<PAGE>
-------------------------------------------------------
LIBERTY MASSACHUSETTS TAX-EXEMPT FUND SEMIANNUAL REPORT
-------------------------------------------------------
July 31, 2000
[graphic omitted]
<PAGE>
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
You may have noticed that your Fund has a new name. As of July 14, the names of
our funds were changed to include Liberty. Rest assured, the investment
objectives and strategies employed by the Fund's managers are not affected by
this name change. We believe the new name better reflects that your Fund is part
of Liberty Funds, a diverse family of funds representing a wide selection of
investment styles and specialized money management. The goal of all Liberty
funds is to help you reach for financial freedom -- however you define it.
Although the municipal bond markets exhibited considerable volatility during
the six months ended July 31, 2000, the overall result was positive. As the
Federal Reserve (the Fed) repeatedly raised key short-term interest rates -- by
0.25% in both February and March and by 0.50% in May -- two things became clear.
First, the Fed was concerned that the rapidly expanding U.S. economy could
trigger higher rates of inflation; and second, the Fed was determined to keep
inflation firmly in hand.
At the beginning of the period, longer-term municipal bond prices rose. Prices
then fell as interest rates rose. However, the Fed's persistence -- coupled with
indications by the second quarter of the calendar year that the economy may be
slowing -- appears to have convinced investors that inflation will not become a
major obstacle to the bond market in the foreseeable future. Municipal bond
prices rallied in the final two months of the period.
As always, thank you for choosing Liberty Massachusetts Tax-Exempt Fund and for
giving us the opportunity to serve your investment needs.
Respectfully,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
September 11, 2000
---------------------------
Not FDIC May Lose Value
Insured No Bank Guarantee
---------------------------
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 POSITIVE RESULTS FOR MUNICIPAL BONDS WERE BOLSTERED BY RESTRICTED SUPPLY
Due partly to high tax revenues and budget surpluses, state and local
governments issued fewer municipal bonds during the first six months of
calendar year 2000. New bond issues were 22% below the 1999 level, and
refundings of existing bonds declined nearly 70%. At the same time, higher
yields prompted an increase in demand for municipal bonds. The combination
of reduced supply and increased demand helped to keep prices for municipal
bonds higher than they might otherwise have been.
o THE MUNICIPAL BOND YIELD CURVE FLATTENED DURING THE SIX-MONTH PERIOD
Between February and July, yields for short-term municipal bonds declined
slightly (0.10% to 0.20%). Meanwhile, rates for intermediate- and long-term
municipals fell by as much as 0.54% as investors responded to early signs
that the U.S. economy may be slowing and that inflation may not become a
serious problem down the road. As yields fell, bond prices rose, and the
gains were largest for bonds in the 25- to 30- year maturity range.
MUNICIPAL VS. TREASURY BOND PERFORMANCE 1/31/00 -- 7/31/00
Lehman Brothers Salomon 30-Year
Municipal Bond Index Treasury Bond Index
-------------------- -------------------
January 31, 2000 0.00% 0.00%
February 29, 2000 1.16 3.70
March 31, 2000 3.37 8.56
April 30, 2000 2.76 7.23
May 31, 2000 2.22 7.02
June 30, 2000 4.93 9.36
July 31, 2000 6.40 11.48
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.
Past performance is no guarantee of future results.
NET ASSET VALUE PER SHARE AS OF 7/31/00
Class A $7.47
-------------------------
Class B $7.47
-------------------------
Class C $7.47
-------------------------
DISTRIBUTIONS DECLARED FROM 2/1/00 TO 7/31/00
Class A $0.189
-------------------------
Class B $0.162
-------------------------
Class C $0.173
-------------------------
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.
TOP FIVE SECTORS
7/31/00 VS. 1/31/00
FUND AS OF 7/31/00 FUND AS OF 1/31/00
STATE GENERAL OBLIGATIONS 17.1% 17.2%
WATER & SEWER 16.9% 15.5%
HOSPITAL 11.0% 9.9%
REFUNDED/ESCROW 10.9% 15.0%
EDUCATION 9.8% 7.8%
Sector breakdowns are calculated as a percentage of net assets. Because the Fund
is actively managed, there can be no guarantee the Fund will continue to
maintain these sector breakdowns in the future.
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT
--------------------------------------------------------------------------------
SEC YIELDS ON 7/31/00
Class A 4.41%
-------------------------
Class B 3.86%
-------------------------
Class C 4.19%
-------------------------
The 30-day SEC yields reflect 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 4.39%for Class A shares, 3.85% for
Class B shares, and 3.89% for Class C shares.
TAXABLE-EQUIVALENT SEC YIELDS ON 7/31/00
Class A 7.76%
-------------------------
Class B 6.80%
-------------------------
Class C 7.38%
-------------------------
Taxable-equivalent SEC yields are based on the maximum effective combined 43.2%
federal and state income tax rate. This tax rate does not reflect the phaseout
of exemptions or the reduction of otherwise allowable deductions which occurs
when Adjusted Gross Income exceeds certain levels.
BOUGHT
--------------------------------------------------------------------------------
We purchased MBTA General Transportation bonds due in 2021 (0.5% of net assets).
With a coupon of 4.75%, which was below prevailing yields, these insured bonds
were selling at a discount. If interest rates and bond yields decline, these
lower-coupon bonds would become relatively more valuable and we would expect
them to appreciate noticeably.
RISING LONG-TERM BOND PRICES CONTRIBUTED TO MODEST BUT SOLID GAINS FOR THE FUND
Against a backdrop of falling yields and rising prices for intermediate- and
long-term municipal bonds, Class A shares of Liberty Massachusetts Tax-Exempt
Fund posted a total return of 6.74% without a sales charge for the six months
ended July 31, 2000.
FUND SHIFTED EMPHASIS TO BETTER LONG-TERM POSITIONING
At the beginning of the period, the Fund was invested primarily in bonds that do
well during periods of declining interest rates -- that is, bonds in the 15- to
25-year maturity range, bonds with long-term call protection and deep-discount
securities. However, higher-than-anticipated economic growth and fears of more
rapid inflation sent interest rates higher for part of the six months. To help
protect the Fund from these near-term interest rate increases, we adopted
temporary defensive measures while keeping the bulk of the portfolio positioned
for an environment of slower economic growth, low rates of inflation and lower
interest rates.
Later in the period, we were able to reduce these defensive measures and refocus
our efforts on maintaining a portfolio that could prosper in a falling interest
rate environment. More specifically, we sold prerefunded bonds, short-maturity
issues and bonds with shorter call protection. Such bonds generally do not
appreciate as greatly as other bonds when yields are falling. We favored for
purchase a variety of bonds in the 15- to 25-year maturity range, bonds with 10
or more years of call protection (i.e., securities that can be called for
redemption by the issuers not sooner than 10 years from date of issue) and
noncallable bonds, to "lock in" what we believe will be viewed as attractive
yields.
MASSACHUSETTS' ECONOMY IS EVOLVING
While the economy in Massachusetts is expanding at approximately the national
rate, it has also become more diversified. Manufacturing, financial services and
health care, while still important, have become less dominant as
technology-related industries have moved into the state. With diversification
has come a drop in unemployment to less than 3%, a decline in office vacancy
levels and a rise in housing prices. Growth in the Internet, software
development and biotech industries is expected to be the primary source of
economic expansion in the state for the foreseeable future.
<PAGE>
--------------------------------------------------------------------------------
PORTFOLIO MANAGER'S REPORT (continued)
--------------------------------------------------------------------------------
SIGNS OF A POSITIVE ENVIRONMENT FOR BONDS ARE GROWING
Our outlook for the municipal bond market is has improved considerably. As the
six-month period came to a close, we had already seen the first signs of more
temperate U.S. economic growth, including a reduction in new housing starts and
softening of retail sales. Slower growth could set the stage for lower interest
rates in 12 to 15 months. The Fund is well positioned should that occur. In
addition to a sizable investment in long-term and call-protected issues, the
Fund owns zero coupon and discount bonds that may reap a larger-than-average
benefit should interest rates fall.
We expect the economy in Massachusetts to keep pace with the nation as a whole
through the remainder of 2000. However, we should point out that Massachusetts
does face some potential challenges, including an increased funding burden for
the "Big Dig," large future tax cuts and change or consolidation in some of its
leading industries. Provided that these concerns are managed well, however, we
believe the state should be able to maintain a favorable credit rating.
/S/ Gary Swayze
GARY SWAYZE is portfolio manager of Liberty MassachusettsTax-Exempt Fund and is
a senior vice president of Colonial Management Associates, Inc.
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 man-agement specialists and credit analysts, identifies problems
and opportunities and reacts quickly to market changes.
QUALITY BREAKDOWNS AS OF 7/31/00
AAA 46.1%
--------------------------------
AA 14.3%
--------------------------------
A 16.5%
--------------------------------
BBB 10.4%
--------------------------------
BB 0.9%
--------------------------------
Nonrated 10.3%
--------------------------------
Cash Equivalents 1.5%
--------------------------------
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.
SOLD
--------------------------------------------------------------------------------
One goal during the period was to lengthen the Fund's duration, so we sold
Boston general obligation bonds due in 2012. Though they were insured and had a
6.50% coupon, they had been prerefunded to a call date sooner than the original
maturity. In a prerefunding, Treasury bonds are purchased and, when they mature,
the proceeds are used to pay the principal due on the original municipal bonds.
Prerefunding effectively shortens the risk period or maturity for the original
bonds to just a few years.
<PAGE>
--------------------------------------------------------------------------------
PERFORMANCE INFORMATION
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 7/31/00
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
--------------------------------------------------------------------------------
6 month (cumulative) 6.74% 1.67% 6.35% 1.35% 6.51% 5.51%
--------------------------------------------------------------------------------
1 year 3.28 (1.63) 2.51 (2.40) 2.82 1.84
--------------------------------------------------------------------------------
5 years 5.45 4.43 4.67 4.34 5.16 5.16
--------------------------------------------------------------------------------
10 years 6.63 6.12 5.99 5.99 6.48 6.48
--------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS AS OF 6/30/00
Share Class A B C
--------------------------------------------------------------------------------
Without With Without With Without With
Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge
--------------------------------------------------------------------------------
6 month (cumulative) 4.30% (0.65)% 3.89% (1.11)% 4.06% 3.06%
--------------------------------------------------------------------------------
1 year 2.07 (2.77) 1.32 (3.50) 1.62 0.66
--------------------------------------------------------------------------------
5 years 5.26 4.24 4.48 4.15 4.98 4.98
--------------------------------------------------------------------------------
10 years 6.66 6.14 6.02 6.02 6.51 6.51
--------------------------------------------------------------------------------
Past performance cannot predict future results. Returns and value of an
investment will vary resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. The "with sales charge" returns include
the maximum 4.75% sales charge for Class A shares, the appropriate Class B share
contingent deferred sales charge for the holding period after purchase as
follows: through first year -- 5%, second year -- 4%, third year -- 3%, fourth
year -- 3%, fifth year -- 2%, sixth year -- 1%, thereafter -- 0% and the Class C
share contingent deferred sales charge of 1% for the first year only.
Performance for different share classes will vary based on differences in sales
charges and fees associated with each class.
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.
Class B and C share (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing fund class) for
periods prior to the inception of the newer class shares. These Class A share
returns were not restated to reflect any expense differential (e.g., Rule 12b-1
fees) between Class A shares and the newer class shares. Had the expense
differential been reflected, the returns for the periods prior to the inception
of the newer classes would have been lower.
<PAGE>
--------------------------------------------------------------------------------
INVESTMENT PORTFOLIO
--------------------------------------------------------------------------------
July 31, 2000 (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
MUNICIPAL BONDS - 97.6% PAR VALUE
--------------------------------------------------------------------------------------------------
<S> <C> <C>
EDUCATION - 10.9%
EDUCATION - 9.8%
State College Building Authority,
Series 1999 A:
(a) 5/1/18 $ 7,760 $ 2,862
(a) 5/1/23 6,000 1,627
State Development Finance Agency:
Boston University, Series 1999 P,
6.000% 5/15/59 1,000 984
College of Pharmacy & Health Science,
Series 1999 B,
6.625% 7/1/20 765 780
State Health & Educational Facilities Authority:
Amherst College, Series E,
6.800% 11/1/21 500 524
Brandeis University, Series 1998 I,
4.750% 10/1/18 2,000 1,778
Harvard University, Series N,
6.250% 4/1/20 2,250 2,471
Learning Center for Deaf Children,
Series 1999 C,
6.100% 7/1/19 1,000 933
University of Massachusetts, Series 2000 A, 5.850% 10/1/20 2,000 2,042
State Industrial Finance Agency:
Cambridge Friends School, Series 1998,
5.750% 9/1/18 1,000 945
Concord Academy, Series 1997,
5.500% 9/1/27 1,250 1,153
St John's High School, Series 1998,
5.700% 6/1/18 1,000 955
Tabor Academy, Series 1998,
5.400% 12/1/18 1,000 920
PR Commonwealth of Puerto Rico, Industrial Tourist Educational,
Medical & Environmental Facilities, Ana G. Mendez University,
Series 1999,
5.375% 2/1/19 500 463
---------
18,437
---------
STUDENT LOAN - 1.1%
New England Educational Loan Marketing Corp. Student Loan,
Series 1993 A,
5.700% 7/1/05 2,000 2,066
---------
--------------------------------------------------------------------------------------------------
HEALTHCARE - 16.9%
CONGREGATE CARE RETIREMENT - 1.5%
Boston Industrial Development Finance Authority,
Springhouse, Inc., Series 1988,
5.875% 7/1/18 1,200 994
State Development Finance Agency,
Series 1999 A,
5.750% 7/1/23 1,000 812
State Industrial Finance Agency, Reeds Landing Project,
7.750% 10/1/00 1,000 1,001
---------
2,807
---------
HEALTH SERVICES - 0.8%
State Development Finance Agency, Boston Biomedical Research
Institute, Series 1999, 5.750% 2/1/29 1,750 1,501
---------
HOSPITALS - 11.0%
State Development Finance Agency, Massachusetts Biomedical
Research Corp., Series 2000 C,
6.250% 8/1/20 1,000 997
State Health & Educational Facilities Authority:
Berkshire Health System, Series C,
6.000% 10/1/20 1,000 873
Cape Cod Health Care, Series 1998 B,
5.450% 11/15/23 2,000 1,602
Children's Hospital, Series E,
6.200% 10/1/16 2,000 2,033
Dana-Farber Cancer Institute:
Series 1995 G1,
5.500% 12/1/27 5,000 4,350
Series C,
6.650% 12/1/15 250 254
Milford-Whitinsville Regional Hospital,
Series C,
5.375% 7/15/28 500 370
Newton-Wellesley Hospital, Series 1997 G, 6.000% 7/1/12 1,000 1,052
South Shore Hospital, Series 1999 F:
5.625% 7/1/19 1,000 903
5.750% 7/1/29 1,000 887
Winchester Hospital, Series 2000 E,
6.750% 7/1/30 1,000 978
Youville House Project,
5.950% 2/15/17 500 497
State Industrial Finance Agency, Massachusetts Biomedical:
Series A2,
(a) 8/1/08 2,000 1,321
Series 1989 A2,
(a) 8/1/10 8,000 4,710
---------
20,827
---------
INTERMEDIATE CARE FACILITIES - 0.4%
State Development Finance Agency, New England Center for Children,
Series 1998, 5.875% 11/1/18 1,000 823
---------
NURSING HOMES - 3.2%
MA Industrial Finance Agency, American Health Woodlawn Manor, Inc.:
Series B,
10.250% 7/1/27 295 274
Series A,
7.750% 1/1/28 1,405 1,222
State Health & Educational Facilities Authority, Deutsches Altenheim,
Inc.,
Series A,
7.700% 11/1/31 955 981
State Industrial Finance Agency:
Chelsea Jewish Nursing Home, Series A, 6.500% 8/1/37 1,000 1,026
GF/Massachusetts, Inc., Series 1994,
8.300% 7/1/23 2,350 2,470
---------
5,973
---------
--------------------------------------------------------------------------------------------------
HOUSING -- 3.5%
MULTI-FAMILY - 2.6%
Boston-Mount Pleasant Development Corp., Series A,
6.750% 8/1/23 1,570 1,621
State Housing Finance Agency:
Series 1990 A,
8.150% 2/1/29 135 138
Series 1992 C,
6.875% 11/15/11 3,000 3,147
---------
4,906
---------
SINGLE FAMILY - 0.9%
State Housing Finance Agency,
Series 1997 57,
5.600% 6/1/30 1,815 1,697
---------
--------------------------------------------------------------------------------------------------
INDUSTRIAL - 0.8%
MANUFACTURING
State Industrial Finance Agency,
House of Bianchi, Inc.,
8.750% 6/1/18 1,700 1,573
---------
--------------------------------------------------------------------------------------------------
OTHER - 12.1%
OTHER - 1.2%
Massachusetts Bay Transportation Authority Rail Connections:
6.000% 7/1/13 500 503
6.000% 7/1/14 500 500
State Development Agency Worcester Redevelopment,
6.000% 6/1/24 1,300 1,347
---------
2,350
---------
REFUNDED/ESCROWED (b) - 10.9%
Boston,
Series 1992 A,
6.500% 7/1/12 1,000 1,057
Holyoke School Project Loan,
7.650% 8/1/09 500 525
Plymouth County, Plymouth County Correctional Facility, Series A,
7.000% 4/1/22 1,000 1,071
State Health & Educational Facilities
Authority:
Charlton Memorial Hospital, Series B:
7.250% 7/1/07 500 522
7.250% 7/1/13 500 522
Community Colleges Program, Series A, 6.600% 10/1/22 1,250 1,329
Cooley Dickinson Hospital, Series A,
7.125% 11/15/18 1,770 1,901
Corp. for Independent Living,
8.100% 7/1/18 280 311
Lowell General Hospital, Series 1991 A, 8.400% 6/1/11 500 526
The Medical Center of Central Massachusetts, Series A,
7.000% 7/1/12 1,000 1,043
Worcester Polytechnic Institute,
Series E:
6.750% 9/1/11 500 532
6.625% 9/1/17 500 530
State Industrial Finance Agency:
Belmont Home Care, Series 1995 A,
9.270% 1/1/25 1,965 2,363
Mary Ann Morse Nursing Home, Inc.,
Series 1991 I,
10.000% 1/1/21 925 973
Seacoast Nursing Home, Series 1991,
9.625% 12/1/21 1,285 1,405
State Industrial Finance Agency,
Emerson College, Series 1991 A,
8.900% 1/1/18 500 519
State Industrial Finance Agency, Series 1990, 9.000% 10/1/20 465 477
State Turnpike Authority, Series 1993 A, 5.000% 1/1/20 5,000 4,687
University of Massachusetts Building Authority, Series 1976 A,
7.500% 5/1/11 85 96
VI Virgin Islands Public Finance Authority, Series 1992 A,
7.000% 10/1/02 250 265
---------
20,654
---------
--------------------------------------------------------------------------------------------------
OTHER REVENUE - 0.5%
RECREATION
Recreation YMCA,
Series 1998,
5.450% 11/1/28 1,000 863
---------
--------------------------------------------------------------------------------------------------
RESOURCE RECOVERY - 3.1%
DISPOSAL - 1.7%
Boston Industrial Development Finance Authority, Jet-A-Way, Inc.,
10.500% 1/1/11 200 209
Massachusetts Environmental Services,
Series 1994 A,
8.750% 11/1/21 (c) 2,935 1,468
State Industrial Finance Agency, Peabody Monofill Associates, Inc.,
Series 1995, 9.000% 9/1/05 1,540 1,605
---------
3,282
---------
RESOURCE RECOVERY - 1.4%
State Industrial Finance Agency,
Ogden Haverhill Project, Series 1998 B:
5.500% 12/1/19 1,000 854
5.600% 12/1/19 2,000 1,747
---------
2,601
---------
--------------------------------------------------------------------------------------------------
TAX-BACKED - 23.7%
LOCAL GENERAL OBLIGATIONS - 5.8%
Lowell,
8.400% 1/15/09 1,000 1,038
Malden,
Series 1998,
4.500% 10/1/18 (d) 5,410 4,621
Nantucket,
Series 1991,
6.800% 12/1/11 2,675 2,807
Southern Berkshire Regional School Project Loan,
7.000% 4/15/11 500 531
Swansea School Project Loan:
6.800% 1/15/09 250 263
6.800% 1/15/10 125 132
6.800% 1/15/11 210 221
Westford,
Series 2000,
5.250% 4/1/20 700 669
Weymouth,
Series 1992:
6.700% 6/15/09 200 212
6.700% 6/15/10 200 212
6.700% 6/15/11 155 164
6.700% 6/15/12 140 148
---------
11,018
---------
SPECIAL NON-PROPERTY TAX - 0.4%
PR Commonwealth of Puerto Rico Highway & Transportation Authority,
Series W,
5.500% 7/1/09 660 702
---------
STATE APPROPRIATED - 0.4%
Massachusetts Bay Transportation Authority, Series 1988,
7.750% 1/15/06 250 272
University of Massachusetts Building Authority, Series 1991 A,
7.200% 5/1/04 400 430
---------
702
---------
STATE GENERAL OBLIGATIONS - 17.1% Massachusetts Bay
Transportation Authority:
Series 1991 A,
7.000% 3/1/21 1,500 1,748
Series 1992 B,
6.200% 3/1/16 3,700 4,038
Series 1994 A:
7.000% 3/1/10 5,000 5,795
7.000% 3/1/11 4,270 4,957
7.000% 3/1/14 1,250 1,460
Series 1998,
4.750% 3/1/21 1,000 878
PR Commonwealth of Puerto Rico:
Series 1999,
5.250% 7/1/18 3,000 2,949
Series 1998,
4.500% 7/1/23 1,000 852
State College Building Authority,
Series 1994 A,
7.500% 5/1/14 1,825 2,214
State:
Series B,
7.000% 7/1/09 4,385 4,977
Series 1991 B,
6.500% 8/1/11 860 893
Series 1991 C,
6.500% 8/1/11 450 467
Series 1992 B,
6.500% 8/1/08 1,000 1,107
---------
32,335
---------
-------------------------------------------------------------------------------------------------------
TRANSPORTATION - 6.2%
AIR TRANSPORTATION - 0.8%
State Port Authority, US Airways, Inc.,
Series 1999,
6.000% 9/1/21 1,500 1,519
---------
AIRPORT - 2.2%
State Port Authority,
Series 1999:
7.389% 7/1/29 1,500 1,507
7.839% 7/1/29 (e) 2,500 2,573
---------
4,080
---------
TOLL FACILITIES - 2.3%
State Turnpike Authority,
Series 1999 A,
5.000% 1/1/39 5,000 4,387
---------
TRANSPORTATION - 0.9%
State,
Series 1998 B,
(a) 6/15/12 3,145 1,642
---------
--------------------------------------------------------------------------------------------------
UTILITY - 19.9%
INDEPENDENT POWER PRODUCER - 0.4%
PR Commonwealth of Puerto Rico Industrial, Educational, Medical &
Environmental Cogeneration Facilities, AES Project,
Series 2000,
6.625% 6/1/26 650 671
---------
INVESTOR OWNED - 0.8%
State Industrial Finance Agency, Nantucket Electric Co., Series 1996
A,
6.750% 7/1/05 1,400 1,512
---------
JOINT POWER AUTHORITY - 0.9%
State Municipal Wholesale Electric Co.,
Series 1994 A, IFRN (variable rate),
5.207% 7/1/16 2,000 1,763
---------
MUNICIPAL ELECTRIC - 0.9%
PR Commonwealth of Puerto Rico Electric Power Authority, Series 1995
Y,
7.000% 7/1/07 1,500 1,716
---------
WATER & SEWER - 16.9% Boston Water & Sewer Commission:
Series 1992 A,
5.750% 11/1/13 1,000 1,051
Series 1993 A,
5.250% 11/1/19 4,750 4,593
State Water Pollution Abatement Trust,
New Bedford Project:
Series 1996 A,
6.000% 2/1/06 220 234
Series 1998 A,
4.750% 2/1/21 1,500 1,314
Series 1999 A,
6.000% 8/1/17 2,445 2,615
State Water Resources Authority:
Series 1992 A:
6.500% 7/15/09 2,000 2,233
6.500% 7/15/19 5,000 5,597
Series 1993 C:
5.250% 12/1/15 2,750 2,735
5.250% 12/1/15 1,000 997
5.250% 12/1/20 2,595 2,461
Series 1995 B,
6.250% 12/1/13 5,000 5,531
Series 1998 B,
4.500% 8/1/22 3,000 2,502
---------
31,863
---------
TOTAL MUNICIPAL BONDS (cost of $181,453)(f) 184,270
---------
SHORT-TERM OBLIGATIONS - 1.5%
VARIABLE RATE DEMAND NOTES (g)
CA Newport Beach Hoag Hospital,
4.200% 10/1/22 100 100
IN Allen County,
Golden Years Homestead, Inc.,
Series 1996,
4.300% 8/1/21 800 800
IN State Health Facilities Financing Authority, Series 2000,
4.250% 1/12/20 200 200
MN Minneapolis,
Series 1994 A,
4.150% 12/1/05 1,690 1,690
---------
TOTAL SHORT-TERM OBLIGATIONS 2,790
---------
OTHER ASSETS & LIABILITIES, NET - 0.9% 1,736
---------
NET ASSETS - 100% $ 188,796
---------
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) This issuer is in default of certain debt covenants. Income is not being accrued.
(d) These securities, or a portion thereof, with a total market value of $642, are being used to
collateralize the open futures contracts listed below.
(e) This security is exempt from registration under Rule 144A of the Securities Act of 1933. This
security may be resold in transactions exempt from registration, normally to qualified
institutional buyers. At July 31, 2000, the value of this security amounted to $2,573 or 1.4%
of net assets.
(f) Cost for federal income tax purposes is the same.
(g) Variable rate demand notes are considered short-term obligations. Interest rates change
periodically on specified dates. These securities are payable on demand and are secured by
either letters of credit or other credit support agreements from banks. The rates listed are as
of July 31, 2000.
Long futures contracts open at July 31, 2000:
PAR VALUE UNREALIZED
COVERED BY EXPIRATION APPRECIATION
TYPE CONTRACTS MONTH AT 7/31/00
--------------------------------------------------------------------------------
Treasury Note $15,500 September 601
Municipal Bond 9,000 September 351
----
$953
----
ACRONYM NAME
------- ----
IFRN Inverse Floating Rate Note
</TABLE>
See notes to financial statements.
<PAGE>
-------------------------------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES
-------------------------------------------------------------------------------
July 31, 2000 (Unaudited)
(In thousands except for per share amounts and footnotes)
ASSETS
Investments at value (cost $181,453) $184,270
Short-term obligations 2,790
--------
187,060
Receivable for:
Interest $2,357
Fund shares sold 80
Investments sold 30
Expense reimbursement due from Advisor 7
Variation margin on futures contracts 8
Other 11 2,493
------ --------
Total Assets 189,553
LIABILITIES
Payable for:
Fund shares repurchased 320
Distributions 276
Accrued:
Management fee 78
Transfer agent fee 34
Bookkeeping fee 6
Deferred Trustees' fees 6
Other 37
------
Total Liabilities 757
--------
NET ASSETS $188,796
--------
Net asset value & redemption price per share --
Class A ($141,092/18,884) $ 7.47(a)
--------
Maximum offering price per share
-- Class A ($7.47/0.9525) $ 7.84(b)
--------
Net asset value & offering price per share --
Class B ($46,383/6,209) $ 7.47(a)
--------
Net asset value & offering price per share --
Class C ($1,321/177) $ 7.47(a)
--------
COMPOSITION OF NET ASSETS
Capital paid in $185,792
Overdistributed net investment income (335)
Accumulated net realized loss (431)
Net unrealized appreciation on:
Investments 2,817
Open futures contracts 953
--------
$188,796
--------
(a) Redemption price per share is equal to net asset value less any applicable
contingent deferred sales charge.
(b) On sales of $50,000 or more the offering price is reduced.
See notes to financial statements.
<PAGE>
-------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
-------------------------------------------------------------------------------
For the Six Months Ended July 31, 2000
(Unaudited)
(In thousands)
INVESTMENT INCOME
Interest $ 5,684
EXPENSES
Management fee $ 476
Service fee 170
Distribution fee -- Class B 181
Distribution fee -- Class C 4
Transfer agent fee 150
Bookkeeping fee 38
Trustees' fees 7
Audit fee 22
Legal fee 1
Registration fee 13
Reports to shareholders 11
Other 12
------
1,085
Fees waived by the Advisor (12)
Fees waived by the Distributor --
Class C (2)
Custodian credits earned (3) 1,068
------ -------
Net Investment Income 4,616
-------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments 280
Closed futures contracts (77)
------
Net Realized Gain 203
Net change in unrealized appreciation/
depreciation during the period on:
Investments 6,426
Open futures contracts 953
------
Net Change in Unrealized Appreciation/Depreciation 7,379
-------
Net Gain 7,582
-------
Increase in Net Assets from Operations $12,198
-------
See notes to financial statements.
<PAGE>
-------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
(In thousands)
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
JULY 31, JANUARY 31,
INCREASE (DECREASE) IN NET ASSETS 2000 2000
-------------------------------------------------------------------------------
OPERATIONS
Net investment income $ 4,616 $ 10,212
Net realized gain 203 579
Net change unrealized appreciation/depreciation 7,379 (24,790)
--------- ---------
Net Increase (Decrease) from Operations 12,198 (13,999)
DISTRIBUTIONS
From net investment income -- Class A (3,643) (7,830)
From net realized gains -- Class A -- (77)
In excess of net realized gains -- Class A -- (891)
From net investment income -- Class B (1,064) (2,301)
From net realized gains -- Class B -- (27)
In excess of net realized gains -- Class B -- (313)
From net investment income -- Class C (27) (45)
From net realized gains -- Class C -- (1)
In excess of net realized gains -- Class C -- (6)
--------- ---------
7,464 (25,490)
--------- ---------
FUND SHARE TRANSACTIONS
Receipts for shares sold -- Class A 3,507 10,861
Value of distributions reinvested -- Class A 1,961 4,946
Cost of shares repurchased -- Class A (12,684) (34,850)
--------- ---------
(7,216) (19,043)
--------- ---------
Receipts for shares sold -- Class B 1,001 6,128
Value of distributions reinvested -- Class B 640 1,602
Cost of shares repurchased -- Class B (7,264) (10,833)
--------- ---------
(5,623) (3,103)
--------- ---------
Receipts for shares sold -- Class C 367 815
Value of distributions reinvested -- Class C 12 33
Cost of shares repurchased -- Class C (297) (238)
--------- ---------
82 610
--------- ---------
Net Decrease from Fund Share Transactions (12,757) (21,536)
--------- ---------
Total Decrease (5,293) (47,026)
NET ASSETS
Beginning of period 194,089 241,115
--------- ---------
End of period (net of overdistributed net investment
income of $335 and $217, respectively) $ 188,796 $ 194,089
--------- ---------
NUMBER OF FUND SHARES
Sold -- Class A 479 1,428
Issued for distributions reinvested -- Class A 267 645
Repurchased -- Class A (1,736) (4,604)
--------- ---------
(990) (2,531)
--------- ---------
Sold -- Class B 137 794
Issued for distributions reinvested -- Class B 87 209
Repurchased -- Class B (990) (1,444)
--------- ---------
(766) (441)
--------- ---------
Sold -- Class C 51 107
Issued for distributions reinvested -- Class C 2 4
Repurchased -- Class C (41) (33)
--------- ---------
12 78
--------- ---------
See notes to financial statements.
<PAGE>
-------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
-------------------------------------------------------------------------------
July 31, 2000 (Unaudited)
NOTE 1. INTERIM FINANCIAL STATEMENTS
In the opinion of management of Liberty Massachusetts Tax-Exempt Fund, (formerly
Colonial Massachusetts Tax-Exempt Fund) (the Fund), a series of Liberty Trust V,
the accompanying financial statements contain all normal and recurring
adjustments necessary for the fair presentation of the financial positions of
the Fund at July 31, 2000, and the results of its operations, the changes in its
net assets and the financial highlights for the six months then ended.
NOTE 2. ACCOUNTING POLICIES
ORGANIZATION
The Fund is a 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 to Class A shares purchased
without an initial sales charge on redemptions made within eighteen months on an
original purchase of $1 million to $25 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 in three, four, or eight years after purchase,
depending on the program under which shares were purchased. 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 and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
DETERMINATION OF CLASS NET ASSET VALUES AND
FINANCIAL HIGHLIGHTS
All income, expenses (other than 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 3. FEES AND COMPENSATION PAID TO AFFILIATES
MANAGEMENT FEE
Colonial Management Associates, Inc. (the Advisor) is the investment Advisor of
the Fund and furnishes accounting and other services and office facilities for a
monthly fee based on the Fund's pro-rata portion of the combined average net
assets of the funds constituting Trust V as follows:
AVERAGE NET ASSETS ANNUAL FEE RATE
------------------ ---------------
First $2 billion 0.50%
Over $2 billion 0.45%
BOOKKEEPING FEE
The Advisor provides bookkeeping and pricing services for a monthly fee equal to
$27,000 annually plus 0.035% 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 comprised of 0.07% annually of
the Fund's average net assets plus charges based on the number shareholder
accounts and transactions and receives reimbursement for certain out-of-pocket
expenses.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES Liberty Funds Distributor,
Inc. (the Distributor), a subsidiary of the Advisor, is the Fund's principal
underwriter. For the six months ended July 31, 2000, the Fund has been advised
that the Distributor retained net underwriting discounts of $4,346 on sales of
the Fund's Class A shares and received contingent deferred sales charges (CDSC)
of none, $42,426, and $1,587 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 monthly
service fee to the Distributor. The fee is calculated by adding (1) 0.10% of the
net assets attributable to shares issued prior to November 30, 1994 and (2)
0.25% on net assets attributable to shares issues thereafter. This arrangement
results in a rate of service fee payable by the Fund that is a blend between the
0.10% and 0.25% rates. For the six months ended July 31, 2000, the Fund's
service fee was 0.18% (annualized).
The plan also requires the payment of a monthly 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 a portion of the Class C distribution fee so that it will not
exceed 0.45% annually.
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 $2,907 of
custodian fees were reduced by balance credits applied during the six months
ended July 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 4. PORTFOLIO INFORMATION
INVESTMENT ACTIVITY
For the six months ended July 31, 2000, purchases and sales of investments,
other than short-term obligations were $11,614,379 and $24,577,375,
respectively.
Unrealized appreciation (depreciation) at July 31, 2000, based on cost of
investments for both financial statement and federal income tax purposes was:
Gross unrealized appreciation $ 8,553,221
Gross unrealized depreciation (5,736,365)
-----------
Net unrealized appreciation $ 2,816,856
-----------
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 CAPITAL LOSS
EXPIRATION 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 may
involve amounts exceeding the variation margin recognized in the Fund's
Statement of Assets and Liabilities at any given time.
NOTE 5. LINE OF CREDIT
The Fund may borrow up to 3313% 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 12 of 1%, (2) the lending bank's base rate or (3) IBOR offshore loan
rate plus 12 of 1%. There were no borrowings under the line of credit for the
six months ended July 31, 2000.
<PAGE>
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Selected data for a share of each class outstanding
throughout each period are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED JULY 31, 2000
----------------------------------------------------------
CLASS A CLASS B CLASS C
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.180 $ 7.180 $ 7.180
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net investment income (a)(c) 0.184 0.157 0.168(b)
Net realized and unrealized gain 0.295 0.295 0.295
-------- -------- --------
Total from Investment Operations 0.479 0.452 0.463
-------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS
From net investment income (0.189) (0.162) (0.173)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 7.470 $ 7.470 $ 7.470
-------- -------- --------
Total return (d)(e)(f) 6.74% 6.35% 6.51%
-------- -------- --------
RATIOS TO AVERAGE NET ASSETS
Expenses (g)(h) 0.93% 1.68% 1.38%(b)
Net investment income (g)(h) 5.04% 4.29% 4.59%(b)
Fees and expenses waived or borne by the Adviser (g)(h) 0.01% 0.01% 0.01%
Portfolio turnover (f) 6% 6% 6%
Net assets at end of period (000) $141,092 $46,383 $ 1,321
(a) Net of fees and expenses waived or borne by the Advisor
which amounted to: $ 0.000 $ 0.000 $ 0.000
(b) Net of fees waived by the Distributor which amounted to $0.011 per share and 0.30% (annualized).
(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) Not annualized.
(g) The benefits derived from custody credits and directed brokerage arrangements had no impact.
(h) Annualized.
<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>
<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>
TRUSTEES & TRANSFER AGENT
--------------------------------------------------------------------------------
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis & 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, Park Avenue Equity Partners (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)
JOSEPH R. PALOMBO
Chief Operations Officer, Mutual Funds, Liberty Financial Companies, Inc.,
Executive Vice President and Director of Colonial Management Associates, Inc.
and Executive Vice President and Chief Administrative Officer of Liberty Funds
Group LLC (formerly Vice President of Liberty Funds Group - Boston and Chief
Operating Officer, Putnam Mutual Funds)
THOMAS E. STITZEL
Business Consultant and Chartered Financial Analyst (formerly Professor of
Finance, College of Business, Boise State University)
ANNE-LEE VERVILLE
Consultant (formerly General Manager, Global Education Industry, and President,
Applications Solutions Division, IBM Corporation)
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IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Liberty 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 Liberty 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 Performance Update.
SEMIANNUAL REPORT:
LIBERTY MASSACHUSETTS TAX-EXEMPT FUND
<PAGE>
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CHOOSE LIBERTY
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BECAUSE NO SINGLE INVESTMENT MANAGER CAN BE ALL THINGS TO ALL INVESTORS.(SM)
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L I B E R T Y
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F U N D S
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ALL-STAR Institutional money management approach for individual investors.
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COLONIAL Fixed income and value style equity investing.
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CRABBE
HUSON A contrarian approach to fixed income and equity investing.
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NEWPORT A leader in international investing.(SM)
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STEIN ROE
ADVISOR Innovative solutions for growth and income investing.
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KEYPORT
[graphic A leading provider of innovative annuity products.
omitted]
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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.
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LIBERTY MASSACHUSETTS TAX-EXEMPT FUND SEMIANNUAL REPORT
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[Graphic
Omitted] L I B E R T Y
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F U N D S
ALL-STAR o COLONIAL o CRABBE HUSON o NEWPORT o STEIN ROE ADVISOR
Liberty Funds Distributor, Inc. (C)2000
One Financial Center, Boston, MA 02111-2621, 1-800-426-3750
www.libertyfunds.com
775-03/380C-0700 (9/00) 00/1534
