<PAGE>
- ----------------------------------------------------
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND ANNUAL REPORT
- ----------------------------------------------------
January 31, 2000
[graphic omitted]
<PAGE>
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
Amid the pressure of rising interest rates, virtually all bonds -- including
municipal securities -- posted significant losses for the 12-month period ended
January 31, 2000. This was due to the U.S. economy growing better than expected
and foreign economies rebounding throughout most of 1999. Both of these
occurrences stirred up inflationary fears, which prompted bond yields to move
higher. As bond yields rose, their prices declined. In response to this
environment, the Federal Reserve Board implemented three interest rate hikes,
the first of which was in June, to slow the economy and to address growing fears
of inflation.
A combination of stronger demand and reduced supply helped municipals lose less
value than their Treasury counterparts during the year. Investors were lured
back to the municipal market after a hiatus to capture the attractive higher
yields. Meanwhile, the supply of municipal bonds dwindled as issuers reduced
their refinancing activity in response to rising interest rates. Under these
circumstances, municipal bond investors were provided with an attractive
tax-exempt yield relative to their taxable counterparts.
Despite these challenging bond market conditions, the Fund outperformed its
Lipper peer group average for the 12-month period.1 Although past performance
cannot predict results, it is important to maintain a long-term perspective when
making investment decisions.
The Portfolio Manager's Report on the following pages will provide you with more
specific information on your Fund's performance and the market in which your
Fund invests. Thank you for choosing Colonial Massachusetts Tax-Exempt Fund and
for giving us the opportunity to serve your investment needs.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
March 13, 2000
(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 Category was negative 6.28% for the 12 months ended January
31, 2000. The Fund's Class A shares were ranked in the second quartile for
the 1 year (26 out of 56 funds), in the first quartile for the 5 years (11
out of 44 funds) and in the second quartile for the 10 years (5 out of 18
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>
- --------------------------------------------------------------------------------
HIGHLIGHTS
- --------------------------------------------------------------------------------
o FEDERAL RESERVE BOARD RAISED RATES TO SLOW THE ECONOMY.
In June of 1999, the Federal Reserve Board made its first of three
interest-rate hikes in an attempt to slow a fast-growing economy and keep
inflation under control. Despite this anti-inflationary effort, the first
interest rate hike did little to slow the economy, which resulted in the
Federal Reserve Board raising rates again in August and November. As
interest rates increased, the yields on bonds increased, causing their
prices to decline -- since bond prices and interest rates move in opposite
directions.
o MUNICIPALS HELD UP BETTER THAN TREASURYS AMID RISING RATES.
Compared to their U.S. Treasury counterparts, municipal bonds provided a
historically generous yield during this challenging period in the bond
market. Rising bond yields attracted more investors while supply diminished,
which provided municipals with a measure of insulation from rising interest
rates.
o SHORT-TERM OBLIGATIONS OUTPERFORMED LONG-TERM ISSUES AS INTEREST RATES ROSE.
Securities such as short-term municipal notes outperformed long-term issues
later in the period. This was expected as bonds with shorter maturities are
less sensitive to rising interest rates.
MUNICIPAL VS. TREASURY BOND PERFORMANCE
1/31/99 - 1/31/00
Lehman Brothers Salomon 30-Year
Municipal Bond Index Treasury Index
-------------------- --------------
1/99 0.00% 0.00%
1/00 (3.63)% (15.00)%
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. 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. 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
AS OF 1/31/00
- ----------------------------
Class A $7.18
- ----------------------------
Class B $7.18
- ----------------------------
Class C $7.18
- ----------------------------
DISTRIBUTIONS DECLARED FROM
2/1/99 TO 1/31/00
- ----------------------------
Class A $0.411
- ----------------------------
Class B $0.353
- ----------------------------
Class C $0.376
- ----------------------------
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.
SEC YIELDS ON 1/31/00
- ----------------------------
Class A 4.62%
- ----------------------------
Class B 4.08%
- ----------------------------
Class C 4.39%
- ----------------------------
The 30-day SEC yield reflects the portfolio's earning power, net of expenses,
expressed as an annualized percentage of the public offering price at the end of
the period. If the Advisor or its affiliates had not waived certain Fund
expenses, the SEC yield would have been 4.60%, 4.07% and 4.06% for Class A,
Class B and Class C shares, respectively.
TAXABLE-EQUIVALENT SEC
YIELDS ON 1/31/00
Class A 8.13%
- ----------------------------
Class B 7.18%
- ----------------------------
Class C 7.73%
- ----------------------------
Taxable-equivalent SEC yields are based on the combined maximum effective 43.2%
federal and state income tax rate. This tax rate does not reflect the phase out
of exemptions or the reduction of otherwise allowable deductions which occur
when Adjusted Gross Income exceeds certain levels.
<PAGE>
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
- --------------------------------------------------------------------------------
QUALITY BREAKDOWN AS OF 1/31/00
AAA 49.3%
- ----------------------------
AA 13.8%
- ----------------------------
A 14.8%
- ----------------------------
BBB 8.8%
- ----------------------------
BB 0.9%
- ----------------------------
Non-rated 11.4%
- ----------------------------
Cash equivalents 1.0%
- ----------------------------
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 Corporation, Moody's
Investors Service, Inc. or Fitch Investors Service, Inc.
Because the Fund is actively managed, there can be no guarantee the Fund will
continue to maintain these quality breakdowns in the future.
BOUGHT
- -------------------------------------------------------------------------------
MASSACHUSETTS HEFA LEARNING CENTER FOR DEAF CHILDREN
We purchased Massachusetts HEFA Learning Center for Deaf Children (0.5% of net
assets), an innovative program that has strong state financial support and which
draws students from across the state. The high-yielding bonds were purchased at
attractive prices and represent good total return potential.
RISING INTEREST RATES, INFLATION FEARS ROIL BOND MARKETS
Bonds lost considerable ground during the period, plagued by rising interest
rates and persistent inflation worries. Against this unfavorable investment
environment, the Fund's Class A shares returned negative 5.96%, without a sales
charge, for the 12 months ended January 31, 2000, outperforming its Lipper peer
group average of negative 6.28%.
FUND ADOPTS DEFENSIVE SHORT-TERM POSTURE
At the beginning of the period, our outlook called for low inflation and modest
economic growth in response to the global economic and market turmoil during the
fall of 1998. Based on those expectations, we structured the portfolio with a
larger-than-average proportion of bonds and instruments that tend to do well
during periods of declining interest rates and emphasized bonds that would help
maintain the Fund's income level over the long term.
To the surprise of most economists and market observers, the global turmoil
quickly abated, setting the stage for better economic growth across the world.
Rather than restructure the portfolio and sell bonds we believed ultimately
would serve the Fund well, we pursued some short-term strategies aimed at
temporarily cushioning the Fund against rising rates. One of our interim
defenses against rising rates was a temporary position in short-term municipal
notes. Because of their short life span, municipal notes are the least
susceptible to changes in price due to changes in interest rates.
ENHANCING YIELD
Rising rates and bond yields afforded us selected opportunities to purchase some
attractively priced, longer-maturity bonds. For example, we added zero coupon
bonds, which are sold at a discount to their par value and pay interest at
maturity. While zeros are more sensitive to interest rate movements than coupon
bonds, they also generally have higher yields.
MASSACHUSETTS ENJOYS STRONG ECONOMIC GROWTH
Massachusetts' economy continued to remain strong, evidenced by the fact that
the total number of employed residents reached an all time high during the
period. Behind California, Massachusetts ranks second in terms of high-tech
jobs, particularly in the networking, software, biotech and Internet industries.
The Commonwealth's concentration in mutual funds, banking, health care and
manufacturing remained important, but growth in many of those sectors slowed
and, in the case of health care and manufacturing, reversed. Massachusetts' "Big
Dig" project strained the construction sector, crowding out private and local
infrastructure projects.
OUTLOOK CALLS FOR A MORE FAVORABLE ENVIRONMENT
Our outlook for the municipal bond market is reasonably favorable, calling for
lower interest rates over the long term. That said, we wouldn't rule out the
possibility of the Fed raising short-term interest rates again to keep inflation
in check. Given a scenario characterized by moderate economic growth, low
inflation and stable to declining long-term interest rates, we believe that the
Fund is well positioned. If interest rates appear to us to be heading
significantly higher, we will likely adjust our strategy in response.
In our view, Massachusetts' economic growth will continue to be positive and
will more closely mirror national growth rates than it has during the past
several years. The technology sector, which has fueled much of the economic and
labor growth in recent years, should continue to propel the Commonwealth's
economy in coming years. In response to Massachusetts' strong economy, state
officials have made a push to the municipal bond rating agencies for a credit
upgrade. Despite ongoing concerns about Big Dig funding, large future tax cuts
and higher education spending, we believe the state probably will be successful
in garnering at least one upgrade in 2000.
/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)
Effective August 20, 1999, the Board of Trustees approved an increase in the
internal limit that the Fund's Advisor has set regarding investment in inverse
floating rate obligations. These obligations represent interest in tax-exempt
bonds and carry interest rates that vary inversely to changes in short-term
interest rates. Although floating rate obligations may have greater price
volatility and offer additional yield, the Fund's Advisor uses futures contracts
from time to time to mitigate the additional duration. The Advisor has set a
policy to invest no more than 15% of the Fund's total assets in inverse floating
rate obligations.
Tax-exempt investing offers current tax-free income, but also involves certain
risks. The value of the Fund will be affected by interest rate changes and the
creditworthiness of the issues held in the Fund. The Fund's management,
including risk management specialists and credit analysts, identifies problems
and opportunities and reacts quickly to market changes.
TOP FIVE SECTOR BREAKDOWNS:
1/31/00 VS. 1/31/99
FUND AS FUND AS
OF 1/31/00 OF 1/31/99
---------- ----------
WATER & SEWER 15.7% 13.9%
STATE GENERAL OBLIGATIONS 15.4% 16.5%
REFUNDED/ESCROWED 15.2% 13.5%
HOSPITAL 10.0% 9.1%
EDUCATION 9.9% 9.2%
Sector breakdowns are calculated as a percentage of total investments,
including short-term obligations. Because the Fund is actively managed, there
can be no guarantee the Fund will continue to maintain these sector breakdowns
in the future.
SOLD
- ------------------------------------------------------------------------------
MASSACHUSETTS MANSFIELD GENERAL OBLIGATION BONDS
We sold Massachusetts Mansfield General Obligation bonds after they had been
prefunded, a process where the issuer backs the bonds with U.S. Treasury
securities and can result in price appreciation. After the prerefunding, the
bonds offered less total return potential.
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
PERFORMANCE OF A $10,000
INVESTMENT IN ALL SHARE CLASSES 1/31/90 - 1/31/00
Without With
Sales Sales
Charge Charge
Class A $18,703 $17,815
- -------------------------------------------
Class B $17,667 $17,667
- -------------------------------------------
Class C $18,491 $18,491
- -------------------------------------------
PERFORMANCE OF A $10,000 INVESTMENT IN CLASS A SHARES FROM 1/31/90 - 1/31/00
Lehman Brothers Without With
Municipal Bond Index sales charge sales charge
-------------------- ------------ ------------
1/31/90 $10,000 $10,000 $10,000
1/31/00 $19,479 $18,703 $17,815
The Lehman Brothers Municipal Bond Index is an 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.
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/00
Share Class A B C
Inception 4/10/87 6/8/92 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>
1 year (5.96)% (10.43)% (6.67)% (11.12)% (6.38)% (7.28)%
- -----------------------------------------------------------------------------------------
5 years 5.27 4.25 4.48 4.15 5.03 5.03
- -----------------------------------------------------------------------------------------
10 years 6.46 5.94 5.86 5.86 6.34 6.34
- -----------------------------------------------------------------------------------------
<CAPTION>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
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 (4.12)% (8.67)% (4.84)% (9.38)% (4.55)% (5.46)%
- -----------------------------------------------------------------------------------------
5 years 6.18 5.15 5.39 5.07 5.95 5.95
- -----------------------------------------------------------------------------------------
10 years 6.49 5.98 5.90 5.90 6.38 6.38
- -----------------------------------------------------------------------------------------
</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 4.75% charge for Class A shares and the maximum contingent deferred
sales charges (CDSC) of 5% for one year and 2% for five years for Class B shares
and 1% for 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 its inception date. These Class A share returns are 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 Class B and
Class C shares would have been lower.
<PAGE>
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
- --------------------------------------------------------------------------------
January 31, 2000
(In thousands)
MUNICIPAL BONDS - 98.0% PAR VALUE
- ---------------------------------------------------------------------
EDUCATION - 11.4%
EDUCATION - 7.8%
Health & Educational Facilities Authority
Learning Center for the Deaf,
6.100% 07/10/19 $1,000 $ 908
State Development Finance Agency:
Boston University, Series 1999-P,
6.000% 05/15/59 1,000 914
College of Pharmacy & Health Science
Series, 1999 B,
6.625% 07/01/20 765 741
State Health & Educational Facilities Authority:
Amherst College, Series E,
6.800% 11/01/21 500 528
Brandeis University, Series 1998-I,
4.750% 10/01/18 2,000 1,662
Community Colleges Program, Series A,
6.600% 10/01/22 1,250 1,330
Harvard University, Series N,
6.250% 04/01/20 2,250 2,345
State Industrial Finance Agency:
Babson College, Series 1992 A,
6.375% 10/01/09 1,000 1,058
Cambridge Friends School, Series 1998
5.750% 09/01/18 1,000 889
Concord Academy, Series 1997,
5.500% 09/01/27 1,250 1,077
St John's High School, Series 1998
5.700% 06/01/18 1,000 899
Tabor Academy, Series 1998
5.400% 12/01/18 1,000 866
Wentworth Institute of Technology,
Series 1998,
5.750% 10/01/28 1,650 1,530
PR Commonwealth of Puerto Rico, Industrial
Tourist Educational,
Medical & Environmental Facilities,
Ana G. Mendez University,
5.375% 02/01/19 500 437
--------
15,184
--------
STUDENT LOAN - 3.6%
New England Educational Loan Marketing Corp.,
Student Loan,
Series 1993 A,
5.700% 07/01/05 5,000 5,091
State Educational Financing Authority,
Issue E,
5.650% 07/01/10 1,885 1,869
--------
6,960
--------
HEALTHCARE - 15.5%
LIFECARE - 1.4%
Boston Industrial Development Finance Authority,
Springhouse, Inc.,
Series 1988,
5.875% 07/01/18 1,200 980
State Development Finance Agency,
Series 1999 A,
5.750% 07/01/23 $1,000 $ 800
State Industrial Finance Agency,
Reeds Landing Project,
7.750% 10/01/00 1,000 1,003
--------
2,783
--------
HEALTH SERVICES - 0.7%
State Development Finance Agency, Boston
Biomedical Research
Institute, Series 1999,
5.750% 02/01/29 1,750 1,371
--------
HOSPITALS - 9.9%
Health & Educational Facilities Authority
South Shore Hospital:
5.625% 07/01/19 1,000 857
5.750% 07/01/29 1,000 835
State Health & Educational Facilities Authority:
Berkshire Health System, Series C,
6.000% 10/01/20 1,000 861
Cape Cod Health Care, Series 1998 B,
5.450% 11/15/23 1,000 779
Central New England Health,
Series 1998 B,
5.500% 08/01/14 1,255 1,194
Children's Hospital, Series E,
6.200% 10/01/16 2,000 1,971
Dana-Farber Cancer Institute:
Series 1995 G1,
5.500% 12/01/27 5,000 4,076
Series C, 6.650% 12/01/15 250 252
Milford-Whitinsville Regional Hospital,
Series C,
5.375% 07/15/28 500 365
Newton-Wellesley Hospital, Series 1997 G,
6.000% 07/01/12 1,000 1,015
University Hospital, Series C,
7.250% 07/19/19 1,000 1,033
Youville House Project,
5.950% 02/15/17 500 477
State Industrial Finance Agency, Massachusetts
Biomedical:
Series A-2 (a) 08/01/08 2,000 1,236
Series 1989-A2, (a) 08/01/10 8,000 4,340
--------
19,291
--------
INTERMEDIATE CARE FACILITIES - 0.5%
State Development Finance Agency, New England
Center for Children,
Series 1998,
5.875% 11/01/18 1,000 894
--------
NURSING HOME - 3.0%
State Health & Educational Facilities
Authority, Deutsches Altenheim, Inc.,
Series A,
7.700% 11/01/31 955 998
State Industrial Finance Agency,
American Health Foundation Inc.,
Series 1989, 10.125% 03/01/19 (b) 1,695 1,203
Chelsea Jewish Nursing Home, Series A,
6.500% 08/01/37 1,000 984
GF/Massachusetts Inc., Series 1994,
8.300% 07/01/23 2,415 2,542
--------
5,727
--------
- ---------------------------------------------------------------------
HOUSING - 3.7%
MULTI-FAMILY - 2.5%
Boston- Mount Pleasant Development Corp.,
Series A,
6.750% 08/01/23 1,600 1,647
State Housing Finance Agency:
Series 1990 A,
8.150% 02/01/29 135 139
Series 1992 C,
6.875% 11/15/11 3,000 3,152
--------
4,938
--------
SINGLE FAMILY - 1.2%
State Housing Finance Agency:
Series 18,
7.350% 12/01/16 590 594
Series 1997 57,
5.600% 06/01/30 1,865 1,659
--------
2,253
--------
- ---------------------------------------------------------------------
INDUSTRIAL - 0.8%
MANUFACTURING
State Industrial Finance Agency,
House of Bianchi Inc.,
8.750% 06/01/18 1,700 1,585
--------
- ---------------------------------------------------------------------
OTHER - 16.2%
OTHER - 1.2%
Massachusetts Bay Transportation Authority
Rail Connection:
6.000% 07/01/13 500 480
6.000% 07/01/14 500 476
State Development Agency Worcester
Redevelopment,
6.000% 06/01/24 1,300 1,333
--------
2,289
--------
REFUNDED/ESCROWED (c) - 15.0%
Boston, Series 1992 A,
6.500% 07/01/12 4,340 4,594
Holyoke, School Project Loan,
7.650% 08/01/09 500 532
Massachusetts Bay Transportation Authority,
Series D,
5.750% 03/01/13 2,000 2,078
Plymouth County, Plymouth County Correctional
Facility, Series A,
7.000% 04/01/22 1,000 1,073
State Health & Educational Facilities
Authority, Charlton Memorial
Hospital, Series B:
7.250% 07/01/07 500 527
7.250% 07/01/13 500 527
Cooley Dickinson Hospital, Series A,
7.125% 11/15/18 1,770 1,899
Corporation for Independent Living,
8.100% 07/01/18 285 318
Fairview Extended Care Service, Inc.,
Series A,
10.250% 01/01/21 500 541
Lowell General Hospital, Series 1991 A,
8.400% 06/01/11 500 533
The Medical Center of Central Mass.,
Series A,
7.000% 07/01/12 1,000 1,053
Winchester Hospital, Series C,
7.550% 07/01/11 500 529
Worcester Polytechnic Institute, Series E:
6.750% 09/01/11 500 533
6.625% 09/01/17 500 531
State Industrial Finance Agency:
Belmont Home Care, Series 1995 A,
9.265% 01/01/25 1,965 2,353
Emerson College, Series 1991 A,
8.900% 01/01/18 500 531
Mary Ann Morse Nursing Home, Inc.,
Series 1991 I,
10.000% 01/01/21 925 999
PR Commonwealth of Puerto Rico,
Series 1994,
6.500% 07/01/23 3,000 3,243
Seacoast Nursing Home, Series 1991,
9.625% 12/01/21 1,285 1,433
State Industrial Finance Agency, Series 1990,
9.000% 10/01/20 465 487
State Turnpike Authority, Series 1993 A,
5.000% 01/01/20 5,000 4,450
University of Massachusetts Building Authority,
Series 1976 A,
7.500% 05/01/11 90 100
VI Virgin Islands Public Finance Authority,
Series 1992 A,
7.000% 10/01/02 250 265
--------
29,129
--------
- ---------------------------------------------------------------------
OTHER REVENUE - 0.4%
Recreation YMCA, Series 1998,
5.450% 11/01/28 1,000 810
--------
- ---------------------------------------------------------------------
RESOURCE RECOVERY - 3.4%
DISPOSAL - 2.1%
Boston Industrial Development Finance
Authority, Jet-A-Way, Inc.,
10.500% 01/01/11 200 211
Massachusetts Environmental Services,
Series 1994 A,
8.750% 11/01/21 2,935 2,348
State Industrial Finance Agency, Peabody
Monofill Associates, Inc.,
Series 1995,
9.000% 09/01/05 1,540 1,594
--------
4,153
--------
RESOURCE RECOVERY - 1.3%
IFA Ogden Haverhill Project, Series 1998 B:
5.500% 12/01/19 1,000 827
5.600% 12/01/19 2,000 1,681
--------
2,508
--------
- ---------------------------------------------------------------------
TAX-BACKED - 23.6%
LOCAL GENERAL OBLIGATIONS - 5.7%
Lowell,
8.400% 01/15/09 1,000 1,059
Malden, Series 1998,
4.500% 10/01/18 5,410 4,324
Nantucket, Series 1991,
6.800% 12/01/11 2,675 2,825
Southern Berkshire Regional School
Project Loan,
7.000% 04/15/11 500 532
Swansea, School Project Loan:
6.800% 01/15/09 250 264
6.800% 01/15/10 125 132
6.800% 01/15/11 210 222
Weymouth, Series 1992:
6.700% 06/15/09 200 212
6.700% 06/15/10 200 212
6.700% 06/15/11 155 164
6.700% 06/15/12 140 149
Worcester, Series C,
5.750% 10/01/13 1,000 999
--------
11,094
--------
SPECIAL NON-PROPERTY TAX - 0.3%
PR Commonwealth of Puerto Rico Highway &
Transportation Authority,
Series W,
5.500% 07/01/09 660 675
--------
STATE APPROPRIATED - 0.4%
Massachusetts Bay Transportation Authority,
Series 1988,
7.750% 01/15/06 250 273
University of Massachusetts Building Authority,
Series 1991 A,
7.200% 05/01/04 400 430
--------
703
--------
STATE GENERAL OBILIGATIONS - 17.2%
Massachusetts Bay Transportation Authority:
Series 1991 A,
7.000% 03/01/21 1,500 1,663
Series 1992 B,
6.200% 03/01/16 3,700 3,860
Series 1994 A:
7.000% 03/01/10 5,000 5,599
7.000% 03/01/11 4,270 4,796
7.000% 03/01/14 1,250 1,408
PR Commonwealth of Puerto Rico,
Series 1999,
5.250% 07/01/18 3,000 2,739
State College Building Authority:
Series 1994 A,
7.500% 05/01/14 1,825 2,128
Series 1999 A:
(a) 05/01/18 7,760 2,502
(a) 05/01/18 6,000 1,381
State:
Series B,
7.000% 07/01/09 4,385 4,883
Series 1991 B,
6.500% 08/01/11 860 897
Series 1991 C,
6.500% 08/01/11 450 470
Series 1992 B,
6.500% 08/01/08 1,000 1,084
--------
33,410
--------
- ---------------------------------------------------------------------
TRANSPORTATION - 5.0%
AIR TRANSPORTATION - 0.7%
State Port Authority, US Airways, Inc.,
Series 1999,
6.000% 09/01/21 1,500 1,451
--------
AIRPORT - 1.4%
State Port Authority, Series 1999:
7.250% 07/01/29 1,500 1,326
7.750% 07/01/29 1,500 1,365
--------
2,691
--------
TOLL FACILITIES - 2.1%
State Turnpike Authority, Series 1999 A,
5.000% 01/01/39 5,000 3,988
--------
TRANSPORTATION - 0.8%
State, Series 1998 B, (a) 06/15/12 3,145 1,532
--------
- ---------------------------------------------------------------------
UTILITY - 18.0%
INVESTOR OWNED - 0.8%
State Industrial Finance Agency, Nantucket
Electric Co., Series 1996 A
6.750% 07/01/05 1,400 1,490
--------
JOINT POWER AUTHORITY - 0.8%
State Municipal Wholesale Electric Co.,
Series 1994 A, IFRN (variable rate)
5.950% 07/01/16 2,000 1,548
--------
MUNICIPAL ELECTRIC - 0.9%
PR Commonwealth of Puerto Rico Electric Power
Authority, Series 1995 Y,
7.000% 07/01/07 1,500 1,678
--------
WATER & SEWER - 15.5%
Boston Water & Sewer Commission:
Series 1992 A,
5.750% 11/01/13 1,000 1,012
Series 1993 A,
5.250% 11/01/19 4,750 4,373
State Water Pollution Abatement Trust,
New Bedford Project:
Series 1996 A,
6.000% 02/01/06 220 231
Series 1998 A,
4.750% 02/01/21 1,500 1,209
Series 1999 A,
6.000% 08/01/17 2,445 2,490
State Water Resources Authority:
Series 1992 A:
6.500% 07/15/09 2,000 2,147
6.500% 07/15/19 5,000 5,275
Series 1993 C:
5.250% 12/01/15 2,750 2,551
5.250% 12/01/15 1,000 943
5.250% 12/01/20 2,595 2,262
Series 1995 B,
6.250% 12/01/13 5,000 5,330
Series 1998 B,
4.500% 08/01/22 3,000 2,310
--------
30,133
--------
TOTAL MUNICIPAL BONDS (COST OF 193,877) (d)
190,268
--------
SHORT-TERM OBLIGATIONS - 1.0%
- ---------------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (d)
State Educational & Cultural Facilities
Authority, CO National Cable
Televison Center, Series 1999
3.300% 10/01/06 415 415
District of Columbia, Series 1991 B-1,
3.650% 06/01/03 600 600
IL Sauget, Monsanto Co:
Series 1993,
3.450% 05/01/28 400 400
Series 1996,
3.450% 09/01/14 200 200
MO State Environmental Improvement &
Energy Resource Authority,
Monsanto Co., Series 1993,
3.300% 06/01/23 400 400
--------
TOTAL SHORT-TERM OBLIGATIONS 2,015
--------
OTHER ASSETS & LIABILITIES, NET - 1.0% 1,806
- ---------------------------------------------------------------------
NET ASSETS - 100% $194,089
========
- ---------------------------------------------------------------------
(a) Zero coupon bond.
(b) This issuer is in default of certain debt covenants. Income is not being
accrued.
(c) The Fund has been informed that each issuer has placed direct obligations of
the U.S. Government in an irrevocable trust, solely for the payment of
interest and principal.
(d) Cost for federal income tax purposes is $193,934.
(e) Variable rate demand notes are considered short-term obligations. Interest
rates change periodically on specified dates. These securities are payable
on demand and are secured by either letters of credit or other credit
support agreements from banks. The rates listed are as of January 31, 2000.
ACRONYM NAME
------- ----
IFRN Inverse Floating Rate Note
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
January 31, 2000
(In thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $193,877) $190,268
Short-term obligations 2,015
--------
192,283
Receivable for:
Interest $2,498
Variation margin on futures contracts 9
Fund shares sold 4
Expense reimbursement due from Advisor 12
Other 68 2,591
------ --------
Total assets 194,874
LIABILITIES
Payable for:
Fund shares repurchased 359
Distributions 287
Accrued:
Management fee 82
Transfer agent fee 36
Bookkeeping fee 7
Deferred Trustees fees 6
Other 8
------
Total liabilities 785
--------
Net Assets $194,089
========
Net asset value & redemption price per share --
Class A ($142,790/19,874) $ 7.18(a)
========
Maximum offering price per share --
Class A ($7.18/0.9525) $ 7.54(b)
========
Net asset value & offering price per share --
Class B ($50,110/6,975) $ 7.18(a)
========
Net asset value & offering price per share --
Class C ($1,189/165) $ 7.18(a)
========
COMPOSITION OF NET ASSETS
Capital paid in $198,549
Overdistributed net investment income (217)
Accumulated net realized loss (634)
Net unrealized depreciation (3,609)
--------
$194,089
========
(a) Redemption price per share is equal to net asset value less a contingent
deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
(c) Rounds to less than one.
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended January 31, 2000
(In thousands)
INVESTMENT INCOME
Interest $ 12,687
EXPENSES
Management fee $ 1,106
Service fee 387
Distribution fee -- Class B 427
Distribution fee -- Class C 8
Transfer agent 352
Bookkeeping fee 87
Trustees fee 20
Custodian fee 3
Audit fee 24
Legal fee 41
Registration fee 23
Reports to shareholders 22
Other 30
--------
2,530
Fees waived by the Advisor (49)
Fees waived by the Distributor
-- Class C (3)
Custodian credits earned (3) 2,475
-------- --------
Net Investment Income 10,212
NET REALIZED AND UNREALIZED GAIN (LOSS) ON
PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 740
Closed futures contracts (161)
--------
Net Realized Gain 579
Net change in unrealized appreciation/depreciation
during the period on:
Investments (24,749)
Open futures contracts (41)
--------
Net Change in Unrealized Appreciation/Depreciation (24,790)
--------
Net Loss (24,211)
--------
Decrease in Net Assets from Operations $(13,999)
========
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
(In thousands)
YEARS ENDED JANUARY 31,
-----------------------------
INCREASE (DECREASE) IN NET ASSETS 2000 1999
- --------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 10,212 $ 10,796
Net realized gain 579 4,394
Net unrealized depreciation (24,790) (1,119)
--------- ---------
Net Increase (Decrease) from Operations (13,999) 14,071
DISTRIBUTIONS:
From net investment income -- Class A (7,830) (8,432)
In excess of net investment income -- Class A -- (306)
From net realized gains -- Class A (77) (2,967)
In excess of net realized gains -- Class A (891) (64)
From net investment income -- Class B (2,301) (2,343)
In excess of net investment income -- Class B -- (85)
From net realized gains -- Class B (27) (982)
In excess of net realized gains -- Class B (313) (21)
From net investment income -- Class C (45) (20)
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 (6) (a)
--------- ---------
(25,490) (1,161)
FUND SHARE TRANSACTIONS:
Receipts for shares sold -- Class A 10,861 14,603
Value of distributions reinvested -- Class A 4,946 7,028
Cost of shares repurchased -- Class A (34,850) (22,846)
--------- ---------
(19,043) (1,215)
--------- ---------
Receipts for shares sold -- Class B 6,128 6,777
Value of distributions reinvested -- Class B 1,602 2,230
Cost of shares repurchased -- Class B (10,883) (8,094)
--------- ---------
(3,103) 913
--------- ---------
Receipts for shares sold -- Class C 815 478
Value of distributions reinvested -- Class C 33 21
Cost of shares repurchased -- Class C (238) (8)
--------- ---------
610 491
--------- ---------
Net Increase (Decrease) from Fund Share
Transactions (21,536) 189
--------- ---------
Total Decrease (47,026) (972)
NET ASSETS
Beginning of period 241,115 242,087
--------- ---------
End of period (net of overdistributed net
investment income of $217 and $274,
respectively) $ 194,089 $ 241,115
========= =========
NUMBER OF FUND SHARES
Sold -- Class A 1,428 1,815
Issued for distributions reinvested -- Class A 645 875
Repurchased -- Class A (4,604) (2,837)
--------- ---------
(2,531) (147)
--------- ---------
Sold -- Class B 794 840
Issued for distributions reinvested -- Class B 209 278
Repurchased -- Class B (1,444) (1,004)
--------- ---------
(441) 114
--------- ---------
Sold -- Class C 107 59
Issued for distributions reinvested -- Class C 4 3
Repurchased -- Class C (33) (1)
--------- ---------
78 62
--------- ---------
(a) Rounds to less than one.
See notes to financial statements.
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
January 31, 2000
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION
Colonial Massachusetts Tax-Exempt Fund (the Fund), a series of Liberty Funds
Trust V (formerly Colonial Trust V), is a non-diversified portfolio of a
Massachusetts business trust, registered under the Investment Company Act of
1940, as amended, as an open-end management investment company. The Fund's
investment objective is to seek as high a level of after-tax total return as is
consistent with prudent risk by pursuing current income exempt from federal and
Massachusetts state personal income tax 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 are subject to an annual
distribution fee and a contingent deferred sales charge. Class B shares will
convert to Class A shares as follows:
Original purchase Converts to Class A shares
----------------- --------------------------
Less than $250,000 8 years
$250,000 to less than $500,000 4 years
$500,000 to less than $1,000,000 3 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), and
realized and unrealized gains (losses), are allocated to each class
proportionately on a daily basis for purposes of determining the net asset value
of each class.
Class B and Class C per share data and ratios are calculated by adjusting the
expense and net investment income per share data and ratios for the Fund for the
entire period by the distribution fee applicable to Class B and Class C shares
only.
FEDERAL INCOME TAXES
Consistent with the Fund's policy to qualify as a regulated investment company
and to distribute all of its taxable and tax-exempt income, no federal income
tax has been accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM
Interest income is recorded on the accrual basis. Original issue discount is
accreted to interest income over the life of a security with a corresponding
increase in the cost basis; market discount is not accreted. Premium is
amortized against interest income with a corresponding decrease in the cost
basis.
DISTRIBUTIONS TO SHAREHOLDERS
The Fund declares and records distributions daily and pays monthly.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE
Colonial Management Associates, Inc. (the 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:
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.
Effective January 1, 2000, the Transfer Agent fee was changed to a fee comprised
of 0.07% annually of average net assets plus charges based on the number of
shareholder accounts and transactions.
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 year ended January 31, 2000, the Fund has been
advised that the Distributor retained net underwriting discounts of $23,567 on
sales of the Fund's Class A shares and received contingent deferred sales
charges (CDSC) of $183, $128,940 and $106 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:
Valuation of shares Annual
outstanding on the 20th of Fee
each month which were issued Rate
---------------------------- -------
Prior to November 30, 1994 0.10%
On or after December 1, 1994 0.25%
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
EXPENSE LIMITS
The 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 $3,444 of
custodian fees were reduced by balance credits applied during the year ended
January 31, 2000. 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 3. PORTFOLIO INFORMATION
INVESTMENT ACTIVITY
During the year ended January 31, 2000, purchases and sales of investments,
other than short-term obligations were $33,464,202 and $53,389,771 respectively.
Unrealized appreciation (depreciation) at January 31, 2000 based on cost of
investments for federal income tax purposes was:
Gross unrealized appreciation $ 5,726,084
Gross unrealized depreciation (9,391,784)
-----------
Net unrealized depreciation $(3,665,700)
===========
CAPITAL LOSS CARRYFORWARDS:
At January 31, 2000, capital loss carryforwards, available (to the extent
provided in regulations) to offset future realized gains were approximately as
follows:
Year of expiration Capital loss carryforward
------------------ -------------------------
2008 $37,000
Expired capital loss carryforwards, if any, are recorded as a reduction of
capital paid in.
To the extent loss carryforwards are used to offset any future realized gains,
it is unlikely that such gains would be distributed since they may be taxable to
shareholders as ordinary income.
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
involve amounts exceeding the variation margin recorded in the Fund's Statement
of Assets and Liabilities at any given time.
NOTE 4. LINE OF CREDIT
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 during
the year ended January 31, 2000.
CHANGE IN INDEPENDENT AUDITOR
Based on the recommendation of the Audit Committee of the Fund on June 18, 1999,
the Board of Trustees determined not to retain PricewaterhouseCoopers (PwC) as
the Fund's independent auditor and voted to appoint Ernst & Young LLP for the
fiscal year ended January 31, 2000. During the two most recent fiscal years,
PwC's audit reports contained no adverse opinion or disclaimer of opinion; nor
were its reports qualified or modified as to uncertainty, audit scope, or
accounting principle. Further, in connection with its audits for the two most
recent fiscal years, there were no disagreements between the Fund and PwC on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which if not resolved to the satisfaction of PwC
would have caused it to make reference to the disagreements in its report on the
financial statements for such years.
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of each class outstanding
throughout each period are as follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 2000
---------------------------------------------
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)(c) 0.366 0.308 0.331(b)
Net realized and unrealized loss (0.835) (0.835) (0.835)
------------ ------------ ------------
Total from Investment Operations (0.469) (0.527) (0.504)
------------ ------------ ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income (0.366) (0.308) (0.331)
From net realized gains (0.004) (0.004) (0.004)
In excess of net realized gains (0.041) (0.041) (0.041)
------------ ------------ ------------
Total Distributions Declared to Shareholders (0.411) (0.353) (0.376)
------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 7.180 $ 7.180 $ 7.180
============ ============ ============
Total return (d)(e) (5.96)% (6.67)% (6.38)%
============ ============ ============
RATIOS TO AVERAGE NET ASSETS
Expenses (f) 0.93% 1.68% 1.38%(b)
Net investment income (f) 4.81% 4.06% 4.36%(b)
Fees and expenses waived or borne by the Advisor (f) 0.02% 0.02% 0.02%
Portfolio turnover 16% 16% 16%
Net assets at end of period (000) $ 142,790 $ 50,110 $ 1,189
(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 $0.023 per share and 0.30%.
(c) The per share net investment income amounts do not reflect the period's reclassification of differences
between book and tax basis net investment income.
(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) The benefits derived from custody credits and directed brokerage arrangements had no impact.
</TABLE>
- -------------------------------------------------------------------------------
2000 FEDERAL TAX INFORMATION (UNAUDITED)
Approximately 100% of the income distributions will be treated as exempt income
for federal income tax purposes.
- -------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of each class outstanding
throughout each period are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
--------------------------------------------------------------------
1999 1998
-------------------------------- ---------------------------------
CLASS A CLASS B CLASS C CLASS A CLASS B CLASS C(a)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.100 $ 8.100 $ 8.100 $ 7.810 $ 7.810 $ 8.070
-------- ------- ------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (e) 0.384 0.322 0.347(b) 0.403 0.344 0.180(c)
Net realized and unrealized gain 0.104 0.104 0.104 0.352 0.352 0.090
-------- ------- ------- -------- ------- -------
Total from Investment Operations 0.488 0.426 0.451 0.755 0.696 0.270
-------- ------- ------- -------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income (0.378) (0.318) (0.343) (0.406) (0.347) (0.180)
In excess of net investment income (0.014) (0.012) (0.012) (0.003) (0.003) (0.004)
From net realized gains (0.133) (0.103) (0.133) (0.056) (0.056) (0.056)
In excess of net realized gains (0.003) (0.033) (0.003) -- -- --
-------- ------- ------- -------- ------- -------
Total Distributions Declared to
Shareholders (0.528) (0.466) (0.491) (0.465) (0.406) (0.240)
-------- ------- ------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 8.060 $ 8.060 $ 8.060 $ 8.100 $ 8.100 $ 8.100
-------- ------- ------- -------- ------- -------
Total return (d) 6.25% 5.44% 5.76%(e) 9.94% 9.13% 3.40%(e)(f)
-------- ------- ------- -------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Expenses (g) 0.91% 1.66% 1.36%(b) 0.90% 1.65% 1.37%(c)(h)
Net investment income (g) 4.69% 3.94% 4.24%(b) 5.05% 4.30% 4.47%(c)(h)
Portfolio turnover 21% 21% 21% 14% 14% 14%
Net assets at end of period (000) $180,628 $59,789 $ 698 $182,721 $59,160 $ 206
(a) Class C shares were initially offered on August 1, 1997. Per share amounts reflect activity from that date.
(b) Net of fees waived by the Distributor which amounted to $0.024 per share and 0.30%.
(c) Net of fees waived by the Distributor which amounted to $0.012 per share and 0.30% annualized.
(d) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent
deferred sales charge.
(e) Had the 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>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of each class outstanding
throughout each period are as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31
------------------------------------------------------------------
1997 1996
----------------------------- -----------------------------
CLASS A CLASS B CLASS A CLASS B
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 8.040 $ 8.040 $ 7.390 $ 7.390
------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a) 0.415 0.357 0.424 0.367
Net realized and unrealized gain (loss) (0.234) (0.234) 0.650 0.650
------------ ------------ ------------ ------------
Total from Investment Operations 0.181 0.123 1.074 1.017
------------ ------------ ------------ ------------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income (0.411) (0.353) (0.424) (0.367)
------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 7.810 $ 7.810 $ 8.040 $ 8.040
------------ ------------ ------------ ------------
Total return (b)(c) 2.43% 1.66% 14.90% 14.05%
------------ ------------ ------------ ------------
RATIOS TO AVERAGE NET ASSETS
Expenses (d) 0.90% 1.65% 0.85% 1.60%
Net investment income (d) 5.32% 4.57% 5.49% 4.74%
Fees and expenses waived or borne by the Advisor (d) 0.00% 0.00% 0.06% 0.06%
Portfolio turnover 29% 29% 21% 21%
Net assets at end of period (000) $ 184,221 $ 59,143 $ 207,759 $ 60,651
(a) Net of fees and expenses waived or borne by the
Advisor which amounted to: $ 0.000 $ 0.000 $ 0.005 $ 0.005
(b) Total return at net asset value assuming all distributions reinvested and no initial sales charge or contingent
deferred sales charge.
(c) Had the Advisor not waived or reimbursed a portion of expenses, total return would have been reduced.
(d) The benefits derived from custody credits or directed brokerage arrangements had no impact.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
TO THE TRUSTEES OF LIBERTY FUNDS TRUST V
AND SHAREHOLDERS OF COLONIAL MASSACHUSETTS TAX-EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of the Colonial Massachusetts Tax-Exempt Fund (the
Fund), one of the series of Liberty Funds Trust V, as of January 31, 2000, and
the related statement of operations, the statement of changes in net assets and
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net assets
for the period ended January 31, 1999, and the financial highlights for each of
the four years in the period then ended were audited by other auditors whose
report dated March 11, 1999 expressed an unqualified opinion on those financial
statements and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of January 31, 2000 by correspondence with
the custodian and brokers, or by other appropriate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Colonial Massachusetts Tax-Exempt Fund of Liberty Funds Trust V at January 31,
2000, and the results of its operations, the changes in its net assets and the
financial highlights for the year then ended in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 13, 2000
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
TRUSTEES & TRANSFER AGENT
- --------------------------------------------------------------------------------
TOM BLEASDALE WILLIAM E. MAYER
Retired (formerly Chairman of the Partner, Development Capital, LLC
Board and Chief Executive Officer, (formerly Dean, College of Business
Shore Bank & Trust Company) and Management, University of
Maryland; Dean, Simon Graduate School
JOHN V. CARBERRY of Business, University of Rochester;
Senior Vice President of Liberty Chairman and Chief Executive Officer,
Financial Companies, Inc. (formerly CS First Boston Merchant Bank; and
Managing Director, Salomon Brothers) President and Chief Executive
Officer, The First Boston
LORA S. COLLINS Corporation)
Attorney (formerly Attorney, Kramer,
Levin, Naftalis & Frankel) JAMES L. MOODY, JR.
Retired (formerly Chairman of the
JAMES E. GRINNELL Board, Chief Executive Officer and
Private Investor (formerly Senior Director, Hannaford Bros. Co.)
Vice President-Operations, The
Rockport Company) JOHN J. NEUHAUSER
Academic Vice President and Dean of
RICHARD W. LOWRY Faculties, Boston College (formerly
Private Investor (formerly Chairman Dean, Boston College School of
and Chief Executive Officer, U.S. Management)
Plywood Corporation)
THOMAS E. STITZEL
SALVATORE MACERA Professor of Finance, College of
Private Investor (formerly Executive Business, Boise State University;
Vice President of Itek Corp. and Business Consultant and Author
President of Itek Optical &
Electronic Industries, Inc.) 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.
ANNUAL REPORT:
COLONIAL MASSACHUSETTS TAX-EXEMP FUND
<PAGE>
Liberty offers the independent thinking and collective strength of six financial
specialists. Our distinguished product line helps financial advisors and their
clients build diversified investment portfolios for long-term financial goals.
- --------------------------------------------------------------------------------
L I B E R T Y
- ---------------
F U N D S
- --------------------------------------------------------------------------------
ALL-STAR INSTITUTIONAL MONEY MANAGEMENT APPROACH FOR INDIVIDUAL INVESTORS.
COLONIAL FIXED INCOME AND VALUE STYLE EQUITY INVESTING.
CRABBE A CONTRARIAN APPROACH TO FIXED INCOME AND EQUITY INVESTING.
HUSON
NEWPORT A LEADER IN INTERNATIONAL INVESTING.SM
STEIN ROE SOLUTIONS FOR GROWTH AND INCOME INVESTING.
ADVISOR
KEYPORT A LEADING PROVIDER OF INNOVATIVE ANNUITY PRODUCTS.
[GRAPHIC
OMITTED]
- --------------------------------------------------------------------------------
Liberty's mutual funds are offered by prospectus through Liberty Funds
Distributor, Inc.
BEFORE YOU INVEST, CONSULT YOUR FINANCIAL ADVISOR.
Your financial advisor can help you develop a long-term plan for reaching your
financial goals.
- -----------------------------------------------------
COLONIAL MASSACHUSETTS TAX-EXEMPT FUND ANNUAL REPORT
- -----------------------------------------------------
[logo] L I B E R T Y --------------
--------------- BULK RATE
F U N D S U.S. POSTAGE
PAID
ALL-STAR o COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR HOLLISTON, MA
PERMIT NO. 20
---------------
Liberty Funds Distributor, Inc. (C)2000
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
775-02/358A-0200 (3/00) 00/330
