- --------------------------------------------------------
COLONIAL NORTH CAROLINA TAX-EXEMPT FUND Annual report
- --------------------------------------------------------
[GRAPHIC OMITTED]
January 31, 1998
- ---------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
- ---------------------------
<PAGE>
- --------------------------------------------------------------------------------
COLONIAL NORTH CAROLINA TAX-EXEMPT FUND HIGHLIGHTS
FEBRUARY 1, 1997 - JANUARY 31, 1998
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
and opportunities for long-term appreciation from a portfolio primarily invested
in investment grade municipal bonds.
Portfolio Manager Commentary: "Bond market conditions improved during the period
and the Fund was well-positioned to take advantage of declining interest rates.
In addition, North Carolina's growing economy, strong management and cash
reserves supported good price performance for many of the State's bond issuers."
- -- Brian Hartford
Colonial North Carolina Tax-Exempt Fund Performance
<TABLE>
<CAPTION>
Class A Class B Class C(1)
<S> <C> <C> <C>
Inception date 9/1/93 9/1/93 8/1/97
- --------------------------------------------------------------------------------
Distributions declared per share(2) $0.370 $0.316 $0.168
- --------------------------------------------------------------------------------
SEC yields on 1/31/98(3) 3.90% 3.34% 3.62%
- --------------------------------------------------------------------------------
Taxable-equivalent SEC yields(4) 7.00% 6.00% 6.50%
- --------------------------------------------------------------------------------
12-month total returns, assuming reinvestment 10.10% 9.28% 3.69%
of all distributions and no sales charge or
contingent deferred sales charge (CDSC)(5)
- --------------------------------------------------------------------------------
Net asset value per share on 1/31/98 $7.45 $7.45 $7.45
- --------------------------------------------------------------------------------
</TABLE>
(1)Class C share total return is cumulative since inception on August 1, 1997.
(2)A portion of the Fund's income may be subject to the alternative minimum tax.
(3)The 30-day SEC yields on January 31, 1998, reflect the portfolio's earning
power, net of expenses, expressed as an annualized percentage of the public
offering price per share at the end of the period. If the Adviser or Distributor
had not waived or borne certain Fund expenses, SEC yields would have been 3.36%
for Class A shares, 2.76% for Class B shares and 2.72% for Class C shares.
(4)Taxable-equivalent SEC yields are based on the maximum effective 44.3%
federal and North Carolina income tax rates.
(5)Performance results reflect any voluntary waivers or reimbursements of Fund
expenses by the Adviser or Distributor. Absent these waivers or reimbursement
arrangements, performance results would have been lower.
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.
Quality Breakdown (as of 1/31/98)
.......................................
AAA ..............................38.6%
AA ...............................35.1%
A ................................20.7%
Non-rated .........................1.8%
Short-term obligations ............3.8%
Top Five Sectors
(as of 1/31/98)
.......................................
Local Appropriated................21.3%
Refunded..........................17.7%
General Obligations...............13.2%
Housing...........................13.1%
Education..........................6.3%
Quality and sector breakdowns are calculated as a percentage of total
investments, including short-term obligations. Because the Fund is actively
managed, there can be no guarantee the Fund will continue to maintain these
quality and sector breakdowns in the future.
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2
<PAGE>
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PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
I am pleased to present the annual report for Colonial North Carolina Tax-Exempt
Fund. This report reflects on the investment environment for the 12 months ended
January 31, 1998.
[PHOTO]
The strength of the economy during the first quarter of 1997 led the Federal
Reserve Board to raise short-term interest rates in March for the first time in
two years. This action was a response to growing concern about future wage and
price inflation. By mid-April, economic growth appeared to slow while inflation
remained under control. During the second half of the period, interest rates
declined and bond prices rose. As the year ended, there was good news for the
bond markets: the smallest annual increase in inflation since 1964 and the first
predicted Federal budget surplus in nearly 30 years. Strong consumer confidence,
rising employment and controlled inflation point to a firm foundation for
further economic expansion. However, the rate of economic growth in 1998 may be
tempered by the slowdown in the Asian economies and its impact on the global
marketplace.
Investments in municipal bonds outperformed most alternative fixed-income
investments, including Treasury bonds, on an after-tax basis during the first
half of the period. However, during the second half, a seasonal surge in
municipal supply combined with increased refundings caused municipal bonds to
slightly underperform Treasurys, and the market's performance to lag. On a more
positive note, this surge offered higher relative yields and positioned the
market for positive performance in the months ahead as the supply is absorbed.
Since the Fund's inception, the Adviser has voluntarily waived certain expenses.
The Adviser is continuing to waive certain fees; however, effective January 1,
1998, it is doing so at a lower rate.
The long-term benefits of investing in any municipal bond fund include tax-free
income as well as the opportunity to diversify your fixed-income portfolio.
Colonial North Carolina Tax-Exempt Fund continues to offer you competitive
tax-free income and the potential for long-term total return as well as an
opportunity to participate in North Carolina's economic expansion.
Respectfully,
/s/ Harold W. Cogger
Harold W. Cogger
President
March 11, 1998
Because market conditions change frequently, there can be no assurance that the
trends described in this report will continue.
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3
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGEMENT REPORT
Brian Hartford is portfolio manager of Colonial North Carolina 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.
Fund was poised to take advantage of improving investment environment
During the first half of the period, interest rates rose in response to
unanticipated strength in the auto, housing and manufacturing sectors. However,
by mid-April we saw signs of improving conditions for bond prices -- economic
growth was slowing and inflation continued to be low. In addition, Congress
agreed to a balanced budget plan that further calmed fixed-income markets.
Because many signs suggested that the rising interest rate environment was
behind us, we shifted the Fund's focus to investments that were more sensitive
to changes in interest rates, such as bonds with longer maturities. We expected
that as rates fell, these bonds would outperform, which they did. However, near
the end of the period, some of these securities became overpriced. As this
became apparent, we sold some of our holdings to take advantage of the mismatch
between price and value.
Fund's increased sensitivity to interest rates translated into good performance
The Fund generated a 12-month total return of 10.10% for Class A shares, based
on net asset value. In comparison, the average North Carolina municipal bond
fund as measured by Lipper Analytical Services, Inc. was 9.85%.(1) The Fund's
benchmark, the Lehman Brothers Municipal Bond Index, had a total return of
10.11%. The good performance was due primarily to the Fund's strategic shift
into a larger-than-average concentration in securities that have a relatively
high sensitivity to interest rates. These bonds experienced larger price gains
as interest rates declined.
North Carolina continued to enjoy top bond ratings and a vibrant economy
North Carolina's top bond rating of Aaa by Moody's Investors Service reflects
the State's increasingly diversified and growing economy, conservative budgetary
and debt practices, and significant financial reserves. North Carolina continued
to experience economic growth in many sectors, although by year-end the State's
growth no longer outpaced that of the nation. In 1997, estimates for the State's
economic output have been revised upward, the unemployment rate remained below
that of the nation, and construction and housing activity were strong.
Employment in the financial industries sector continued to expand as North
Carolina banks such as First Union and NationsBank continued along an aggressive
acquisition path, moving the State from a regional to a national banking center.
High technology and a concentration of national research universities also
created employment growth, particularly in the Research Triangle surrounding
Raleigh and Durham. While the State's outlook is
- --------------------------------------------------------------------------------
4
<PAGE>
generally good, North Carolina may be vulnerable to Asia's woes during the
months ahead. The State's computer products, apparel and textiles may come under
price pressure from Asian competitors amid foreign currency weakness that
enhances Asian firms' price advantage. However, the State is well-positioned
financially to manage an economic slowdown.
Positive outlook ahead for the economy
We do not expect any major changes in either the national or State economy over
the next few months. We believe that growth will continue, although at a slower
pace than 1997. This is due in part to the financial crisis in Asia and its
anticipated impact on the worldwide marketplace. However, we expect that
inflation will remain subdued and that interest rates may continue to decline
somewhat, as they did during the second half of the year. Declining interest
rates are positive for bond prices. When interest rates go down, bond prices
generally increase, and that has been the case in the current market rally. This
effect has been reflected in your Fund as well, with the net asset value of your
shares rising, while dividend distributions have gradually declined. With slower
economic growth, low inflation and the possibility of a balanced Federal budget
all forecast for 1998, we expect this trend in the bond market to continue. Even
with a decreased yield, current income outpaces inflation even before the
tax-exemption is factored in. In fact, the Fund's inflation-adjusted yield, in
which the inflation rate is subtracted from the actual yield, is attractive by
historical standards. Our goal remains unchanged: to increase your total return
by carefully researching and selecting a portfolio of primarily investment-grade
municipal bonds.
As the heavy level of refunding and year-end tax-exempt supply is absorbed by
the market, we expect new issuance to be steady and more manageable. We may see
another round of refunding issues if interest rates fall significantly lower.
Currently, municipal bonds represent excellent value when compared to other
fixed-income investments, including Treasury bonds, and we believe that
tax-exempt bonds will continue to offer good after-tax returns.
(1)Source: Lipper Analytical Services, Inc. Lipper rankings are based on the
Lipper North Carolina Municipal Debt category. The Fund's (Class A shares)
ranking for the one-year period is in the 2nd quartile (rated 13 out of 37
funds), and in the 1st quartile for the three-year period (rated 6 out of 33
funds). Rankings do not include any sales charges. Performance for different
share classes will vary with fees associated with each class. Past performance
cannot guarantee future results.
- --------------------------------------------------------------------------------
5
<PAGE>
Colonial North Carolina Tax-Exempt Fund Investment Performance
Change in Value of $10,000 from 9/1/93 -- 1/31/98
Based on NAV and POP for Class A Shares and NAV and
applicable CDSC for Class B Shares
[The following table was originally a mountain graph in the printed materials.]
CNCTEF NAV POP Lehman
- ------ --- --- ------
Aug 31, 93 10000 9525 10000
Sep 30, 93 10070 9592 10114
Oct 31, 93 10061 9583 10133
Nov 30, 93 9957 9484 10044
Dec 31, 93 10164 9681 10256
Jan 31, 94 10222 9736 10373
Feb 28, 94 9900 9430 10105
Mar 31, 94 9315 8872 9693
Apr 30, 94 9415 8968 9775
May 31, 94 9529 9076 9860
Jun 30, 94 9477 9027 9800
Jul 31, 94 9621 9164 9979
Aug 31, 94 9667 9208 10014
Sep 30, 94 9502 9051 9867
Oct 31, 94 9253 8814 9692
Nov 30, 94 9029 8600 9516
Dec 31, 94 9305 8863 9726
Jan 31, 95 9654 9195 10004
Feb 28, 95 9991 9516 10295
Mar 31, 95 10111 9631 10413
Apr 30, 95 10130 9649 10426
May 31, 95 10397 9903 10758
Jun 30, 95 10208 9723 10664
Jul 31, 95 10287 9798 10765
Aug 31, 95 10377 9884 10902
Sep 30, 95 10468 9971 10971
Oct 31, 95 10665 10158 11130
Nov 30, 95 10892 10375 11315
Dec 31, 95 11030 10506 11424
Jan 31, 96 11093 10566 11510
Feb 29, 96 10973 10451 11432
Mar 31, 96 10822 10308 11286
Apr 30, 96 10794 10281 11254
May 31, 96 10827 10313 11250
Jun 30, 96 10924 10405 11372
Jul 31, 96 11019 10496 11475
Aug 31, 96 11037 10513 11473
Sep 30, 96 11197 10665 11633
Oct 31, 96 11309 10772 11765
Nov 30, 96 11518 10971 11980
Dec 31, 96 11440 10896 11929
Jan 31, 97 11457 10913 11952
Feb 28, 97 11571 11022 12062
Mar 31, 97 11428 10885 11901
Apr 30, 97 11510 10964 12001
May 31, 97 11675 11120 12181
Jun 30, 97 11791 11231 12311
Jul 31, 97 12121 11546 12652
Aug 31, 97 12024 11453 12533
Sep 30, 97 12158 11581 12682
Oct 31, 97 12226 11646 12764
Nov 30, 97 12328 11743 12839
Dec 31, 97 12532 11936 13026
Jan 31, 98 12614 12015 13160
CNCTEF-B NAV w/CDSC Lehman
- -------- --- ------ ------
Aug 31, 93 10000 10000 10000
Sep 30, 93 10064 10064 10114
Oct 31, 93 10049 10049 10133
Nov 30, 93 9938 9938 10044
Dec 31, 93 10138 10138 10256
Jan 31, 94 10190 10190 10373
Feb 28, 94 9863 9863 10105
Mar 31, 94 9274 9274 9693
Apr 30, 94 9368 9368 9775
May 31, 94 9475 9475 9860
Jun 30, 94 9418 9418 9800
Jul 31, 94 9554 9554 9979
Aug 31, 94 9594 9594 10014
Sep 30, 94 9425 9425 9867
Oct 31, 94 9171 9171 9692
Nov 30, 94 8943 8943 9516
Dec 3l, 94 9211 9211 9726
Jan 31, 95 9551 9551 10004
Feb 28, 95 9878 9878 10295
Mar 31, 95 9991 9991 10413
Apr 30, 95 10004 10004 10426
May 31, 95 10261 10261 10758
Jun 30, 95 10069 10069 10664
Jul 31, 95 10140 10140 10765
Aug 31, 95 10223 10223 10902
Sep 30, 95 10306 10306 10971
Oct 31, 95 10494 10494 11130
Nov 30, 95 10711 10711 11315
Dec 31, 95 10840 10840 11424
Jan 31, 96 10894 10894 11510
Feb 29, 96 10770 10770 11432
Mar 31, 96 10615 10615 11286
Apr 30, 96 10581 10581 11254
May 31, 96 10606 10606 11250
Jun 30, 96 10695 10695 11372
Jul 31, 96 10781 10781 11475
Aug 31, 96 10792 10792 11473
Sep 30, 96 10941 10941 11633
Oct 31, 96 11045 11045 11765
Nov 30, 96 11242 11242 11980
Dec 31, 96 11158 11158 11929
Jan 31, 97 11168 11168 11952
Feb 28, 97 11273 11273 12062
Mar 31, 97 11126 11126 11901
Apr 30, 97 11199 11199 12001
May 31, 97 11352 11352 12181
Jun 30, 97 11458 11458 12311
Jul 31, 97 11772 11772 12652
Aug 31, 97 11670 11670 12533
Sep 30, 97 11793 11793 12682
Oct 31, 97 11852 11852 12764
Nov 30, 97 11943 11943 12839
Dec 31, 97 12133 12133 13026
Jan 31, 98 12205 12006 13160
A hypothetical $10,000 investment in Class C shares made on August 1, 1997
(inception) at net asset value (NAV) would have been valued at $10,369 on
January 31, 1998. The same investment after deducting the applicable contingent
deferred sales charge (CDSC) would have grown to $10,269 on January 31, 1998.
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.
Average Annual Total Returns
As of January 31, 1998
- --------------------------------------------------------------------------------
Class A Shares Class B Shares Class C Shares(1)
Inception 9/1/93 9/1/93 8/1/97
NAV POP NAV w/CDSC NAV w/CDSC
- --------------------------------------------------------------------------------
1 year 10.10% 4.87% 9.28% 4.28% -- --
- --------------------------------------------------------------------------------
3 years 9.33 7.57 8.52 7.66 -- --
- --------------------------------------------------------------------------------
10 years (or life) 5.39 4.24 4.61 4.22 3.69% 2.69%
- --------------------------------------------------------------------------------
(1) Class C share total returns are cumulative since inception on August 1,
1997.
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. NAV returns do not include sales charges
or CDSC. Public offering price (POP) returns include the maximum sales charge of
4.75%. The applicable CDSC for Class B shares is 5% for 1 year, 3% for 3 years
and 2% since inception. The CDSC for Class C shares is 1% since inception.
Performance results reflect any voluntary waivers or reimbursements of Fund
expenses by the Adviser or Distributor. Absent these waivers or reimbursement
arrangements, performance results would have been lower.
Performance for different share classes will vary based on differences in sales
charges and fees associated with each class.
- --------------------------------------------------------------------------------
6
<PAGE>
INVESTMENT PORTFOLIO
JANUARY 31, 1998 (IN THOUSANDS)
<TABLE>
<CAPTION>
MUNICIPAL BONDS - 95.2% PAR VALUE
===================================================================================================
<S> <C> <C> <C> <C>
EDUCATION - 9.5%
Education - 6.3%
East Carolina University,
Series 1994,
6.200% 11/01/15 $ 475 $ 522
State Educational Facilities Finance
Agency, Duke University, Series C,
6.750% 10/01/21 1,235 1,356
Wake Forest University,
5.000% 11/01/17 250 248
------
2,126
------
Student Loan - 3.2%
State Education Assistance Authority,
Series 1996 C,
6.350% 07/01/16 1,000 1,096
------
...................................................................................................
HEALTHCARE - 5.0%
Hospitals
Charlotte-Mecklenburg Hospital
Authority:
5.000% 01/15/17 750 737
6.250% 01/01/20 640 692
Series 1996-A,
5.750% 01/15/21 250 264
------
1,693
------
...................................................................................................
HOUSING - 13.0%
Multi - Family - 10.5%
Eastern Carolina Regional Housing
Authority, New River Apartments-Jacksonville,
Series 1994,
8.250% 09/01/14 250 263
North Wilkesboro Housing
Development Corp.,
Series 1995-A,
6.350% 10/01/22 1,745 1,858
State Housing Finance Agency,
Series F,
6.600% 07/01/17 1,340 1,447
------
3,568
------
</TABLE>
7
<PAGE>
Investment Portfolio/January 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
=====================================================================================
<S> <C> <C> <C> <C>
HOUSING - CONT.
Single Family - 2.5%
State Housing Finance Agency:
Series KK,
5.500% 03/01/09 $ 305 $ 321
Series W,
6.450% 09/01/14 485 521
------
842
------
.....................................................................................
OTHER - 17.5%
Refunded/Escrowed (a)
Eastern Municipal Power Agency,
Series 1991-A,
6.500% 01/01/18 1,500 1,798
Lincoln County,
Lincoln County Hospital,
9.000% 05/01/07 270 328
State Medical Care Commission,
Mercy Hospital,
Series 1992,
6.500% 08/01/15(b) 2,000 2,229
State Municipal Power Agency,
Catawba No. 1,
Series 1990,
5.500% 01/01/13(b) 1,000 1,070
Wake County,
Series 1993,
5.125% 10/01/13 500 522
------
5,947
------
.....................................................................................
TAX-BACKED - 38.6%
Local Appropriated - 21.1%
Chapel Hill, Parking Facilities,
Series 1994,
6.450% 12/01/23 500 548
Charlotte,
Cityfair Parking Facility,
Series 1994-A,
6.125% 06/01/10 430 468
Charlotte-Mecklenburg Law Project,
Series 1993-B,
5.375% 06/01/13 700 718
Cumberland County,
Civic Center Project,
Series 1995-A,
6.400% 12/01/24 2,000 2,241
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Investment Portfolio/January 31, 1998
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Durham County,
Hospital & Office Facilities:
5.000% 05/01/14 $ 750 $ 753
Series 1994,
6.000% 05/01/14 1,000 1,080
Harnett County,
Harnett County Projects,
Series 1994,
6.400% 12/01/14 250 282
Randolph County,
Randolph County Project,
Series 1995,
5.300% 06/01/15 500 513
Rowan County,
Justice Center Project,
Series 1992,
6.250% 12/01/07 500 557
------
7,160
------
Local General Obligations - 2.8%
Mecklenberg County,
4.500% 02/01/16 1,000 958
------
Special Income-Property Tax - 3.8%
Commonwealth of Puerto Rico
Highway & Transportation Authority,
Series W,
5.500% 07/01/09(b) 240 265
State Centennial Authority,
Arena Project:
5.000% 09/01/10(b) 500 517
5.125% 09/01/19 500 498
------
1,280
------
State Appropriated - 0.6%
Commonwealth of Puerto Rico
Public Buildings Authority,
Series 1993-M, stepped coupon,
(5.700% 07/01/98) 3.750% 07/01/16(c) 200 206
------
State General Obligations - 10.3%
Commonwealth of Puerto Rico:
Series 1994,
6.400% 07/01/11 500 569
6.500% 07/01/23 500 572
Series 1996,
6.500% 07/01/14 1,000 1,184
</TABLE>
9
<PAGE>
Investment Portfolio/January 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MUNICIPAL BONDS - CONT. PAR VALUE
=====================================================================================
<S> <C> <C> <C> <C>
TAX BACKED - CONT.
State General Obligations - Cont.
Commonwealth of Puerto Rico
Aqueduct & Sewer Authority, Series 1995,
6.250% 07/01/12 $ 1,000 $ 1,157
-------
3,482
-------
.....................................................................................
UTILITY - 11.6%
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 1,081
-------
Joint Power Authority - 0.9%
Eastern Municipal Power Agency,
Series 1996-A,
5.700% 01/01/16 300 319
-------
Municipal Electric - 2.8%
University of North Carolina at Chapel Hill,
(d) 08/01/13 2,000 953
-------
Water & Sewer - 4.7%
Asheville, Series 1996,
5.625% 08/01/16 500 531
Charlotte, Series 1994,
5.800% 02/01/15 1,000 1,076
-------
1,607
-------
TOTAL MUNICIPAL BONDS - (cost of $30,284) 32,318
-------
OPTIONS - 0.0% CONTRACTS
=====================================================================================
March 1998 Treasury Bond Put,
Strike price 118, Expiration 02/21/98
(cost of $26) 3,500 2
March 1998 Treasury Bond Call,
Strike price 124, Expiration 02/21/98
(cost of $18) 1,500 5
March 1998 Treasury Bond Call,
Strike price 126, Expiration 02/21/98
(cost of $11) 2,500 2
-------
TOTAL OPTIONS (cost of $55) 9
-------
</TABLE>
10
<PAGE>
Investment Portfolio/January 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
TOTAL INVESTMENTS (cost of $30,339) (e) $32,327
-------
SHORT-TERM OBLIGATIONS - 3.8% PAR
=====================================================================================
VARIABLE RATE DEMAND NOTES (f)
Craven County Industrial Facilities &
Pollution Control Financing Authority,
John Hancock Resource Recovery, Inc:
Series B,
3.800% 05/01/11 $ 600 600
Series C,
3.800% 05/01/11 200 200
Halifax County Industrial Facilities
& Pollution Control Authority,
Westmoreland Coal Co.,
3.800% 12/01/19 300 300
LA. State Offshore Terminal Authority,
Loop, Inc.,
3.650% 09/01/06 200 200
-------
TOTAL SHORT-TERM OBLIGATIONS 1,300
-------
OTHER ASSETS & LIABILITIES, NET - 1.0% 320
=====================================================================================
NET ASSETS - 100% $33,947
=======
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
================================================================================
(a) 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.
(b) These securities, or a portion thereof, with a total market value of
$1,592, are being used to collateralize open futures contracts.
(c) Shown parenthetically is the interest rate to be paid and the date the
Fund will begin accruing this rate.
(d) Zero coupon bond.
(e) Cost for federal income tax purposes is the same.
(f) 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,
1998.
Short futures contracts open at January 31, 1998:
Par value Unrealized
covered by Expiration appreciation
Type contracts month at 01/31/98
================================================================================
Treasury Bond 600 March $ 7
------
11
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
JANUARY 31, 1998
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $30,339) $ 32,327
Short-term obligations 1,300
--------
33,627
Receivable for:
Interest $ 396
Fund shares sold 39
Variation margin on futures 2
Deferred organization expenses 3
Other 85 525
----- --------
Total Assets 34,152
LIABILITIES
Payable for:
Distributions 122
Fund shares repurchased 54
Payable to Adviser 22
Accrued :
Deferred Trustees fees 2
Other 5
-----
Total Liabilities 205
--------
NET ASSETS $ 33,947
========
Net asset value & redemption price per share -
Class A ($16,425/2,205) $ 7.45
========
Maximum offering price per share - Class A
($7.45/0.9525) $ 7.82(a)
========
Net asset value & offering price per share -
Class B ($17,348/2,329) $ 7.45(b)
========
Net asset value & offering price per share -
Class C ($174/23) $ 7.45(b)
========
COMPOSITION OF NET ASSETS
Capital paid in $ 33,232
Undistributed net investment income 35
Accumulated net realized loss (1,315)
Net unrealized appreciation on:
Investments 1,988
Open futures contracts 7
--------
$ 33,947
========
(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, 1998
(in thousands)
INVESTMENT INCOME
Interest $ 1,874
EXPENSES
Management fee $ 167
Service fee 53
Distribution fee - Class B 128
Distribution fee - Class C (a)
Transfer agent 53
Bookkeeping fee 27
Trustees fee 11
Custodian fee 5
Audit fee 22
Legal fee 4
Registration fee 19
Reports to shareholders 6
Amortization of deferred
organization expenses 7
Other 7
-----
509
Custodian credits earned (3)
Fees and expenses waived or borne
by the Adviser (216)
Fees waived by the Distributor - Class C (a) 290
----- -------
Net Investment Income 1,584
-------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 280
Closed futures contracts (158)
-----
Net Realized Gain 122
Net unrealized appreciation (depreciation)
during the period on:
Investments 1,360
Open futures contracts (1)
-----
Net Unrealized Appreciation 1,359
-------
Net Gain 1,481
-------
Increase in Net Assets from Operations $ 3,065
=======
(a) Rounds to less than one.
See notes to financial statements.
13
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Year ended
(in thousands) January 31
============================
INCREASE (DECREASE) IN NET ASSETS 1998 (a) 1997
Operations:
Net investment income $ 1,584 $ 1,627
Net realized gain 122 173
Net unrealized appreciation (depreciation) 1,359 (883)
------- -------
Net Increase from Operations 3,065 917
Distributions:
From net investment income - Class A (839) (822)
From net investment income - Class B (744) (812)
From net investment income - Class C (2) --
------- -------
1,480 (717)
------- -------
Fund Share Transactions:
Receipts for shares sold - Class A 1,398 2,864
Value of distributions reinvested - Class A 487 481
Cost of shares repurchased - Class A (2,710) (2,302)
------- -------
(825) 1,043
------- -------
Receipts for shares sold - Class B 1,432 2,087
Value of distributions reinvested - Class B 368 421
Cost of shares repurchased - Class B (2,630) (3,291)
------- -------
(830) (783)
------- -------
Receipts for shares sold - Class C 171 --
Value of distributions reinvested - Class C 2 --
------- -------
173 --
------- -------
Net Increase (Decrease) from Fund
Share Transactions (1,482) 260
------- -------
Total Decrease (2) (457)
NET ASSETS
Beginning of period 33,949 34,406
------- -------
End of period (including undistributed
net investment income of $35 and $24,
respectively) $33,947 $33,949
======= =======
(a) Class C shares were initially offered on August 1, 1997.
See notes to financial statements.
14
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS CONT.
Year ended
January 31
============================
1998 (a) 1997
NUMBER OF FUND SHARES
Sold - Class A 193 405
Issued for distributions reinvested - Class A 67 68
Repurchased - Class A (374) (328)
------- -------
(114) 145
------- -------
Sold - Class B 198 297
Issued for distributions reinvested - Class B 50 60
Repurchased - Class B (366) (467)
------- -------
(118) (110)
------- -------
Sold - Class C 23 --
Issued for distributions reinvested - Class C (b) --
------- -------
23 --
------- -------
(a) Class C shares were initially offered on August 1, 1997.
(b) Rounds to less than one.
See notes to financial statements.
15
<PAGE>
Notes to Financial Statements
JANUARY 31, 1998
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 and 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 The Fund offers three classes of
shares: Class A, Class B, and Class C. Class A shares are sold with a front-end
sales charge and Class B shares 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. Effective August 1,
1997, the Fund began offering Class C shares which are subject to a contingent
deferred sales charge on redemptions made within one year after purchase and an
annual distribution fee.
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 for which market quotations are not readily available are
valued at fair value under procedures approved by the Trustees.
16
<PAGE>
Notes to Financial Statements/January 31, 1998
- --------------------------------------------------------------------------------
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains (losses) are based upon the specific identification
method for both financial statement and federal income tax purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
Determination of class net asset values and financial highlights: All income,
expenses (other than the Class B and Class C distribution fees), 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 and Class C 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 and Class C 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 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.
17
<PAGE>
Notes to Financial Statements/January 31, 1998
- --------------------------------------------------------------------------------
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
................................................................................
Management fee: Colonial Management Associates, Inc. (the Adviser)
is the investment Adviser of the Fund and furnishes accounting and other
services and office facilities for a monthly fee based on the Fund's pro-rata
portion of the combined average net assets of the funds constituting Trust V as
follows:
Average Net Assets Annual Fee Rate
------------------ ---------------
First $2 billion 0.50%
Over $2 billion 0.45%
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 0.13% 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 was 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: Liberty Financial
Investments, Inc., formerly Colonial Investment Services, Inc. (the
Distributor), an affiliate of the Adviser, is the Fund's principal underwriter.
During the year ended January 31, 1998, the Fund has been advised that the
Distributor retained net underwriting discounts of $4,107 on sales of the Fund's
Class A shares and received contingent deferred sales charges (CDSC) of $50,197
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% of the Fund's average net assets
attributable to Class B and Class C shares. The Distributor has voluntarily
agreed, until further notice, to waive a portion of the Class C share
distribution fee so that it does not exceed 0.45% annually. The plan also
requires the payment of a service fee to the Distributor as follows:
Valuation of shares Annual
outstanding on the 20th of Fee
each month which were issued Rate
---------------------------- ----
Prior to November 30, 1994 0.10%
On or after December 1, 1994 0.25%
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
18
<PAGE>
Notes to Financial Statements/January 31, 1998
- --------------------------------------------------------------------------------
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 0.60% annually of the Fund's average net
assets. Through December 31, 1997, the expense limit was 0.30% 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.
The Fund has an agreement with its custodian bank under which $2,586 of
custodian fees have been reduced by balance credits applied during the year
ended January 31, 1998. The Fund could have invested a portion of the assets
utilized in connection with the expense offset arrangements in an income
producing asset if it had not entered into such arrangements.
NOTE 3. PORTFOLIO INFORMATION
................................................................................
Investment activity: During the year ended January 31, 1998, purchases and sales
of investments, other than short-term obligations, were $7,392,405 and
$9,754,782, respectively.
Unrealized appreciation (depreciation) at January 31, 1998, based on cost of
investments for both financial statement and federal income tax purposes was:
Gross unrealized appreciation $ 2,046,613
Gross unrealized depreciation (58,179)
-----------
Net unrealized appreciation $ 1,988,434
===========
Capital loss carryforwards: At January 31, 1998, capital loss carryforwards,
available (to the extent provided in regulations) to offset future realized
gains were approximately as follows:
Year of Capital loss
expiration carryforward
---------- ------------
2003 $ 63,000
2004 735,000
2005 124,000
---------
$ 922,000
=========
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.
19
<PAGE>
Notes to Financial Statements/January 31, 1998
- --------------------------------------------------------------------------------
NOTE 3. PORTFOLIO INFORMATION - CONT.
................................................................................
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 positions due to
different trading hours or the temporary absence of a liquid market for either
the instrument or the underlying securities or (3) an inaccurate prediction by
the Adviser of the future direction of interest rates. Any of these risks may
involve amounts exceeding the amount recognized in the Fund's Statement of
Assets and Liabilities at any given time.
NOTE 4. 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 year ended January 31, 1998.
20
<PAGE>
FINANCIAL HIGHLIGHTS
Selected data for a share of each class outstanding throughout each period are
as follows:
Year ended January 31
=====================================
1998
Class A Class B Class C (b)
--------- --------- ---------
Net asset value -
Beginning of period $ 7.120 $ 7.120 $ 7.350
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment
income (a) 0.373 0.319 0.168(c)
Net realized and
unrealized gain 0.327 0.327 0.100
------- ------- -------
Total from Investment
Operations 0.700 0.646 0.268
------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net
investment income (0.370) (0.316) (0.168)
------- ------- -------
Net asset value -
End of period $ 7.450 $ 7.450 $ 7.450
======= ======= =======
Total return (d)(e) 10.10% 9.28% 3.69%(f)
======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses (g) 0.49% 1.24% 0.96%(c)(h)
Net investment
income (g) 5.11% 4.36% 4.55%(c)(h)
Fees and expenses waived
or borne by the
Adviser (g) 0.64% 0.64% 0.63%(h)
Portfolio turnover 23% 23% 23%
Net assets at end
of period (000) $16,425 $17,348 $ 174
(a) Net of fees and expenses waived or borne by the Adviser which amounted to:
$ 0.047 $ 0.047 $ 0.047
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) Net of fees waived by the Distributor which amounted to $0.011 per share
and 0.30%.
(d) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(e) Had the Adviser and Distributor not waived or reimbursed a portion of
expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage
arrangements had an impact of 0.01% and $0.001 per share.
(h) Annualized.
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
==================================================================
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
</TABLE>
(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.
22
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Year ended Period ended
January 31 January 31
====================== =========================
1995 1994 (b)
Class A Class B Class A Class B
-------- --------- --------- ---------
$ 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
- --------------------------------------------------------------------------------
Federal Income Tax Information (unaudited)
All of the income distributions will be treated as exempt income for federal
income tax purposes.
- --------------------------------------------------------------------------------
23
<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, 1998, 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, 1998 by correspondence with
the custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 11, 1998
24
<PAGE>
SHAREHOLDER SERVICES
TO MAKE INVESTING EASIER
Your Fund has one of the most extensive selections of shareholder services
available. Your financial advisor can help you arrange for any of these
services, or you can call Colonial Investors Service Center directly at
1-800-345-6611.
Affordable Additional Investments: Add to your account with as little as $50 on
most funds; $25 for an IRA account.
Free Exchanges(1): Exchange all or part of your account into the same share
class of another fund distributed by Liberty Financial Investments, Inc. by
phone or mail.
Easy Access to Your Money(1): Make withdrawals from your account by phone, by
mail or, for certain funds, by check.
One-Year Reinstatement Privilege: If you need access to your money, but then
choose to return it within one year, you can reinvest in any fund distributed by
Liberty Financial Investments of the same share class without any penalty or
sales charge.
Fundamatic: Make periodic investments as low as $50 from your checking account
to your Fund account.
Systematic Withdrawal Plan (SWP): Receive monthly, quarterly or semiannual
payments via check or bank transmission. There is a $5,000 account value
required, but no minimum for the payment amount. The maximum annual withdrawal
is 12% of account balance at time SWP is established. SWPs by check are
processed on the 10th calendar day of each month unless the 10th falls on a
non-business day or the first business day of the week. If this occurs, the
processing date will be the previous business day. Dividends and capital gains
must be reinvested.
Automated Dollar Cost Averaging: Transfer money on a monthly basis from any fund
with a balance of $5,000 into the same share class of up to four other funds
distributed by Liberty Financial Investments. Minimum for each transfer is $100.
Retirement Plans: Choose from a broad range of retirement plans, including IRAs.
(1) Redemptions and exchanges are made at the next determined net asset value
after the request is received by the Transfer Agent. Proceeds may be more or
less than your original cost. The exchange privilege may be terminated at any
time. Exchanges are not available on all funds. Investors who purchase Class B
or C shares, or $1 million or more of Class A shares, may be subject to a
contingent deferred sales charge.
25
<PAGE>
HOW TO REACH COLONIAL
BY PHONE OR BY MAIL
BY TELEPHONE
Customer Connection - 1-800-345-6611
For 24-hour account information, call from your touch-tone phone. (Rotary
callers will be automatically connected to a representative during business
hours.) A recorded message will guide you through the menu:
For fund prices, dividends and capital gains information .......... press 1
For account information ........................................... press 2
To speak to a service representative .............................. press 3
For yield and total return information ............................ press 4
For duplicate statements or new supply of checks .................. press 5
To order duplicate tax forms and year-end statements .............. press 6
(February through May)
To review your options at any time during your call ............... press *
To speak with a shareholder services representative about your account, call
Monday to Friday, 8:00 a.m. to 8:00 p.m. ET, and Saturdays from February through
mid-April, 10:00 a.m. to 2:00 p.m. ET.
Colonial Telephone Transaction Department - 1-800-422-3737
To purchase, exchange or sell shares by telephone, call Monday to Friday, 9:00
a.m. to 7:00 p.m. ET. Transactions received after the close of the New York
Stock Exchange will receive the next business day's closing price.
Literature - 1-800-426-3750
To request literature on any fund distributed by Liberty Financial Investments,
call Monday to Friday, 8:30 a.m. to 6:30 p.m. ET.
BY MAIL
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
26
<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
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.
27
<PAGE>
- --------------------------------------------------------------------------------
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.
Retired (formerly Chairman of the Board and 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
Retired Partner, Peat Marwick Main & Co. (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
[LOGO] LIBERTY FINANCIAL INVESTMENTS, INC. (C) 1998
Distributor for Colonial Funds, Stein Roe Advisor Funds and Newport Funds
One Financial Center, Boston, MA 02111-2621
Visit us at www.libertyfunds.com NC-02/792E-0198 M (3/98) 98/235
- --------------------------------------------------------------------------------
