<PAGE> 1
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COLONIAL MASSACHUSETTS TAX-EXEMPT FUND SEMIANNUAL REPORT
- --------------------------------------------------------------
July 31, 1999
[PICTURE OF BUILDING]
<PAGE> 2
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COLONIAL MASSACHUSETTS TAX-EXEMPT FUND
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President's Message
[PHOTO]
Dear Shareholder:
During the six months ended July 31, 1999, the bond market experienced
significant volatility. Over the period, the yield on 30-year Treasury bonds
increased almost a full percentage point in response to investors' fears that
strong economic growth in the U.S., in concert with stabilizing economies
overseas, would result in higher inflation. Interest rates rose on all types of
fixed-income investments, which resulted in falling bond prices. Fortunately,
tax-exempt bonds lost less value than Treasurys as prices fell.
These challenging bond market conditions were reflected in the Fund's total
return. However, while past performance cannot predict future results, it is
important to maintain a long-term perspective and remember that the Fund has
provided above-average returns for the one-, three-, five- and ten-year periods
ended July 31, 1999, according to Lipper.(1)
The following report will provide you with more specific information about your
Fund's performance and the strategies employed during the period. As always, we
thank you for choosing Colonial Massachusetts Tax-Exempt Fund and for giving us
the opportunity to serve your investment needs.
Respectfully,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
September 14, 1999
(1) Lipper, Inc., a widely respected data provider in the industry, calculates
an average total return for mutual funds with similar investment objectives as
the Fund. The total return calculated for the Lipper Massachusetts Municipal
Debt Funds category was negative 2.50% for the six months ended July 31, 1999.
The Fund's Class A shares were ranked in the third quartile for the six-month
period (43 out of 58), in the second quartile for the 1 year (26 out of 57), in
the first quartile for the 3 years (13 out of 52), in the second quartile for
the 5 years (12 out of 37) and in the first quartile for 10 years (3 out of 16).
Rankings do not include sales charges. Performance for different share classes
will vary with fees associated with each class. Past performance cannot predict
future results.
Because economic and market conditions change frequently, there can be no
assurance that the trends described in this report will continue or come to
pass.
TABLE OF CONTENTS
1 HIGHLIGHTS
2 PORTFOLIO MANAGER'S REPORT
4 PERFORMANCE
5 PORTFOLIO OF INVESTMENTS
9 FINANCIAL STATEMENTS
11 NOTES TO FINANCIAL STATEMENTS
14 FINANCIAL HIGHLIGHTS
- -------------------------------
NOT FDIC | May Lose Value
INSURED | --------------------
| No Bank Guarantee
- -------------------------------
<PAGE> 3
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HIGHLIGHTS
- --------------------------------------------------------------------------------
* INTEREST RATE VOLATILITY CHALLENGED BOND MARKET INVESTORS.
Long-term interest rates rose more than three-quarters of a percentage
point to 6.1% between February and the end of July in response to fears
that strong economic growth in the U.S. along with signs of increased
growth worldwide could cause higher inflation.
* FEDERAL RESERVE BOARD PREEMPTIVELY RAISED SHORT-TERM RATES.
Midway through the period, Federal Reserve Board policy makers switched
from a neutral stance to one biased towards raising interest rates, causing
bond prices to fall further. As expected, the Board acted in June,
increasing short-term interest rates by one-quarter point in a preemptive
strike against inflation.
* TAX-EXEMPT BONDS OUTPERFORMED TREASURYS AS INTEREST RATES ROSE.
Within the municipal bond market, prices fell in sympathy with the Treasury
market during the period. However, higher yields generated increased demand
for tax-exempt bonds. With supply low, municipal bonds outperformed
Treasurys, losing less of their market value as interest rates rose.
TREASURY VS. MUNICIPAL BOND PERFORMANCE
CHANGE IN VALUE OF $10,000 FROM 1/31/99 - 7/31/99
[LINE CHART]
<TABLE>
<CAPTION>
30-Year Treasury Bond Municipal Bond
--------------------- --------------
<S> <C> <C>
1/31/99 10,000 10,000
2/28/99 9,290 9,956
3/31/99 9,250 9,970
4/30/99 9,217 9,995
5/31/99 9,075 9,937
6/30/99 8,899 9,794
7/31/99 8,805 9,829
</TABLE>
Performance of the 30-year Treasury bond is illustrated by the Salomon 30-Year
Treasury Bond Index, a broad-based, unmanaged index that tracks the performance
of the 30-Year on-the-run Treasury market. Performance of municipal bonds is
illustrated by the Lehman Brothers Municipal Bond Index, a broad-based,
unmanaged index that tracks the performance of the municipal bond market. Unlike
mutual funds, indexes are not investments and do not incur fees or expenses. It
is not possible to invest directly in an index.
NET ASSET VALUE PER SHARE ON 7/31/99
<TABLE>
<S> <C>
Class A $7.61
- --------------------------------------------------------------------------------
Class B $7.61
- --------------------------------------------------------------------------------
Class C $7.61
- --------------------------------------------------------------------------------
</TABLE>
DISTRIBUTIONS DECLARED PER SHARE FROM 2/1/99 TO 7/31/99
<TABLE>
<S> <C>
Class A $0.225
- -----------------------------------
Class B $0.196
- -----------------------------------
Class C $0.208
- -----------------------------------
</TABLE>
A portion of the Fund's income may be subject to the alternative minimum tax.
The Fund may at times purchase tax-exempt securities at a discount. Some or all
of this discount may be included in the Fund's ordinary income, and is taxable
when distributed.
30-DAY SEC YIELDS ON 7/31/99
<TABLE>
<S> <C>
Class A 4.05%
- -----------------------------------
Class B 3.49%
- -----------------------------------
Class C 3.79%
- -----------------------------------
</TABLE>
30-day SEC yields reflect the portfolio's earning power net of expenses,
expressed as an annualized percentage of the public offering price per share. If
the Advisor or its affiliates had not borne certain expenses, the SEC yield
would have been 4.04% for Class A shares, 3.48% for Class B shares and 3.50% for
Class C shares.
TAXABLE-EQUIVALENT SEC YIELDS ON 7/31/99
<TABLE>
<S> <C>
Class A 7.13%
- ------------------------------------
Class B 6.14%
- ------------------------------------
Class C 6.67%
- ------------------------------------
</TABLE>
Taxable-equivalent SEC yields are based on the combined maximum
effective 43.2% federal and Massachusetts state income tax rate. This tax rate
does not reflect the phase out of exemptions or the reduction of otherwise
allowable deductions which occurs when Adjusted Gross Income exceeds certain
levels.
1
<PAGE> 4
SEMIANNUAL REPORT: COLONIAL MASSACHUSETTS TAX-EXEMPT FUND
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PORTFOLIO MANAGER'S REPORT
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MARKET VOLATILITY PROMPTED DEFENSIVE STRATEGIES
During the prior period, our long-term expectation of lower interest rates led
us to increase the Fund's sensitivity to changes in interest rates. However,
during the past six months, a series of government reports detailing the
economy's strength caused investors to become increasingly nervous about
inflation and potentially higher interest rates -- both negative conditions for
bond prices. In an effort to offset rising interest rates, we took steps to
cushion the Fund's share price. As the economy grew strongly throughout the
first part of the period, we reduced the Fund's sensitivity to the negative
impact of rising interest rates.
FUND'S STRUCTURE HURT TOTAL RETURN AS INTEREST RATES ROSE
During the six-month period, the Fund's Class A shares generated a total return
of negative 2.81%, without a sales charge. This short-term performance echoed
the difficult fixed-income conditions that prevailed throughout the period,
which were magnified by the Fund's above-average sensitivity to changes in
interest rates. Although we took defensive actions during the period, the
portfolio's overall structure reflected our long-term investment outlook for
modest economic growth, low inflation and declining interest rates.
MASSACHUSETTS ECONOMY A REGIONAL LEADER
The high-technology and mutual fund industries continued to take advantage of
Massachusetts' highly-educated workforce to fuel brisk economic growth during
the period. Unemployment rates hit ten-year lows, consumer confidence was at its
highest level this decade and construction and housing were robust. The strong
economy translated into solid gains for all categories of tax revenue receipts,
further boosting the state's budget surplus. In response, we selectively
purchased lower-quality, high-yield bonds of issuers with operations that are
positioned to benefit from Massachusetts' booming economy. Bonds that met our
rigorous investment criteria included well-managed facilities with strong cash
flow generation, attractive markets and good long-term growth prospects, such as
Massachusetts South Shore Hospital (0.88% of net assets).
QUALITY BREAKDOWN AS OF 7/31/99
<TABLE>
<S> <C>
AAA 48.5%
- ------------------------------------------
AA 13.3%
- ------------------------------------------
A 17.1%
- ------------------------------------------
BBB 8.9%
- ------------------------------------------
BB 0.9%
- ------------------------------------------
Non-rated 10.5%
- ------------------------------------------
Short-term obligations 0.8%
- ------------------------------------------
</TABLE>
Quality breakdowns are calculated as a percentage of total investments,
including short-term obligations. Ratings shown in the Quality Breakdowns
represent the highest rating assigned to a particular bond by one of the
following respected rating agencies: Standard & Poor's, Moody's or Fitch.
Because the Fund is actively managed, there can be no guarantee the Fund will
continue to maintain this quality breakdown in the future.
BOUGHT
- --------------------------------------------------------------------------------
MASSACHUSETTS SOUTH SHORE HOSPITAL
We added Massachusetts South Shore Hospital (0.88% of net assets), a well-
managed facility that we expect to benefit from Massachusetts' strong economy,
and to provide attractive levels of current income and long-term price
appreciation potential.
2
<PAGE> 5
FAVORABLE LONG-TERM MARKET OUTLOOK
We have a favorable long-term market outlook. Although we expect continued
interest rate volatility and some increase in rates over the next few months, we
believe that the Federal Reserve Board's proactive approach should have a
positive long-term effect on the bond market by reducing economic growth to a
sustainable level and keeping inflation in check. These conditions should create
a more favorable long-term environment for fixed-income securities, including
municipal bonds, and we expect to actively manage the portfolio's interest rate
sensitivity as market conditions warrant. We believe the outlook for
Massachusetts' economy remains favorable, as the state's financial services and
technology sectors continue to grow.
/s/ Gary Swayze
GARY SWAYZE is portfolio manager of Colonial Massachusetts Tax-Exempt Fund and
is a senior vice president of Colonial Management Associates, Inc. (CMA).
CHANGE IN TOP FIVE SECTOR BREAKDOWNS 7/31/99 VS. 1/31/99
<TABLE>
<CAPTION>
7/31/99 1/31/99
------- -------
<S> <C> <C>
Refunded/Escrowed 17.2% 13.5%
State General Obligatons 15.4% 16.5%
Water & Sewer 13.8% 13.9%
Hospitals 9.6% 9.0%
Education 7.6% 9.2%
</TABLE>
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 this breakdown in the future.
3
<PAGE> 6
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PERFORMANCE INFORMATION
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AVERAGE ANNUAL TOTAL RETURNS AS OF 7/31/99
<TABLE>
<CAPTION>
Share Class A B C
Inception 4/10/87 6/8/92 8/1/97
- ------------------------------------------------------------------------------------------
Without With Sales Without With Sales Without With Sales
Sales Charge Charge Sales Charge Charge Sales Charge Charge
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 months
(cumulative return) (2.81)% (7.43)% (3.18)% (7.90)% (3.03)% (3.98)%
- ------------------------------------------------------------------------------------------
1 year 1.48 (3.34) 0.72 (4.04) 1.03 0.08
- ------------------------------------------------------------------------------------------
5 years 5.96 4.93 5.17 4.84 5.77 5.77
- ------------------------------------------------------------------------------------------
10 years 6.98 6.46 6.41 6.41 6.88 6.88
- ------------------------------------------------------------------------------------------
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/99
<TABLE>
<CAPTION>
Share Class A B C
- ------------------------------------------------------------------------------------------
Without With Sales Without With Sales Without With Sales
Sales Charge Charge Sales Charge Charge Sales Charge Charge
- ------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C>
1 year 1.28% (3.53)% 0.50% (4.25)% 0.81% (0.14)%
- ------------------------------------------------------------------------------------------
5 years 6.28 5.25 5.48 5.16 6.09 6.09
- ------------------------------------------------------------------------------------------
10 years 7.02 6.50 6.46 6.46 6.93 6.93
- ------------------------------------------------------------------------------------------
</TABLE>
Past performance cannot predict future investment results. Returns and value of
an investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. The "with sales charge" returns include
the maximum sales charge of 4.75% for Class A shares and the maximum applicable
contingent deferred sales charge of 5% for both six months and one year, 2% for
five years for Class B shares, and 1% for both six months and one year for Class
C shares. Performance results reflect any voluntary waivers or reimbursement of
Fund expenses by the Advisor or its affiliates. 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.
Class B and C share (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A share
returns were not restated to reflect any expense differential (e.g., Rule 12b-1
fees) between Class A shares and the newer class shares. Had the expense
differential been reflected, the returns for the periods prior to the inception
of the newer class shares would have been lower.
4
<PAGE> 7
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INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
July 31, 1999 (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
MUNICIPAL BONDS - 98.7% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
EDUCATION - 10.7%
EDUCATION - 7.5%
Health & Educational Facilities Authority
Learning Center Deaf,
6.100% 07/10/2019 $1,000 $ 996
State College Building Authority,
Southeastern University, Series 1995-A,
5.750% 05/10/2016 1,250 1,287
State Development Finance Agency,
Boston University, Series 1999-P,
6.000% 05/15/2059 1,000 1,037
State Health & Educational Facilities Authority:
Amerst College, Series E,
6.800% 11/01/2021 500 538
Brandeis University, Series 1998-I,
4.750% 10/01/2018 2,000 1,810
Community Colleges Program, Series A,
6.600% 10/01/2022 1,250 1,363
Harvard University, Series N,
6.250% 04/01/2020 2,250 2,510
State Industrial Finance Agency:
Babson College, Series 1992-A,
6.375% 10/01/2009 1,000 1,083
Cambridge Friends School,
Series 1998,
5.750% 09/01/2018 1,000 960
Concord Academy, Series 1997,
5.500% 09/01/2027 1,250 1,177
St John's High School, Series 1998,
5.700% 06/01/2018 1,000 980
Tabor Academy, Series 1998,
5.400% 12/01/2018 1,000 950
Wentworth Institute of Technology,
Series 1998,
5.750% 10/01/2028 1,650 1,582
PR Commonwealth of Puerto Rico, Industrial Tourist,
Educational, Medical & Environmental Facilities,
Ana G Mendez University,
5.375% 02/01/2019 500 484
------
16,757
------
STUDENT LOAN - 3.2%
New England Educational Loan
Marketing Corp., Student Loan, Series 1993-A,
5.700% 07/01/2005 5,000 5,170
State Educational Financing Authority,
Issue E,
5.650% 07/01/2010 2,000 2,059
------
7,229
------
- --------------------------------------------------------------------------------
HEALTHCARE - 15.7%
LIFECARE - 1.4%
Boston Industrial Development Finance Authority,
Springhouse, Inc., Series 1988,
5.875% 07/01/2018 1,200 1,166
State Development Finance Agency,
Series 1999-A,
5.750% 07/01/2023 1,000 950
State Industrial Finance Agency,
Reeds Landing Project,
7.750% 10/01/2000 1,000 1,005
------
3,121
------
HEALTH SERVICES - 0.7%
State Development Finance Agency,
Boston Biomedical Research Institute, Series 1999,
5.750% 02/01/2029 $1,750 $ 1,664
-------
HOSPITALS - 9.5%
Health & Educational Facilities
Authority South Shore Hospital:
5.625% 07/01/2019 1,000 978
5.750% 07/01/2029 1,000 982
State Health & Educational Facilities Authority:
Berkshire Health System, Series C,
6.000% 10/01/2020 1,000 1,012
Cape Cod Health Care,
Series 1998-B,
5.450% 11/15/2023 1,000 944
Central New England Health,
Series 1998-B,
5.500% 08/01/2014 1,255 1,267
Children's Hospital,
Series E,
6.200% 10/01/2016 2,000 2,113
Dana-Farber Cancer Institute:
Series 1995-G1,
5.500% 12/01/2027 5,000 4,765
Series C,
6.650% 12/01/2015 250 264
Milford-Whitinsville Regional Hospital,
Series C,
5.375% 07/15/2028 500 455
Newton-Wellsley Hospital,
Series 1997-G,
6.000% 07/01/2012 1,000 1,061
University Hospital,
Series C,
7.250% 07/01/2019 1,000 1,053
Youville House Project,
5.950% 02/15/2017 500 512
State Industrial Finance Agency,
Massachusetts Biomedical:
Series A-2,
(a) 08/01/2008 2,000 1,267
Series 1989-A2,
(a) 08/01/2010(b) 8,000 4,480
-------
21,153
-------
INTERMEDIATE CARE FACILITIES - 0.4%
State Development Finance Agency,
New England Center for Children, Series 1998,
5.875% 11/01/2018 1,000 979
-------
NURSING HOME - 3.7%
State Health & Educational Facilities Authority,
Deutsches Altenheim, Inc., Series A,
7.700% 11/01/2031 955 1,017
State Industrial Finance Agency:
American Health Foundation, Inc., Series 1989,
10.125% 03/01/2019(c) 1,695 1,271
Belmont Home Care, Series 1995-A,
9.270% 01/01/2025 2,000 2,273
Chelsea Jewish Nursing Home, Series A,
6.500% 08/01/2037 1,000 1,070
GF/Massachusetts Inc., Series 1994,
8.300% 07/01/2023 2,415 2,653
-------
8,284
-------
</TABLE>
5
<PAGE> 8
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INVESTMENT PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
July 31, 1999(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
MUNICIPAL BONDS (CONTINUED) PAR VALUE
- -------------------------------------------------------------------------------
<S> <C> <C>
HOUSING - 3.6%
MULTI-FAMILY - 2.3%
Boston-Mount Pleasant Development Corp.,
Series A,
6.750% 08/01/2023 $1,600 $ 1,685
State Housing Finance Agency:
Series 1990-A,
8.150% 02/01/2029 135 140
Series 1992-C,
6.875% 11/15/2011 3,000 3,215
-------
5,040
SINGLE-FAMILY - 1.3%
State Housing Finance Agency:
Series 18,
7.350% 12/01/2016 950 991
Series 1997-57,
5.600% 06/01/2030 1,870 1,859
-------
2,850
-------
- --------------------------------------------------------------------------------
OTHER - 18.1%
OTHER - 1.0%
Massachusetts Bay Transportation Authority
Rail Connection:
6.000% 07/01/2013 500 515
6.000% 07/01/2014 500 512
State Development Agency
Worcester Redevelopment,
6.000% 06/01/2024 1,300 1,333
-------
2,360
REFUNDED/ESCROWED (d)- 17.1%
Boston: Series 1992-A,
6.500% 07/01/2012(b) 4,340 4,697
St. Joseph Nursing Care Center, Inc.,
Series 1990,
10.000% 01/01/2020(e) 480 506
Holyoke,
School Project Loan,
7.650% 08/01/2009 500 543
Lynn,
7.850% 01/15/2011 1,000 1,122
Mansfield,
6.700% 01/15/2011 1,000 1,078
Massachusetts Bay Transportation
Authority, Series D,
5.750% 03/01/2013 2,000 2,145
Plymouth County, Plymouth County Correctional Facility,
Series A,
7.000% 04/01/2022 1,000 1,101
State Health & Educational Facilities Authority:
Berklee College of Music, Series C,
6.875% 10/01/2021 1,000 1,077
Charlton Memorial Hospital,
Series B:
7.250% 07/01/2007 500 538
7.250% 07/01/2013 500 538
Cooley Dickinson Hospital,
Series A,
7.125% 11/15/2018 1,810 1,996
Corporation for Independent Living,
8.100% 07/01/2018 285 328
Deaconess Hospital,
7.200% 04/01/2022 2,500 2,674
Fairview Extended Care Service, Inc.,
Series A,
10.250% 01/01/2021 $ 500 $ 556
Lowell General Hospital,
Series 1991-A,
8.400% 06/01/2011 500 547
The Medical Center of Central Mass.,
Series A,
7.000% 07/01/2012 1,000 1,072
Winchester Hospital,
Series C,
7.550% 07/01/2011 500 541
Worcester Polytechnic Institute,
Series E:
6.625% 09/01/2017 500 543
6.750% 09/01/2011 500 546
State Industrial Finance Agency:
Emerson College, Series 1991-A,
8.900% 01/01/2018 500 542
Mary Ann Morse Nursing Home, Inc.,
Series 1991-I,
10.000% 01/01/2021 925 1,025
PR Commonwealth of Puerto Rico,
Series 1994,
6.500% 07/01/2023 5,000 5,555
Seacoast Nursing Home,
Series 1991,
9.625% 12/01/2021 1,285 1,425
State Industrial Finance Agency,
Series 1990,
9.000% 10/01/2020 470 505
State Turnpike Authority,
Series 1993-A,
5.000% 01/01/2020 5,000 4,838
State Water Pollution Abatement Trust,
New Bedford Project, Series 1996-A,
6.000% 02/01/2006 780 842
State Commonwealth GO,
Series 1991-C,
6.500% 08/01/2011 800 853
University of Massachusetts Building Authority,
Series 1976-A,
7.500% 05/01/2011 90 104
VI Virgin Islands Public Finance Authority,
Series 1992-A,
7.000% 10/01/2002 250 271
-------
38,108
-------
- --------------------------------------------------------------------------------
OTHER REVENUE - 1.2%
RECREATION - 0.4%
YMCA,
Series 1998,
5.450% 11/01/2028 1,000 935
-------
INDUSTRIAL - 0.8%
State Industrial Finance Agency,
House of Bianchi, Inc.,
8.750% 06/01/2018 1,700 1,710
-------
- --------------------------------------------------------------------------------
RESOURCE RECOVERY - 3.3%
DISPOSAL - 2.0%
Boston Industrial Development Finance Authority,
Jet-A-Way, Inc.,
10.500% 01/01/2011 200 217
</TABLE>
6
<PAGE> 9
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
July 31, 1999(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
Massachusetts Environmental Services,
Series 1994-A,
8.750% 11/01/2021 $2,935 $ 2,348
State Industrial Finance Agency,
Peabody Monofill Associates, Inc., Series 1995,
9.000% 09/01/2005 1,705 1,848
-------
4,413
-------
RESOURCE RECOVERY - 1.3%
IFA Ogden Haverhill Project
Series 1998-B:
5.500% 12/01/2019 1,000 944
5.600% 12/01/2019 2,000 1,929
-------
2,873
-------
- --------------------------------------------------------------------------------
TAX-BACKED - 26.6%
LOCAL GENERAL OBLIGATIONS - 7.2%
Amherst-Pelham Regional School District,
Series 1998,
5.500% 05/15/2013 1,300 1,335
Frontier Regional School District,
Series 1998,
5.500% 06/15/2014 1,500 1,533
Holyoke,
Series 1996-A,
6.000% 06/15/2007 1,345 1,450
Lowell,
8.400% 01/15/2009 1,000 1,081
Malden,
Series 1998,
4.500% 10/01/2018 5,410 4,745
Nantucket,
Series 1991,
6.800% 12/01/2011 2,675 2,885
Southern Berkshire Regional School District,
7.000% 04/15/2011 500 546
Swansea,
School Project Loan:
6.800% 01/15/2009 250 270
6.800% 01/15/2010 125 135
6.800% 01/15/2011 210 227
Weymouth,
Series 1992:
6.700% 06/15/2009 200 215
6.700% 06/15/2010 200 215
6.700% 06/15/2011 155 166
6.700% 06/15/2012 140 149
Worcester,
Series C,
5.750% 10/01/2013 1,000 1,041
-------
15,993
-------
SPECIAL NON-PROPERTY TAX - 2.0%
Martha's Vineyard Land Bank,
Series 1998,
5.125% 05/01/2018 1,265 1,224
PR Commonwealth of Puerto Rico
Highway & Transportation Authority:
Series W,
5.500% 07/01/2009 660 699
Series 1996-Z,
6.250% 07/01/2005 1,500 1,647
State,
Series A,
5.500% 06/01/2013 $1,000 $ 1,039
-------
4,609
-------
STATE APPROPRIATED - 2.0%
Massachusetts Bay Transportation Authority,
Series 1988,
7.750% 01/15/2006 250 281
PR Commonwealth of Puerto Rico
Public Buildings Authority, Series 1993-M:
5.600% 07/01/2008 1,500 1,602
5.700% 07/01/2016 2,000 2,049
University of Massachusetts Building Authority,
Series 1991-A,
7.200% 05/01/2004 400 441
-------
4,373
STATE GENERAL OBLIGATIONS - 15.4%
Massachusetts Bay Transportation Authority:
Series 1991-A,
7.000% 03/01/2021 1,500 1,782
Series 1992-B,
6.200% 03/01/2016 3,700 4,073
Series 1994-A:
7.000% 03/01/2010 5,000 5,796
7.000% 03/01/2011(b) 4,270 4,985
7.000% 03/01/2014 1,250 1,484
PR Commonwealth of Puerto Rico,
5.250% 07/01/2018 3,000 2,975
State College Building Authority,
Series 1994-A,
7.500% 05/01/2014 1,825 2,241
State:
Series A,
5.750% 08/01/2008 3,000 3,220
Series B,
7.000% 07/01/2009 4,385 5,054
Series 1991-B,
6.500% 08/01/2011 860 912
Series 1991-C,
6.500% 08/01/2011 450 477
Series 1992-B,
6.500% 08/01/2008 1,000 1,116
-------
34,115
-------
- --------------------------------------------------------------------------------
TRANSPORTATION - 3.5%
AIRPORT - 0.9%
State Port Authority,
Series 1998-A,
5.500% 07/01/2016 2,000 2,021
-------
TOLL FACILITIES - 1.9%
State Turnpike Authority:
Series C,
(a) 01/01/2018 5,825 2,129
Series 1999-A,
5.125% 01/01/2011 2,000 2,004
-------
4,133
-------
TRANSPORTATION - 0.7%
St. Grant Anticipatory Note,
(a) 06/15/2012 3,145 1,608
-------
</TABLE>
7
<PAGE> 10
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO CONTINUED
- --------------------------------------------------------------------------------
July 31, 1999(Unaudited)
<TABLE>
<CAPTION>
MUNICIPAL BONDS (CONTINUED) PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
UTILITY - 16.0%
INVESTOR OWNED - 0.7%
State Industrial Finance Agency,
Nantucket Electric Co., Series 1996-A,
6.750% 07/01/2005(b) $ 1,400 $ 1,544
--------
JOINT POWER AUTHORITY - 0.8%
State Municipal Wholesale
Electric Co., Series 1994-A, IFRN (variable rate),
6.767% 07/01/2016 2,000 1,863
--------
MUNICIPAL ELECTRIC - 0.8%
PR Commonwealth of Puerto Rico
Electric Power Authority, Series 1995-Y,
7.000% 07/01/2007 1,500 1,733
--------
WATER & SEWER - 13.7%
Boston Water & Sewer Commission:
Series 1992-A,
5.750% 11/01/2013 1,000 1,051
Series 1993-A,
5.250% 11/01/2019 4,750 4,671
State Water Pollution Abatement Trust,
New Bedford Loan Program, Series 1996-A,
6.000% 02/01/2006 220 237
State Water Pollution Authority:
4.750% 02/01/2021 1,500 1,338
5.250% 02/01/2012 1,000 1,014
State Water Resources Authority:
Series 1992-A:
6.500% 07/15/2009 2,000 2,231
6.500% 07/15/2019 5,000 5,630
Series 1993-C:
5.250% 12/01/2015 1,000 1,007
5.250% 12/01/2015 2,750 2,744
5.250% 12/01/2020 2,595 2,467
Series 1995-B,
6.250% 12/01/2013 5,000 5,585
Series 1998-B,
4.500% 08/01/2022 3,000 2,566
--------
30,541
--------
TOTAL MUNICIPAL BONDS (cost of $211,321)(f) 220,009
--------
SHORT-TERM OBLIGATIONS - 0.5%
- --------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (g)
CA Irvine Ranch Water District,
3.300% 01/01/2021 200 200
MA State Health & Educational
Facilities Authority, Series 1985-D,
3.400% 01/01/2035 900 900
--------
TOTAL SHORT-TERM OBLIGATIONS 1,100
--------
OTHER ASSETS & LIABILITIES, NET - 0.8% 1,680
- --------------------------------------------------------------------------------
NET ASSETS - 100% $222,789
--------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
(a) Zero coupon bond.
(b) These securities, or a portion thereof, with a total market value of
$12,661, are being used to collateralize open futures contracts.
(c) This issuer is in default of certain debt covenants. Income is not being
accrued.
(d) 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.
(e) This is a restricted security which was acquired on April 2, 1990 at a cost
of $480. This security represents 0.2% of the Funds net assets as of July
31, 1999.
(f) Cost for federal income tax purposes is $211,364.
(g) Variable rate demand notes are considered short-term obligations. Interest
rates change periodically on specified dates. These securities are payable
on demand and are secured by either letters of credit or other credit
support agreements from banks. The rates listed are as of July 31, 1999.
Long futures contracts open at July 31, 1999:
<TABLE>
<CAPTION>
Par value Unrealized
covered by Expiration appreciation
Type contracts Month at 07/31/99
- --------------------------------------------------------------------------------
<S> <C> <C>
Treasury Note $10,200 September 7
</TABLE>
Acronym Name
------- --------------------------
IFRN Inverse Floating Rate Note
8 See notes to financial statements.
<PAGE> 11
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
July 31, 1999 (Unaudited)
(In thousands except for per share amounts and footnotes)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
Investments at value (cost $211,321) $220,009
Short-term obligations 1,100
--------
221,109
Receivable for:
Interest $2,796
Investments sold 827
Fund shares sold 98
Expense reimbursement due from Advisor 28
Other 5 3,754
------ --------
Total Assets 224,863
Liabilities
Due to custodian bank 253
Payable for:
Investments purchased 1,025
Fund shares repurchased 335
Distributions 304
Variation margin on futures 22
Accrued:
Deferred Trustees fees 6
Other 129
------
Total Liabilities 2,074
--------
Net Assets $222,789
--------
CLASS A
Net asset value & redemption price
per share ($163,650/21,512) $ 7.61(a)
--------
Maximum offering price per share
($7.61/0.9525) $ 7.99(a)
--------
CLASS B
Net asset value & offering price per share
($58,035/7,628) $ 7.61(a)
--------
CLASS C
Net asset value & offering price per share
($1,104/145) $ 7.61(a)
--------
COMPOSITION OF NET ASSETS
Capital paid in $215,250
Overdistributed net investment income (246)
Accumulated net realized loss (910)
Net unrealized appreciation on:
Investments 8,688
Open futures contracts 7
--------
$222,789
--------
</TABLE>
(a) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Six Months Ended July 31, 1999 (Unaudited)
(In thousands)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest $ 6,446
EXPENSES
Management fee $ 582
Service fee 201
Distribution fee-- Class B 223
Distribution fee-- Class C 3
Transfer agent fee 181
Bookkeeping fee 46
Trustees fee 6
Custodian fee 1
Audit fee 11
Legal fee 24
Registration fee 16
Reports to shareholders 4
Other 49
--------
1,347
Fees and expenses waived or borne
by the Advisor (47)
Fees waived by the Distributor -- Class C (1) 1,299
-------- --------
Net Investment Income 5,147
--------
Net Realized & Unrealized Gain (Loss)
on Portfolio Positions
Net realized gain (loss) on:
Investments 686
Closed futures contracts (381)
--------
Net Realized Gain 305
Net change in unrealized appreciation/
depreciation during the period on:
Investments (12,452)
Open futures contracts (34)
--------
Net Change in Unrealized
Appreciation/Depreciation (12,486)
--------
Net Loss (12,181)
--------
DECREASE IN NET ASSETS FROM OPERATIONS $ (7,034)
--------
</TABLE>
See notes to financial statements. 9
<PAGE> 12
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED YEAR
ENDED JULY 31, JANUARY 31,
INCREASE (DECREASE) IN NET ASSETS 1999 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 5,147 $ 10,796
Net realized gain 305 4,394
Net change in unrealized appreciation/depreciation (12,486) (1,119)
--------- ---------
Net Increase (Decrease) from Operations (7,034) 14,071
DISTRIBUTIONS:
From net investment income -- Class A (3,962) (8,432)
In excess of net investment income -- Class A -- (306)
From net realized gains -- Class A (972) (2,967)
In excess of net realized gains -- Class A -- (64)
From net investment income -- Class B (1,140) (2,343)
In excess of net investment income -- Class B -- (85)
From net realized gains -- Class B (342) (982)
In excess of net realized gains -- Class B -- (21)
From net investment income -- Class C (17) (20)
In excess of net investment income -- Class C -- (1)
From net realized gains -- Class C (6) (11)
In excess of net realized gains -- Class C -- (a)
--------- ---------
(13,473) (1,161)
--------- ---------
FUND SHARE TRANSACTIONS:
Receipts for shares sold -- Class A 6,209 14,603
Value of distributions reinvested -- Class A 2,830 7,028
Cost of shares repurchased -- Class A (16,046) (22,846)
--------- ---------
(7,007) (1,215)
--------- ---------
Receipts for shares sold -- Class B 4,450 6,777
Value of distributions reinvested -- Class B 925 2,230
Cost of shares repurchased -- Class B (3,679) (8,094)
--------- ---------
1,696 913
--------- ---------
Receipts for shares sold -- Class C 449 478
Value of distributions reinvested -- Class C 15 21
Cost of shares repurchased -- Class C (6) (8)
--------- ---------
458 491
--------- ---------
Net Increase (Decrease) from Fund Share Transactions (4,853) 189
--------- ---------
Total Decrease (18,326) (972)
NET ASSETS
Beginning of period 241,115 242,087
--------- ---------
End of period (net of overdistributed net investment income of $246
and $274, respectively) $ 222,789 $ 241,115
===== ========= =========
NUMBER OF FUND SHARES
Sold -- Class A 792 1,815
Issued for distributions reinvested -- Class A 364 875
Repurchased -- Class A (2,049) (2,837)
--------- ---------
(893) (147)
--------- ---------
Sold-- Class B 565 840
Issued for distributions reinvested -- Class B 119 278
Repurchased-- Class B (472) (1,004)
--------- ---------
212 114
--------- ---------
Sold -- Class C 57 59
Issued for distributions reinvested -- Class C 2 3
Repurchased -- Class C (1) (1)
--------- ---------
58 61
--------- ---------
</TABLE>
(a) Rounds to less than one.
10 See notes to financial statements.
<PAGE> 13
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
July 31, 1999 (Unaudited)
NOTE 1. INTERIM FINANCIAL STATEMENTS
In the opinion of management of Colonial Massachusetts Tax-Exempt Fund (the
Fund), a series of Liberty Funds Trust V (formerly Colonial Trust V), the
accompanying financial statements contain all normal and recurring adjustments
necessary for the fair presentation of the financial position of the Fund at
July 31, 1999 and the results of its operations, the changes in its assets and
the financial highlights for the six months then ended.
NOTE 2. ACCOUNTING POLICIES ORGANIZATION:
The Fund is a non-diversified portfolio of a Massachusetts business trust,
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The Fund's investment objective is to seek as
high a level of after-tax total return as is consistent with prudent risk by
pursuing current income exempt from federal and Massachusetts 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 Fund offers three classes of shares: Class A,
Class B and Class C. Class A shares are sold with a front-end sales charge. A
1.00% contingent deferred sales charge is assessed on redemptions made within
eighteen months on an original purchase of $1 million to $5 million. 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. Class C shares 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. 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),
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.
DISTRIBUTIONS TO SHAREHOLDERS:
The Fund declares and records distributions daily and pays monthly.
11
<PAGE> 14
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
July 31, 1999 (Unaudited)
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 carry forwards) under income tax regulations.
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE:
Colonial Management Associates, Inc. (the Advisor) is the investment Advisor 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 the funds constituting Trust V as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS ANNUAL FEE RATE
------------------ ---------------
<S> <C>
First $2 billion 0.50%
Over $2 billion 0.45%
</TABLE>
BOOKKEEPING FEE:
The Advisor provides bookkeeping and pricing services for a monthly fee equal to
$27,000 annually plus 0.035% of the Fund's average net assets over $50 million.
TRANSFER AGENT FEE:
Liberty Funds Services, Inc. (the Transfer Agent), an affiliate of the Advisor,
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.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES:
Liberty Funds Distributor, Inc. (the Distributor), a subsidiary of the Advisor,
is the Fund's principal underwriter. During the six months ended July 31, 1999,
the Fund has been advised that the Distributor retained net underwriting
discounts of $13,027 on sales of the Fund's Class A shares and received
contingent deferred sales charges (CDSC) of none, $47,645 and $20 on Class A,
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:
<TABLE>
<CAPTION>
VALUATION OF SHARES ANNUAL
OUTSTANDING ON THE 20TH OF FEE
EACH MONTH WHICH WERE ISSUED RATE
---------------------------- ------
<S> <C>
Prior to November 30, 1994 0.10%
On or after December 1, 1994 0.25%
</TABLE>
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
EXPENSE LIMITS:
The Advisor has agreed, until further notice, to waive fees and bear certain
Fund expenses to the extent that total expenses (exclusive of service and
distribution fees, brokerage commissions, interest, taxes, and extraordinary
expenses, if any) exceed 0.75% annually of the Fund's average net assets.
OTHER:
The Fund pays no compensation to its officers, all of whom are employees of the
Advisor.
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 $1,493 of
custodian fees were reduced by balance credits applied during the six months
ended July 31, 1999. 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 agreements.
NOTE 4. PORTFOLIO INFORMATION
Investment activity: During the six months ended July 31, 1999, purchases and
sales of investments, other than short-term obligations were $15,760,451 and
$18,048,482 respectively. Unrealized appreciation (depreciation) at July 31,
1999, based on cost of investments for federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $12,087,520
Gross unrealized depreciation (3,442,628)
-----------
Net unrealized appreciation $ 8,644,892
===========
</TABLE>
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
12
<PAGE> 15
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
July 31, 1999 (Unaudited)
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 Advisor of the future direction of interest rates. Any of these risks
involve amounts exceeding the variation margin recorded in the Fund's Statement
of Assets and Liabilities at any given time.
NOTE 5. LINE OF CREDIT
The Fund may borrow up to 331/3% of its net assets under a line of credit for
temporary or emergency purposes. Any borrowings bear interest at one of the
following options determined at the inception of the loan: (1) federal funds
rate plus 1/2 of 1%, (2) the lending bank's base rate or (3) IBOR offshore loan
rate plus 1/2 of 1%. There were no borrowings under the line of credit during
the six months ended July 31, 1999.
13
<PAGE> 16
- -----------------------------------------------------
Financial Highlights
- -----------------------------------------------------
Selected data for a share of each class outstanding
throughout each period are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED JULY 31, 1999
----------------------------------------
CLASS A CLASS B CLASS C
- ------------------------------------------------------------------- -------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.060 $ 8.060 $8.060
INCOME FROM INVESTMENT OPERATIONS: -------- ------- ------
Net investment income (a) 0.181 0.152 0.164(b)
Net realized and unrealized loss (0.406) (0.406) (0.406)
-------- ------- ------
Total from Investment Operations (0.225) (0.254) (0.242)
-------- ------- ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.180) (0.151) (0.163)
From net realized gains (0.045) (0.045) (0.045)
-------- ------- ------
Total Distributions Declared to Shareholders (0.225) (0.196) (0.208)
-------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 7.610 $ 7.610 $7.610
======== ======= ======
Total return (c) (d) (e) (2.81)% (3.18)% (3.03)%
======== ======= ======
RATIOS TO AVERAGE NET ASSETS:
Expenses (f)(g) 0.92% 1.67% 1.37%(b)
Net investment income (f)(g) 4.62% 3.87% 4.17%(b)
Fees and expenses waived or borne by the Adviser (f)(g) 0.04% 0.04% 0.04%
Portfolio turnover (e) 7% 7% 7%
Net assets at end of period (000) $163,650 $58,035 $1,104
(a) Net of fees and expenses waived or borne by the Advisor which
amounted to: $ 0.002 $ 0.002 $0.002
(b) Net of fees waived by the Distributor which amounted to $0.012 per share and
0.30% annualized.
(c) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(d) Had the Advisor and Distributor 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.
(g) Annualized.
</TABLE>
14
<PAGE> 17
- -----------------------------------------------------
Financial Highlights Continued
- -----------------------------------------------------
Selected data for a share of each class outstanding
throughout each period are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1999
--------------------------------------
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------- -------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.100 $ 8.100 $8.100
INCOME FROM INVESTMENT OPERATIONS: -------- ------- ------
Net investment income 0.384 0.322 0.347(a)
Net realized and unrealized gain 0.104 0.104 0.104
-------- ------- ------
Total from Investment Operations 0.488 0.426 0.451
-------- ------- ------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.378) (0.318) (0.343)
In excess of net investment income (0.014) (0.012) (0.012)
From net realized gains (0.133) (0.103) (0.133)
In excess of net realized gains (0.003) (0.033) (0.003)
-------- ------- ------
Total Distributions Declared to Shareholders (0.528) (0.466) (0.491)
-------- ------- ------
NET ASSET VALUE END OF PERIOD $ 8.060 $ 8.060 $8.060
======== ======= ======
Total return (b) 6.25% 5.44% 5.76%(c)
======== ======= ======
RATIOS TO AVERAGE NET ASSETS:
Expenses (d) 0.91% 1.66% 1.36%(a)
Net investment income (d) 4.69% 3.94% 4.24%(a)
Portfolio turnover 21% 21% 21%
Net assets at end of period (000) $180,628 $59,789 $ 698
</TABLE>
(a) Net of fees waived by the Distributor which amounted to $0.024 per share and
0.30% annualized.
(b) Total return at net asset value assuming all distributions reinvested and no
initial sales charge or contingent deferred sales charge.
(c) Had the Distributor 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.
15
<PAGE> 18
- ------------------------------------
FINANCIAL HIGHLIGHTS CONTINUED
- ------------------------------------
Selected data for a share of each class
outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------------------------------------------------------
1998 1997 1996
------------------------------------ -------------------- ---------------------
CLASS A CLASS B CLASS C(b) CLASS A CLASS B CLASS A CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.810 $ 7.810 $8.070 $ 8.040 $ 8.040 $ 7.390 $ 7.390
--------- -------- ------ -------- ------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.403 0.344 0.180(c) 0.415 0.357 0.424 0.367
Net realized and unrealized gain (loss) 0.352 0.352 0.090 (0.234) (0.234) 0.650 0.650
--------- -------- ------ -------- ------- -------- -------
Total from Investment Operations 0.755 0.696 0.270 0.181 0.123 1.074 1.017
--------- -------- ------ -------- ------- -------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.406) (0.347) (0.180) (0.411) (0.353) (0.424) (0.367)
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) (0.411) (0.353) (0.424) (0.367)
--------- -------- ------ -------- ------- -------- -------
NET ASSET VALUE, END OF PERIOD $ 8.100 $ 8.100 $8.100 $ 7.810 $ 7.810 $ 8.040 $ 8.040
--------- -------- ------ -------- ------- -------- -------
Total return (d)(e) 9.94% 9.13% 3.40%(f) 2.43% 1.66% 14.90% 14.05%
--------- -------- ------ -------- ------- -------- -------
RATIOS TO AVERAGE NET ASSETS:
Expenses (g) 0.90% 1.65% 1.37%(c)(h) 0.90% 1.65% 0.85% 1.60%
Net investment income (g) 5.05% 4.30% 4.47%(c)(h) 5.32% 4.57% 5.49% 4.74%
Fees and expenses waived
or borne by the Advisor (g) -- -- -- 0.00% 0.00% 0.06% 0.06%
Portfolio turnover 14% 14% 14% 29% 29% 21% 21%
Net assets at end of period (000) $182,721 $59,160 $206 $184,221 $59,143 $207,759 $60,651
(a) Net of fees and expenses waived or
borne by the Advisor which amounted to: $ -- $ -- $ -- $ 0.000 $ 0.000 $ 0.005 $ 0.005
</TABLE>
(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 $0.012 per share
and 0.30%.
(d) Had the Advisor not waived or reimbursed a portion of expenses, total
return would have been reduced.
(e) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(f) Not annualized. Had the Distributor not waived a portion of the
distribution fee, total return would have been reduced.
(g) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
(h) Annualized.
16
<PAGE> 19
- ------------------------------------
FINANCIAL HIGHLIGHTS CONTINUED
- ------------------------------------
Selected data for a share of each class
outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1995
-----------------------------
CLASS A CLASS B
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.130 $ 8.130
-------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.444 0.388
Net realized and unrealized loss (0.738) (0.738)
-------- -------
Total from Investment Operations (0.294) (0.350)
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.446) (0.390)
-------- -------
NET ASSET VALUE, END OF PERIOD $ 7.390 $ 7.390
-------- -------
Total return (b)(c) (3.49)% (4.21)%
-------- -------
RATIOS TO AVERAGE NET ASSETS:
Expenses 0.72% 1.47%
Net investment income 5.93% 5.18%
Fees and expenses waived or borne by the Advisor 0.12% 0.12%
Portfolio turnover 58% 58%
Net assets at end of period (000) $193,303 $53,973
(a) Net of fees and expenses waived or borne by the Advisor which amounted to: $ 0.009 $ 0.009
</TABLE>
(b) Total return at net asset value assuming all distributions reinvested and
no initial sales charge or contingent deferred sales charge.
(c) Had the Advisor not waived or reimbursed a portion of expenses, total
return would have been reduced.
17
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<PAGE> 21
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<PAGE> 22
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<PAGE> 23
TRUSTEES & TRANSFER AGENT
- --------------------------------------------------------------------------------
ROBERT J. BIRNBAUM
Consultant (formerly Special Counsel, Dechert, Price & Rhoads; President and
Chief Operating Officer, New York Stock Exchange, Inc.; President, American
Stock Exchange Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
JOHN V. CARBERRY
Senior Vice President of Liberty Financial Companies, Inc. (formerly Managing
Director, Salomon Brothers)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
SALVATORE MACERA
Private Investor (formerly Executive Vice President of Itek Corp. and President
of Itek Optical & Electronic Industries, Inc.)
WILLIAM E. MAYER
Partner, Development Capital, LLC (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, Chief Executive Officer and Director
Hannaford Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
THOMAS E. STITZEL
Professor of Finance, College of Business, Boise State University; Business
Consultant and Author
ROBERT L. SULLIVAN
Retired Partner, KPMG LLP (formerly Management Consultant, Saatchi and Saatchi
Consulting Ltd. and Principal and International Practice Director, Management
Consulting, Peat Marwick Main & Co.)
ANNE-LEE VERVILLE
Consultant (formerly General Manager, Global Education Industry, and President,
Applications Solutions Division, IBM Corporation)
- --------------------------------------------------------------------------------
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Massachusetts Tax-Exempt Fund is:
Liberty Funds Services, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
The 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 and with the
most recent copy of the Liberty Funds Distributor, Inc. Performance Update.
<PAGE> 24
- --------------------------------------------------------------------------------
CHOOSE LIBERTY
- --------------------------------------------------------------------------------
Because no single investment manager can be all things to all investors.(SM)
- --------------------------------------------------------------------------------
LIBERTY
- --------------------------------------------------------------------------------
[COLONIAL MANAGEMENT ASSOCIATES, INC. LOGO]
Colonial has long been a recognized leader in fixed-income investing. In
addition, Colonial has distinguished itself with both a traditional value and a
more contemporary approach to equity investing.
- --------------------------------------------------------------------------------
[CRABBE HUSON LOGO]
Crabbe Huson's contrarian investment style seeks long-term performance by
investing in stocks from high-quality, out-of-favor companies. This risk-averse
strategy capitalizes on the potential of these companies to regain market
popularity.
- --------------------------------------------------------------------------------
[LIBERTY ASSET MANAGEMENT COMPANY LOGO]
LAMCO brings institutional money management to individual investors through a
disciplined multi-manager investment process that seeks to deliver consistent
long-term returns.
- --------------------------------------------------------------------------------
NEWPORT FUND MANAGEMENT
A leader in Asian investing(TM), Newport has an unparalleled knowledge of Asian
economies, business and culture.
- --------------------------------------------------------------------------------
[STEIN ROE & FARNHAM INVESTMENT MANAGEMENT LOGO]
Stein Roe's growth management style emphasizes companies with the ability to
create, maintain and grow earnings in different market environments.
- --------------------------------------------------------------------------------
BOSTON - CHICAGO - NEW YORK - PORTLAND - SAN FRANCISCO
- --------------------------------------------------------------------------------
That's why each of these affiliated managers has excelled in a particular
investment style. These managers not only specialize in a distinct investment
style, they hold a passion for their style along with a demonstrated track
record.
Each of these managers is a member of the Liberty Financial Companies (NYSE: L),
a diversified asset accumulation and management organization with over $62.7
billion in assets under management for more than 1.7 million investors. Many of
the affiliated managers' products are offered by prospectus through Liberty
Funds Distributor, Inc.
Ask your financial advisor to help you develop an investment strategy that
blends the complementary disciplines of different managers into a well-balanced
program tailored to your goals.
- --------------------------------------------------------------------------------
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
[LIBERTY FUNDS LOGO]
ALL-STAR - COLONIAL - CRABBE HUSON - NEWPORT - STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
-------------
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