<PAGE>
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COLONIAL MICHIGAN TAX-EXEMPT FUND SEMIANNUAL REPORT
- ---------------------------------------------------
July 31, 1999
[graphic omitted]
<PAGE>
TABLE OF CONTENTS
1 HIGHLIGHTS
2 PORTFOLIO MANAGER'S REPORT
4 PERFORMANCE
5 PORTFOLIO OF INVESTMENTS
8 FINANCIAL STATEMENTS
10 NOTES TO FINANCIAL STATEMENTS
12 FINANCIAL HIGHLIGHTS
--------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
--------------------------
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PRESIDENT'S MESSAGE
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[Photo of Stepen E. Gibson]
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.
Despite these challenging conditions and the Fund's negative return, it
outperformed its peer group average for the past six months, extending its one-,
three- and five-year track record in the top half of its Lipper category.(1)
Although past performance cannot predict future results, it is important to
maintain a long-term perspective when making investment decisions.
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 Michigan Tax-Exempt Fund and for giving us the
opportunity to serve your investment needs.
Sincerely,
/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 Michigan Municipal
Debt Category was negative 2.42% for the six months ended July 31, 1999. The
Fund's Class A shares were ranked in the second quartile for the six-month
period (14 out of 49 funds), in the first quartile for the one year (1 out
of 49 funds), in the first quartile for the three years (5 out of 42 funds),
in the second quartile for the five years (9 out of 32 funds) and in the
fourth quartile for the ten years (7 out of 8 funds). 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.
<PAGE>
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HIGHLIGHTS
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> 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. and signs of increased growth
worldwide could cause higher inflation.
> FEDERAL RESERVE BOARD PREEMPTIVELY RAISED SHORT-TERM RATES.
Midway through the period, Federal Reserve Board (Fed) policy makers
switched from a neutral stance to one biased towards raising interest
rates, causing bond prices to fall further. As expected, the Fed 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 and limited
supply generated increased demand for tax-exempt bonds. With low municipal
supply, municipals outperformed Treasurys, losing less of their principal
value as interest rates rose.
TREASURY VS. MUNICIPAL BOND PERFORMANCE
CHANGE IN VALUE OF $10,000 FROM 1/31/99 - 7/31/99
Minicipal 30-Year Treasury
Bond Bond
1/99 10,000 10,000
2/99 9,290 9,956
3/99 9,250 9,970
4/99 9,217 9,995
5/99 9,075 9,937
6/99 8,899 9,794
7/99 8,805 9,829
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
Class A $7.01
----------------------------------------
Class B $7.01
----------------------------------------
Class C $7.01
----------------------------------------
DISTRIBUTIONS DECLARED PER SHARE FROM
2/1/99 TO 7/31/99(1)
Class A $0.165
----------------------------------------
Class B $0.138
----------------------------------------
Class C $0.149
----------------------------------------
30-DAY SEC YIELDS ON 7/31/99(2)
Class A 3.96%
----------------------------------------
Class B 3.39%
----------------------------------------
Class C 3.70%
----------------------------------------
TAXABLE EQUIVALENT
SEC YIELDS ON 7/31/99(3)
Class A 6.86%
----------------------------------------
Class B 5.87%
----------------------------------------
Class C 6.41%
----------------------------------------
(1) 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.
(2) 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 3.40% for Class C shares.
(3) Taxable-equivalent SEC yields are based on the combined maximum effective
42.3% federal and Michigan 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.
<PAGE>
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PORTFOLIO MANAGER'S REPORT
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MARKET VOLATILITY PROMPTED A MORE CONSERVATIVE STRATEGY
During the past six months, we pursued a more conservative investment strategy
in response to strong economic conditions. As various reports detailed the
economy's strength, investors became increasingly nervous about inflation and
potentially higher interest rates -- both negatives for bond prices.
Consequently, we structured the Fund to be less sensitive to interest rate
movements. We focused our attention on more defensive, income-oriented
securities -- such as high-yield and housing bonds -- whose total return is less
negatively impacted by rising interest rates.
PERFORMANCE REFLECTS WEAK BOND MARKET CONDITIONS
During the six-month period, the Fund's Class A shares generated a total return
of negative 2.14%, without sales charge. Although the Fund's return reflected
the weak investment environment that prevailed during the period, it compared
favorably with the Lipper peer group average of negative 2.42%. We attribute
this to the outperformance by selected bonds held in the portfolio.
INVESTMENT ACTIVITY FOCUSED ON HIGHER-YIELDING BONDS
We selectively purchased bonds that met our rigorous investment criteria,
including well-managed facilities with strong cash flow generation, attractive
markets or service territories and good long-term growth prospects. These
investments included industrial revenue bonds, health care facilities and higher
education. Not only did this strategy provide the Fund with total return
potential, it increased its diversification by spreading the portfolio's credit
risk over a greater number and wider variety of bonds.
HOUSING SECTOR BONDS PERFORMED WELL IN A RISING INTEREST RATE ENVIRONMENT
As interest rates rose during the past six months, a number of the Fund's multi-
and single-family housing bonds experienced price gains and outperformed the
general market. Housing issues typically outperform many other market sectors in
rising rate environments because real estate owners are less likely to refinance
and prepay their mortgages. The portfolio's holdings also benefited from a
strong real estate market nationwide -- vigorous demand and high occupancy
levels supported higher rents and increased cash flows for project owners.
AUTO INDUSTRY CONTINUES TO INFLUENCE MICHIGAN'S ECONOMIC GROWTH
Michigan's economy is significantly more diverse than it was twenty years ago.
The rate of service sector business formation has accelerated, most notably in
high technology. Southeastern Michigan has become home to office complexes and
research parks for such employers as Microsoft, Sun Microsystems, IBM and Novell
as well as to high-tech boutiques. Despite diligent efforts to modify its
economic profile, the state remains heavily reliant on the automotive industry,
which generates over 12% of Michigan's total income.
FAVORABLE LONG-TERM MARKET OUTLOOK
Although auto sales have been strong recently, they are forecasted to slow down,
suggesting that Michigan will need to turn to other industry sectors for
economic growth. Furthermore, while the expanding service sector shows promise
of being less sensitive to the auto industry's ups and downs, high business
costs and weak population growth may limit the state's economic potential.
As we look ahead to the general economy, we believe that the Federal Reserve
Board's actions 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 environment for fixed-income
securities, and we expect to actively manage the portfolio's interest rate
sensitivity as market conditions warrant.
/s/ William Loring
WILLIAM LORING is a senior vice president of Colonial Mangement Associates, Inc.
and has managed the Fund since October 1977.
QUALITY BREAKDOWN
AS OF 7/31/99
AAA 55.7%
- -----------------------------
AA 15.0%
- -----------------------------
A 15.8%
- -----------------------------
BBB 8.7%
- -----------------------------
BB 0.5%
- -----------------------------
Non-rated 3.9%
- -----------------------------
Short-term obligations 0.4%
- -----------------------------
CHANGE IN TOP FIVE SECTOR BREAKDOWNS 7/31/99 VS. 1/31/99
FUND AS OF FUND AS OF
7/31/99 1/31/99
HOSPITALS 17.2% 15.7%
LOCAL GENERAL OBLIGATIONS 16.5% 18.1%
REFUNDED/ESCROWED 13.6% 13.2%
INVESTOR OWNED UTILITY 9.5% 9.4%
MULTI-FAMILY 4.6%` 4.5%
Quality and sector 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 these quality and sector breakdowns in the future.
BOUGHT
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We purchased high-yielding positions in Waste Management Corp. and Dickinson
Memorial Hospital in the Upper Peninsula (0.98% and 2.24% of net assets,
respectively). Waste Management Corp. provides integrated waste management
services such as collection, disposal and recycling services to commercial,
industrial, municipal and residential customers. Dickinson Memorial Hospital
opened its doors in November 1996. This hospital is part of the Dickinson County
Healthcare System, which has provided a variety of health services to the
central Upper Peninsula of Michigan and Northeastern Wisconsin since
1951.
<PAGE>
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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 9/26/86 8/4/92 8/1/97
- -----------------------------------------------------------------------------------------------
Without With Without With Without With
Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6 months (cumulative) (2.14)% (6.79)% (2.51)% (7.29)% (2.36)% (3.32)%
(returns)
- -----------------------------------------------------------------------------------------------
1 year 2.83 (2.05) 2.06 (2.80) 2.37 1.40
- -----------------------------------------------------------------------------------------------
5 years 6.05 5.03 5.26 4.93 5.86 5.86
- -----------------------------------------------------------------------------------------------
10 years 6.54 6.02 5.98 5.98 6.44 6.44
- -----------------------------------------------------------------------------------------------
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/99
Share Class A B C
- -----------------------------------------------------------------------------------------------
Without With Without With Without With
Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1 year 2.50% (2.37)% 1.72% (3.11)% 2.03% 1.07%
- -----------------------------------------------------------------------------------------------
5 years 6.37 5.34 5.58 5.25 6.19 6.19
- -----------------------------------------------------------------------------------------------
10 years 6.59 6.08 6.04 6.04 6.50 6.50
- -----------------------------------------------------------------------------------------------
</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 returns
and 2% for five years for Class B 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.
<PAGE>
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INVESTMENT PORTFOLIO
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July 31, 1999 (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
MUNICIPAL BONDS - 95.7% PAR VALUE
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<S> <C> <C>
EDUCATION - 4.4%
EDUCATION - 2.4%
Oakland County Economic Development
Corp., Cranbrook Educational
Community Project,
5.000% 11/01/17 $ 1,000 $ 950
PR Commonwealth of Puerto Rico, Industrial
Tourist, Educational, Medical & Environmental
Facilities, Ana G Mendez University,
5.375% 02/01/19 275 266
--------
1,216
--------
STUDENT LOAN - 2.0%
Higher Education Student Loan Authority, Series 17-A,
5.450% 06/01/07 1,000 1,021
--------
- --------------------------------------------------------------------------------------
HEALTHCARE - 19.2%
HOSPITALS - 16.5%
Chippewa County Hospital Finance Authority, County War Memorial
Hospital, Series B,
5.625% 11/01/14 500 485
Dickinson County, Memorial Hospital System: Series 1994,
8.125% 11/01/24 550 650
Series 1999,
5.800% 11/01/24 500 481
Kalamazoo Hospital Finance Authority, Borgess Medical Center,
Series 1994-A,
6.250% 06/01/14 1,785 1,985
Memorial Hospital,
5.750% 11/15/15 500 495
Royal Oak Hospital Finance Authority, William Beaumont Hospital:
Series 1992-E,
6.625% 01/01/19 1,000 1,056
Series 1993-G,
5.250% 11/15/19 1,500 1,414
Saginaw Hospital Finance Authority, Saginaw General Hospital,
Series 1989,
7.625% 10/01/19 175 180
State Hospital Finance Authority: Central Michigan Community
Hospital,
Series 1993-A,
6.000% 10/01/08 500 515
Crittenton Hospital, Series 1992-A,
6.700% 03/01/07 750 800
Detroit Medical Center, Series 1988-A,
8.125% 08/15/12 20 20
Tawas City Finance Authority, St. Joseph Health System, Series
1998-A,
5.600% 02/15/13 240 242
--------
8,323
--------
LIFECARE - 0.5%
State Strategic Fund, Holland Home,
Series 1998,
5.750% 11/15/18 250 242
--------
NURSING HOMES - 2.2%
Cheboygan County Economic Development Corp., Metro Health
Foundation Project, Series 1993,
10.000% 11/01/22(a) 600 600
Warren Economic Development Corp, Autumn Woods Project, Series
1992,
6.900% 12/20/22 500 519
--------
1,119
--------
- --------------------------------------------------------------------------------------
HOUSING - 6.8%
MULTI-FAMILY - 4.4%
Grand Rapids Housing Finance Authority,
Series A,
7.625% 09/01/23 1,500 1,626
State Housing Development Authority:
Series 1990-A,
7.700% 04/01/23 500 527
Series 1991-B,
7.050% 10/01/12 85 90
--------
2,243
--------
SINGLE-FAMILY - 2.4%
State Housing Development Authority,
Series 1994-D,
6.850% 06/01/26 1,160 1,211
--------
- --------------------------------------------------------------------------------------
INDUSTRIAL - 0.5%
FOOD PRODUCTS
State Strategic Fund, Michigan Sugar Co., Carollton Project,
Series 1998-C,
6.550% 11/01/25 250 254
--------
- --------------------------------------------------------------------------------------
OTHER - 16.6%
POOL/BOND BANK - 3.5%
State Municipal Bond Authority: Local Government Loan Program,
Series 1992-D,
6.650% 05/01/12 1,000 1,063
Revolving Fund,
5.125% 10/01/20 750 710
--------
1,773
--------
REFUNDED/ESCROWED (b) - 13.1%
Battle Creek,
7.650% 05/01/22 750 861
Detroit Downtown Development Authority, Area No. 1 Projects:
Series 1996-C,
6.200% 07/01/17 1,000 1,105
Series 1996-D,
6.500% 07/01/10 700 786
Kalamazoo Hospital Finance Authority, Bronson Methodist Hospital,
Series 1992-A,
6.250% 05/15/12 1,500 1,623
Redford Township Building Authority,
Series 1992,
6.500% 11/01/13 675 729
Rockford Public Schools, Series 1990,
7.375% 05/01/19 250 259
State Hospital Finance Authority, Daughters of Charity-Providence,
Series 1991,
7.000% 11/01/21 1,000 1,080
VI Virgin Islands Public Finance Authority,
Series 1992-A,
7.000% 10/01/02 125 136
--------
6,579
--------
- --------------------------------------------------------------------------------------
OTHER REVENUE - 1.6%
HOTEL
Detroit Economic Development Corp., E.H. Assoc. Limited
Partnership, Series 1992,
7.000% 06/01/12 750 782
--------
- --------------------------------------------------------------------------------------
RESOURCE RECOVERY - 1.0%
DISPOSAL
State Strategic Fund, United Waste Systems, Inc., Series 1995,
5.200% 04/01/10 500 494
--------
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TAX-BACKED - 31.6%
LOCAL APPROPRIATED - 3.9%
Wayne County Building Authority,
Series 1996-A,
5.250% 06/01/16(c) 2,000 1,971
--------
LOCAL GENERAL OBLIGATIONS - 15.9%
Detroit School District, Series 1998-B,
5.375% 05/01/12(c) 1,000 1,015
Forest Hills, Series 1999,
5.000% 05/01/15 750 736
Kalamazoo School District, Series 1999,
4.500% 05/01/16 500 446
Okemos Public School District,
Series 1993,
(d)05/01/12 500 256
Parchment School District, Series 1998,
5.000% 05/01/25 1,000 945
Redford Unified School District, Series 1997,
5.000% 05/01/22 1,000 948
Rochester Community School District,
5.000% 05/01/19 1,000 960
St. Johns Public Schools, Series 1998,
5.000% 05/01/21 1,000 950
Williamston Community School District,
Series 1996,
5.500% 05/01/25 1,725 1,741
--------
7,997
--------
SPECIAL NON-PROPERTY TAX - 2.2%
PR Commonwealth of Puerto Rico Highway & Transportation Authority,
Series Y,
6.250% 07/01/14 1,000 1,121
--------
SPECIAL PROPERTY TAX - 3.2%
Detroit Downtown Development Authority, Area No. 1 Projects,
Series 1998-A,
5.250% 07/01/12 1,000 999
Oakland County, Preeble Creek Drainage District,
5.000% 05/01/11 100 99
Romulus Tax Increment Finance Authority, Series 1994,
6.750% 11/01/19 500 535
--------
1,633
--------
STATE APPROPRIATED - 4.2%
PR Commonwealth of Puerto Rico Public Building Authority:
Series 1993-M,
5.700% 07/01/16 750 768
Series 1995-A,
6.250% 07/01/14 1,200 1,346
--------
2,114
--------
STATE GENERAL OBLIGATIONS - 2.2%
PR Commonwealth of Puerto Rico Aqueduct & Sewer Authority,
6.250% 07/01/12 1,000 1,120
--------
- --------------------------------------------------------------------------------------
TRANSPORTATION - 2.1%
AIRPORT
Wayne Charter County, Detroit Metropolitan Airport,
Series 1994-B,
6.125% 12/01/24 1,000 1,043
--------
- --------------------------------------------------------------------------------------
UTILITY - 11.9%
INVESTOR OWNED - 9.1%
St. Clair County Economic Development Corp.,
Detroit Edison Co.,
Series 1933-AA,
6.400% 08/01/24 2,000 2,185
State Strategic Fund, Detroit Edison Co.,
Series BB,
7.000% 05/01/21(c) 2,000 2,401
--------
4,586
--------
WATER & SEWER - 2.8%
Detroit Water Supply System, Series A,
5.750% 07/01/12 1,310 1,392
--------
TOTAL MUNICIPAL BONDS
(cost of $46,456) 48,234
--------
OPTIONS - 0.0% CONTRACTS
- --------------------------------------------------------------------------------------
September 1999 Treasury Bond Put, Strike price 112,
expiration 09/17/99 9,600 17
September 1999 Treasury Bond Call, Strike price 124,
expiration 09/17/99 1,700 (e)
--------
TOTAL OPTIONS (cost of $124) 17
--------
TOTAL INVESTMENTS - (cost of $46,580) (f) 48,251
--------
SHORT-TERM OBLIGATIONS - 0.4% PAR
- --------------------------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (g)
IL Health Facilities Authority Central Dupage Hospital,
3.450% 11/01/20 $ 200 200
--------
OTHER ASSETS & LIABILITIES, NET - 3.9% 1,965
- --------------------------------------------------------------------------------------
NET ASSETS - 100% $ 50,416
--------
NOTES TO INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------------
(a) This issuer is in default of certain debt covenants. Income is not being accrued.
(b) 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.
(c) These securities, or a portion thereof, with a total market value of $2,995, are
being used to collateralize open calls on futures and open futures contracts.
(d) Zero coupon bond.
(e) Rounds to less than one.
(f) Cost for federal income tax purposes is the same.
(g) Variable rate demand notes are considered short-term obligations. Interest rates
change periodically on specified dates. 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.
</TABLE>
Short futures contracts open at July 31, 1999:
PAR VALUE UNREALIZED
COVERED BY EXPIRATION APPRECIATION
TYPE CONTRACTS MONTH AT 07/31/99
- ----------------------------------------------------------------------------
Treasury Bond 2,000 September $61
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
July 31, 1999 (Unaudited)
(In thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $46,580) $48,251
Short-term obligations 200
-------
48,451
Receivable for:
Fund shares sold 1,367
Interest 665
Investments sold 30
Variation margin on futures 7
Other 9
-------
2,078
-------
Total Assets 50,529
LIABILITIES
Payable for:
Distributions 66
Fund shares repurchased 21
Payable to Advisor 4
Accrued:
Deferred Trustees fees 3
Other 19
-------
Total Liabilities 113
-------
Net Assets $50,416
-------
CLASS A
Net asset value & redemption price per share ($37,670/5,371) $ 7.01(a)
-------
Maximum offering price per share ($7.01/0.9525) $ 7.36(b)
-------
CLASS B
Net asset value & offering price per share ($11,220/1,600) $ 7.01(a)
-------
CLASS C
Net asset value & offering price per share ($1,526/218) $ 7.01(a)
-------
COMPOSITION OF NET ASSETS
Capital paid in $48,979
Overdistributed net investment income (75)
Accumulated net realized loss (220)
Net unrealized appreciation on:
Investments 1,671
Open futures contracts 61
-------
$50,416
-------
(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.
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Six Months Ended July 31, 1999 (Unaudited)
(In thousands)
INVESTMENT INCOME
Interest $ 1,381
EXPENSES
Management fee $ 128
Service fee 42
Distribution fee - Class B 45
Distribution fee - Class C 6
Transfer agent fee 39
Bookkeeping fee 14
Trustees fee 5
Custodian fee 1
Audit fee 10
Legal fee 2
Registration fee 9
Reports to shareholders 3
Other 3
-------
Total expenses 307
Fees waived by the Distributor - Class C (3)
-------
304
-------
Net Investment Income 1,077
-------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
PORTFOLIO POSITIONS
Net realized gain on:
Investments 180
Closed futures contracts 168
-------
Net Realized Gain 348
Net change in unrealized appreciation/depreciation
during the period on:
Investments (2,624)
Open futures contracts 74
-------
Net Change in Unrealized Appreciation/Depreciation (2,550)
-------
Net Loss (2,202)
-------
DECREASE IN NET ASSETS FROM OPERATIONS $(1,125)
-------
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(In thousands)
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JULY 31, JANUARY 31,
INCREASE (DECREASE) IN NET ASSETS 1999 1999
- -------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 1,077 $ 2,298
Net realized gain 348 608
Net change in unrealized appreciation/
depreciation (2,550) 211
------- -------
Net Increase (Decrease) from Operations (1,125) 3,117
DISTRIBUTIONS
From net investment income -- Class A (850) (1,799)
In excess of net investment income -- Class A -- (42)
From net realized gains -- Class A (10) (388)
In excess of net realized gains -- Class A -- (84)
From net investment income -- Class B (227) (498)
In excess of net investment income -- Class B -- (12)
From net realized gains -- Class B (3) (129)
In excess of net realized gains -- Class B -- (28)
From net investment income -- Class C (31) (33)
In excess of net investment income -- Class C -- (1)
From net realized gains -- Class C (1) (11)
In excess of net realized gains -- Class C -- (3)
------- -------
(2,247) 89
------- -------
FUND SHARE TRANSACTIONS
Receipts for shares sold -- Class A 2,781 1,716
Value of distributions reinvested -- Class A 516 1,466
Cost of shares repurchased -- Class A (2,583) (3,682)
------- -------
714 (500)
------- -------
Receipt for shares sold -- Class B 950 899
Value of distributions reinvested -- Class B 116 366
Cost of shares repurchased -- Class B (1,896) (1,462)
------- -------
(830) (197)
------- -------
Receipt for shares sold -- Class C 308 1,227
Value of distributions reinvested -- Class C 29 45
Cost of shares repurchased -- Class C (103) (32)
------- -------
234 1,240
------- -------
Net Increase from Fund Share Transactions 118 543
------- -------
Total Increase (Decrease) (2,129) 632
NET ASSETS
Beginning of period 52,545 51,913
------- -------
End of period (net of overdistributed net
investment income of $75 and
$44, respectively) $50,416 $52,545
======= =======
NUMBER OF FUND SHARES
Sold -- Class A 392 235
Issued for distributions reinvested -- Class A 72 202
Repurchased -- Class A (360) (505)
------- -------
104 (68)
------- -------
Sold -- Class B 132 123
Issued for distributions reinvested -- Class B 16 50
Repurchased -- Class B (265) (200)
------- -------
(117) (27)
------- -------
Sold -- Class C 43 169
Issued for distributions reinvested -- Class C 4 6
Repurchased -- Class C (14) (4)
------- -------
33 171
------- -------
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
July 31, 1999 (Unaudited)
NOTE 1. INTERIM FINANCIAL STATEMENTS
In the opinion of management of Colonial Michigan 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 net assets and the
financial highlights for the six months then ended.
NOTE 2. ACCOUNTING POLICIES
ORGANIZATION
The Fund is a 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 Michigan 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 and
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.
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.
Futures contracts are valued based on the difference between the last sale price
and the opening price of the contract.
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 and 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.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
NOTE 3. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE
Colonial Management Associates, Inc. (the Advisor) is the investment Advisor of
the Fund and furnishes accounting and other services and office facilities for a
monthly fee based on the Fund's pro-rata portion of the combined average net
assets of the funds constituting Trust V as follows:
Average Net Assets Annual Fee Rate
------------------ ---------------
First $2 billion 0.50%
Over $2 billion 0.45%
BOOKKEEPING FEE
The 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. For the six months ended July 31, 1999, the
Fund has been advised that the Distributor retained net underwriting discounts
of $4,402 on sales of the Fund's Class A shares and received contingent deferred
sales charges (CDSC) of none, $27,629, and none 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, until further notice, to waive 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
outstanding on the 20th of
each month which were issued Annual Fee 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.
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 $1,339 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
For the six months ended July 31, 1999, purchases and sales of investments,
other than short-term obligations were $4,086,233 and $3,775,040,
respectively.
Unrealized appreciation (depreciation) at July 31, 1999, based on cost of
investments for both financial statement and federal income tax purposes was:
Gross unrealized appreciation $2,104,832
Gross unrealized depreciation (433,562)
----------
Net unrealized appreciation $1,671,270
==========
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 Advisor 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 5. LINE OF CREDIT
The Fund may borrow up to 33 1/3% 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
for the six months ended July 31, 1999.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of each class outstanding
throughout each period are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED JULY 31, 1999
-------------------------------------------
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.330 $ 7.330 $ 7.330
----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income 0.159 0.132 0.143(a)
Net realized and unrealized loss (0.314) (0.314) (0.314)
----------- ----------- -----------
Total from Investment Operations (0.155) (0.182) 0.171)
----------- ----------- -----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income (0.163) (0.136) (0.147)
From net realized gains (0.002) (0.002) (0.002)
----------- ----------- -----------
Total Distributions Declared to Shareholders (0.165) (0.138) (0.149)
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 7.010 $ 7.010 $ 7.010
----------- ----------- -----------
Total return (b)(c) (2.14)% (2.51)% (2.36)%(d)
----------- ----------- -----------
RATIOS TO AVERAGE NET ASSETS
Expenses (e)(f) 1.00% 1.75% 1.45%(a)
Net investment income (e)(f) 4.42% 3.67% 3.97%(a)
Portfolio turnover (c) 8% 8% 8%
Net assets at end of period (000) $ 37,670 $ 11,220 $ 1,526
(a) Net of fees waived by the Distributor which amounted to $0.011 per share and 0.30%.
(b) Total return at net asset value assuming all distributions reinvested and no initial sales
charge or contingent deferred sales c harge.
(c) Not annualized.
(d) Had the Distributor not waived a portion of expenses, total return would have been reduced.
(e) The benefits derived from custody credits and directed brokerage arrangements had no
impact.
(f) Annualized.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1999
-------------------------------------------
CLASS A CLASS B CLASS C
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.320 $ 7.320 $ 7.320
----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) 0.341 0.285 0.307(b)
Net realized and unrealized gain 0.111 0.111 0.111
----------- ----------- -----------
Total from Investment Operations 0.452 0.396 0.418
----------- ----------- -----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.343) (0.288) (0.310)
In excess of net investment income (0.008) (0.007) (0.007)
From net realized gains (0.075) (0.075) (0.075)
In excess of net realized gains (0.016) (0.016) (0.016)
----------- ----------- -----------
Total Distributions Declared to
Shareholders (0.442) (0.386) (0.408)
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 7.330 $ 7.330 $ 7.330
----------- ----------- -----------
Total return (c)(d) 6.38% 5.57% 5.89%
----------- ----------- -----------
RATIOS TO AVERAGE NET ASSETS
Expenses (e) 0.93% 1.68% 1.38%(b)
Net investment income (e) 4.64% 3.89% 4.19%(b)
Fees and expenses waived or borne by
the Advisor (e) 0.06% 0.06% 0.06%
Portfolio turnover 15% 15% 15%
Net assets at end of period (000) $ 38,606 $ 12,581 $ 1,358
(a) Net of fees and expenses waived or borne by the Advisor which amounted to:
$ 0.004 $ 0.004 $ 0.004
(b) Net of fees waived by the Distributor which amounted to $0.022 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 c harge.
(d) Had the Advisor and Distributor not waived or reimbursed a portion of expenses, total return
would have been reduced.
(e) The benefits derived from custody credits and directed brokerage arrangements had an impact
of 0.01% and $0.000 per share.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
-----------------------------------------------------------------------------------
1998 1997
------------------------------------------------ -------------------------
CLASS A CLASS B CLASS C(b) CLASS A CLASS B
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.930 $ 6.930 $ 7.200 $ 7.130 $ 7.130
--------- --------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income(a) 0.352 0.299 0.156(c) 0.354 0.302
Net realized and unrealized gain (loss) 0.386 0.386 0.122 (0.198) (0.198)
--------- --------- -------- -------- --------
Total from Investment Operations 0.738 0.685 0.278 0.156 0.104
--------- --------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income (0.348) (0.295) (0.158) (0.354) (0.303)
In excess of net investment income -- -- -- (0.002) (0.001)
--------- --------- -------- -------- --------
Total Distributions Declared to
Shareholders (0.348) (0.295) (0.158) (0.356) (0.304)
--------- --------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 7.320 $ 7.320 $ 7.320 $ 6.930 $ 6.930
--------- --------- -------- -------- --------
Total return (d)(e) 10.93% 10.11% 3.92%(f) 2.35% 1.58%
--------- --------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS
Expenses (g) 0.90% 1.65% 1.35%(c)(h) 0.89% 1.64%
Net investment income (g) 4.95% 4.20% 4.35%(c)(h) 5.12% 4.37%
Fees and expenses waived or borne by
the Advisor (g) 0.13% 0.13% 0.15%(h) 0.12% 0.12%
Portfolio turnover 32% 32% 32% 25% 25%
Net assets at end of period (000) $ 39,048 $ 12,762 $ 103 $ 39,606 $ 13,364
(a) Net of fees and expenses waived or borne by the Advisor which amounted to:
$ 0.009 $ 0.009 $ 0.010 $ 0.008 $ 0.008
(b) Class C shares were initially offered on August 1, 1997. Per share amounts reflect activity from that date.
(c) Net of fees waived by the Distributor which amounted to $0.011 per share and 0.30%.
(d) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent deferred
sales charge.
(e) Had the Advisor and Distributor not waived or reimbursed a portion of expenses, total return would have been reduced.
(f) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements had no impact.
(h) Annualized.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31
--------------------------------------------------------------------------
1996 1995
-------------------------------- --------------------------------
CLASS A CLASS B CLASS A CLASS B
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.660 $ 6.660 $ 7.340 $ 7.340
-------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) 0.368 0.317 0.410 0.359
Net realized and unrealized gain (loss) 0.484 0.484 (0.689) (0.689)
-------- -------- -------- --------
Total from Investment Operations 0.852 0.801 (0.279) (0.330)
-------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income (0.382) (0.331) (0.401) (0.350)
-------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 7.130 $ 7.130 $ 6.660 $ 6.660
-------- -------- -------- --------
Total return (b)(c) 13.13% 12.30% (3.66)% (4.39)%
-------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.80%(d) 1.55%(d) 0.62% 1.37%
Net investment income 5.34%(d) 4.59%(d) 6.08% 5.33%
Fees and expenses waived or borne by the Advisor 0.25%(d) 0.25%(d) 0.32% 0.32%
Portfolio turnover 48% 48% 40% 40%
Net assets at end of period (000) $ 43,308 $ 15,236 $ 41,844 $ 14,144
(a) Net of fees and expenses waived or borne by the Advisor which amounted to:
$ 0.017 $ 0.017 $ 0.022 $ 0.022
(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 reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits and direct brokerage agreements had no impact. Prior year's ratios are net of
benefits received, if any.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
TRUSTEES & TRANSFER AGENT
- --------------------------------------------------------------------------------
ROBERT J. BIRNBAUM WILLIAM E. MAYER
Consultant (formerly Special Partner, Development Capital, LLC
Counsel, Dechert, Price & Rhoads; (formerly Dean, College of Business
President and Chief Operating and Management, University of
Officer, New York Stock Exchange, Maryland; Dean, Simon Graduate
Inc.; President, American Stock School of Business, University of
Exchange Inc.) Rochester; Chairman and Chief
Executive Officer, CS First Boston
TOM BLEASDALE Merchant Bank; and President and
Retired (formerly Chairman of the Chief Executive Officer, The First
Board and Chief Executive Officer, Boston Corporation)
Shore Bank & Trust Company)
JAMES L. MOODY, JR.
JOHN V. CARBERRY Retired (formerly Chairman of the
Senior Vice President of Liberty Board, Chief Executive Officer and
Financial Companies, Inc. (formerly Director Hannaford Bros. Co.)
Managing Director, Salomon
Brothers) JOHN J. NEUHAUSER
Dean, Boston College School of
LORA S. COLLINS Management
Attorney (formerly Attorney,
Kramer, Levin, Naftalis & Frankel) THOMAS E. STITZEL
Professor of Finance, College of
JAMES E. GRINNELL Business, Boise State University;
Private Investor (formerly Senior Business Consultant and Author
Vice President-Operations, The
Rockport Company) ROBERT L. SULLIVAN
Retired Partner, KPMG LLP (formerly
RICHARD W. LOWRY Management Consultant, Saatchi and
Private Investor (formerly Chairman Saatchi Consulting Ltd. and
and Chief Executive Officer, U.S. Principal and International
Plywood Corporation) Practice Director, Management
Consulting, Peat Marwick Main & Co.)
SALVATORE MACERA
Private Investor (formerly ANNE-LEE VERVILLE
Executive Vice President of Itek Consultant (formerly General
Corp. and President of Itek Optical Manager, Global Education Industry,
& Electronic Industries, Inc.) and President, Applications
Solutions Division, IBM
Corporation)
- --------------------------------------------------------------------------------
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Michigan 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 Michigan Tax-Exempt
Fund. This report may also be used as sales literature when preceded or
accompanied by the current prospectus which provides details of sales charges,
investment objectives and operating policies of the Fund, and with the most
recent copy of the Liberty Funds Distributor, Inc. Performance Update.
<PAGE>
- --------------------------------------------------------------------------------
CHOOSE LIBERTY
- --------------------------------------------------------------------------------
BECAUSE NO SINGLE INVESTMENT MANAGER CAN BE ALL THINGS TO ALL INVESTORS.(SM)
- --------------------------------------------------------------------------------
L I B E R T Y
- --------------------------------------------------------------------------------
[Graphic Omitted] 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.
- --------------------------------------------------------------------------------
[Graphic Omitted] 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.
- --------------------------------------------------------------------------------
[Graphic Omitted] LAMCO brings institutional money management to individual
investors through a disciplined multi-manager investment
process that seeks to deliver consistent long-term returns.
- --------------------------------------------------------------------------------
[Graphic Omitted] A leader in Asian investing(TM), Newport has an unparalleled
knowledge of Asian economies, business and culture.
- --------------------------------------------------------------------------------
[Graphic Omitted] Stein Roe's growth management style emphasizes companies
with the ability to create, maintain and grow earnings in
different market environments.
- --------------------------------------------------------------------------------
BOSTON o CHICAGO o NEW YORK o PORTLAND o 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 MICHIGAN TAX-EXEMPT FUND SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
--------------
BULK RATE
U.S. POSTAGE
[Graphic PAID
Omitted] L I B E R T Y HOLLISTON, MA
----------------- PERMIT NO. 20
F U N D S --------------
ALL-STAR o COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)1999
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
MI-03/557H-0799 (9/99) 99/1099
