<PAGE> 1
COLONIAL MICHIGAN TAX-EXEMPT FUND ANNUAL REPORT
[GRAPHIC OF WHITE 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 down the economy and to address growing
fears of inflation.
A combination of stronger demand and reduced supply helped municipals lose less
value than their Treasury counterparts during the year. Investors were lured
back to the municipal market after a hiatus to capture the attractive higher
yields. Meanwhile, the supply of municipal bonds dwindled as issuers reduced
their refinancing activity in response to rising interest rates. Under these
circumstances, municipal bond investors were able to enjoy a tax-exempt yield
comparable 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 to focus on long-term
performance since it is a more accurate indicator of investment potential.
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 Michigan Tax-Exempt Fund and for
giving us the opportunity to serve your investment needs.
Sincerely,
/s/ Stephen E. Gibson
- ---------------------
Stephen E. Gibson
President
March 13, 2000
Not FDIC Insured
May Lose Value
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> 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 municipal notes outperformed long-term issues
later in the period. This was expected as bonds with shorter maturities are
less sensitive to rising interest rates.
MUNICIPAL VS. TREASURY BOND PERFORMANCE
2/1/99 - 1/31/00
[LINE GRAPH]
<TABLE>
<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 $6.57
CLASS B $6.57
CLASS C $6.57
</TABLE>
DISTRIBUTIONS DECLARED PER
SHARE FROM 2/1/99 TO 1/31/00
<TABLE>
<S> <C>
CLASS A $0.327
CLASS B $0.274
CLASS C $0.295
</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 4.44%
CLASS B 3.90%
CLASS C 4.20%
</TABLE>
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 3.90% for Class C shares.
TAXABLE-EQUIVALENT SEC YIELDS ON 1/31/00
<TABLE>
<S> <C>
CLASS A 7.69%
CLASS B 6.75%
CLASS C 7.27%
</TABLE>
Taxable-equivalent SEC yields are based on the combined maximum effective 42.3%
federal and state income tax rate. This tax rate does not reflect the phase out
of exemptions or the reduction of otherwise allowable deductions which occur
when Adjusted Gross Income exceeds certain levels.
1
<PAGE> 4
ANNUAL REPORT: COLONIAL MICHIGAN TAX-EXEMPT FUND
PORTFOLIO MANAGER'S REPORT
QUALITY BREAKDOWN AS OF 1/31/00
<TABLE>
<S> <C>
AAA 48.9%
AA 16.7%
A 18.1%
BBB 9.5%
BB 0.6%
Non-rated 4.2%
Cash equivalents 2.0%
</TABLE>
Quality breakdowns are calculated as a percentage of total investments,
including short-term obligations. Ratings shown in the quality breakdowns
represent the highest rating assigned to a particular bond by one of the
following respected rating agencies: Standard & Poor's Corporation, Moody's
Investors Service, Inc. or Fitch Investors Service, Inc.
Because the Fund is actively managed, there can be no guarantee the Fund will
continue to maintain these quality breakdowns in the future.
BOUGHT/SOLD
We sold certain Michigan school district bonds and purchased new bonds of other
school districts in order to take advantage higher yields on the new purchases.
School district bonds continue to draw our interest as general obligation bonds
have been performing better than revenue bonds. We also sold insured Puerto Rico
bonds, which were trading at expensive levels, and reinvested the proceeds in
Michigan school districts.
PERFORMANCE REFLECTED WEAK BOND MARKET
The Fund's Class A shares generated a return of negative 6.05%, without a sales
charge, for the 12 months ending January 31, 2000. Difficult conditions in the
fixed-income market led to much of the decline during the period. The Fund's
investments in more interest-rate sensitive securities hampered its performance.
FUND ADOPTED TAX-SWAPPING STRATEGY IN RESPONSE TO MARKET CONDITIONS
We found that the higher interest rate environment and weak bond market offered
an attractive opportunity to make trades for tax-swapping purposes. We did this
by selling bonds purchased during a lower-rate environment that were trading at
a loss to offset future capital gains in the portfolio. We used the proceeds to
buy higher-yielding bonds, boosting the Fund's tax-efficiency and yield. We also
shortened the Fund's duration throughout the year in anticipation of the
higher-rate environment. We reduced holdings in bonds with 25-30 year maturity
ranges, and invested in shorter duration bonds where we found more value.
BONDS ACROSS THE HOSPITAL SECTOR SUFFERED
The entire hospital sector suffered this year due to Medicare exposure and
increased competition across the sector. Bonds in the BBB-rated sector suffered
the most. This being said, our position in Kalamazoo Michigan Borgess Hospital
(4.6% of net assets) outperformed the market when it was refunded and escrowed
to maturity. When an issue is refunded, the original bonds are no longer secured
by the obligation or the revenue of the original issuer, but by the escrow fund.
The escrow fund is typically comprised of U.S. government securities.
ECONOMIC EXPANSION CONTINUES FOR MICHIGAN
The state of Michigan's economy continues to be positive with state unemployment
and poverty rates below the national averages. However, the extraordinary rate
of economic expansion the state enjoyed in recent years is starting to lose
momentum. The strongest evidence of this is in the manufacturing sector where a
tight labor market is restricting growth. Strong vehicle sales in recent months
have supported the strongest part of Michigan's economy, the automotive sector.
2
<PAGE> 5
PORTFOLIO MANAGER'S REPORT
AN OUTLOOK FOR IMPROVEMENT
The strength of the economy should support the state against any fallbacks in
the transportation industry. In addition, low unemployment, strong housing
increases and high per-capita income should continue to provide support.
We believe fixed-income market conditions will improve in the coming months and
that interest rates will reverse some of their increases of this fiscal year. In
anticipation of this, we sold some of the Fund's current-coupon callable bonds
and continue to buy non-callable and discount bonds, which we believe may
perform better as rates decrease.
/s/JOANNE COSTOPOULOS
JOANNE COSTOPOULOS is portfolio manager of Colonial Michigan 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
from time to time to mitigate the additional duration. The Advisor has set a
policy to invest no more than 15% of the Fund's total assets in inverse floating
rate obligations.
Tax-exempt investing offers current tax-free income, but also involves certain
risks. The value of the Fund will be affected by interest rate changes and the
creditworthiness of the issues held in the Fund. The Fund's management,
including risk management specialists and credit analysts, identifies problems
and opportunities and reacts quickly to market changes.
TOP FIVE SECTOR BREAKDOWNS
1/31/00 VS. 1/31/99
[BAR GRAPH]
<TABLE>
<CAPTION>
1/31/00 1/31/99
<S> <C> <C>
REFUNDED/ESCROWED 22.7% 13.2%
LOCAL GENERAL OBLIGATIONS 18.0% 18.1%
HOSPITAL 12.0% 15.7%
INVESTOR OWNED UTILITY 10.6% 9.4%
STATE APPROPRIATED 5.0% 4.3%
</TABLE>
Sector breakdowns are calculated as a percentage of total investments, including
short-term obligations.
Because the Fund is actively managed, there can be no guarantee the Fund will
continue to maintain this breakdown in the future.
3
<PAGE> 6
PERFORMANCE INFORMATION
PERFORMANCE OF A $10,000 INVESTMENT IN ALL SHARE CLASSES FROM 1/31/90 - 1/31/00
<TABLE>
<CAPTION>
WITHOUT WITH
SALES SALES
CHARGE CHARGE
<S> <C> <C>
CLASS A $17,828 $16,981
CLASS B $16,855 $16,855
CLASS C $17,626 $17,626
</TABLE>
PERFORMANCE OF A $10,000 INVESTMENT IN CLASS A SHARES FROM 1/31/90-1/31/00
[LINE GRAPH]
<TABLE>
<CAPTION>
WITHOUT SALES CHARGE WITH SALES CHARGE LEHMAN BROTHERS MUNICIPAL BOND INDEX
<S> <C> <C> <C>
1/31/90 10000 10000
2/28/90 10072 9594 10089
3/31/90 10082 9603 10092
4/30/90 10000 9525 10019
5/31/90 10213 9728 10238
6/30/90 10270 9782 10328
7/31/90 10297 9808 10480
8/31/90 10228 9742 10328
9/30/90 10190 9707 10334
10/31/90 10379 9886 10522
11/30/90 10535 10035 10734
12/28/90 10544 10043 10780
1/31/91 10799 10286 10924
2/28/91 10775 10264 11019
3/28/91 10885 10368 11022
4/30/91 11028 10504 11170
5/31/91 10988 10466 11270
6/30/91 11048 10523 11258
7/31/91 11210 10678 11396
8/30/91 11322 10784 11546
9/30/91 11469 10924 11696
10/31/91 11530 10982 11801
11/29/91 11540 10993 11834
12/27/91 11740 11182 12089
1/31/92 11766 11207 12117
2/28/92 11792 11232 12120
3/31/92 11854 11291 12125
4/30/92 11916 11350 12233
5/31/92 12031 11460 12377
6/30/92 12309 11724 12585
7/31/92 12533 11938 12963
8/31/92 12524 11929 12837
9/30/92 12515 11921 12921
10/31/92 12451 11860 12794
11/30/92 12644 12043 13023
12/24/92 12814 12205 13156
1/31/93 13023 12404 13309
2/28/93 13435 12798 13790
3/31/93 13236 12607 13644
4/30/93 13409 12772 13782
5/31/93 13414 12777 13859
6/30/93 13608 12962 14091
7/31/93 13632 12984 14109
8/31/93 14019 13353 14402
9/30/93 14043 13376 14567
10/31/93 13855 13197 14594
11/30/93 14092 13423 14466
12/29/93 14253 13576 14771
1/31/94 14297 13618 14939
2/28/94 13752 13099 14552
3/31/94 13382 12746 13960
4/30/94 13387 12751 14079
5/31/94 13850 13192 14201
6/30/94 13595 12949 14115
7/31/94 13801 13145 14373
8/31/94 13887 13227 14423
9/30/94 13547 12904 14211
10/31/94 12940 12325 13958
11/30/94 13212 12584 13706
12/28/94 13405 12768 14007
1/31/95 14095 13425 14408
2/28/95 14204 13529 14827
3/31/95 14503 13814 14998
4/30/95 14319 13639 15016
5/31/95 14874 14167 15495
6/30/95 14582 13889 15360
7/31/95 14309 13629 15506
8/31/95 14699 14001 15703
9/30/95 14853 14147 15802
10/31/95 15138 14419 16031
11/30/95 15577 14837 16297
12/27/95 15578 14838 16453
1/31/96 15754 15006 16578
2/29/96 15535 14797 16466
3/31/96 14916 14207 16255
4/30/96 15048 14334 16209
5/31/96 15069 14354 16203
6/30/96 15204 14482 16379
7/31/96 15767 15018 16527
8/31/96 15562 14823 16523
9/30/96 15902 15147 16755
10/31/96 15992 15232 16944
11/30/96 16014 15253 17254
12/27/96 16151 15384 17182
1/31/97 16172 15404 17214
2/28/97 16216 15446 17373
3/31/97 15956 15199 17142
4/30/97 16117 15352 17286
5/31/97 16492 15709 17547
6/30/97 16726 15932 17734
7/31/97 16984 16177 18226
8/31/97 16910 16107 18054
9/30/97 17242 16423 18269
10/31/97 17192 16375 18386
11/30/97 17430 16602 18495
12/26/97 17694 16854 18765
1/31/98 17788 16943 18958
2/28/98 17663 16824 18964
3/31/98 17879 17030 18981
4/30/98 17727 16885 18895
5/31/98 17994 17139 19194
6/30/98 18064 17206 19269
7/20/98 18058 17200 19317
8/20/98 18304 17435 19616
9/20/98 18576 17694 19861
10/20/98 18622 17737 19861
11/20/98 18668 17781 19931
12/20/98 18723 17834 19981
1/20/99 18898 18000 20219
2/20/99 18866 17970 20130
3/20/99 18883 17986 20158
4/20/99 18928 18029 20208
5/20/99 18763 17872 20091
6/20/99 18493 17615 19802
7/20/99 18650 17764 19873
8/20/99 18298 17429 19714
9/20/99 18263 17396 19722
10/20/99 17935 17083 19509
11/20/99 18168 17305 19716
12/20/99 17999 17144 19568
1/31/00 17828 16981 19479
</TABLE>
The Lehman Brothers Municipal Bond Index is an unmanaged index that tracks the
performance of the municipal bond market. Unlike mutual funds, indexes are not
investments and do not incur fees or expenses. It is not possible to invest
directly in an index.
AVERAGE ANNUAL TOTAL RETURNS AS OF 1/31/00
<TABLE>
<CAPTION>
SHARE CLASS A B C
------------------------ ------------------------ ------------------------
INCEPTION 9/26/86 8/4/92 8/1/97
------------------------ ------------------------ ------------------------
WITHOUT WITH SALES WITHOUT WITH SALES WITHOUT WITH SALES
SALES CHARGE CHARGE SALES CHARGE CHARGE SALES CHARGE CHARGE
------------ ------ ------------ ------ ------------ ------
<S> <C> <C> <C> <C> <C> <C>
1 YEAR (6.05)% (10.51)% (6.76)% (11.24)% (6.47)% (7.37)%
5 YEARS 5.12 4.11 4.34 4.00 4.89 4.89
10 YEARS 5.95 5.44 5.36 5.36 5.83 5.83
</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 (3.85)% (8.42)% (4.58)% (9.16)% (4.29)% (5.20)%
5 YEARS 6.10 5.08 5.31 4.99 5.87 5.87
10 YEARS 6.00 5.48 5.42 5.42 5.88 5.88
</TABLE>
Past performance cannot predict future investment results. Returns and value of
an investment will vary, resulting in a gain or loss on sale. All results shown
assume reinvestment of distributions. The "with sales charge" returns include
the maximum 4.75% charge for Class A shares and the maximum contingent deferred
sales charges (CDSC) of 5% for one year and 2% for five years for Class B shares
and 1% for one year for Class C shares.
Performance results reflect any voluntary waivers or reimbursement of Fund
expenses by the Advisor or its affiliates. Absent these waivers or reimbursement
arrangements, performance results would have been lower.
Performance for different share classes will vary based on differences in sales
charges and fees associated with each class.
Class B and C share (newer class shares) performance information includes
returns of the Fund's Class A shares (the oldest existing Fund class) for
periods prior to its inception date. These Class A share returns are not
restated to reflect any expense differential (e.g., Rule 12b-1 fees) between
Class A shares and the newer class shares. Had the expense differential been
reflected, the returns for the periods prior to the inception of Class B and
Class C shares would have been lower.
4
<PAGE> 7
INVESTMENT PORTFOLIO
JANUARY 31, 2000
(IN THOUSANDS)
<TABLE>
<CAPTION>
MUNICIPAL BONDS - 96.3% PAR VALUE
- ----------------------- --- -----
<S> <C> <C>
EDUCATION - 2.7%
Oakland County Economic Development
Corp., Cranbrook Educational Community
Project, Series B
5.000% 11/1/17 $ 1,000 $ 867
PR Commonwealth of Puerto Rico,
Ana G. Mendez University
System, Series 1999,
5.375% 2/1/19 275 240
------
1,107
------
HEALTHCARE - 14.7%
CONGREGATE CARE RETIREMENT - 0.5%
State Strategic Fund, Holland Home,
Series 1998,
5.750% 11/15/18 250 202
------
HOSPITALS - 11.8%
Chippewa County Hospital Finance
Authority County War Memorial
Hospital, Series B,
5.625% 11/1/14 500 430
Dickinson County, Series 1999,
5.800% 11/1/24 500 395
Royal Oak Hospital Finance
Authority, William Beaumont
Hospital:
Series 1992 E,
6.625% 1/1/19 1,000 1,020
Series 1993 G,
5.250% 11/15/19 1,500 1,269
State Hospital Finance
Authority:
Central Michigan Community Hospital,
Series 1993 A,
6.000% 10/1/08 500 484
Crittenton Hospital,
Series 1992 A,
6.700% 3/1/07 750 783
Detroit Medical Center,
Series 1988 A,
8.125% 8/15/12 20 20
Memorial Healthcare Center,
Series 1999,
5.750% 11/15/15 500 426
------
4,827
------
NURSING HOME - 2.4%
Cheboygan County Economic Development
Corp., Metro Health Foundation
Project, Series 1993,
10.000% 11/1/22(a) 600 480
Warren Economic Development
Corp, Autumn Woods Project,
Series 1992,
6.900% 12/20/22 $ 500 $ 505
------
985
------
HOUSING - 4.0%
MULTI-FAMILY - 1.5%
State Housing Development Authority:
Series 1990 A,
7.700% 4/1/23 500 519
Series 1991 B,
7.050% 10/1/12 85 89
------
608
------
SINGLE FAMILY - 2.5%
State Housing Development Authority,
Series 1994 D,
6.850% 6/1/26 980 1,002
------
INDUSTRIAL - 0.5%
FOOD PRODUCTS - 0.5%
State Strategic Fund,
Michigan Sugar Co.,
Carollton Project,
Series 1998 C,
6.550% 11/1/25 250 221
------
OTHER - 26.5%
POOL/BOND BANK - 4.2%
State Municipal Bond Authority,
Local Government Loan Program,
Series 1992 D,
6.650% 5/1/12 1,000 1,045
Revolving Fund,
5.125% 10/1/20 750 646
------
1,691
------
REFUNDED/ESCROWED (b) - 22.3%
Battle Creek,
7.650% 5/1/22 750 835
Detroit Downtown Development
Authority, Area No. 1 Projects:
Series 1996 C,
6.200% 7/1/17 1,000 1,069
Series 1996 D,
6.500% 7/1/10 700 760
Dickinson County,
Memorial Hospital System,
Series 1994,
8.125% 11/1/24 550 629
</TABLE>
See notes to financial statements.
5
<PAGE> 8
INVESTMENT PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
MUNICIPAL BONDS (CONTINUED) PAR VALUE
- --------------------------- --- -----
<S> <C> <C>
Kalamazoo Hospital Finance Authority:
Borgess Medical Center,
Series 1994 A,
6.250% 6/1/14 $ 1,785 $ 1,875
Bronson Methodist Hospital,
Series 1992 A,
6.250% 5/15/12 (c) 1,500 1,579
Redford Township Building Authority,
Series 1992,
6.500% 11/1/13 675 712
Rockford Public Schools,
Series 1990,
7.375% 5/1/19 250 255
State Hospital Finance Authority,
Daughters of Charity-Providence,
Series 1991,
7.000% 11/1/21 1,000 1,059
Tawas City Finance Authority,
St. Joseph Health System,
Series 1998 A,
5.600% 2/15/13 225 224
Virgin Islands Public
Finance Authority,
Series 1992 A,
7.000% 10/1/02 125 133
------
9,130
------
OTHER REVENUE - 1.9%
HOTELS - 1.9%
Detroit Economic Development Corp.,
E.H. Assoc. Limited Partnership,
Series 1992,
7.000% 6/1/12 750 767
------
RESOURCE RECOVERY - 1.0%
DISPOSAL - 1.0%
State Strategic Fund, United
Waste Systems, Inc.
Series 1995,
5.200% 4/1/10 500 425
------
TAX-BACKED - 28.6%
LOCAL APPROPRIATED - 4.5%
Wayne County Building
Authority, Series 1996 A,
5.250% 6/1/16 2,000 1,843
------
LOCAL GENERAL OBLIGATIONS - 17.7%
Central Montcalm Public Schools,
Series 1999,
5.750% 5/1/24 1,000 946
Charlevoix Public School District,
Series 1999,
5.600% 5/1/15 $ 1,000 $ 977
Forest Hills, Series 1999,
5.000% 5/1/15 750 685
Kalamazoo School District,
Series 1999,
4.500% 5/1/16 500 410
Okemos Public School District,
Series 1993,
(d) 5/1/12 500 245
Rochester Community School
District,
5.000% 5/1/19 (c) 1,000 871
St. Johns Public School,
Series 1998,
5.100% 5/1/25 1,790 1,531
Williamston Community
School District,
Series 1996,
5.500% 5/1/25 1,725 1,582
------
7,247
------
SPECIAL PROPERTY TAX - 1.5%
Oakland County, Preeble Creek
Drainage District,
5.000% 5/1/11 100 95
Romulus Tax Increment
Finance Authority,
Series 1994,
6.750% 11/1/19 500 512
------
607
------
STATE APPROPRIATED - 4.9%
PR Commonwealth of Puerto Rico
Public Building Authority:
Series 1993 M,
5.700% 7/1/16 750 729
Series 1995 A,
6.250% 7/1/14 1,200 1,279
------
2,008
------
TRANSPORTATION - 3.9%
AIRPORT - 3.9%
Wayne Charter County, Detroit
Metropolitan Airport,
Series 1998 A,
5.000% 12/1/28 1,000 798
Series 1998 B,
4.875% 12/1/23 1,000 810
------
1,608
------
</TABLE>
See notes to financial statements.
6
<PAGE> 9
INVESTMENT PORTFOLIO (CONTINUED)
<TABLE>
<CAPTION>
PAR VALUE
--- -----
<S> <C> <C>
UTILITY - 12.5%
INVESTOR OWNED - 10.5%
St. Clair County Economic
Development Corp.,
Detroit Edison Co.,
Series 1993 AA,
6.400% 8/1/24 $2,000 $ 2,039
State Strategic Fund,
Detroit Edison Co.,
Series BB,
7.000% 5/1/21 2,000 2,231
-------
4,270
-------
WATER & SEWER - 2.0%
Detroit Water Supply System,
Series 1999 A,
(d) 7/1/20 3,000 824
-------
TOTAL MUNICIPAL BONDS
(cost of $39,988) 39,372
-------
</TABLE>
<TABLE>
<CAPTION>
OPTIONS - 0.2% CONTRACTS
- -------------- ---------
<S> <C> <C>
June Treasury Bond Put, 22 93
Strike price 86, expiration 5/20/00
March 1998 Treasury Bond Calls 5 1
-------
Strike price 98, expiration 2/19/00
TOTAL OPTIONS (COST OF $242) 94
-------
TOTAL INVESTMENTS (COST OF $40,230)(e) 39,466
-------
</TABLE>
<TABLE>
<CAPTION>
SHORT-TERM OBLIGATIONS - 2.0% PAR
- ----------------------------- ---
<S> <C> <C>
VARIABLE RATE DEMAND NOTES (f)
CA Orange Industrial Development Authority,
Control Air Conditioning,
Series 1997 A,
2.400% 5/1/22 100 100
IA State Finance Authority,
Burlington Medical Center,
Series 1997,
3.850% 6/1/27 500 500
MI Flint Hospital Building Authority,
Hurley Medical Center,
Series 1995 B,
3.600% 7/1/15 200 200
-------
800
-------
OTHER ASSETS & LIABILITIES - 1.5% 617
-------
NET ASSETS - 100.0% $40,883
-------
</TABLE>
NOTES TO INVESTMENT PORTFOLIO:
(a) This issuer is in default of certain debt covenants. Income is not being
accrued.
(b) The Fund has been informed that each issuer has placed direct obligations of
the U.S. Government in an irrevocable trust, solely for the payment of the
interest and principal.
(c) These securities, or a portion thereof, with a total market value of $2,079,
are being used to collateralize open calls on futures and open futures
contracts.
(d) Zero coupon bond.
(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. These securities are payable on
demand and are secured by either letters of credit or other credit support
agreements from banks. The rates listed are as of January 31, 2000.
Short futures contracts open on 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 1,800 March $37
</TABLE>
See notes to financial statements.
7
<PAGE> 10
STATEMENT OF ASSETS AND LIABILITIES
<TABLE>
January 31, 2000
(In thousands except for per share amounts and footnotes)
<S> <C> <C>
ASSETS
Investments at value (cost $40,230) $39,466
Short-term obligations 800
-------
40,266
Receivable for:
Investments sold $1,003
Interest 584
Variation margin on futures contracts 13
Fund shares sold 1
Other 64 1,665
------- -------
Total Assets 41,931
LIABILITIES
Payable for:
Investments purchased 812
Fund shares repurchased 137
Distributions 58
Accrued:
Management fee 17
Bookkeeping fee 3
Service fee 6
Transfer agent fee 8
Deferred Trustees fees 4
Other 3
-------
Total Liabilities 1,048
-------
NET ASSETS $40,883
=======
Net asset value & redemption price per share --
Class A ($30,997/4,715) $ 6.57(a)
=======
Maximum offering price per share --
Class A ($6.57/0.9525) $ 6.90(b)
=======
Net asset value & offering price per share --
Class B ($9,255/1,408) $ 6.57(a)
=======
Net asset value & offering price per share --
Class C ($631/96) $ 6.57(a)
=======
COMPOSITION OF NET ASSETS
Capital paid in $42,395
Overdistributed net investment income (106)
Accumulated net realized loss (679)
Net unrealized appreciation (depreciation) on:
Investments (764)
Open futures contracts 37
-------
$40,883
=======
</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
<TABLE>
For the Year Ended January 31, 2000
(In thousands)
<S> <C> <C>
INVESTMENT INCOME
Interest $ 2,680
-------
EXPENSES
Management fee $ 241
Service fee 80
Distribution fee -- Class B 84
Distribution fee -- Class C 9
Transfer agent fee 77
Bookkeeping fee 27
Trustees fee 9
Custodian fee 3
Audit fee 18
Legal fee 9
Registration fee 18
Reports to shareholders 11
Other 5
-------
591
Fees waived by the Distributor -- Class C (4)
Custodian credits earned (3) 584
-------- -------
Net Investment Income 2,096
-------
NET REALIZED & UNREALIZED GAIN (LOSS) ON
PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments (378)
Closed futures contracts 256
-------
Net Realized Loss (122)
Net change in unrealized appreciation/
depreciation during the period on:
Investments (5,059)
Open futures contracts 50
-------
Net Change in Unrealized
Appreciation/Depreciation (5,009)
-------
Net Loss (5,131)
-------
Decrease in Net Assets from Operations $(3,035)
=======
</TABLE>
See notes to financial statements.
8
<PAGE> 11
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 $ 2,096 $ 2,298
Net realized gain (loss) (122) 608
Net unrealized appreciation
(depreciation) (5,009) 211
-------- -------
Net Increase (Decrease) from Operations (3,035) 3,117
Distributions:
From net investment income -- Class A (1,623) (1,799)
In excess of net investment income -- Class A (40) (42)
From net realized gains -- Class A - (388)
In excess of net realized gains -- Class A (10) (84)
From net investment income -- Class B (424) (498)
In excess of net investment income -- Class B (10) (12)
From net realized gains -- Class B - (129)
In excess of net realized gains -- Class B (3) (28)
From net investment income -- Class C (49) (33)
In excess of net investment income -- Class C (1) (1)
From net realized gains -- Class C - (11)
In excess of net realized gains -- Class C (1) (3)
-------- -------
(5,196) 89
-------- -------
Fund Share Transactions:
Receipts for shares sold -- Class A 3,485 1,716
Value of distributions reinvested -- Class A 1,002 1,466
Cost of shares repurchased -- Class A (8,228) (3,682)
-------- -------
(3,741) (500)
-------- -------
Receipts for shares sold -- Class B 1,305 899
Value of distributions reinvested -- Class B 216 366
Cost of shares repurchased -- Class B (3,649) (1,462)
-------- -------
(2,128) (197)
-------- -------
Receipts for shares sold -- Class C 308 1,227
Value of distributions reinvested -- Class C 47 45
Cost of shares repurchased -- Class C (952) (32)
-------- -------
(597) 1,240
-------- -------
Net Increase (Decrease) from Fund Share
Transactions (6,466) 543
-------- -------
Total Increase (Decrease) (11,662) 632
NET ASSETS
Beginning of period 52,545 51,913
-------- -------
End of period (net of overdistributed
net investment income of $106 and
$44, respectively) $40,883 $52,545
======== =======
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED
JANUARY 31
NUMBER OF FUND SHARES 2000 1999
- --------------------- ---- ----
<S> <C> <C>
Sold -- Class A 496 235
Issued for distributions reinvested -- Class A 143 202
Repurchased -- Class A (1,191) (505)
-------- --------
(552) (68)
-------- --------
Sold -- Class B 186 123
Issued for distributions reinvested -- Class B 30 50
Repurchased -- Class B (525) (200)
-------- --------
(309) (27)
-------- --------
Sold -- Class C 43 169
Issued for distributions reinvested -- Class C 7 6
Repurchased -- Class C (139) (4)
-------- --------
(89) 171
-------- --------
</TABLE>
See notes to financial statements.
9
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
January 31, 2000
NOTE 1. ACCOUNTING POLICIES
ORGANIZATION:
Colonial Michigan Tax Exempt Fund (the Fund) a series of Liberty Funds Trust V
(formerly Colonial Trust V) is a diversified portfolio of a Massachusetts
business trust, registered under the Investment Company Act of 1940, as amended,
as an open-end management investment company. The Fund's investment objective is
to seek as high a level of after-tax total return as is consistent with prudent
risk by pursuing current income exempt from federal and Michigan state personal
income tax and opportunities for long-term appreciation from a portfolio
primarily invested in investment-grade municipal bonds. The Fund may issue an
unlimited number of shares. The Fund offers three classes of shares: Class A,
Class B and Class C. Class A shares are sold with a front-end sales charge. A
1.00% contingent deferred sales charge is assessed on redemptions made within
eighteen months on an original purchase of $1 million to $5 million. Class B
shares are subject to an annual distribution fee and a contingent deferred sales
charge. 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>
ORIGINAL PURCHASE CONVERTS TO 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 and losses are based upon the specific
identification method for both financial statement and federal income tax
purposes.
The Fund may trade securities on other than normal settlement terms. This may
increase the risk if the other party to the transaction fails to deliver and
causes the Fund to subsequently invest at less advantageous prices.
DETERMINATION OF CLASS NET ASSET VALUES AND FINANCIAL HIGHLIGHTS:
All income, expenses (other than the Class B and Class C distribution fees),
realized and unrealized gains (losses), are allocated to each class
proportionately on a daily basis for purposes of determining the net asset value
of each class.
Class B and Class C per share data and ratios are calculated by adjusting the
expense and net investment income per share data and ratios for the Fund for the
entire period by the distribution fee applicable to Class B and Class C shares
only.
FEDERAL INCOME TAXES:
Consistent with the Fund's policy to qualify as a regulated investment company
and to distribute all of its taxable and tax-exempt income, no federal income
tax has been accrued.
INTEREST INCOME, DEBT DISCOUNT AND PREMIUM:
Interest income is recorded on the accrual basis. Original issue discount is
accreted to interest income over the life of a security with a corresponding
increase in the cost basis; market discount is not accreted. Premium is
amortized against interest income with a corresponding decrease in the cost
basis.
DISTRIBUTIONS TO SHAREHOLDERS:
The Fund declares and records distributions daily and pays monthly.
The amount and character of income and gains to be distributed are determined in
accordance with income tax regulations which may differ from generally accepted
accounting principles. Reclassifications are made to the Fund's capital accounts
to reflect income and gains available for distribution (or available capital
loss carryforwards) under income tax regulations.
NOTE 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>
10
<PAGE> 13
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 2000
BOOKKEEPING FEE:
The Advisor provides bookkeeping and pricing services for a monthly fee equal to
$27,000 annually plus 0.035% of the Fund's average net assets over $50 million.
TRANSFER AGENT FEE:
Liberty Funds Services, Inc. (the Transfer Agent), an affiliate of the Advisor,
provides shareholder services for a monthly fee equal to 0.13% annually of the
Fund's average net assets and receives reimbursement for certain out-of-pocket
expenses.
Effective January 1, 2000, the Transfer Agent fee was changed to a fee comprised
of 0.07% annually of average net assets plus charges based on the number of
shareholder accounts and transactions.
UNDERWRITING DISCOUNTS, SERVICE AND DISTRIBUTION FEES:
Liberty Funds Distributor, Inc. (the Distributor), a subsidiary of the Advisor,
is the Fund's principal underwriter. For the year ended January 31, 2000, the
Fund has been advised that the Distributor retained net underwriting discounts
of $165,995 on sales of the Fund's Class A shares and received contingent
deferred sales charges (CDSC) of none, $40,572, and $3,003 on Class A, Class B,
and Class C share redemptions, respectively.
The Fund has adopted a 12b-1 plan which requires the payment of a distribution
fee to the Distributor equal to 0.75% annually of the Fund's average net assets
attributable to Class B and Class C shares. The Distributor has voluntarily
agreed, until further notice, to waive a portion of the Class C share
distribution fee so that it will not exceed 0.45% annually. The plan also
requires the payment of a service fee to the Distributor as follows:
<TABLE>
<CAPTION>
VALUATION OF SHARES OUTSTANDING
ON THE 20TH OF EACH MONTH WHICH WERE ISSUED ANNUAL FEE 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 assets.
The Fund has an agreement with its custodian bank under which $2,927 of
custodian fees were reduced by balance credits applied during the year ended
January 31, 2000. The Fund could have invested a portion of the assets utilized
in connection with the expense offset arrangements in an income producing asset
if it had not entered into such agreements.
NOTE 3. PORTFOLIO INFORMATION
INVESTMENT ACTIVITY:
For the year ended January 31, 2000, purchases and sales of investments, other
than short-term obligations were $10,926,210 and $16,748,868, respectively.
Unrealized appreciation (depreciation) at January 31, 2000, based on cost of
investments for both financial statement and federal income tax purposes was:
<TABLE>
<S> <C>
Gross unrealized appreciation $ 945,088
Gross unrealized depreciation (1,708,770)
Net unrealized depreciation $ (763,682)
</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 EXPIRATION CAPITAL LOSS CARRYFORWARD
------------------ -------------------------
<S> <C>
2008 $98,000
</TABLE>
OTHER:
There are certain risks arising from geographic concentration in any state.
Certain revenue or tax related events in a state may impair the ability of
certain issuers of municipal securities to pay principal and interest on their
obligations.
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
The Fund may purchase or sell municipal and Treasury bond futures contracts and
purchase and write options on futures. The Fund will invest in these instruments
to hedge against the effects of changes in the value of portfolio securities due
to anticipated changes in interest rates and/or market conditions, for duration
management, or when the transactions are economically appropriate to 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 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 for the
year ended January 31, 2000.
11
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000
CHANGE IN INDEPENDENT AUDITOR:
Based on the recommendation of the Audit Committee of the Fund on June 18, 1999,
the Board of Trustees determined not to retain PricewaterhouseCoopers (PWC) as
the Fund's independent auditor and voted to appoint Ernst&Young LLP for the
fiscal year ended January 31, 2000. During the two most recent fiscal years,
PWC's audit reports contained no adverse opinion or disclaimer of opinion; nor
were its reports qualified or modified as to uncertainty, audit scope, or
accounting principle. Further, in connection with its audits for the two most
recent fiscal years, there were no disagreements between the Fund and PWC on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which if not resolved to the satisfaction of PWC
would have caused it to make reference to the disagreements in its report on the
financial statements for such years.
12
<PAGE> 15
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 $ 7.330 $ 7.330 $ 7.330
----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.315 0.262 0.283(b)
Net realized and unrealized loss (0.748) (0.748) (0.748)
----------- ----------- -----------
Total from Investment Operations (0.433) (0.486) (0.465)
----------- ----------- -----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.317) (0.265) (0.286)
In excess of net investment income (0.008) (0.007) (0.007)
In excess of net realized gains (0.002) (0.002) (0.002)
Total Distributions Declared to Shareholders (0.327) (0.274) (0.295)
----------- ----------- -----------
Net asset value-- End of period $ 6.570 $ 6.570 $ 6.570
=========== =========== ===========
Total return (c) (6.05)% (6.76)% (6.47)%(d)
============ ============ ===========
RATIOS TO AVERAGE NET ASSETS
Expenses (e) 1.03% 1.78% 1.48%(b)
Net investment income (e) 4.55% 3.80% 4.10%(b)
Portfolio turnover 23% 23% 23%
Net assets at end of period (000) $ 30,997 $ 9,255 $ 631
</TABLE>
(a) The per share net investment income amounts do not reflect the period's
reclassifications of differences between book and tax basis net
investment income.
(b) Net of fees waived by the Distributor which amounted to $0.021 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 no impact.
- --------------------------------------------------------------------------------
2000 FEDERAL INCOME TAX INFORMATION (UNAUDITED)
Approximately 99.8% 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 $ 7.320 $ 7.320 $ 7.320
----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.341 0.285 0.307(b)
Net realized and unrealized gain 0.111 0.111 0.111
----------- ----------- -----------
Total from Investment Operations 0.452 0.396 0.418
----------- ----------- -----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.343) (0.288) (0.310)
In excess of net investment income (0.008) (0.007) (0.007)
From net realized gains (0.075) (0.075) (0.075)
In excess of net realized gains (0.016) (0.016) (0.016)
----------- ----------- -----------
Total Distributions Declared to Shareholders (0.442) (0.386) (0.408)
----------- ----------- -----------
Net asset value - End of period $ 7.330 $ 7.330 $ 7.330
=========== =========== ===========
Total return (c)(d) 6.38% 5.57% 5.89%
=========== =========== ===========
RATIOS TO AVERAGE NET ASSETS
Expenses (e) 0.93% 1.68% 1.38%(b)
Net investment income (e) 4.64% 3.89% 4.19%(b)
Fees and expenses waived or borne by the Advisor (c) 0.06% 0.06% 0.06%
Portfolio turnover 15% 15% 15%
Net assets at end of period (000) $ 38,606 $ 12,581 $ 1,358
(a) Net of fees and expenses waived or borne by the Advisor which amounted to: $ 0.004 $ 0.004 $ 0.004
</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 $ 0.000 per share.
13
<PAGE> 16
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share of each class outstanding throughout each period are
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 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 $ 6.930 $ 6.930 $ 7.200 $ 7.130 $ 7.130 $ 6.660 $ 6.660
-------- --------- ---------- -------- -------- -------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.352 0.299 0.156 (c) 0.354 0.302 0.368 0.317
Net realized and unrealized gain (loss) 0.386 0.386 0.122 (0.198) (0.198) 0.484 0.484
-------- --------- ---------- -------- -------- -------- -------
Total from Investment Operations 0.738 0.685 0.278 0.156 0.104 0.852 0.801
-------- --------- ---------- -------- -------- -------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.348) (0.295) (0.158) (0.354) (0.303) (0.382) (0.331)
In excess of net investment income -- -- -- (0.002) (0.001) -- --
-------- --------- ---------- -------- -------- -------- -------
Total Distributions Declared to Shareholders (0.348) (0.295) (0.158) (0.356) (0.304) (0.382) (0.331)
-------- --------- ---------- -------- -------- -------- -------
Net asset value - End of period $ 7.320 $ 7.320 $ 7.320 $ 6.930 $ 6.930 $ 7.130 $ 7.130
======== ========= ========== ======== ======== ======== =======
Total return (d)(e) 10.93% 10.11% 3.92%(f) 2.35% 1.58% 13.13% 12.30%
======== ========= ========== ======== ======== ======== =======
RATIOS TO AVERAGE NET ASSETS
Expenses (g) 0.90% 1.65% 1.35%(c)(h) 0.89% 1.64% 0.80% 1.55%
Net investment income (g) 4.95% 4.20% 4.35%(c)(h) 5.12% 4.37% 5.34% 4.59%
Fees and expenses waived or borne by
the Advisor (g) 0.13% 0.13% 0.15%(h) 0.12% 0.12% 0.25% 0.25%
Portfolio turnover 32% 32% 32% 25% 25% 48% 48%
Net assets at end of period (000) $ 39,048 $ 12,762 $ 103 $ 39,606 $ 13,364 $ 43,308 $15,236
(a) Net of fees and expenses waived or borne
by the Advisor which amounted to:
$ 0.009 $ 0.009 $ 0.010 $ 0.008 $ 0.008 $ 0.017 $ 0.017
</TABLE>
(b) Class C shares were initially offered on August 1, 1997. Per share
amounts reflect activity from that date.
(c) Net of fees waived by the Distributor which amounted to $0.011 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 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.
14
<PAGE> 17
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO THE TRUSTEES OF LIBERTY FUNDS TRUST V AND SHAREHOLDERS OF COLONIAL MICHIGAN
TAX-EXEMPT FUND
We have audited the accompanying statement of assets and liabilities, including
the investment portfolio, of the Colonial Michigan Tax-Exempt Fund (the Fund),
one of the series of Liberty Funds Trust V, as of January 31, 2000, and the
related statement of operations, the statement of changes in net assets and
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audit. The statement of changes in net assets
for the period ended January 31, 1999, and the financial highlights for each of
the four years in the period then ended were audited by other auditors whose
report dated March 11, 1999 expressed an unqualified opinion on those financial
statements and financial highlights.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of January 31, 2000 by correspondence with
the custodian and brokers, or by other appropriate auditing procedures where
replies from brokers were not received. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Colonial Michigan Tax-Exempt Fund of Liberty Funds Trust V at January 31, 2000,
and the results of its operations, the changes in its net assets and the
financial highlights for the year then ended in conformity with accounting
principles generally accepted in the United States.
Ernst & Young LLP
Boston, Massachusetts
March 13, 2000
15
<PAGE> 18
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 Michigan Tax-Exempt Fund is:
Liberty Funds Services, Inc.
P.O. Box 1722
Boston, MA 02105-1722
1-800-345-6611
The Fund mails one shareholder report to each shareholder address. If you would
like more than one report, please call 1-800-426-3750 and additional reports
will be sent to you.
This report has been prepared for shareholders of Colonial Michigan Tax-Exempt
Fund. This report may also be used as sales literature when preceded or
accompanied by the current prospectus which provides details of sales charges,
investment objectives and operating policies of the Fund and with the most
recent copy of the Liberty Funds Distributor, Inc. Performance Update.
ANNUAL REPORT:
COLONIAL MICHIGAN TAX-EXEMPT FUND
<PAGE> 19
Liberty offers the independent thinking and collective strength of six financial
specialists. Our distinguished product line helps financial advisors and their
clients build diversified investment portfolios for long-term financial goals.
LIBERTY
- --------------------------------------------------------------------------------
FUNDS
ALL-STAR INSTITUTIONAL MONEY MANAGEMENT APPROACH FOR INDIVIDUAL INVESTORS.
COLONIAL FIXED INCOME AND VALUE STYLE EQUITY INVESTING.
CRABBE
HUSON A CONTRARIAN APPROACH TO FIXED INCOME AND EQUITY INVESTING.
NEWPORT A LEADER IN INTERNATIONAL INVESTING.(SM)
STEIN ROE
ADVISOR SOLUTIONS FOR GROWTH AND INCOME INVESTING.
[LOGO KEYPORT] A LEADING PROVIDER OF INNOVATIVE ANNUITY PRODUCTS.
Liberty's mutual funds are offered by prospectus through Liberty Funds
Distributor, Inc.
BEFORE YOU INVEST, CONSULT YOUR FINANCIAL ADVISOR.
Your financial advisor can help you develop a long-term plan for reaching your
financial goals.
COLONIAL MICHIGAN TAX-EXEMPT FUND ANNUAL REPORT
BULK RATE
U.S. POSTAGE
PAID
HOLLISTON, MA
PERMIT NO. 20
[LIBERTY FUNDS LETTERHEAD]
