<PAGE> 1
COLONIAL NORTH CAROLINA TAX-EXEMPT FUND ANNUAL REPORT
[GRAPHIC OF NORTH CAROLINA CAPITAL BUILDING]
JANUARY 31, 2000
<PAGE> 2
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 long-term hiatus to capture the attractive
higher yields. Meanwhile, the supply of municipal bonds dwindled considerably as
issuers reduced their refinancing and new issue activity in response to rising
interest rates. Under these circumstances, municipal bond investors experienced
a tax-exempt yield that was attractive compared to their taxable counterparts
without having to compromise quality.
These challenging bond market conditions were reflected in the Fund's negative
one-year total return. It's important to remember, however, to focus on
long-term performance since it is a more accurate indicator of investment
potential. That said, the Fund has provided top-quartile returns for the three-
and five-year periods ended January 31, 2000, according to Lipper, Inc.(1)
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 North Carolina Tax-Exempt Fund and
for giving us the opportunity to serve your investment needs.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
March 10, 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 North Carolina
Municipal Debt Category was negative 6.25% for the 12 months ended January
31, 2000. The Fund's Class A shares were ranked in the second quartile for
the one year (19 out of 39 funds), in the first quartile for three years (8
out of 36 funds) and in the first quartile for five years (6 out of 32
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.
- ----------------------------------------
| Not FDIC | May Lose Value |
| |-------------------------|
| Insured | No Bank Guarantee |
- ----------------------------------------
<PAGE> 3
HIGHLIGHTS
- - 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.
- - 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.
- - SHORT-TERM OBLIGATIONS OUTPERFORMED LONG-TERM ISSUES AS INTEREST RATES
ROSE.
Securities such as short-term municipals outperformed long-term issues
later in the period. This was expected as bonds with shorter maturities are
less sensitive to interest rates.
MUNICIPAL VS. TREASURY BOND PERFORMANCE
1/31/99 - 1/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
<S> <C>
Lehman Brothers Municipal Bond Index (3.63)%
Salomon 30-Year Treasury Index (15.00)%
</TABLE>
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
<TABLE>
<S> <C>
CLASS A $6.81
CLASS B $6.81
CLASS C $6.81
</TABLE>
DISTRIBUTIONS DECLARED FROM 2/1/99 TO 1/31/00
<TABLE>
<S> <C>
CLASS A $0.318
CLASS B $0.264
CLASS C $0.285
</TABLE>
A portion of the Fund's income may be subject to the alternative minimum tax.
The Fund may at times purchase tax-exempt securities at a discount. Some or all
of this discount may be included in the Fund's ordinary income, and is taxable
when distributed.
SEC YIELDS ON 1/31/00
<TABLE>
<S> <C>
CLASS A 4.52%
CLASS B 3.97%
CLASS C 4.28%
</TABLE>
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 3.87% for Class C shares.
TAXABLE-EQUIVALENT SEC YIELDS ON 1/31/00
<TABLE>
<S> <C>
CLASS A 8.11%
CLASS B 7.13%
CLASS C 7.68%
</TABLE>
Taxable-equivalent SEC yields are based on the combined maximum effective 44.3%
federal and North Carolina 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.
1
<PAGE> 4
ANNUAL REPORT: COLONIAL NORTH CAROLINA TAX-EXEMPT FUND
PORTFOLIO MANAGER'S REPORT
QUALITY BREAKDOWN AS OF 1/31/00
<TABLE>
<S> <C>
AAA 39.9%
AA 34.4%
A 17.9%
BBB 4.0%
NON-RATED 2.8%
CASH EQUIVALENTS 1.0%
</TABLE>
Quality breakdown categories are calculated as a percentage of total
investments, including short-term obligations. Ratings shown in the quality
breakdown 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 this quality breakdown in the future.
BOUGHT
We purchased single A-rated bonds issued by Stanley Memorial (1.6% of net
assets). This regional hospital is financially solid and is one of the most
desirable small hospitals in the region. Because of its financial strength and
dominant market share, it has a high credit rating and could benefit from
consolidation in the hospital sector. Additionally, we purchased DePaul Assisted
Living Facility (0.6% of net assets), which benefits from North Carolina's
growing retirement community.
INVESTMENT ACTIVITY WAS INITIALLY FOCUSED ON HIGHER-YIELDING BONDS
At the beginning of 1999, our outlook called for continued low inflation and
modest economic growth in response to the global economic and market turmoil of
the fall of 1998. Based on those expectations, our investment strategy at that
time was to extend the Fund's duration and structure the portfolio with bonds
that tend to do well during periods of declining interest rates. As part of this
strategy, we looked for bonds, such as zero coupons, that we thought would help
enhance the Fund's total return potential and help maintain the Fund's income
level.
RISING INTEREST RATES INITIATED A MORE CONSERVATIVE STRATEGY
We adjusted our initial strategy mid-year to a more conservative approach as
interest rates began to rise. Rather than dramatically change the structure of
the portfolio and sell bonds we believed would ultimately serve the Fund well,
we implemented strategies in the interim to cushion the Fund against rising
rates. More specifically, we reduced the Fund's duration and increased holdings
in fundamentally sound issues and moved away from longer-maturity bonds. By
adjusting to a more conservative strategy, the Fund was at less risk as interest
rates rose and was positioned to benefit from a longer-term environment of
steady economic growth with low to moderate inflation.
FUND PERFORMANCE OVERVIEW
For the 12-month period, the Fund generated a total return of negative 6.33% for
Class A shares, without a sales charge. This disappointing performance reflects
the challenging fixed-income conditions that prevailed throughout 1999.
Moreover, we were overweighted in zero coupon bonds and deep discount bonds
which are more sensitive to interest rate movements than current coupon bonds
with comparable maturities. However, we adjusted our investment strategy
mid-year which helped the Fund rebound in the fourth quarter.
NORTH CAROLINA ECONOMY REMAINS STRONG AND STEADY
A strong and diversifying economy combined with a history of conservative
financial management support North Carolina's AAA rating. During the 1990's, the
state's economy moved away from its traditional dependence on textile and
manufacturing base toward such sectors as financial services, technology,
education and research. This transformation has resulted in significant job
growth. Below-average business costs enabled the state to attract numerous
corporate relocations that have resulted in rapid growth in the state's per
capita personal income. The unemployment rate remains consistently below the
national average. Economic growth has fueled healthy gains in state revenues
that enabled it to amass significant budgetary reserves. Although the
2
<PAGE> 5
reserve will be drawn down because of an adverse ruling regarding the intangible
tax, the state has historically acted in a prudent manner to deal with fiscal
adversity. We expect that the state will replenish its budget reserve balances
once its court-mandated payments are made.
FAVORABLE OUTLOOK
Looking ahead, we believe there are signs of continuing growth for 2000, similar
to what we've seen over the last few years. We expect high productivity to
remain. We expect a moderate pickup in inflation of a little more than 2%. We
suspect that further interest rate increases are in store for the first part of
2000, since the economy is entering the year with such strong momentum. In this
environment, our strategy would be to structure the Fund to be less sensitive to
interest rate movements by shortening its duration and adjusting the portfolio
as market conditions warrant. We will continue to actively manage the Fund's
positioning in an effort to add value for our investors.
/s/ Brian M. Hartford
BRIAN HARTFORD is portfolio manager of Colonial North Carolina Tax-Exempt Fund
and is a senior vice president of Colonial Management Associates, Inc.
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
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
[BAR CHART]
<TABLE>
<CAPTION>
1/31/00 1/31/99
------- -------
<S> <C> <C>
Refunded Escrowed 19.5% 14.6%
Local Appropriated 19.4% 20.0%
Hospitals 11.6% 10.6%
Education 7.4% 9.5%
Joint Power Authority 7.3% 6.7%
</TABLE>
Sector breakdown categories are calculated as a percentage of total investments,
including short-term obligations. Because the Fund is actively managed, there
can be no guarantee the Fund will continue to maintain this sector breakdown in
the future.
SOLD
We sold a AAA-rated multi-family housing bond at a premium due to deteriorating
credit quality resulting from HUD's restructuring efforts. We sold it to lock in
a price gain and to avoid the possibility that the bond could be retired by its
issuer before its maturity date.
3
<PAGE> 6
PERFORMANCE INFORMATION
PERFORMANCE OF A $10,000
INVESTMENT IN ALL SHARE
CLASSES 9/1/93 - 1/31/00
<TABLE>
<CAPTION>
Without With
sales sales
charge charge
------ ------
<S> <C> <C>
Class A $12,641 $12,040
Class B $12,046 $12,046
Class C $12,121 $12,121
</TABLE>
PERFORMANCE OF A $10,000 INVESTMENT IN CLASS A SHARES 9/1/93 - 1/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
Fund without Fund with Lehman Brothers
sales charge sales charge Municipal Bond Index
------------ ------------ --------------------
<S> <C> <C> <C> <C>
8/31/93 10000 10000 10000
9/30/93 10084 9605 10114
10/31/93 9900 9430 10133.2
11/30/93 10052 9575 10044.04
$20,000 12/29/93 10149 9668 10255.97
1/31/94 10167 9684 10372.9
2/28/94 9667 9208 10104.2
3/31/94 9329 8886 9692.99
4/30/94 9332 8889 9775.38
5/31/94 9710 9249 9860.43
6/30/94 9491 9040 9800.26
$15,000 7/31/94 9579 9124 9979.62
8/31/94 9653 9194 10014.5
9/30/94 9389 8943 9867.34
10/31/94 8926 8502 9691.7
11/30/94 9129 8695 9516.28
12/28/94 9305 8863 9725.64
$10,000 1/31/95 9827 9360 10003.8
2/28/95 9918 9447 10294.9
3/31/95 10184 9700 10413.3
4/30/95 10129 9649 10425.8
5/31/95 10529 10029 10758.4
6/30/95 10356 9864 10664.8
$ 5,000 7/31/95 10182 9698 10766.1
8/31/95 10422 9927 10902.8
9/30/95 10528 10028 10971.5
10/31/95 10694 10187 11130.6
11/30/95 10998 10476 11315.4
12/27/95 11015 10492 11423.99
1/31/96 11123 10595 11510.8
2/29/96 10988 10466 11432.5
3/31/96 10591 10088 11286.2
4/30/96 10670 10163 11254.6
5/31/96 10718 10209 11250.1
6/30/96 10768 10257 11372.7
7/31/96 11160 10630 11475.1
8/31/96 11036 10513 11472.8
9/30/96 11259 10725 11633.4
10/31/96 11357 10818 11764.9
11/30/96 11390 10849 11980.2
12/27/96 11472 10927 11929.8
1/31/97 11520 10974 11952.5
2/28/97 11539 10991 12062.5
3/31/97 11395 10854 11902.04
4/30/97 11527 10979 12002.02
5/31/97 11740 11182 12183.3
6/30/97 11906 11340 12313.6
7/31/97 12055 11482 12654.7
8/31/97 12024 11453 12535.7
9/30/97 12225 11644 12684.9
10/31/97 12210 11630 12766.1
11/30/97 12362 11775 12641.4
12/26/97 12532 11937 13028.9
1/31/98 12580 11982 13163.1
2/28/98 12494 11901 13167.1
3/31/98 12662 12061 13178.9
4/30/98 12575 11978 13119.6
5/31/98 12762 12156 13326.9
6/30/98 12829 12220 13378.9
7/20/98 12845 12235 13412.3
8/20/98 13016 12398 13620.2
9/20/98 13206 12579 13790.5
10/20/98 13239 12610 13790.5
11/20/98 13273 12643 13838.7
12/20/98 13322 12689 13873.3
1/20/99 13442 12804 14038.4
2/20/99 13384 12748 13976.6
3/20/99 13395 12759 13996.2
4/20/99 13424 12786 14038.2
5/20/99 13309 12677 13949.8
6/20/99 13050 12430 13748.9
7/20/99 13170 12544 13798.4
8/20/99 12982 12365 13688.1
9/20/99 12940 12325 13693.5
10/20/99 12623 12023 13545.6
11/20/99 12873 12262 13689.2
12/20/99 12720 12116 13586.6
1/31/00 12641 12041 13526.8
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/00
<TABLE>
<CAPTION>
Share Class A B C
------------------------ ------------------------ ------------------------
Inception 9/1/93 9/1/93 8/1/97
------------------------ ------------------------ ------------------------
Without With Sales Without With Sales Without With Sales
Sales Charge Charge Sales Charge Charge Sales Charge Charge
------------ ------ ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
1 year (6.33)% (10.78)% (7.03)% (11.51)% (6.75)% (7.65)%
5 years 5.54 4.52 4.75 4.42 4.88 4.88
Life of Fund 3.72 2.93 2.94 2.94 3.04 3.04
</TABLE>
AVERAGE ANNUAL TOTAL RETURNS AS OF 12/31/99
<TABLE>
<CAPTION>
Share Class A B C
------------------------ ------------------------ ------------------------
Without With Sales Without With Sales Without With Sales
Sales Charge Charge Sales Charge Charge Sales Charge Charge
------------ ------ ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
1 year (4.63)% (9.16)% (5.35)% (9.91)% (5.06)% (5.98)%
5 years 6.48 5.45 5.69 5.37 5.82 5.82
Life of Fund 3.89 3.10 3.12 3.12 3.22 3.22
</TABLE>
Past performance cannot predict future investment results. Returns and value of
an investment will vary, resulting in a gain or loss of a 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 C share (newer class shares) performance information includes returns of
the Fund's Class B shares (the oldest existing Fund class with a similar cost
structure) for periods prior to its inception date. These Class B share returns
are not restated to reflect any expense differential (e.g., Rule 12b-1 fees)
between Class B shares and Class C shares.
4
<PAGE> 7
INVESTMENT PORTFOLIO
January 31, 2000
(In thousands)
<TABLE>
<CAPTION>
MUNICIPAL BONDS - 98.1% PAR VALUE
- ----------------------- --- -----
<S> <C> <C>
EDUCATION - 10.7%
EDUCATION - 7.4%
East Carolina University,
Series 1994,
6.200% 11/01/15 $ 475 $ 489
PR Commonwealth of Puerto Rico,
Ana G. Mendez University System,
Series 1999,
5.375% 02/01/19 275 240
State Educational Facilities Authority,
Wake Forest University,
Series 1998,
5.000% 11/01/17 250 220
State Educational Facilities Finance Agency,
Duke University, Series C,
6.750% 10/01/21 1,235 1,290
-------
2,239
-------
STUDENT LOAN - 3.3%
State Education Assistance Authority,
Series 1996 C,
6.350% 07/01/16 1,000 994
-------
HEALTHCARE - 11.5%
HOSPITALS
Charlotte-Mecklenburg Hospital,
Carolinas Healthcare Systems:
Series A:
5.000% 01/15/17 750 644
6.250% 01/01/20 485 485
Series 1996 A,
5.750% 01/15/21 250 233
Gaston Health Care,
Series 1998,
5.000% 02/15/19 750 613
State Medical Care Commission:
Annie Penn Memorial Hospital,
Series 1998,
5.375% 01/01/22 625 474
Stanley Memorial Hospital,
Series 1999,
6.375% 10/01/29 500 474
Wilson Memorial Hospital,
Series 1997,
(a) 11/01/14 1,380 570
-------
3,493
-------
HOUSING - 12.3%
ASSISTED LIVING - 0.6%
State Medical Care Commission,
DePaul Community Facilities Project,
Series 1999,
7.625% 11/01/29 200 190
-------
MULTI-FAMILY - 6.8%
Eastern Carolina Regional Housing
Authority, New River Apartments
Jacksonville, Series 1994,
8.250% 09/01/14 240 243
Raleigh Housing Authority,
Cedar Point Apartments,
Series 1999 A,
5.875% 05/01/30 500 447
State Housing Finance Agency,
Series F,
6.600% 07/01/17 $ 1,340 $ 1,387
-------
2,077
-------
SINGLE-FAMILY - 4.9%
State Housing Finance Agency:
Series W,
6.450% 09/01/14 430 437
Series KK,
5.500% 03/01/09 305 304
Series 1998,
5.250% 03/01/17 750 741
-------
1,482
-------
OTHER - 19.3%
REFUNDED/ESCROWED (b)
Cumberland County,
Civic Center Project,
Series 1995 A,
6.400% 12/01/24 (c) 1,000 1,078
Eastern Municipal Power Agency:
Series 1987 A,
4.500% 01/01/24 1,750 1,436
Series 1991 A,
6.500% 01/01/18 (c) 1,500 1,609
Lincoln County,
Lincoln County Hospital,
9.000% 05/01/07 235 263
State Municipal Power Agency,
Catawba No. 1,
Series 1990,
5.500% 01/01/13 1,000 998
Wake County,
Series 1993,
5.125% 10/01/13 500 479
-------
5,863
-------
TAX-BACKED - 29.7%
LOCAL APPROPRIATED - 19.3%
Chapel Hill,
Parking Facilities,
Series 1994,
6.450% 12/01/23 500 507
Charlotte:
Charlotte-Mecklenburg Law Project,
Series 1993 B,
5.375% 06/01/13 500 482
Cityfair Parking Facility,
Series 1994 A,
6.125% 06/01/10 430 445
Cumberland County,
Civic Center Project,
Series 1998,
5.000% 12/01/18 1,000 863
Durham County
Hospital & Office Facilities:
Series 1994,
6.000% 05/01/14 (c) 1,000 1,044
Series 1997,
5.000% 05/01/14 500 454
</TABLE>
5
<PAGE> 8
INVESTMENT PORTFOLIO (CONTINUED)
January 31, 2000
(In thousands)
<TABLE>
<CAPTION>
MUNICIPAL BONDS (CONTINUED) PAR VALUE
- --------------------------- --- -----
<S> <C> <C>
Harnett County,
Harnett County Projects,
Series 1994,
6.400% 12/01/14 $ 250 $ 263
Randolph County,
Randolph County Project,
Series 1995,
5.300% 06/01/15 500 465
Rowan County,
Justice Center Project,
Series 1992,
6.250% 12/01/07 500 524
Sampson Area,
Series 1999,
4.750% 06/01/24 1,000 802
-------
5,849
-------
LOCAL GENERAL OBLIGATIONS - 2.8%
Mecklenburg County,
Series 1998 B,
4.500% 02/01/16 1,000 838
-------
STATE APPROPRIATED - 0.6%
PR Commonwealth of Puerto Rico,
Public Buildings Authority,
Series 1993 M,
5.700% 07/01/16 200 195
-------
STATE GENERAL OBLIGATIONS - 7.0%
PR Commonwealth of Puerto Rico,
Aqueduct & Sewer Authority:
Series 1995,
6.250% 07/01/12 1,000 1,057
Series 1996,
6.500% 07/01/14 1,000 1,076
-------
2,133
-------
TRANSPORTATION - 3.5%
AIR TRANSPORTATION
Charlotte,
USAir Inc.,
Series 1998,
5.600% 07/01/27 200 153
Series 1999, IFRN (variable rate),
8.295% 06/15/22 (d) 1,000 922
-------
1,075
-------
UTILITY - 11.1%
JOINT POWER AUTHORITY - 7.2%
Eastern Municipal Power Agency:
Series 1993 B,
6.000% 01/01/22 500 489
Series 1999 D,
6.700% 01/01/19 500 491
State Municipal Power Agency,
Catawba Electric No. 1,
Series 1998 A,
5.500% 01/01/15 1,250 1,204
-------
2,184
-------
MUNICIPAL ELECTRIC - 3.9%
University of North Carolina at
Chapel Hill:
(a) 08/01/13 $ 2,000 $ 913
Series 1997,
(a) 08/01/20 (c) 1,000 280
-------
1,193
-------
TOTAL MUNICIPAL BONDS (cost of $31,041) 29,805
-------
</TABLE>
<TABLE>
<CAPTION>
OPTIONS - 0.1% CONTRACTS
- -------------- ---------
<S> <C> <C>
June 2000 Treasury Bond Put,
Strike Price 86, expiration 06/16/00
(cost of $47) 53 22
-------
TOTAL INVESTMENTS - 98.2% (cost of $31,088) (e) 29,827
-------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM OBLIGATIONS - 1.0% PAR
- ----------------------------- ---
<S> <C> <C>
VARIABLE RATE DEMAND NOTES (f)
IL Naperville,
Series 1999,
3.300% 12/01/29 $ 100 100
TX Gulf Coast Waste Disposal Authority,
Monsanto Co.,
Series 1994,
3.450% 04/01/13 200 200
-------
TOTAL SHORT-TERM OBLIGATIONS 300
-------
OTHER ASSETS & LIABILITIES, NET - 0.8% 245
NET ASSETS - 100.0% $30,372
-------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
(a) Zero coupon bond.
(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, are being used to collateralize
open futures contracts.
(d) This is a restricted security which was acquired at a cost of $99. This
security represents 3.0% of the Fund's net assets at January 31, 2000.
(e) Cost for federal income tax purposes is the same.
(f) Variable rate demand notes are considered short-term obligations. Interest
rates change periodically on specified dates. This security is payable on
demand and is secured by either letters of credit or other credit support
agreements from banks. The rate listed is as of January 31, 2000.
Acronym Name
------- ----
IFRN Inverse Floating Rate Note
Short futures contracts open at January 31, 2000:
<TABLE>
<CAPTION>
Par value Unrealized
covered by Expiration appreciation
Type contracts month at 01/31/00
- ---- --------- ----- -----------
<S> <C> <C> <C>
Treasury Bond $1,000 March $20
</TABLE>
See notes to financial statements.
6
<PAGE> 9
STATEMENT OF ASSETS AND LIABILITIES
January 31, 2000
(In thousands except for per share amounts and footnotes)
<TABLE>
<S> <C> <C>
ASSETS
Investments at value (cost $31,088) $ 29,827
Short-term obligations 300
--------
30,127
Receivable for:
Interest $ 330
Fund shares sold 15
Variation margin on futures 1
Other 27 373
-------- --------
Total Assets 30,500
LIABILITIES
Payable for:
Fund shares repurchased 61
Distributions 40
Accrued :
Management fee 13
Bookkeeping fee 2
Transfer agent fee 3
Deferred Trustees fees 3
Other 6
--------
Total Liabilities 128
--------
Net Assets $ 30,372
--------
NET ASSETS
Net asset value & redemption price per share --
Class A ($15,746/2,313) $ 6.81 (a)
--------
Maximum offering price per share --
Class A ($6.81/0.9525) $ 7.15 (b)
--------
Net asset value & offering price per share --
Class B ($13,932/2,046) $ 6.81 (a)
--------
Net asset value & offering price per share --
Class C ($694/102) $ 6.81 (a)
--------
COMPOSITION OF NET ASSETS
Capital paid in $ 32,646
Overdistributed net investment income (29)
Accumulated net realized loss (1,004)
Net unrealized appreciation (depreciation) on:
Investments (1,261)
Open futures contracts 20
--------
$ 30,372
--------
</TABLE>
(a) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
STATEMENT OF OPERATIONS
For the Year Ended January 31, 2000
(In thousands)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest $ 1,831
EXPENSES
Management fee $ 166
Service fee 60
Distribution fee -- Class B 118
Distribution fee -- Class C 5
Transfer agent fee 51
Bookkeeping fee 27
Trustees fee 8
Audit fee 18
Legal fee 6
Custodian fee 2
Registration fee 17
Reports to shareholders 11
Other 4
--------
Total expenses 493
Fees waived by the Distributor -- Class C (2)
Custodian credits earned (2) 489
-------- --------
Net Investment Income 1,342
--------
Net Realized & Unrealized Gain (Loss)
on Portfolio Positions
Net realized gain (loss) on:
Investments (278)
Closed futures contracts 20
Net Realized Loss -------- (258)
Net change in unrealized appreciation/depreciation
during the period on:
Investments (3,425)
Open futures contracts 4
--------
Net Change in Unrealized Appreciation/
Depreciation (3,421)
--------
Net Loss (3,679)
--------
DECREASE IN NET ASSETS FROM OPERATIONS $ (2,337)
--------
</TABLE>
See notes to financial statements.
7
<PAGE> 10
STATEMENT OF CHANGES IN NET ASSETS
(In thousands)
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-----------------------
INCREASE (DECREASE) IN NET ASSETS 2000 1999
---- ----
<S> <C> <C>
OPERATIONS:
Net investment income $ 1,342 $ 1,389
Net realized gain (loss) (258) 569
Net change in unrealized appreciation/depreciation (3,421) 185
-------- --------
Net Increase (Decrease) from Operations (2,337) 2,143
DISTRIBUTIONS:
From net investment income -- Class A (736) (753)
In excess of net investment income -- Class A -- (18)
From net investment income -- Class B (575) (661)
In excess of net investment income -- Class B -- (16)
From net investment income -- Class C (30) (10)
In excess of net investment income -- Class C -- (a)
-------- --------
(3,678) 685
-------- --------
FUND SHARE TRANSACTIONS:
Receipts for shares sold -- Class A 3,670 1,709
Value of distributions reinvested -- Class A 442 459
Cost of shares repurchased -- Class A (2,931) (2,497)
-------- --------
1,181 (329)
-------- --------
Receipts for shares sold -- Class B 1,441 1,309
Value of distributions reinvested -- Class B 290 352
Cost of shares repurchased -- Class B (3,454) (1,968)
-------- --------
(1,723) (307)
-------- --------
Receipts for shares sold -- Class C 411 369
Value of distributions reinvested -- Class C 23 9
Cost of shares repurchased -- Class C (160) (56)
-------- --------
274 322
-------- --------
Net Decrease from Fund Share Transactions (268) (314)
-------- --------
Total Increase (Decrease) (3,946) 371
NET ASSETS
Beginning of period 34,318 33,947
-------- --------
End of period (net of overdistributed net investment income
of $29 and $29, respectively) $ 30,372 $ 34,318
======== ========
NUMBER OF FUND SHARES
Sold -- Class A 501 228
Issued for distributions reinvested -- Class A 61 61
Repurchased -- Class A (409) (334)
-------- --------
153 (45)
-------- --------
Sold -- Class B 201 175
Issued for distributions reinvested -- Class B 40 47
Repurchased -- Class B (481) (265)
-------- --------
(240) (43)
-------- --------
Sold -- Class C 55 49
Issued for distributions reinvested -- Class C 3 1
Repurchased -- Class C (22) (7)
-------- --------
36 43
-------- --------
</TABLE>
(a) Rounds to less than one.
8 See notes to financial statements.
<PAGE> 11
NOTES TO FINANCIAL STATEMENTS
January 31, 2000
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION:
Colonial North Carolina 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
North Carolina state personal income tax and opportunities for long-term
appreciation from a portfolio primarily invested in investment grade municipal
bonds. The Fund may issue an unlimited number of shares. The Fund offers three
classes of shares: Class A, Class B and Class C. Class A shares are sold with a
front-end sales charge. A 1.00% contingent deferred sales charge is assessed on
redemptions made within eighteen months on an original purchase of $1 million to
$5 million. Class B shares are subject to an annual distribution fee and a
contingent deferred sales charge. Class B shares will convert to Class A shares
as follows:
<TABLE>
<CAPTION>
CONVERTS TO
ORIGINAL PURCHASE CLASS A SHARES
----------------- --------------
<S> <C>
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
</TABLE>
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 (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
9
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000
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 the Fund's pro-rata portion of the combined average net
assets of the funds constituting Trust V as follows:
<TABLE>
<CAPTION>
AVERAGE NET ASSETS ANNUAL FEE RATE
------------------ ---------------
<S> <C>
First $2 billion 0.50%
Over $2 billion 0.45%
</TABLE>
BOOKKEEPING FEE:
The Advisor provides bookkeeping and pricing services for a monthly fee equal to
$27,000 annually plus 0.035% annually 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 $7,395 on sales of the Fund's Class A shares and received contingent deferred
sales charges (CDSC) of none, $31,007 and $927 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% 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:
<TABLE>
<CAPTION>
VALUATION OF SHARES ANNUAL
OUTSTANDING ON THE 20TH OF FEE
EACH MONTH WHICH WERE ISSUED RATE
---------------------------- ----
<S> <C>
Prior to November 30, 1994 0.10%
On or after December 1, 1994 0.25%
</TABLE>
The CDSC and the fees received from the 12b-1 plan are used principally as
repayment to the Distributor for amounts paid by the Distributor to dealers who
sold such shares.
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 net assets.
The Fund has an agreement with its custodian bank under which $2,064 of
custodian fees were reduced by balance credits applied during the year ended
January 31, 2000. The Fund could have reinvested 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 an agreement.
NOTE 3. PORTFOLIO INFORMATION
INVESTMENT ACTIVITY:
For the year ended January 31, 2000, purchases and sales of investments, other
than short-term obligations were $10,338,718 and $9,726,282, respectively.
Unrealized appreciation (depreciation) at January 31, 2000, based on cost of
investments for both financial statement and federal income tax purposes was
approximately:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 385,000
Gross unrealized depreciation (1,646,000)
-----------
Net unrealized depreciation $(1,261,000)
===========
</TABLE>
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:
<TABLE>
<CAPTION>
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
---------- ------------
<S> <C>
2004 $356,000
2005 124,000
2007 293,000
--------
$773,000
========
</TABLE>
10
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000
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 may
involve amounts exceeding the amount recognized in the Fund's Statement of
Assets and Liabilities at any given time.
NOTE 4. LINE OF CREDIT
The Fund may borrow up to 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.
11
<PAGE> 14
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 $ 7.600 $ 7.600 $ 7.600
----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.318 0.264 0.285(b)
Net realized and unrealized loss (0.790) (0.790) (0.790)
----------- ----------- -----------
Total from Investment Operations (0.472) (0.526) (0.505)
----------- ----------- -----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.318) (0.264) (0.285)
----------- ----------- -----------
Net asset value --
End of period $ 6.810 $ 6.810 $ 6.810
=========== =========== ===========
Total return (c) (6.33)% (7.03)% (6.75)%(d)
=========== =========== ===========
RATIOS TO AVERAGE NET ASSETS
Expenses (e) 1.11% 1.86% 1.56%(b)
Net investment income (e) 4.41% 3.66% 3.96%(b)
Portfolio turnover 30% 30% 30%
Net assets at end of period (000) $ 15,746 $ 13,932 $ 694
</TABLE>
(a) The per share net investment income amounts do not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(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 charge.
(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 an impact of 0.01% and $0.001 per share.
2000 FEDERAL TAX INFORMATION (UNAUDITED)
All of the income distributions will be treated as exempt income for federal
income tax purposes.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1999
---------------------------
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.450 $ 7.450 $ 7.450
------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.342 0.285 0.307(b)
Net realized and unrealized gain 0.164 0.164 0.164
------- ------- -------
Total from Investment Operations 0.506 0.449 0.471
------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.348) (0.292) (0.314)
In excess of net investment income (0.008) (0.007) (0.007)
------- ------- -------
Total Distributions Declared to Shareholders (0.356) (0.299) (0.321)
------- ------- -------
Net asset value --
End of period $ 7.600 $ 7.600 $ 7.600
======= ======= =======
Total return (c) (d) 6.98% 6.17% 6.49%
======= ======= =======
RATIOS TO AVERAGE NET ASSETS
Expenses (e) 0.81% 1.56% 1.26%(b)
Net investment income (e) 4.55% 3.80% 4.10%(b)
Fees and expenses waived or borne by the Advisor (e) 0.29% 0.29% 0.29%
Portfolio turnover 26% 26% 26%
Net assets at end of period (000) $16,426 $17,387 $ 505
(a) Net of fees and expenses waived or borne by the Advisor which amounted to: $ 0.022 $ 0.022 $ 0.022
</TABLE>
(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 charge.
(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 $0.001 per share.
12
<PAGE> 15
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
--------------------------------------------------------------------------------
1998 1997 1996
----------------------------- ------------------ ------------------
CLASS A CLASS B CLASS C (b) CLASS A CLASS B CLASS A CLASS B
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.120 $ 7.120 $ 7.350 $ 7.270 $ 7.270 $ 6.680 $ 6.680
------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.373 0.319 0.168(c) 0.376 0.322 0.386 0.334
Net realized and unrealized gain (loss) 0.327 0.327 0.100 (0.150) (0.150) 0.588 0.588
------- ------- ------- ------- ------- ------- -------
Total from Investment Operations 0.700 0.646 0.268 0.226 0.172 0.974 0.922
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.370) (0.316) (0.168) (0.376) (0.322) (0.384) (0.332)
------- ------- ------- ------- ------- ------- -------
Net Asset Value --
End of Period $ 7.450 $ 7.450 $ 7.450 $ 7.120 $ 7.120 $ 7.270 $ 7.270
======= ======= ======= ======= ======= ======= =======
Total return (d) (e) 10.10% 9.28% 3.69%(f) 3.29% 2.51% 14.91% 14.07%
======= ======= ======= ======= ======= ======= =======
RATIOS TO AVERAGE NET ASSETS:
Expenses (g) 0.49% 1.24% 0.96%(c)(h) 0.45% 1.20% 0.33% 1.08%
Net investment income (g) 5.11% 4.36% 4.55%(c)(h) 5.29% 4.54% 5.47% 4.72%
Fees waived or borne by the Advisor (g) 0.64% 0.64% 0.63%(h) 0.66% 0.66% 0.76% 0.76%
Portfolio turnover 23% 23% 23% 38% 38% 34% 34%
Net assets at end of period (000) $16,425 $17,348 $ 174 $16,522 $17,427 $15,813 $18,593
(a) Net of fees and expenses waived or borne
by the Advisor which amounted to: $ 0.047 $ 0.047 $ 0.047 $ 0.047 $ 0.047 $ 0.053 $ 0.053
</TABLE>
(b) Class C shares were initially offered on August 1, 1997. Per share amounts
reflect activity from that date.
(c) Net of fees waived by 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 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.
13
<PAGE> 16
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE TRUSTEES OF LIBERTY FUNDS TRUST V AND THE SHAREHOLDERS OF COLONIAL NORTH
CAROLINA TAX-EXEMPT FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Colonial North Carolina Tax-Exempt
Fund (the "Fund") (a series of Liberty Funds Trust V, formerly Colonial Trust V)
at January 31, 2000, the results of its operations, the changes in its net
assets and the financial highlights for the periods indicated, in conformity
with accounting principles generally accepted in the United States. These
financial statements and the financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with auditing standards generally accepted in the United States which require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of portfolio positions at January 31, 2000 by correspondence with the custodian
and brokers, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
March 10, 2000
14
<PAGE> 17
TRUSTEES & TRANSFER AGENT
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
JOHN V. CARBERRY
Senior Vice President of Liberty Financial Companies, Inc. (formerly Managing
Director, Salomon Brothers)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President - Operations, The Rockport
Company)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
SALVATORE MACERA
Private Investor (formerly Executive Vice President of Itek Corp. and President
of Itek Optical & Electronic Industries, Inc.)
WILLIAM E. MAYER
Partner, Development Capital, LLC (formerly Dean, College of Business and
Management, University of Maryland; Dean, Simon Graduate School of Business,
University of Rochester; Chairman and Chief Executive Officer, CS First Boston
Merchant Bank; and President and Chief Executive Officer, The First Boston
Corporation)
JAMES L. MOODY, JR.
Retired (formerly Chairman of the Board, Chief Executive Officer and Director,
Hannaford Bros. Co.)
JOHN J. NEUHAUSER
Academic Vice President and Dean of Faculties, Boston College (formerly Dean,
Boston College School of Management)
THOMAS E. STITZEL
Professor of Finance, College of Business, Boise State University; Business
Consultant and Author
ROBERT L. SULLIVAN
Retired Partner, KPMG LLP (formerly Management Consultant, Saatchi and Saatchi
Consulting Ltd. and Principal and International Practice Director, Management
Consulting, Peat Marwick Main & Co.)
ANNE-LEE VERVILLE
Consultant (formerly General Manager, Global Education Industry, and President,
Applications Solutions Division, IBM Corporation)
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial North Carolina 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 North Carolina
Tax-Exempt Fund. This report may also be used as sales literature when preceded
or accompanied by the current prospectus which provides details of sales
charges, investment objectives and operating policies of the Fund and with the
most recent copy of the Liberty Funds Distributor, Inc. Performance Update.
ANNUAL REPORT:
COLONIAL NORTH CAROLINA TAX-EXEMPT FUND
<PAGE> 18
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Distributor, Inc.
BEFORE YOU INVEST, CONSULT YOUR FINANCIAL ADVISOR.
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NORTH CAROLINA TAX-EXEMPT FUND ANNUAL REPORT
[LIBERTY FUNDS LOGO]
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