<PAGE>
[Graphic Omitted]
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND Annual report
January 31, 1998
----------------------------
NOT FDIC MAY LOSE VALUE
INSURED NO BANK GUARANTEE
----------------------------
<PAGE>
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND HIGHLIGHTS
FEBRUARY 1, 1997 - JANUARY 31, 1998
INVESTMENT OBJECTIVE: Colonial Massachusetts Tax-Exempt Fund seeks as high a
level of after-tax total return, as is consistent with prudent risk, by pursuing
current income exempt from federal and Massachusetts state personal income tax.
The Fund also provides opportunities for long-term appreciation from a portfolio
primarily invested in investment grade municipal bonds.
PORTFOLIO MANAGER COMMENTARY: "The Fund outperformed its peer group
average over the last 12 months, as our investments in non-callable bonds meant
the portfolio was well positioned to benefit from increases in bond prices.
Because the Fund was overweighted in sectors that outperformed the general
market, shareholders were able to reap the rewards when the market rallied."
--Maureen Newman
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND PERFORMANCE
CLASS A CLASS B CLASS C(1)
- --------------------------------------------------------------------------------
Inception dates 4/10/87 6/8/92 8/1/97
- --------------------------------------------------------------------------------
Distributions declared per share(2) $0.465 $0.406 $0.240
- --------------------------------------------------------------------------------
SEC yields on 1/31/98(3) 3.84% 3.27% 3.57%
- --------------------------------------------------------------------------------
Taxable-equivalent SEC yields(4) 7.22% 6.15% 6.71%
- --------------------------------------------------------------------------------
12-month total returns, assuming reinvestment 9.94% 9.13% 3.40%(5)
of all distributions and no sales charge or
contingent deferred sales charge (CDSC)
- --------------------------------------------------------------------------------
Net asset value per share on 1/31/98 $8.10 $8.10 $8.10
- --------------------------------------------------------------------------------
(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 Distributor had
not waived certain Fund expenses, the SEC yield for Class C shares would
have been 3.27%
(4) Taxable-equivalent SEC yields are based on the maximum effective 46.8%
federal and Massachusetts income tax rates.
(5) Performance results reflect any voluntary waiver of Fund expenses by the
Distributor. Absent this waiver, 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) Top Five Sectors (as of 1/31/98)
- --------------------------------- --------------------------------
AAA .......................45.6% General Obligations .......25.9%
AA ........................19.0% Water & Sewer .............12.8%
A .........................21.3% Refunded ..................11.6%
BBB ........................3.1% Hospital ...................8.9%
Non-rated ..................9.4% Housing ....................7.1%
Short-term obligations .....1.6%
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.
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[Photo of Harold W. Cogger]
I am pleased to present your Fund's annual report for the year ended January 31,
1998. This report provides information on the investment environment of the last
12 months and on the performance of your Fund.
With the national economy continuing its strong growth in early 1997, the
Federal Reserve Board made a preemptive strike against inflation by raising
short-term interest rates in March. This contributed to a decline in bond prices
which did not halt until May. As it became apparent that economic growth was not
leading to higher inflation rates, the bond market rallied in the late spring
and early summer. Bond prices kept rising as the Federal budget deficit for the
year was smaller than expected, and concerns about Asian economic instability
led to a belief that reduced demand from Asia, along with lower prices on goods
imported from Asia, would continue to limit inflationary pressures. The Asian
market crisis first made headlines in mid-1997, and the uncertainty of its
impact on the U.S. economy caused the yield on the long Treasury bond to fall
below six percent in December.
Municipal bond prices outperformed Treasury prices during the first six months
of the period. However, in the second half of the year, municipal bonds slightly
underperformed Treasurys for two reasons: first, lower bond yields diminished
retail demand; second, the supply of municipal bonds increased as issuers took
advantage of the lower interest rates by refunding their bonds.
Looking ahead, we expect moderate economic growth and low inflation, factors
that lead us to be moderately optimistic about the bond market environment in
1998.
During the last 12 months, your Fund has provided competitive, tax-exempt income
generated by well-researched investments in a diversified range of municipal
bonds. Colonial Massachusetts Tax-Exempt Fund continues to offer you long-term
total return potential and the opportunity to share in Massachusetts' economic
expansion.
As always, we thank you for the opportunity to help meet your investment goals.
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.
<PAGE>
PORTFOLIO MANAGEMENT REPORT
MAUREEN NEWMAN is portfolio manager of Colonial Massachusetts Tax-Exempt Fund.
Ms. Newman is vice president of Colonial Management Associates, Inc. and is the
Manager of Tax-Exempt Credit Research.
POSITIONED FOR SOLID PERFORMANCE
For the 12 months ended January 31, 1998, the total return for Class A shares
was 9.94%, based on net asset value. This placed it in the top half of
Massachusetts Municipal Bond funds as measured by Lipper Analytical Services.
According to Lipper, the average Massachusetts fund total return was 9.55%.(1)
Bond prices declined in the beginning of the period, as the Federal Reserve
Board raised short-term interest rates in response to concerns that continued
economic growth would lead to higher inflation. However, those concerns proved
to be unwarranted as inflation rates remained low, and the bond market rallied
during the second half of the year.
The Fund's portfolio was positioned to take advantage of this change in market
momentum, resulting in the year's solid performance.
BENEFITING FROM THE BOND MARKET RALLY
The Fund was well positioned to benefit from increasing bond prices. Bonds that
are not callable, and bonds priced below par (100) generally perform well when
the bond market rallies. The Fund's investments in these bonds helped to produce
an above-average total return. Other bonds that were refunded during the period,
and therefore became backed by federal government securities held in escrow,
also added to performance.
A BOOMING MASSACHUSETTS ECONOMY
Massachusetts enjoyed strong economic growth over the last 12 months with the
mutual fund, construction and the high technology sectors all experiencing boom
periods. This growth is also reflected in the low unemployment rate, the
increased number of housing starts and the sixth consecutive state budget
surplus. We expect the strong economy to continue through 1998, and the supply
of municipal bonds should remain steady as the "Big Dig" and improvements to
Logan Airport are financed. As this is an election year in Massachusetts, we
will be paying close attention to the political environment. A proposed ballot
question, which would eliminate tolls on the Massachusetts Turnpike, is of
particular concern because of its potential effect on bonds issued to fund the
construction on the Central Artery Tunnel Project in Boston, also known as the
"Big Dig."
MANAGING FOR TOTAL RETURN IN AN ERA OF DECLINING INTEREST RATES
Over the last several months, the combination of a growing economy, a lower
Federal budget deficit and subdued inflation resulted in sharp increases in bond
prices. When interest rates go down, bond prices generally increase, and that
has been the case in the current rally. This effect has been reflected in a
decrease in the size of your dividend checks over time, though the net asset
value of your shares has increased. 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. Despite the lower general
level of interest rates, 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.
(1) Source: Lipper Analytical Services, Inc. Lipper rankings are based on the
Lipper Massachusetts Municipal Debt category. The Fund's (Class A shares)
ranking for the one-year period is in the 2nd quartile (rated 17 out of 54
funds), in the 2nd quartile for the five-year period (rated 7 out of 25
funds) and in the 1st quartile for the 10-year period (rated 4 out of 16
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.
<PAGE>
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND INVESTMENT PERFORMANCE
Change in Value of $10,000 from 1/31/88 to 1/31/98
Based on NAV and POP for Class A Shares
NAV POP Lehman
Jan 88 10,000 9,525 10,000
Apr 88 10,084 9,605 10,064
Jul 88 10,330 9,839 10,248
Oct 88 10,699 10,191 10,627
Jan 89 10,955 10,435 10,857
Apr 89 11,062 10,537 10,962
Jul 89 11,419 10,877 11,496
Oct 89 11,402 10,861 11,488
Jan 90 11,597 11,046 11,729
Apr 90 11,549 11,000 11,752
Jul 90 12,173 11,595 12,293
Oct 90 12,042 11,470 12,341
Jan 91 12,560 11,963 12,814
Apr 91 12,925 12,311 13,102
Jul 91 13,244 12,615 13,366
Oct 91 13,677 13,027 13,842
Jan 92 14,018 13,352 14,211
Apr 92 14,189 13,515 14,348
Jul 92 15,077 14,361 15,203
Oct 92 14,821 14,117 15,004
Jan 93 15,540 14,802 15,608
Apr 93 16,103 15,338 16,163
Jul 93 16,465 15,683 16,547
Oct 93 17,016 16,208 17,117
Jan 94 17,384 16,558 17,522
Apr 94 16,427 15,646 16,512
Jul 94 16,781 15,984 16,857
Oct 94 16,165 15,397 16,371
Jan 95 16,777 15,980 16,898
Apr 95 17,435 16,607 17,610
Jul 95 17,749 16,906 18,184
Oct 95 18,511 17,632 18,800
Jan 96 19,276 18,361 19,442
Apr 96 18,609 17,726 19,010
Jul 96 18,981 18,080 19,384
Oct 96 19,483 18,557 19,872
Jan 97 19,744 18,806 20,189
Apr 97 19,857 18,914 20,271
Jul 97 20,946 19,951 21,371
Oct 97 21,105 20,102 21,560
Jan 98 21,707 20,676 22,230
A hypothetical $10,000 investment in Class B shares made on June 8, 1992
(inception) at net asset value (NAV) would have been valued at $14,459 on
January 31, 1998. The same investment after deducting the applicable contingent
deferred sales charge (CDSC) would have grown to $14,359 on January 31, 1998.
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 $10,340 on
January 31, 1998. The same investment after deducting the applicable contingent
deferred sales charge (CDSC) would have grown to $10,240 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.
<PAGE>
AVERAGE ANNUAL TOTAL RETURNS
As of January 31, 1998
- --------------------------------------------------------------------------------
CLASS A SHARES CLASS B SHARES CLASS C SHARES(1)
INCEPTION 4/10/87 6/8/92 8/1/97
NAV POP NAV w/CDSC NAV w/CDSC
- --------------------------------------------------------------------------------
1 YEAR 9.94% 4.72% 9.13% 4.13% -- --
- --------------------------------------------------------------------------------
5 YEARS 6.91 5.88 6.12 5.80 -- --
- --------------------------------------------------------------------------------
10 YEARS (OR LIFE) 8.06 7.53 6.74 6.61 3.40% 2.40%
- --------------------------------------------------------------------------------
(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, 2% for 5 years
and 1% since inception. The CDSC for Class C shares is 1% since
inception.
Performance results reflect any voluntary waivers or reimbursement 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.
<PAGE>
INVESTMENT PORTFOLIO
JANUARY 31, 1998 (IN THOUSANDS)
MUNICIPAL BONDS - 96.5% PAR VALUE
- -------------------------------------------------------------------------------
EDUCATION - 7.8%
EDUCATION - 4.7%
MA College Building Authority,
Southeastern University,
Series 1995 A,
5.750% 05/01/16 $ 1,250 $ 1,334
MA Health & Educational
Facilities Authority:
Amherst College, Series E,
6.800% 11/01/21 500 550
Community Colleges Program, Series A,
6.600% 10/01/22 1,250 1,378
Harvard University, Series N,
6.250% 04/01/20 2,250 2,675
MA Industrial Finance Agency:
Babson College, Series 1992 A,
6.375% 10/01/09 1,000 1,106
College of the Holy Cross,
5.500% 03/01/05 1,375 1,478
Concord Academy,
5.500% 09/01/27 1,250 1,260
Emerson College, Series 1991 A,
8.900% 01/01/18 500 554
Worcester Polytechnic Institute,
5.125% 09/01/17 1,000 1,006
--------
11,341
--------
STUDENT LOAN - 3.1%
New England Educational Loan Marketing
Corp. Student Loan, Series 1993-A,
5.700% 07/01/05 5,000 5,288
MA Educational Financing Authority,
Issue E,
5.650% 07/01/10 2,000 2,134
--------
7,422
--------
- --------------------------------------------------------------------------------
HEALTHCARE - 13.4%
HOSPITAL - 8.7%
MA Health & Educational
Facilities Authority:
Berkshire Health System, Series C,
6.000% 10/01/20 1,000 1,051
Charlton Memorial Hospital, Series B:
7.250% 07/01/07 500 554
7.250% 07/01/13 500 552
Children's Hospital, Series E,
6.200% 10/01/16 2,000 2,165
Dana-Farber Cancer Institute:
Series C,
6.650% 12/01/15 250 271
Series 1995 G1,
5.500% 12/01/27 5,000 5,087
Deaconess Hospital,
7.200% 04/01/22 2,500 2,778
Hallmark Health Systems,
5.000% 07/01/27 1,000 977
Medical Center of Central Mass., Series A,
7.000% 07/01/12 1,000 1,091
Newton-Wellesley Hospital, Series 1997 G,
6.000% 07/01/12 1,000 1,108
Spaulding Rehabilitation Hospital, Series A,
7.625% 07/01/21 400 414
University Hospital, Series C,
7.250% 07/01/19 1,000 1,084
Youville House Project,
5.950% 02/15/17 500 530
MA Industrial Finance Agency:
Massachusetts Biomedical Research Corp.:
Series A-2,
(a) 08/01/08 2,000 1,218
Series 1989 A2,
(a) 08/01/10 4,000 2,155
--------
21,035
--------
INTERMEDIATE CARE FACILITIES - 0.1%
MA Health & Educational
Facilities Authority,
Corporation for Independent Living,
8.100% 07/01/18 295 323
--------
LIFECARE - 0.4%
MA Industrial Finance Agency,
Reeds Landing Project,
7.750% 10/01/00 1,000 1,023
--------
NURSING HOME - 4.2%
Boston,
St. Joseph Nursing Care Center, Inc.
Series 1990,
10.000% 01/01/20(b) 485 527
MA Health & Educational
Facilities Authority:
Deutsches Altenheim, Inc., Series A,
7.700% 11/01/31 970 1,048
MA Industrial Finance Agency:
American Health Foundation Inc.,
Series 1989,
10.125% 03/01/19 1,765 1,324
Belmont Home Care, Series 1995 A,
9.270% 01/01/25 2,000 2,313
Chelsea Jewish Nursing Home, Series A,
6.500% 08/01/37 1,000 1,110
GF/Massachusetts Inc.,
Series 1994,
8.300% 07/01/23 2,445 2,552
Seacoast Nursing Home, Series 1991,
9.625% 12/01/21 1,260 1,406
--------
10,280
--------
- --------------------------------------------------------------------------------
HOUSING - 6.9%
MULTI-FAMILY - 2.9%
Boston,
Mt. Pleasant Housing Development Corp.,
Series A,
6.750% 08/01/23 1,655 1,758
MA Housing Finance Agency:
Series 1988 A,
8.400% 08/01/21 1,210 1,248
Series 1989 A,
7.600% 12/01/16 660 702
Series 1990 A,
8.150% 02/01/29 135 144
Series 1992 C,
6.875% 11/15/11 3,000 3,275
--------
7,127
--------
SINGLE FAMILY - 4.0%
MA Housing Finance Agency:
5.600% 06/01/30 2,000 2,037
Series 3,
7.875% 06/01/14 400 406
Series 5,
8.375% 06/01/15 500 511
Series 6,
8.100% 12/01/14 495 508
Series 7,
8.100% 06/01/20 420 431
Series 8,
7.700% 06/01/17 575 592
Series 9,
8.100% 12/01/21 500 518
Series 12,
7.600% 12/01/13 250 264
Series 13,
7.950% 06/01/23 1,255 1,332
Series 18,
7.350% 12/01/16 1,000 1,063
Series 1987 A,
9.000% 12/01/18 215 220
Series 1987 B,
8.500% 08/01/20 10 10
Series 1987 - 4,
7.375% 06/01/14 705 720
Series 1988 B,
8.100% 08/01/23 455 476
Series 1989 A:
8.200% 08/01/27 330 343
8.200% 08/01/15 245 255
--------
9,686
--------
- --------------------------------------------------------------------------------
OTHER - 11.4%
REFUNDED/ESCROWED (c)
Mass. Bay Transportation Authority,
General Transportation System,
Series 1990-B,
7.875% 03/01/21(d) 4,000 4,516
Fall River,
7.200% 06/01/10(d) 1,250 1,396
Leominster,
7.500% 04/01/09 1,075 1,175
Lynn,
7.850% 01/15/11 1,000 1,172
Palmer, Series 1990 B,
7.700% 10/01/10 1,000 1,114
MA Health & Educational
Facilities Authority:
Berklee College of Music, Series C,
6.875% 10/01/21 1,000 1,115
Capital Asset Program, Series 1989 F,
7.300% 10/01/18 750 816
Carney Hospital, Series C,
7.750% 07/01/14 500 553
Cooley Dickinson Hospital, Series A,
7.125% 11/15/18 1,850 2,139
Fairview Extended Care Service, Inc.,
Series 1990 A,
10.250% 01/01/21 500 598
Framingham Union Hospital, Series B,
8.500% 07/01/20 1,000 1,121
Lowell General Hospital, Series 1991 A,
8.400% 06/01/11 500 575
St. John's Hospital, Series 1990 B,
8.375% 12/01/20 500 569
Winchester Hospital, Series C,
7.550% 07/01/11 500 563
Worcester Polytech Institute, Series E:
6.625% 09/01/17 500 561
6.750% 09/01/11 500 563
MA Industrial Finance Agency:
Mary Ann Morse Nursing Home, Inc.,
Series 1990,
9.000% 10/01/20 475 543
Series 1991 I,
10.000% 01/01/21 925 1,100
MA Turnpike Authority, Series 1993 A,
5.000% 01/01/20 5,000 5,060
State:
Series 1991 B,
6.500% 08/01/11 1,140 1,253
Series 1991 C,
6.500% 08/01/11 800 878
University of Massachusetts
Building Authority, Series 1976 A,
7.500% 05/01/11 95 113
--------
27,493
--------
- --------------------------------------------------------------------------------
OTHER REVENUE - 0.7%
INDUSTRIAL - 0.7%
MA Industrial Finance Agency,
House of Bianchi Inc.,
8.750% 06/01/18 1,700 1,757
-------
- --------------------------------------------------------------------------------
RESOURCE RECOVERY - 2.1%
DISPOSAL - 1.9%
Boston Industrial Development
Finance Authority,
Jet-A-Way, Inc.,
10.500% 01/01/11 200 222
MA Industrial Finance Agency:
Peabody Monofill Associates, Inc.,
Series 1995,
9.000% 09/01/05 1,845 2,066
Massachusetts Environmental Services,
Series 1994 A,
8.750% 11/01/21(e) 2,935 2,201
--------
4,489
--------
RESOURCE RECOVERY - 0.2%
Agawam,
Springfield Resource Recovery Project,
Series 1986,
8.500% 12/01/08 475 486
--------
- --------------------------------------------------------------------------------
TAX-BACKED - 32.6%
LOCAL APPROPRIATED - 0.5%
Plymouth County,
Plymouth County Correctional Facility,
Series A,
7.000% 04/01/22 1,000 1,128
--------
LOCAL GENERAL OBLIGATIONS - 7.6%
Boston, Series 1992 A,
6.500% 07/01/12 4,340 4,787
Haverhill,
5.000% 06/15/17 2,000 1,990
Holyoke:
School Project Loan,
7.650% 08/01/09 500 567
Series 1996 A,
6.000% 06/15/07 1,345 1,498
Lowell,
8.400% 01/15/09 1,000 1,139
Mansfield,
6.700% 01/15/11 1,000 1,114
Milford, Series 1996,
5.000% 08/15/15 1,390 1,391
Nantucket,
Series 1991,
6.800% 12/01/11 2,675 2,986
Southern Berkshire Regional
School District,
7.000% 04/15/11 500 567
Swansea,
School Project Loan:
6.800% 01/15/09 250 274
6.800% 01/15/10 125 137
6.800% 01/15/11 210 229
Weymouth, Series 1992:
6.700% 06/15/09 200 219
6.700% 06/15/10 200 219
6.700% 06/15/11 155 169
6.700% 06/15/12 140 152
Worcester, Series C,
5.750% 10/01/13 1,000 1,081
--------
18,519
--------
SPECIAL NON-PROPERTY TAX - 4.0%
State, Highway Improvement Loan Act,
Series 1992 A,
6.000% 06/01/13 1,500 1,614
State, Series A,
5.500% 06/01/13 1,000 1,086
Commonwealth of Puerto Rico
Highway & Transportaion Authority:
Series W,
5.500% 07/01/09 660 728
Series 1996 Z,
6.250% 07/01/05 5,500 6,231
--------
9,659
--------
STATE APPROPRIATED - 2.7%
MA College Building Authority,
Series 1994 A,
7.500% 05/01/14 1,825 2,381
University of Massachusetts
Building Authority,
Series 1991 A,
7.200% 05/01/04 400 459
Commonwealth of Puerto Rico
Public Buildings Authority,
Series 1993 M:
stepped coupon,
(5.700% 07/01/98) 3.750% 07/01/16(f) 2,000 2,061
5.600% 07/01/08 1,500 1,665
--------
6,566
--------
STATE GENERAL OBLIGATIONS - 17.8%
Commonwealth of Massachusetts
5.125% 06/01/12 2,000 2,067
Series A,
5.750% 08/01/08 3,000 3,338
Series B,
7.000% 07/01(d)09 4,385 5,377
Series C,
6.500% 08/01/11 450 490
Series 1991 B,
6.500% 08/01/11 860 936
Series 1992 B,
6.500% 08/01/08 1,000 1,176
Series 1996 A,
6.000% 11/01/06 1,000 1,119
Commonwealth of Puerto Rico,
Series 1994,
6.500% 07/01/23 5,000 5,720
Massachusetts Bay Transportaion Authority:
Series C,
5.000% 03/01/17 1,000 989
Series D,
5.750% 03/01/13 2,000 2,161
Series 1988,
7.750% 01/15/06 250 295
Series 1991 A,
7.000% 03/01/21 1,500 1,908
Series 1992 B,
6.200% 03/01/16 3,700 4,277
Series 1994 A,
7.000% 03/01/10 5,000 6,119
7.000% 03/01/11 4,270 5,269
7.000% 03/01/14 1,250 1,557
Virgin Islands Public Finance Authority,
Series 1992 A,
7.000% 10/01/02 250 274
-------
43,072
-------
- --------------------------------------------------------------------------------
TRANSPORTATION - 4.8%
AIRPORT - 2.9%
MA Port Authority:
5.500% 07/01/16 2,000 2,099
Series 1993 B,
5.000% 07/01/18 5,000 4,881
-------
6,980
-------
TOLL FACILITIES - 1.9%
MA Turnpike Authority:
Series A,
5.125% 01/01/23 2,500 2,488
Series C,
(a) 01/01/18 5,825 2,132
-------
4,620
-------
- --------------------------------------------------------------------------------
UTILITY - 16.8%
INVESTOR OWNED - 0.7%
MA Industrial Finance Agency,
Nantucket Electric Co.,
Series 1996 A,
6.750% 07/01/05 1,400 1,602
--------
JOINT POWER AUTHORITY - 2.9%
MA Municipal Wholesale
Electric Co.,
Series 1994 A:
5.000% 07/01/17 5,000 4,933
RIB (variable rate) 6.302% 07/01/16 2,000 1,998
--------
6,931
--------
MUNICIPAL ELECTRIC - 0.7%
Commonwealth of Puerto Rico
Electric Power Authority,
Series 1995 Y,
7.000% 07/01/07 1,500 1,806
--------
WATER & SEWER - 12.5%
Boston Water & Sewer Commission:
Series 1992 A,
5.750% 11/01/13 1,000 1,097
Series 1993 A,
5.250% 11/01/19 4,750 4,912
MA Water Pollution Abatement Trust,
New Bedford Loan Program,
Series 1996 A,
6.000% 02/01/06 1,000 1,111
MA Water Resources Authority:
Series 1992 A:
6.500% 07/15/09 2,000 2,359
6.500% 07/15/19 5,000 6,010
Series 1993 C:
5.250% 12/01/15 2,750 2,847
5.250% 12/01/20 5,025 5,039
5.250% 12/01/15 1,000 1,051
Series 1995 B,
6.250% 12/01/13 5,000 5,858
--------
30,284
--------
TOTAL MUNICIPAL BONDS (cost of $211,387)(g) 233,629
--------
- --------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (h)
Fl Pinellas County Health Facilities
Authority, Series 1985,
3.750% 12/01/15 1,000 1,000
MA Educational Facilities Authority,
3.500% 12/01/25 100 100
Portage Economic Development Revision,
Pedcor Investments, Series A,
3.650% 08/01/30 100 100
MA Health & Educational
Facilities Authority, Series 1985 D,
3.550% 01/01/35 1,500 1,500
Niagara Mohawk Series 1985-A,
3.900% 07/01/15 1,100 1,100
--------
TOTAL SHORT-TERM OBLIGATIONS 3,800
--------
OTHER ASSETS & LIABILITIES, NET - 1.9% 4,658
- --------------------------------------------------------------------------------
NET ASSETS - 100% $242,087
========
NOTES TO INVESTMENT PORTFOLIO:
- -------------------------------------------------------------------------------
(a) Zero coupon bond.
(b) This is a restricted security which was acquired on April 2, 1990 at a cost
of $485. This security represents 0.2% of the Fund's net assets as of
January 31, 1998.
(c) The Fund has been informed that each issuer has placed direct obligations of
the U.S. Government in an irrevocable trust, solely for the payment of the
interest and principal.
(d) These securities, or a portion thereof, with a total market value of
$11,289, are being used to collateralize open futures contracts.
(e) This issuer is in default of certain debt covenants. Income is not being
accrued.
(f) Shown parenthetically is the interest rate to be paid and the date the Fund
will begin accruing this rate.
(g) Cost for federal income tax purposes is the same.
(h) 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.
Futures contracts open at January 31, 1998:
Unrealized
Par value Expiration appreciation
Type covered by contracts month at 1/31/98
------------------------------------------------------------------------------
Long Treasury Bond $ 4,000 March $ 47
Short Municipal Bond $ 3,000 March 11
------
58
------
Acronym Name
------- ----------------------
RIB Residual Interest Bond
See notes to financial statements.
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
JANUARY 31, 1998
(in thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $211,387) $233,629
Short-term obligations 3,800
--------
237,429
Receivable for:
Investments sold $4,866
Interest 2,869
Fund shares sold 121
Variation margin on futures 10
Other 80 7,946
------ --------
Total Assets 245,375
LIABILITIES
Payable for:
Investments purchased 2,093
Distributions 952
Fund shares repurchased 220
Accrued:
Deferred Trustees fees 5
Other 18
------
Total Liabilities 3,288
--------
NET ASSETS $242,087
--------
Net asset value & redemption price per share -
Class A ($182,721/22,552) $8.10
========
Maximum offering price per share - Class A
($8.10/0.9525) $8.50(a)
========
Net asset value & offering price per share -
Class B ($59,160/7,302) $8.10(b)
========
Net asset value & offering price per share -
Class C ($206/26) $8.10(b)
========
COMPOSITION OF NET ASSETS
Capital paid in $219,952
Overdistributed net investment income (28)
Accumulated net realized loss (137)
Net unrealized appreciation on:
Investments 22,242
Open futures contracts 58
--------
$242,087
========
(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.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JANUARY 31, 1998
(in thousands)
INVESTMENT INCOME
Interest $14,331
EXPENSES
Management fee $1,204
Service fee 375
Distribution fee - Class B 443
Distribution fee - Class C (a)
Transfer agent 370
Bookkeeping fee 94
Trustees fee 21
Custodian fee 9
Audit fee 27
Legal fee 6
Registration fee 20
Reports to shareholders 15
Other 37
------
2,621
Fees waived by the Distributor - Class C (a) 2,621
------ -------
Net Investment Income 11,710
-------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain on:
Investments 3,835
Closed futures contracts 143
-----
Net Realized Gain 3,978
Net unrealized appreciation (depreciation)
during the period on:
Investments 6,857
Open futures contracts (78)
-----
Net Unrealized Gain 6,779
-------
Net Gain 10,757
-------
Increase in Net Assets from Operations $22,467
=======
(a) Rounds to less than one
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands) Year ended January 31
----------------------
INCREASE (DECREASE) IN NET ASSETS 1998(a) 1997
Operations:
Net investment income $ 11,710 $ 12,889
Net realized gain 3,978 3,643
Net unrealized appreciation (depreciation) 6,779 (11,498)
-------- --------
Net Increase from Operations 22,467 5,034
Distributions:
From net investment income - Class A (9,280) (10,187)
In excess of net investment income - Class A (69) -
From net realized gains - Class A (1,262) -
From net investment income - Class B (2,595) (2,652)
In excess of net investment income - Class B (19) -
From net realized gains - Class B (413) -
From net investment income - Class C (4) -
In excess of net investment income - Class C (b) -
From net realized gains - Class C (2) -
-------- --------
8,823 (7,805)
-------- --------
Fund Share Transactions:
Receipts for shares sold - Class A 11,290 13,570
Value of distributions reinvested - Class A 5,823 5,460
Cost of shares repurchased - Class A (25,244) (36,490)
-------- --------
(8,131) (17,460)
-------- --------
Receipts for shares sold - Class B 5,337 7,193
Value of distributions reinvested - Class B 1,809 1,553
Cost of shares repurchased - Class B (9,319) (8,527)
-------- --------
(2,173) 219
-------- --------
Receipts for shares sold - Class C 200 -
Value of distributions reinvested - Class C 4 -
Cost of shares repurchased - Class C (b) -
-------- --------
204 -
-------- --------
Net Decrease from Fund Share
Transactions (10,100) (17,241)
-------- --------
Total Decrease (1,277) (25,046)
NET ASSETS
Beginning of period 243,364 268,410
-------- --------
End of period (net of overdistributed and
including undistributed net investment
income of $28 and $169, respectively) $242,087 $243,364
======== ========
(a) Class C shares were initially offered on August 1, 1997.
(b) Rounds to less than one.
Statement of Changes continued on following page.
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS - CONT.
Year ended January 31
----------------------
1998(a) 1997
NUMBER OF FUND SHARES
Sold - Class A 1,430 1,752
Issued for distributions reinvested - Class A 733 700
Repurchased - Class A (3,198) (4,701)
-------- --------
(1,035) (2,249)
-------- --------
Sold - Class B 674 929
Issued for distributions reinvested - Class B 228 201
Repurchased - Class B (1,174) (1,098)
-------- --------
(272) 32
-------- --------
Sold - Class C 25 --
Issued for distributions reinvested - Class C 1 --
Repurchased - Class C (b) --
-------- --------
26 --
-------- --------
(a) Class C shares were initially offered on August 1, 1997.
(b) Rounds to less than one.
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
JANUARY 31, 1998
NOTE 1. ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
ORGANIZATION: Colonial Massachusetts Tax-Exempt Fund (the Fund), a series
of Colonial Trust V, is a non-diversified portfolio of a Massachusetts
business trust, registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The 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 Massachusetts state personal income tax. The Fund also provides
opportunities for long-term appreciation from a portfolio primarily invested in
investment grade municipal bonds. The Fund may issue an unlimited number
of shares. The Fund offers Class A shares sold with a front-end sales
charge and Class B shares which are subject to an annual distribution fee
and a contingent deferred sales charge. Class B shares will convert to
Class A shares when they have been outstanding approximately eight years.
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 which cannot be valued as set forth above are valued at fair
value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains (losses) are based upon the specific identification
method for both financial statement and federal income tax purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS: All income,
expenses (other than the Class B distribution fee), realized and unrealized
gains (losses), are allocated to each class proportionately on a daily basis for
purposes of determining the net asset value of each class.
Class B per share data and ratios are calculated by adjusting the expense and
net investment income per share data and ratios for the Fund for the entire
period by the 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.
DISTRIBUTIONS TO SHAREHOLDERS: The Fund declares and records distributions daily
and pays monthly.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
- --------------------------------------------------------------------------------
MANAGEMENT FEE: Colonial Management Associates, Inc. (the Adviser) is the
investment Adviser of the Fund and furnishes accounting and other services and
office facilities for a monthly fee based on each Fund's pro rata portion of the
combined average net assets of Trust V as follows:
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 0.14% 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: Liberty Financial
Investment Services, Inc., formerly Colonial Investment Services, Inc. (the
Distributor), an affiliate of the Adviser, is the Fund's principal underwriter.
For the year ended January 31, 1998, the Fund has been advised that the
Distributor retained net underwriting discounts of $26,275 on sales of the
Fund's Class A shares and received contingent deferred sales charges (CDSC) of
$182,531 and none on Class B and Class C share redemptions, respectively.
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 and Class C shares. The Distributor has voluntarily
agreed to waive, until further notice, a portion of the Class C share
distribution fee so that it will 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.
EXPENSE LIMITS: The Adviser has agreed, until further notice, to waive fees and
bear certain Fund expenses to the extent that total expenses (exclusive of
service and distribution fees, brokerage commissions, interest, taxes, and
extraordinary expenses, if any) exceed 0.75% annually of the Fund's average net
assets.
For the year ended January 31, 1998, the Fund's operating expenses did not
exceed the 0.75% expense limit.
OTHER: The Fund pays no compensation to its officers, all of whom are
employees of the Adviser.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended January 31, 1998, purchases and sales
of investments, other than short-term obligations were $33,800,217 and
$54,523,159, 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 $23,405,152
Gross unrealized depreciation (1,163,602)
-----------
Net unrealized appreciation $22,241,550
===========
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 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.
<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(a)
-------- ------- -------
Net asset value -
Beginning of period $ 7.810 $ 7.810 $ 8.070
-------- ------- -------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income 0.403 0.344 0.180(b)
Net realized and unrealized
gain (loss) 0.352 0.352 0.090
-------- ------- -------
Total from Investment Operations 0.755 0.696 0.270
-------- ------- -------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.406) (0.347) (0.180)
In excess of net investment income (0.003) (0.003) (0.004)
From net realized gains (0.056) (0.056) (0.056)
-------- ------- -------
Total Distributions
Declared to Shareholders (0.465) (0.406) (0.240)
-------- ------- -------
Net asset value - End of period $ 8.100 $ 8.100 $ 8.100
======== ======= =======
Total return(c) 9.94% 9.13% 3.40%(d)
======== ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses (e) 0.90% 1.65% 1.37%(b)(f)
Net investment income (e) 5.05% 4.30% 4.47%(b)(f)
Portfolio turnover 14% 14% 14%
Net assets at end
of period (000) $182,721 $59,160 $ 206
(a) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(b) Net of fees waived by the Distributor which amounted to $0.012 per share and
0.30%.
(c) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(d) Not annualized. Had the Distributor not waived a portion of the distribution
fee, total return would have been reduced.
(e) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(f) Annualized
<PAGE>
FINANCIAL HIGHLIGHTS - Continued
Selected data for a share of each class outstanding throughout each period
are as follows:
Year ended January 31
--------------------------------------------
1997 1996
Class A Class B Class A Class B
-------- ------- -------- -------
Net asset value -
Beginning of period $ 8.040 $ 8.040 $ 7.390 $ 7.390
-------- ------- -------- -------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income(a) 0.415 0.357 0.424 0.367
Net realized and unrealized
gain (loss) (0.234) (0.234) 0.650 0.650
-------- ------- -------- -------
Total from Investment
Operations 0.181 0.123 1.074 1.017
-------- ------- -------- -------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.411) (0.353) (0.424) (0.367)
-------- ------- -------- -------
Net asset value -
End of period $ 7.810 $ 7.810 $ 8.040 $ 8.040
======== ======= ======== =======
Total return(b)(c) 2.43% 1.66% 14.90% 14.05%
======== ======= ======== =======
RATIOS TO AVERAGE NET ASSETS
Expenses 0.90%(d) 1.65%(d) 0.85%(d) 1.60%(d)
Net investment income 5.32%(d) 4.57%(d) 5.49%(d) 4.74%(d)
Fees and expenses waived
or borne by the Adviser 0.00%(d) 0.00%(d) 0.06%(d) 0.06%(d)
Portfolio turnover 29% 29% 21% 21%
Net assets at end of period
(000) $184,221 $59,143 $207,759 $60,651
(a) Net of fees and expenses waived or
borne by the Adviser which
amounted to: $ 0.000 $ 0.000 $ 0.005 $ 0.005
(b) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(c) Had the Adviser not waived or reimbursed a portion of expenses, total return
would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
<PAGE>
Year ended January 31
--------------------------------------------
1995 1994
Class A Class B Class A Class B
-------- ------- -------- -------
Net asset value -
Beginning of period $ 8.130 $ 8.130 $ 7.700 $ 7.700
-------- ------- -------- -------
INCOME FROM
INVESTMENT OPERATIONS:
Net investment income(a) 0.444 0.388 0.453 0.395
Net realized and unrealized
gain (loss) (0.738) (0.738) 0.439 0.439
-------- ------- -------- -------
Total from Investment
Operations (0.294) (0.350) 0.892 0.834
-------- ------- -------- -------
LESS DISTRIBUTIONS
DECLARED TO SHAREHOLDERS:
From net investment income (0.446) (0.390) (0.462) (0.404)
-------- ------- -------- -------
Net asset value -
End of period $ 7.390 $ 7.390 $ 8.130 $ 8.130
======== ======= ======== =======
Total return(b)(c) (3.49%) (4.21%) 11.86% 11.05%
======== ======= ======== =======
RATIOS TO AVERAGE NET ASSETS
Expenses 0.72% 1.47% 0.64% 1.39%
Net investment income 5.93% 5.18% 5.68% 4.93%
Fees and expenses waived
or borne by the Adviser 0.12% 0.12% 0.21% 0.21%
Portfolio turnover 58% 58% 7% 7%
Net assets at end of period
(000) $193,303 $53,973 $225,636 $51,819
(a) Net of fees and expenses waived or
borne by the Adviser which
amounted to: $ 0.009 $ 0.009 $ 0.016 $ 0.016
(b) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(c) Had the Adviser not waived or reimbursed a portion of expenses, total return
would have been reduced.
(d) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
----------------------------------------------------------------------------
Federal Income Tax Information (unaudited) Approximately 99.0% of all
distributions will be treated as exempt income for federal income tax
purposes.
----------------------------------------------------------------------------
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF COLONIAL TRUST V AND THE SHAREHOLDERS OF
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Colonial Massachusetts Tax-Exempt
Fund (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
<PAGE>
SHAREHOLDER SERVICES
TO MAKE INVESTING EASIER
Your Fund has one of the most extensive selections of shareholder services
available. Your financial adviser can help you arrange for any of these
services, or you can call Colonial 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.
<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
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Massachusetts Tax-Exempt Fund is:
Colonial Investors Service Center, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
Colonial Massachusetts Tax-Exempt Fund mails one shareholder report to each
shareholder address. If you would like more than one report, please call
1-800-426-3750 and additional reports will be sent to you.
This report has been prepared for shareholders of Colonial Massachusetts
Tax-Exempt Fund. This report may also be used as sales literature when preceded
or accompanied by the current prospectus which provides details of sales
charges, investment objectives, and operating policies of the Fund.
<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
[Graphic Omitted] 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
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