY: "Changing expectations of economic strength during
the course of the year resulted in high levels of volatility for fixed-income
investments. While these conditions limited bond price appreciation, the Fund's
substantial investment in North Carolina securities generated high levels of
coupon income that improved its performance through increased cash flows and
asset value stability." - Robert Waas
COLONIAL NORTH CAROLINA TAX-EXEMPT FUND PERFORMANCE
<TABLE>
<CAPTION>
CLASS A CLASS B
<S> <C> <C>
Inception date 9/1/93 9/1/93
Distributions declared per share* $0.376 $ 0.322
SEC yields on 1/31/97** 4.90% 4.38%
Taxable-equivalent SEC yields*** 8.79% 7.86%
12-month total returns, assuming reinvestment 3.29% 2.51%
of all distributions and no sales charge or
contingent deferred sales charge (CDSC)
Net asset value per share on 1/31/97 $ 7.12 $ 7.12
</TABLE>
* A portion of the Fund's income may be subject to the alternative minimum tax.
** The 30-day SEC yields on January 31, 1997 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 4.30% for Class A
shares and 3.76% for Class B shares.
***Taxable-equivalent SEC yields are based on the maximum effective 44.3%
federal and North Carolina income tax rates.
The Fund may at times purchase tax-exempt securities at a discount, and some or
all of this discount may be included in the Fund's ordinary income which will be
taxable when distributed.
<TABLE>
<CAPTION>
QUALITY BREAKDOWN (as of 1/31/97)
- ---------------------------------------
<S> <C>
AAA ............................ 44.5%
AA ............................. 25.6%
A .............................. 26.4%
Non-rated ...................... 1.8%
Cash & Equivalents ............. 1.7%
TOP FIVE SECTORS (as of 1/31/97)
- ---------------------------------------
General Obligations ............ 15.8%
Hospitals ...................... 18.8%
Housing ........................ 12.1%
Refunded/Escrow/Special
Obligation..................... 10.8%
Water & Sewer................... 8.7%
</TABLE>
Because the Fund is actively managed, quality and sector weightings will change.
Quality breakdown and sector classifications are based on total net assets.
Sector classifications used on this page are based upon Colonial's defined
criteria as used in the investment process. Industry sectors in the following
financial statements are based upon the standard industrial classifications
(SIC) as published by the U.S. Office of Management and Budget.
2
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
I am pleased to present your Fund's annual report for the fiscal year ended
January 31, 1997. This report provides information on the investment environment
of the past 12 months and on the performance of your Fund.
[PHOTO OF HAROLD W. COGGER]
Long-term interest rates were volatile during the period. Signs that economic
growth was easing during the third quarter of 1996 led to a bond market rally
and declining interest rates. However, interest rates climbed once again during
December and January 1997 in response to accelerating economic activity.
Examples include a surge in construction and a sharp improvement in the trade
balance. Despite continued low levels of inflation, the Federal Reserve Board
characterized factors holding down prices as "temporary" and made clear its
willingness to strike against future anticipated inflation. This stance suggests
rising interest rates ahead.
Tax-exempt bonds outperformed the Treasurys during most of the period, as a
result of low supply and narrowing yield spreads. Fundamentals remain positive
and state credit quality has generally improved, reflecting in part increased
tax revenue collections generated by a stronger economy.
In the domestic stock market a focus on large capitalization stocks carried
market indexes to several record highs. European markets continued to experience
declining interest rates and inflation levels, conditions that may prevail until
economic activity in these nations increases.
Our economic expectations for 1997 are relatively bright and include growth at a
moderate, more sustainable rate than we saw during 1996. However, we expect
inflation adjusted interest rates to remain relatively high until questions
regarding both the Federal Reserve's monetary policy and Federal budget
negotiations are resolved.
The following report provides you with specific information on your Fund's
performance and insights from your portfolio manager. 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
March 12, 1997
Because market conditions change frequently, there can be no assurance that the
trends described in this report will continue, come to pass or affect Fund
performance.
3
<PAGE>
PORTFOLIO MANAGEMENT REPORT
ROBERT WAAS is portfolio manager of Colonial North Carolina Tax-Exempt Fund and
is vice president of Colonial Management Associates, Inc.
Q. WHAT WAS YOUR INVESTMENT STRATEGY DURING THE PAST 12 MONTHS?
A. Our core strategy was generally conservative over the period as we attempted
to lower the Fund's volatility. We focused on shortening the maturity of the
portfolio to reduce the Fund's sensitivity to interest rates. Shorter maturity
bonds experience smaller price declines when interest rates rise, as they did
during much of the period. We also increased our investment in higher coupon,
premium bonds. These securities are less interest rate sensitive than those
selling at or below face value, and provide a higher level of coupon income that
helps to stabilize net asset values when interest rates rise.
While our core strategy remained unchanged during the year, a small portion of
the portfolio was managed to take advantage of changes in market conditions.
During periods when our interest rate outlook was more positive, we purchased
securities that should perform well in a declining rate environment. These
include bonds with longer maturities. These bonds are more sensitive to interest
rate changes and generate larger price gains when interest rates fall.
Q. WHAT FACTORS CONTRIBUTED TO PERFORMANCE DURING THE PERIOD?
A. A major factor was the volatile investment environment during the Fund's
fiscal year. Stronger than expected economic reports sent interest rates up
during the first half of the period. This had a negative effect on the
portfolio's performance. On the positive side, the Fund's strategic focus on
premium bonds generated high levels of coupon income that improved total return
while lowering volatility.
Q. HOW IS THE STATE'S ECONOMY FARING?
A. We maintain a positive outlook on North Carolina. The State continues to
diversify away from manufacturing and agriculture towards a more
service-oriented economy. Corporations are attracted by a relatively low cost of
doing business and a high quality of life. In addition, the success and
popularity of the State's professional sports teams, the Charlotte Hornets and
the Carolina Panthers, has also provided the local economy with a boost. North
Carolina's economic expansion has increased its infrastructure needs and this,
in turn, could increase future debt levels. However, we anticipate that improved
demographics and continued population growth will be adequate to support these
needs.
Q. WHAT IS YOUR OUTLOOK FOR THE MONTHS AHEAD?
A. Our investment outlook is fairly positive. We anticipate that the economy's
growth in the months ahead will be moderate and should translate into a more
positive environment for fixed-income investments. However, because we expect
the market to continue to experience some volatility, we will maintain our
defensive core strategy until more definitive trends emerge.
4
<PAGE>
COLONIAL NORTH CAROLINA TAX-EXEMPT FUND INVESTMENT PERFORMANCE
Change in Value of $10,000 from 9/1/93 to 1/31/97
Based on NAV and MOP for Class A Shares
and NAV and applicable CDSC for Class B Shares
<TABLE>
<CAPTION>
LABEL A B C D E F G
- -----------------------------------------------------------------------------------------------------------------------------
Label CNCTEF 1/97 B Shares
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 1/97 A Shares NAV MOP LEHMAN NAV MOP LEHMAN
- -----------------------------------------------------------------------------------------------------------------------------
2 Sep 1, 93 10000 9525 10000 10000 10000 10000
- -----------------------------------------------------------------------------------------------------------------------------
3 Sep 30, 93 10070.34 9592.001 10114 10064.08 10064.08 10114
- -----------------------------------------------------------------------------------------------------------------------------
4 Oct 31, 93 10061.42 9583.499 10133 10048.77 10048.77 10133
- -----------------------------------------------------------------------------------------------------------------------------
5 Nov 30, 93 9957.159 9484.194 10044 9938.39 9938.39 10044
- -----------------------------------------------------------------------------------------------------------------------------
6 Dec 31, 93 10163.66 9680.884 10256 101398.29 10138.29 10256
- -----------------------------------------------------------------------------------------------------------------------------
7 Jan 31, 94 10221.97 9736.43 10373 10190.2 10190.2 10373
- -----------------------------------------------------------------------------------------------------------------------------
8 Feb 28, 94 9899.763 9429.524 10105 9862.589 9862.589 10105
- -----------------------------------------------------------------------------------------------------------------------------
9 Mar 31, 94 9314.748 8872.298 9693 9273.505 9273.505 9693
- -----------------------------------------------------------------------------------------------------------------------------
10 Apr 30, 94 9415.313 8968.086 9775 9367.683 9367.683 9775
- -----------------------------------------------------------------------------------------------------------------------------
11 May 31, 94 9528.947 9076.322 9860 9474.937 9474.937 9860
- -----------------------------------------------------------------------------------------------------------------------------
12 Jun 30, 94 9477.207 9027.04 9800 9417.56 9417.56 9800
- -----------------------------------------------------------------------------------------------------------------------------
13 Jul 31, 94 9620.893 9163.9 9979 9554.351 9554.351 9979
- -----------------------------------------------------------------------------------------------------------------------------
14 Aug 31, 94 9666.96 9207.779 10014 9594.102 9594.102 10014
- -----------------------------------------------------------------------------------------------------------------------------
15 Sep 30, 94 9502.362 9051 9867 9424.658 9424.658 9867
- -----------------------------------------------------------------------------------------------------------------------------
16 Oct 31, 94 9253.125 8813.602 9692 9171.343 9171.343 9692
- -----------------------------------------------------------------------------------------------------------------------------
17 Nov 30, 94 9028.829 8599.96 9516 8943.309 8943.309 9516
- -----------------------------------------------------------------------------------------------------------------------------
18 Dec 31, 94 9304.988 8863.001 9726 9211.324 9211.324 9726
- -----------------------------------------------------------------------------------------------------------------------------
19 Jan 31, 95 9653.627 9195.08 10004 9550.859 9550.859 10004
- -----------------------------------------------------------------------------------------------------------------------------
20 Feb 28, 95 9990.697 9516.139 10295 9878.436 9878.436 10295
- -----------------------------------------------------------------------------------------------------------------------------
21 Mar 31, 95 10110.88 9630.614 10413 9991.14 9991.14 10413
- -----------------------------------------------------------------------------------------------------------------------------
22 Apr 30, 95 10129.85 9648.68 10426 10003.68 10003.68 10426
- -----------------------------------------------------------------------------------------------------------------------------
23 May 31, 95 10396.79 9902.94 10758 10261.15 10261.15 10758
- -----------------------------------------------------------------------------------------------------------------------------
24 Jun 30, 95 10208.34 9723.447 10664 10068.86 10068.86 10664
- -----------------------------------------------------------------------------------------------------------------------------
25 Jul 31, 95 10286.51 9797.897 10765 10139.62 10139.62 10765
- -----------------------------------------------------------------------------------------------------------------------------
26 Aug 31, 95 10377.28 9884.359 10902 10222.82 10222.82 10902
- -----------------------------------------------------------------------------------------------------------------------------
27 Sep 30, 95 10468.39 9971.146 10971 10306.29 10306.29 10971
- -----------------------------------------------------------------------------------------------------------------------------
28 Oct 31, 95 10665.03 10158.44 11130 10493.55 10493.55 11130
- -----------------------------------------------------------------------------------------------------------------------------
29 Nov 30, 95 10892.34 10374.96 11315 10710.75 10710.75 11315
- -----------------------------------------------------------------------------------------------------------------------------
30 Dec 31, 95 11030.38 10506.43 11424 10839.78 10839.78 11424
- -----------------------------------------------------------------------------------------------------------------------------
31 Jan 31, 96 11092.84 10565.93 11510 10894.47 10894.47 11510
- -----------------------------------------------------------------------------------------------------------------------------
32 Feb 29, 96 10972.54 10451.35 11432 10769.58 10769.58 11432
- -----------------------------------------------------------------------------------------------------------------------------
33 Mar 31, 96 10822.17 10308.12 11286 10615.08 10615.08 11286
- -----------------------------------------------------------------------------------------------------------------------------
34 Apr 30, 96 10793.79 10281.08 11254 10580.52 10580.52 11254
- -----------------------------------------------------------------------------------------------------------------------------
35 May 31, 96 10827.06 10312.78 11250 10606.4 10606.4 11250
- -----------------------------------------------------------------------------------------------------------------------------
36 Jun 30, 96 10924.09 10405.2 11372 10694.66 10694.66 11372
- -----------------------------------------------------------------------------------------------------------------------------
37 Jul 31, 96 11019.29 10495.88 11475 10781.37 10781.37 11475
- -----------------------------------------------------------------------------------------------------------------------------
38 Aug 31, 96 11037.16 10512.9 11473 10792.11 10792.11 11473
- -----------------------------------------------------------------------------------------------------------------------------
39 Sep 30, 96 11196.54 10664.7 11633 10941.21 10941.21 11633
- -----------------------------------------------------------------------------------------------------------------------------
40 Oct 31, 96 11309.24 10772.05 11765 11044.57 11044.57 11765
- -----------------------------------------------------------------------------------------------------------------------------
41 Nov 30, 96 11518.03 10970.93 11980 11241.57 11241.57 11980
- -----------------------------------------------------------------------------------------------------------------------------
42 Dec 31, 96 11439.73 10896.34 11929 11158.16 11158.16 11929
- -----------------------------------------------------------------------------------------------------------------------------
43 Jan 31, 97 11457.35 10913.13 11952 11168.32 10883.52 11952
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Lehman Brothers Municipal Bond Index is a broad-based, unmanaged index that
tracks the performance of the municipal bond market. Unlike mutual funds,
indexes are not investments, do not incur fees or expenses, and it is not
possible to invest in an index.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS
As of December 31, 1996 (Most Recent Quarter End)
- --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES
INCEPTION 9/1/93 9/1/93
NAV MOP NAV w/CDSC
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 YEAR 3.71% (1.22)% 2.94% (1.98)%
- --------------------------------------------------------------------------------
SINCE INCEPTION 4.11% 2.61% 3.34% 2.54%
- --------------------------------------------------------------------------------
</TABLE>
Past performance cannot predict future results. Returns and value of an
investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. Net asset value (NAV) returns do not
include sales charges or CDSC. Maximum offering price (MOP) returns include the
maximum sales charge of 4.75%. The CDSC returns reflect 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
JANUARY 31, 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
MUNICIPAL BONDS - 97.3% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
EDUCATION - 14.0%
EDUCATION - 7.4%
Charlotte,
Charlotte-Mecklenburg Law Project,
Series 1993-B,
5.375% 06/01/13 $ 700 $ 686
East Carolina University,
Series 1994,
6.200% 11/01/15 475 503
State Educational Facilities Finance
Agency, Duke University,
Series C,
6.750% 10/01/21 1,235 1,337
--------
2,526
--------
GENERAL OBLIGATIONS - 3.6%
Lincoln County,
Series 1994,
5.100% 06/01/10 600 584
Mount Holly,
Series 1993,
4.900% 03/01/12 120 113
Onslow County,
Series 1995,
5.700% 03/01/16 500 507
--------
1,204
--------
STUDENT LOANS - 3.0%
State Education Assistance Authority,
Series 1996-C,
6.350% 07/01/16 1,000 1,010
--------
- --------------------------------------------------------------------------------
HEALTHCARE - 16.3%
HEALTH SERVICES - 3.0%
Durham County,
Hospital & Office Facilities,
Series 1994,
6.000% 05/01/14 1,000 1,030
--------
HOSPITALS - 13.3%
Charlotte-Mecklenburg Hospital
Authority, Series 1992,
6.250% 01/01/20 1,500 1,541
</TABLE>
6
<PAGE>
Investment Portfolio/January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
New Hanover County,
New Hanover Regional Medical Center,
Series 1993,
4.750% 10/01/13 $ 500 $ 456
State Medical Care Commission:
Presbyterian Health Services Corp.,
Series 1993,
5.500% 10/01/20 360 351
St. Joseph's Hospital Project,
Series 1994,
5.100% 10/01/14 555 525
University of North Carolina at
Chapel Hill, University Hospital,
Series 1996:
5.250% 02/15/19 750 708
5.250% 02/15/26 500 466
Wake County,
Series 1993,
5.125% 10/01/13 500 476
------
4,523
------
- --------------------------------------------------------------------------------
HOUSING - 12.1%
MULTI-FAMILY - 6.0%
Eastern Carolina Regional Housing
Authority, Jacksonville New River
Apartments, Series 1994,
8.250% 09/01/14 250 252
North Wilkesboro Housing
Development Corp., Series 1995-A,
6.350% 10/01/22 1,745 1,793
------
2,045
------
SINGLE FAMILY - 6.1%
State Housing Finance Agency:
Series KK,
5.500% 03/01/09 305 307
Series 1996 NN,
5.850% 09/01/17 1,250 1,237
Series W,
6.450% 09/01/14 485 502
------
2,046
------
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
Investment Portfolio/January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
PUBLIC FACILITIES IMPROVEMENT - 9.4%
Cumberland County,
Civic Center Project,
Series 1995-A,
6.400% 12/01/24 (a) $ 2,000 $ 2,135
Harnett County,
Harnett County Projects,
Series 1994,
6.400% 12/01/14 250 267
PR Commonwealth of Puerto Rico
Public Buildings Authority, Series 1993-M,
stepped coupon, (5.700% 07/01/98)
3.750% 07/01/16 (b) 200 186
Randolph County,
Randolph County Project,
Series 1995,
5.300% 06/01/15 640 618
-------
3,206
-------
- --------------------------------------------------------------------------------
PUBLIC INFRASTRUCTURE - 2.9%
Chapel Hill, Parking Facilities,
Series 1994,
6.450% 12/01/23 500 519
Charlotte, Cityfair Parking Facility,
Series 1994-A,
6.125% 06/01/10 430 450
-------
969
-------
- --------------------------------------------------------------------------------
REFUNDED/ESCROW/SPECIAL OBLIGATIONS (c) - 10.3%
Lincoln County, Lincoln County Hospital,
9.000% 05/01/07 285 337
State Medical Care Commission,
Mercy Hospital, Series 1992,
6.500% 08/01/15 2,000 2,145
State Municipal Power Agency,
Catawba No. 1, Series 1990,
5.500% 01/01/13 1,000 1,020
-------
3,502
-------
- --------------------------------------------------------------------------------
OTHER REVENUE - 1.6%
STATE APPROPRIATED
Rowan County, Justice Center Project,
Series 1992,
6.250% 12/01/07 500 539
-------
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
Investment Portfolio/January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
TAX-BACKED - 12.9%
SALES & EXCISE TAX - 0.7%
PR Commonwealth of Puerto Rico Highway
& Transportation Authority, Series W,
5.500 07/01/09 (a) $ 240 $ 247
-------
STATE GENERAL OBLIGATIONS - 12.2%
Charlotte,
Series 1994,
5.800% 02/01/15 1,000 1,033
PR Commonwealth of Puerto Rico:
Series 1994:
6.400% 07/01/11 500 534
6.500% 07/01/23 500 533
Series 1996,
6.500% 07/01/14 1,000 1,111
State, Capital Improvement,
Series 1994-A,
4.750% 02/01/13 1,000 936
-------
4,147
-------
- --------------------------------------------------------------------------------
UTILITY - 17.8%
INVESTOR OWNED - 3.2%
Wake County Industrial Facilities &
Pollution Control Financing Authority,
Carolina Power & Light Co., Series 1983,
6.900% 04/01/09 1,010 1,084
-------
JOINT POWER AUTHORITY - 5.9%
Eastern Municipal Power Agency:
Series 1991-A,
6.500% 01/01/18 1,500 1,697
Series 1996-A,
5.700% 01/01/16 300 301
-------
1,998
-------
WATER & SEWER - 8.7%
Asheville,
Series 1996,
5.625% 08/01/16 500 501
Fayetteville Public Works Commission,
Series 1993,
4.750 03/01/14 (a) 1,500 1,352
PR Commonwealth of Puerto Rico
Aqueduct & Sewer Authority, Series 1995,
6.250% 07/01/12 1,000 1,091
-------
2,944
-------
</TABLE>
9
<PAGE>
Investment Portfolio/January 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL INVESTMENTS - (cost of $32,392) (d) $33,020
-------
SHORT-TERM OBLIGATIONS - 1.8% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
VARIABLE RATE DEMAND NOTES (e)
Craven County Industrial Facilities &
Pollution Control Financing Authority,
John Hancock Resource Recovery, Inc.:
Series B,
3.800% 05/01/11 $ 100 100
Series C,
3.800% 05/01/11 200 200
FL Pinellas County Health Facilities
Authority, Series 1985,
3.700% 12/01/15 100 100
Halifax County Industrial Facilities
& Pollution Control Authority,
Westmoreland Coal Co.,
3.750% 12/01/19 200 200
-------
TOTAL SHORT-TERM OBLIGATIONS 600
-------
OTHER ASSETS & LIABILITIES, NET - 0.9% 329
- --------------------------------------------------------------------------------
NET ASSETS - 100% $33,949
=======
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) These securities, or a portion thereof, with a total market value of
$2,409, are being used to collateralize open futures contracts.
(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) Cost for federal income tax purposes is the same.
(e) Variable rate demand notes are considered short-term obligations.
Interest rates change periodically on specified dates. These securities
are payable on demand and are secured by either letters of credit or
other credit support agreements from banks. The rates listed are as of
January 31, 1997.
10
<PAGE>
Investment Portfolio/January 31, 1997
- --------------------------------------------------------------------------------
Short futures contracts open at January 31, 1997:
<TABLE>
<CAPTION>
Unrealized
Par value appreciation
covered by Expiration (depreciation)
Type contracts month at 01/31/97
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Municipal Bond $ 1,000 March $ 16
Treasury Bond 700 March (8)
----
$ 8
====
</TABLE>
See notes to financial statements.
11
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
JANUARY 31, 1997
<TABLE>
<CAPTION>
(in thousands except for per share amounts and footnotes)
ASSETS
<S> <C> <C>
Investments at value (cost $32,392) $33,020
Short-term obligations 600
-------
33,620
Receivable for:
Interest $ 497
Fund shares sold 13
Deferred organization expenses 10
Other 12 532
------- -------
Total Assets 34,152
LIABILITIES
Payable for:
Distributions 137
Fund shares repurchased 36
Variation margin on futures 15
Payable to Adviser 12
Accrued :
Deferred Trustees fees 2
Other 1
-------
Total Liabilities 203
-------
NET ASSETS $33,949
=======
Net asset value & redemption price per share -
Class A ($16,522/2,319) $ 7.12
=======
Maximum offering price per share - Class A
($7.12/0.9525) $ 7.48 (a)
=======
Net asset value & offering price per share -
Class B ($17,427/2,447) $ 7.12 (b)
=======
COMPOSITION OF NET ASSETS
Capital paid in $34,720
Undistributed net investment income 24
Accumulated net realized loss (1,431)
Net unrealized appreciation on:
Investments 628
Open futures contracts 8
-------
$33,949
=======
</TABLE>
(a) On sales of $50,000 or more the offering price is reduced.
(b) Redemption price per share is equal to net asset value less any
applicable contingent deferred sales charge.
See notes to financial statements.
12
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1997
<TABLE>
<CAPTION>
(in thousands)
INVESTMENT INCOME
<S> <C> <C>
Interest $ 1,908
EXPENSES
Management fee $ 171
Service fee 49
Distribution fee - Class B 133
Transfer agent 54
Bookkeeping fee 27
Trustees fee 11
Custodian fee 1
Audit fee 24
Legal fee 5
Registration fee 9
Reports to shareholders 7
Amortization of deferred
organization expenses 6
Other 3
-------
500
Fees and expenses waived or borne
by the Adviser (219) 281
------- -------
Net Investment Income 1,627
-------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain on:
Investments 7
Closed futures contracts 166
--------
Net Realized Gain 173
Net unrealized appreciation (depreciation)
during the period on:
Investments (903)
Open futures contracts 20
--------
Net Unrealized Depreciation (883)
-------
Net Loss (710)
-------
Net Increase in Net Assets from Operations $ 917
=======
</TABLE>
See notes to financial statements.
13
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
(in thousands) Year ended January 31
---------------------
INCREASE (DECREASE) IN NET ASSETS 1997 1996
Operations:
<S> <C> <C>
Net investment income $ 1,627 $ 1,746
Net realized gain (loss) 173 (1,167)
Net unrealized appreciation (depreciation) (883) 4,031
-------- --------
Net Increase from Operations 917 4,610
Distributions:
From net investment income - Class A (822) (852)
From net investment income - Class B (812) (894)
-------- --------
(717) 2,864
-------- --------
Fund Share Transactions:
Receipts for shares sold - Class A 2,864 3,464
Value of distributions reinvested - Class A 481 493
Cost of shares repurchased - Class A (2,302) (3,623)
-------- --------
1,043 334
-------- --------
Receipts for shares sold - Class B 2,087 3,082
Value of distributions reinvested - Class B 421 468
Cost of shares repurchased - Class B (3,291) (3,700)
-------- --------
(783) (150)
-------- --------
Net Increase from Fund
Share Transactions 260 184
-------- --------
Total Increase (Decrease) (457) 3,048
NET ASSETS
Beginning of period 34,406 31,358
-------- --------
End of period (including undistributed
net investment income of $24 and $22,
respectively) $ 33,949 $ 34,406
======== ========
NUMBER OF FUND SHARES
Sold - Class A 405 495
Issued for distributions reinvested - Class A 68 70
Repurchased - Class A (328) (516)
-------- --------
145 49
-------- --------
Sold - Class B 297 440
Issued for distributions reinvested - Class B 60 67
Repurchased - Class B (467) (521)
-------- --------
(110) (14)
-------- --------
</TABLE>
See notes to financial statements.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1997
NOTE 1. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: Colonial North Carolina Tax-Exempt Fund (the Fund), a series of
Colonial Trust V, is a non-diversified portfolio of a Massachusetts business
trust, registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The Fund's investment objective is to
seek as high a level of after-tax total return, as is consistent with prudent
risk, by pursuing current income exempt from federal and North Carolina 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 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 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.
Cost is determined and gains (losses) are based upon the specific identification
method for both financial statement and federal income tax purposes.
15
<PAGE>
Notes to Financial Statements/January 31, 1997
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NOTE 1. ACCOUNTING POLICIES - CONT.
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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) and 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 annualized 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.
DEFERRED ORGANIZATION EXPENSES: The Fund incurred $31,806 of expenses in
connection with its organization, initial registration with the Securities and
Exchange Commission and with various states, and the initial public offering of
its shares. These expenses were deferred and are being amortized on a
straight-line basis over five years.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions daily
and pays monthly.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
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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:
16
<PAGE>
Notes to Financial Statements/January 31, 1997
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<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 above management fee applicable to the Trust was
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
reimbursement for certain out of pocket expenses.
Effective January 1, 1997 and continuing through calendar year 1997, the
Transfer Agent fee will be reduced by 0.01% in cumulative monthly increments,
resulting in a decrease in the fee from 0.14% to 0.13% annually.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES: Colonial Investment
Services, Inc. (the Distributor), an affiliate of the Adviser, is the Fund's
principal underwriter. During the year ended January 31, 1997, the Fund has been
advised that the Distributor retained net underwriting discounts of $8,603 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $86,419 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>
17
<PAGE>
Notes to Financial Statements/January 31, 1997
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NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES - CONT.
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The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
EXPENSE LIMITS: The Adviser has agreed, until further notice, to waive fees and
bear certain Fund expenses to the extent that total expenses (exclusive of
service and distribution fees, brokerage commissions, interest, taxes, and
extraordinary expenses, if any) exceed 0.30% annually of the Fund's average net
assets.
OTHER: The Fund pays no compensation to its officers, all of whom are employees
of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
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INVESTMENT ACTIVITY: During the year ended January 31, 1997, purchases and sales
of investments, other than short-term obligations were $12,868,628 and
$12,663,518, respectively.
Unrealized appreciation (depreciation) at January 31, 1997, based on cost of
investments for both financial statement and federal income tax purposes was:
<TABLE>
<CAPTION>
<S> <C>
Gross unrealized appreciation $ 819,977
Gross unrealized depreciation (191,544)
---------
Net unrealized appreciation $ 628,433
=========
</TABLE>
CAPITAL LOSS CARRYFORWARDS: At January 31, 1997, 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>
2003 $ 230,000
2004 735,000
2005 124,000
----------
$1,089,000
==========
</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/January 31, 1997
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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 4. LINE OF CREDIT
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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 year ended January 31, 1997.
19
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
Year ended January 31
-----------------------------------------------------------
1997 1996
Class A Class B Class A Class B
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net asset value -
Beginning of period $ 7.270 $ 7.270 $ 6.680 $ 6.680
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.376 0.322 0.386 0.334
Net realized and
unrealized gain (loss) (0.150) (0.150) 0.588 0.588
-------- -------- -------- --------
Total from Investment
Operations 0.226 0.172 0.974 0.922
-------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment
income (0.376) (0.322) (0.384) (0.332)
-------- -------- -------- --------
Net asset value -
End of period $ 7.120 $ 7.120 $ 7.270 $ 7.270
======== ======== ======== ========
Total return (c)(d) 3.29% 2.51% 14.91% 14.07%
======== ======== ======== ========
RATIOS TO AVERAGE NET ASSETS
Expenses 0.45%(f) 1.20%(f) 0.33%(f) 1.08%(f)
Net investment income 5.29%(f) 4.54%(f) 5.47%(f) 4.72%(f)
Fees and expenses
waived or borne
by the Adviser 0.66%(f) 0.66%(f) 0.76%(f) 0.76%(f)
Portfolio turnover 38% 38% 34% 34%
Net assets at end
of period (000) $ 16,522 $ 17,427 $ 15,813 $ 18,593
(a) Net of fees and expenses waived or borne by the Adviser which amounted
to:
$ 0.047 $ 0.047 $ 0.053 $ 0.053
(b) The Fund commenced investment operations on September 1, 1993.
(c) Total return at net asset value assuming all distributions reinvested
and no initial sales charge or contingent deferred sales charge.
(d) Had the Adviser not waived or reimbursed a portion of expenses, total
return would have been reduced.
(e) Not annualized
(f) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
(g) Annualized
</TABLE>
20
<PAGE>
FINANCIAL HIGHLIGHTS - continued
<TABLE>
<CAPTION>
Period ended
Year ended January 31 January 31
- --------------------- ------------------------
1995 1994 (b)
Class A Class B Class A Class B
- -------- --------- --------- --------
<S> <C> <C> <C>
$ 7.500 $ 7.500 $ 7.500 $ 7.500
- -------- --------- --------- --------
0.396 0.345 0.164 0.141
(0.822) (0.822) -- --
- -------- --------- --------- --------
(0.426) (0.477) 0.164 0.141
- -------- --------- --------- --------
(0.394) (0.343) (0.164) (0.141)
- -------- --------- --------- --------
$ 6.680 $ 6.680 $ 7.500 $ 7.500
======== ========= ========= ========
(5.55%) (6.27%) 2.22%(e) 1.90%(e)
======== ========= ========= ========
0.12% 0.87% 0.10%(g) 0.85%(g)
5.83% 5.08% 4.91%(g) 4.16%(g)
0.93% 0.93% 1.20%(g) 1.20%(g)
37% 37% 1%(g) 1%(g)
$ 14,189 $ 17,169 $ 13,710 $ 9,934
$ 0.063 $ 0.063 $ 0.040 $ 0.040
</TABLE>
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Federal income tax information (unaudited)
All of the distributions will be treated as exempt income for
federal income tax purposes
- --------------------------------------------------------------------------------
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST V AND THE SHAREHOLDERS OF COLONIAL NORTH
CAROLINA TAX-EXEMPT FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Colonial North Carolina Tax-Exempt
Fund (the "Fund") (a series of Colonial Trust V) at January 31, 1997, the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and the financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of portfolio positions at January 31, 1997 by correspondence with
the custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 12, 1997
22
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial North Carolina Tax-Exempt Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial North Carolina Tax-Exempt Fund mails one shareholder report to each
shareholder address. If you would like more than one report, please call
Colonial at 1-800-426-3750 and additional reports will be sent to you.
This report has been prepared for shareholders of Colonial North Carolina
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 for
Planned Portfolios
TRUSTEES
ROBERT J. BIRNBAUM
Retired (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President - Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Retired (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
Partner, Development Capital, L.L.C. (formerly Dean, College of Business and
Management, University of Maryland; 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) 1997
A Liberty Financial Company (NYSE: L)
One Financial Center, Boston, Massachusetts 02111-2621, 617-426-3750
NC-02/396D-0197 M (3/97)
