<PAGE>
COLONIAL INTERMEDIATE HIGH INCOME FUND ANNUAL REPORT
October 31, 1998
[GRAPHIC OMITTED]
<PAGE>
COLONIAL INTERMEDIATE HIGH INCOME FUND HIGHLIGHTS
NOVEMBER 1, 1997 - OCTOBER 31, 1998
INVESTMENT OBJECTIVE: Colonial Intermediate High Income Fund seeks high current
income and total return by investing primarily in lower-rated corporate debt
securities.
THE FUND IS DESIGNED TO OFFER:
o High monthly income potential
o Attractive long-term total return potential
o Broad diversification
PORTFOLIO MANAGER COMMENTARY: "The high yield bond market had very strong
performance for most of the year. However, widespread concern about the world's
economies during the last three months of the period caused both bond prices and
market liquidity to decline. Despite these conditions, the Fund held up
reasonably well. We attribute this to having a number of investments in
higher-quality issues, such as USAir Group (1.3% of total investments) which
generally have less credit and liquidity risk. The market also supported
well-managed media companies, such as Cablevision Systems (CSC Holdings) and
Time-Warner (2.6% and 0.6% of total investments, respectively). We believed that
many high yield bonds fell further in price than was justified by their
fundamental value. As a result, we began purchasing bonds with good long-term
growth prospects at attractive prices."
-Andrea Feingold
COLONIAL INTERMEDIATE HIGH INCOME FUND PERFORMANCE
- -------------------------------------------------------------------------------
Distributions declared per share $0.692
- -------------------------------------------------------------------------------
NAV Market Price
12-month total return, assuming
reinvestment of all distributions (3.10)% (0.74)%
- -------------------------------------------------------------------------------
Price per share $6.20 $6.81
- -------------------------------------------------------------------------------
TOP CORPORATE ISSUERS(1) TOP FIVE SECTORS(1)
- -------------------------------------------------------------------------------
1. Adelphia Communication ... 2.9% 1. Manufacturing .................... 23.4%
2. CSC Holdings, Inc. ....... 2.6% 2. Trans., Elec., Gas, Sanit. Svcs .. 22.0%
3. Pathmark Stores .......... 2.4% 3. Telecommunications ............... 10.1%
4. Riverwood International .. 1.9% 4. Services ......................... 5.8%
5. Allied Waste Industries .. 1.7% 5. Metals ........................... 5.7%
(1) Corporate issuers are calculated as a percent of total investments including
short-term investments. Sectors are calculated as a percent of total
portfolio adjusted for leverage. Because the Fund is actively managed, there
can be no guarantee the Fund will continue to hold securities of these
issuers or invest in these sectors in the future. Industry sectors in the
following financial statements are based upon the standard industrial
classifications (SIC) published by the U.S. Office of Management and Budget.
The sector classifications used on this page are based upon Colonial's
defined criteria as used in the investment process.
<PAGE>
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[Photo of Stephen E. Gibson]
In June 1998, Harold Cogger retired as president of the Colonial Intermediate
High Income Fund. I would like to take this opportunity to thank him for his
guidance over the past few years and wish him well. As the new president of the
Fund, I am pleased to present the annual report for the 12 months ended October
31, 1998.
The past 12 months presented investors with a number of challenges. Lingering
concern about Asia's weakening economies and the possibility of slower economic
growth around the world had a negative impact on many sectors. The U.S. economy
however continued to have well-balanced growth with few signs of inflation.
Companies posted strong cash flow and earnings growth, benefiting both the high
yield bond and stock markets. A monetary and political crisis in Russia emerged
in late summer, and financial markets worried that this crisis, along with
continued weakness in Asia, would result in a global economic slowdown. Market
volatility increased sharply as investors sought relatively stable investments,
such as U.S. Treasury securities, and the household names of large-cap stocks.
This "flight to quality" had a negative effect on high yield bond prices.
During the final months of the period, the Federal Reserve Board announced two
successive interest rate cuts, which contributed to market rallies as investors
generally concluded that lower rates would stimulate the economy. Markets were
further encouraged by the Group of Seven (G7) industrial nations and the
International Monetary Fund's (IMF) proposal to establish a precautionary line
of credit to stimulate the world's economies and help countries prevent
financial panic.
Despite recent market volatility, high yield bond funds continue to provide
attractive levels of current income, good long-term growth prospects and an
opportunity to diversify your core portfolio. Thank you for giving us the
opportunity to help you meet your financial goals. We hope to continue serving
you in the years to come.
Sincerely,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
December 11, 1998
Because market conditions change frequently, there can be no assurance that the
trends described herein will continue.
<PAGE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1998 (IN THOUSANDS)
CORPORATE FIXED INCOME BONDS &
NOTES (a) - 94.8% PAR VALUE
- -----------------------------------------------------------------------------
CONSTRUCTION - 1.1%
BUILDING CONSTRUCTION
Nortek, Inc.:
8.875% 08/01/08 (b) $ 750 $ 728
9.875% 03/01/04 1,000 990
--------
1,718
--------
.............................................................................
MANUFACTURING - 37.9%
CHEMICALS & ALLIED PRODUCTS - 4.2%
ClimaChem, Inc.,
10.750% 12/01/07 500 480
HydroChem Industrial Services, Inc.,
10.375% 08/01/07 490 431
LaRoche Industries, Inc.,
9.500% 09/15/07 1,000 860
PCI Chemicals Canada, Inc.,
9.250% 10/15/07 1,000 760
Sterling Chemicals, Inc.,
11.750% 08/15/06 1,000 770
Texas Petrochemical Corp.,
11.125% 07/01/06 2,000 1,860
Trans-Resources, Inc.:
10.750% 03/15/08 1,000 975
stepped coupon,
(12.000% 03/01/03) 03/15/08 (c) 1,000 530
--------
6,666
--------
ELECTRONIC & ELECTRICAL EQUIPMENT - 1.1%
Amphenol Corp.,
9.875% 05/15/07 1,225 1,213
L-3 Communications Corp.,
10.375% 05/01/07 500 534
--------
1,747
--------
FABRICATED METAL - 2.6%
Euramax International, PLC,
11.250% 10/01/06 1,500 1,395
Earle M. Jorgensen Co.,
9.500% 04/01/05 1,500 1,305
Renco Metals, Inc.,
11.500% 07/01/03 500 500
US Can Corp.,
10.125% 10/15/06 1,000 1,008
--------
4,208
--------
FOOD & KINDRED PRODUCTS - 2.4%
Chattem, Inc.,
8.875% 04/01/08 1,000 980
Chiquita Brands International, Inc.,
10.250% 11/01/06 1,000 1,035
Pilgrim's Pride Corp.,
10.875% 08/01/03 450 464
Sun World International Corp.,
11.250% 04/15/04 1,280 1,312
--------
3,791
--------
MACHINERY & COMPUTER EQUIPMENT - 0.9%
IMO Industries, Inc.,
11.750% 05/01/06 1,370 1,397
--------
MEASURING & ANALYZING INSTRUMENTS - 1.3%
Envirosource, Inc.,
9.750% 06/15/03 2,000 1,700
Intertek Finance, PLC,
10.250% 11/01/06 500 460
--------
2,160
--------
MISCELLANEOUS MANUFACTURING - 7.7%
AEI Holding Co.,
10.000% 11/15/07 (b) 1,000 925
Alliance Laundry Systems,
9.625% 05/01/08 (b) 1,000 915
Associated Materials, Inc.,
9.250% 03/01/08 500 480
Eagle-Picher Industries, Inc.,
9.375% 03/01/08 2,000 1,760
ISG Resources, Inc.,
10.000% 04/15/08 1,000 1,000
MTL Inc.,
10.000% 06/15/06 (b) 250 245
Newcor, Inc.,
9.875% 03/01/08 1,270 1,092
Polymer Group, Inc.,
9.000% 07/01/07 1,000 930
Shop Vac Corp.,
10.625% 09/01/03 1,000 1,065
Tekni-Plex Inc.,
9.250% 03/01/08 1,500 1,470
Thermadyne Holdings Corp.,
9.875% 06/01/08 2,000 1,740
Werner Holdings Co.,
10.000% 11/15/07 750 660
--------
12,282
--------
PAPER PRODUCTS - 5.2%
Gaylord Container Corp.,
9.750% 06/15/07 2,000 1,540
Repap New Brunswick, Inc.:
10.625% 04/15/05 3,500 2,345
Riverwood International Corp.:
10.625% 08/01/07 500 466
10.875% 04/01/08 3,500 2,730
Stone Container Corp.,
12.250% 04/01/02 1,250 1,169
--------
8,250
--------
PETROLEUM REFINING - 0.8%
Chiles Offshore, LLC,
10.000% 05/01/08 1,500 1,215
--------
PRIMARY METAL - 6.4%
Algoma Steel, Inc.,
12.375% 07/15/05 1,000 735
Bayou Steel Corp.,
9.500% 05/15/08 1,000 860
Insilco Corp.,
10.250% 08/15/07 800 804
Kaiser Aluminum & Chemical Corp.,
10.875% 10/15/06 2,000 1,900
Keystone Consolidated Industries, Inc.,
9.625% 08/01/07 1,500 1,395
Northwestern Steel and Wire Co.,
9.500% 06/15/01 1,000 950
WCI Steel Inc.,
10.000% 12/01/04 2,000 1,880
WHX Corp.,
10.500% 04/15/05 2,000 1,810
--------
10,334
--------
PRINTING & PUBLISHING - 2.3%
American Lawyer Media Holdings:
9.750% 12/15/07 2,000 1,990
stepped coupon,
(12.250% 12/15/02) 12/15/08 (c) 1,000 587
Hollinger International Publishing, Inc.,
9.250% 03/15/07 1,000 1,040
--------
3,617
--------
RUBBER & PLASTIC - 1.2%
Burke Industries, Inc.,
10.000% 08/15/07 2,000 1,905
--------
STONE, CLAY, GLASS & CONCRETE - 0.3%
Anchor Glass Container Corp.,
11.250% 04/01/05 500 502
--------
TEXTILE MILL PRODUCTS - 0.1%
Collins & Aikman Products Co.,
10.000% 01/15/07 100 101
--------
TRANSPORTATION EQUIPMENT - 1.4%
Johnstown America Industries, Inc.,
11.750% 08/15/05 1,000 1,034
LDM Technologies, Inc.,
10.750% 01/15/07 1,275 1,147
--------
2,181
--------
..............................................................................
MINING & ENERGY - 5.4%
OIL & GAS EXTRACTION - 4.6%
Belden & Blake Corp.,
9.875% 06/15/07 2,000 1,620
Forcenergy, Inc.,
9.500% 11/01/06 550 417
HS Resources, Inc.,
9.250% 11/25/06 500 465
Magnum Hunter Resources, Inc.,
10.000% 06/01/07 750 622
Ocean Energy Inc.,
10.375% 10/15/05 1,610 1,666
Petsec Energy, Inc.,
9.500% 06/15/07 2,000 1,600
Pool Energy Services Co.
8.625% 04/01/08 500 475
Pride Petroleum Services, Inc.,
9.375% 05/01/07 500 468
--------
7,333
--------
OIL & GAS FIELD SERVICES - 0.8%
Parker Drilling Corp.,
9.750% 11/15/06 1,500 1,358
---------
.............................................................................
RETAIL TRADE - 4.8%
FOOD STORES - 3.9%
Aurora Foods Inc.,
8.750% 07/01/08 250 259
Pathmark Stores, Inc.:
9.625% 05/01/03 3,000 2,940
stepped coupon,
(10.750% 11/01/99) 11/01/03 (c) 1,500 1,125
Richmont Marketing Specialists, Inc.,
10.125% 12/15/07 (b) 1,000 875
Star Markets Co.,
13.000% 11/01/04 1,000 1,065
--------
6,264
--------
MISCELLANEOUS RETAIL - 0.9%
MTS Inc.,
9.375% 05/01/05 1,500 1,357
--------
.............................................................................
SERVICES - 9.4%
AMUSEMENT & RECREATION - 2.5%
Hollywood Casino Corp,.
12.750% 11/01/03 2,000 2,020
Regal Cinemas,
9.500% 06/01/08 (b) 2,000 1,980
--------
4,000
--------
BUSINESS SERVICES - 2.4%
Interep National Radio Sales,
10.000% 07/01/08 (b) 1,500 1,470
Loomis Fargo & Co.,
10.000% 01/15/04 1,000 940
PSINet Inc.,
10.000% 02/15/05 1,500 1,466
--------
3,876
--------
HEALTH SERVICES - 0.3%
Conmed Corp.,
9.000% 03/15/08 500 470
--------
HOTELS, CAMPS & LODGING - 2.1%
Eldorado Resorts Corp.,
10.500% 08/15/06 2,005 2,085
Mohegan Tribal Gaming,
13.500% 11/15/02 1,000 1,240
--------
3,325
--------
MOTION PICTURES - 0.3%
United Artists Theatre,
9.750% 04/15/08 500 450
--------
OTHER SERVICES - 1.0%
Borg-Warner Security Corp.,
9.625% 03/15/07 1,500 1,605
--------
PERSONAL SERVICES - 0.8%
Styling Technology Corp.,
10.875% 07/01/08 (b) 500 465
Williams Scotsman, Inc.,
9.875% 06/01/07 750 750
--------
1,215
--------
.............................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 35.7%
AIR TRANSPORTION - 1.9%
Trans World Airlines, Inc.,
11.375% 03/01/06 1,000 860
U.S. Air, Inc.,
10.375% 03/01/13 (e) 2,000 2,160
--------
3,020
--------
BROADCASTING - 4.5%
Allbritton Communications Co.,
9.750% 11/30/07 2,000 2,060
Fox Family Worldwide Inc.,
9.250% 11/01/07 1,000 935
Lin Holdings Corp.,
stepped coupon,
(10.000% 03/01/03) 03/01/08 (c) 1,500 975
Renaissance Media Group.,
stepped coupon,
(10.000% 04/15/03) 04/15/08 (c) 875 569
Young Broadcasting Corp.,
11.750% 11/15/04 2,500 2,600
--------
7,139
--------
CABLE - 6.5%
Comcast Corp.,
9.500% 01/15/08 2,000 2,110
Diamond Cable Co., stepped coupon,
(10.750% 02/15/02) 02/15/07 (c) 3,000 1,890
EchoStar Satellite Broadcasting Corp.,
stepped coupon,
(13.125% 03/15/00) 03/15/04 (c) 3,000 2,610
Northland Cable,
10.250% 11/15/07 1,250 1,287
Shop At Home, Inc.,
11.000% 04/01/05 500 495
Telewest Communication, PLC, stepped coupon,
(11.000% 10/01/00) 10/01/07 (c) 2,500 1,972
--------
10,364
--------
COMMUNICATIONS - 4.6%
Call-Net Enterprises Inc .:
8.000% 08/15/08 1,000 932
stepped coupon,
(8.940% 08/01/03) 08/15/08 (c) 750 424
Century Communications.,
(d) 01/15/08 2,415 1,159
FrontierVision Holdings, L.P.,
stepped coupon,
(11.875% 09/15/01) 09/15/07 (c) 2,000 1,610
Metronet Communications,
stepped coupon,
(9.950% 06/15/03) 06/15/08 (c) 1,250 675
Onepoint Comm Corp., Unit,
14.500% 06/01/08 (b) (f) 1,000 445
Orbital Imaging Corp.,
11.625% 03/01/05 250 215
Price Communications Wireless Inc., PIK,
11.250 08/15/08 500 435
Splitrock Services Inc., Unit,
11.750% 07/15/08 (b) (f) 500 450
Time Warner Telecom,
9.750% 07/15/08 1,000 1,010
--------
7,355
--------
SANITARY SERVICES - 1.8%
Allied Waste Industries, Inc.,
stepped coupon,
(11.300% 06/01/02) 06/01/07(c) 1,000 750
Allied Waste North America, Inc.,
10.250% 12/01/06 2,000 2,185
--------
2,935
--------
TELECOMMUNICATION - 16.4%
Adelphia Communications Corp.,
9.875% 03/01/07 3,500 3,762
Arch Communications Corp.,
12.750% 07/01/07 1,000 860
Clearnet Communications, Inc.,
stepped coupon,
(14.750% 12/15/00) 12/15/05 (c) 1,750 1,400
GST USA, Inc.,
stepped coupon,
(13.875% 12/15/00) 12/15/05 (c) 1,000 732
Hyperion Telecommunications, Inc.,
stepped coupon,
(13.000% 04/15/01) 04/15/03 (b) (c) 1,000 690
Intermedia Communications of Florida, Inc.,
stepped coupon,
(12.500% 05/15/01) 05/15/06 (c) 1,000 760
Level 3 Communications, Inc.,
9.125% 05/01/08 1,000 942
Loral Space & Communications Ltd.,
11.250% 01/15/07 (g) 1,500 1,429
McLeodUSA, Inc.,
stepped coupon,
(10.500% 03/01/02) 03/01/07(c) $ 2,000 1,440
MetroNet Communications Corp.,
12.000% 08/15/07 250 267
Metrocall, Inc.,
10.375% 10/01/07 1,000 910
Nextel Communications,
stepped coupon,
(9.950% 02/15/03) 02/15/03 (c) 2,000 1,090
Nextel International Inc.,
stepped coupon,
(12.125% 04/15/03) 04/15/08 (b) (c) 625 230
NTL Inc.:
stepped coupon,
(9.750% 04/01/03) 04/01/08 (b) (c) 2,750 1,499
11.500% 10/01/08 (g) 1,000 1,030
Pagemart Wireless Inc.,
stepped coupon,
(11.250% 02/01/03) 02/01/08 (c) 1,500 773
Price Communications Wireless,
9.125% 12/15/06 (b) 2,000 2,000
RCN Corp.,
stepped coupon,
(11.125% 10/15/02) 10/15/07(c) 1,750 928
Rogers Cantel Inc.,
9.750% 06/01/16 (e) 2,000 2,040
Sprint Spectrum L.P.,
stepped coupon,
(12.500% 08/15/01) 08/15/06 (c) 1,500 1,305
Teligent, Inc.,
11.500% 12/01/07 750 608
Verio Inc.,
10.375% 04/01/05 1,500 1,425
--------
26,120
--------
.............................................................................
WHOLESALE TRADE - 0.5%
Nondurable Goods AmeriServ Food Co.
10.125% 07/15/07 900 747
--------
TOTAL CORPORATE FIXED INCOME
BONDS & NOTES (cost of $162,190) 151,007
--------
- -----------------------------------------------------------------------------
COMMON STOCKS - 0.1% SHARES
- -----------------------------------------------------------------------------
MINING & ENERGY - 0.1%
Oil & Gas Extraction
Pioneer Natural Resources Co. 8 $ 123
--------
.............................................................................
TRANSPORTATION, COMMUNICATION, ELECTRIC, GAS & SANITARY SERVICES - 0.
MOTOR FREIGHT & WAREHOUSING - 0.0%
St. Johnsbury Trucking Co. (h)(i) 79 1
Sun Carriers, Inc. (h)(i) 326 3
--------
4
--------
TELECOMMUNICATION - 0.0%
Nextel Communications, Inc. Class A (h) 3 56
--------
TOTAL COMMON STOCKS (cost of $1,301) 183
--------
PREFERRED STOCKS - 5.1%
- -----------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.1%
DEPOSITORY INSTITUTIONS
Cal Fed Bancorp, Inc.,
9.125%, Series A 9 218
--------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 5.0%
BROADCASTING - 0.2%
PriMedia Inc., 9.200% 3 297
--------
CABLE - 2.8%
CSC Holdings Limited:
11.125% PIK, (i) 17 1,833
11.750% PIK, (i) 23 2,611
--------
4,444
--------
TELECOMMUNICATION - 2.0%
Adelphia Communications Corp., 13.000% (i) 10 1,140
Concentric Network Corp.
13.500% PIK 1 373
Nextel Communications, Inc.:
11.125% PIK (i) 1 449
13.000% PIK (i) 1 1,121
--------
3,083
--------
TOTAL PREFERRED STOCKS (cost of $8,377) 8,042
--------
ADJUSTABLE RATE PREFERRED STOCK - 0.0%
- -----------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
Telecommunication
Nextlink Communications, Inc.,
14.000% PIK (cost of $11) (j) $ 10
--------
WARRANTS - 0.0% SHARES VALUE
- -----------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
COMMUNICATION
Orbital Imaging Corp., (b) (j) $ 10
--------
TELECOMMUNICATION
MetroNet Communications, Inc., (b) (j) 8
--------
TOTAL WARRANTS (cost of $0) 18
--------
TOTAL INVESTMENTS - 100% (cost of $173,638)(k) $159,260
--------
SHORT-TERM OBLIGATIONS PAR
- -----------------------------------------------------------------------------
Federal National Mortgage Assoc.,
5.210% 6/25/1999 (l) $ 4,215 4,082
Student Loan Marketing Assoc.,
5.420% 11/2/1998 (l) 7,996 7,995
--------
TOTAL SHORT-TERM OBLIGATIONS (cost of $12,066) 12,077
--------
OTHER ASSETS & LIABILITIES, NET (46,857)
- -----------------------------------------------------------------------------
NET ASSETS $124,480
--------
NOTES TO INVESTMENT PORTFOLIO:
- -----------------------------------------------------------------------------
(a) Industry classification percentages are based on total investments.
Total investments represents 127.9% of the Fund's net assets.
(b) Security is exempt from registration under Rule 144A of the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At October 31,
1998, the value of these securities amounted to $12,935 or 10.4% of net
assets.
(c) Currently zero coupon. Shown parenthetically is the next interest rate
to be paid and the date the fund will begin accruing this rate.
(d) Zero coupon bond.
(e) These securities, or a portion thereof, with a total market value of
$3,180, are being used to collateralize the delayed purchases indicated
in note (g) below.
(f) Each unit consists of one senior discount note and one warrant to
purchase common stock.
(g) These securities have been purchased on a delayed delivery basis for
settlement at a future date beyond the customary settlement time.
(h) Non-income producing.
(i) Represents fair value as determined in good faith under the direction of
the Trustees.
(j) Rounds to less than one.
(k) Cost for federal income tax purposes is the same.
(l) Rate represents yield at date of purchase.
Acronym Name
------------- ------------
PIK Payment-In-Kind
See notes to financial statements.
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1998
(in thousands except for per share amount)
ASSETS
Investments at value (cost $173,638) $159,260
Short-term obligations (cost $12,066) 12,077
--------
171,337
Cash $ 4
Receivable for:
Interest 3,906
Investments sold 1,349
Dividends 7
Other 9 5,275
-------- --------
Total Assets 176,612
LIABILITIES
Payable for:
Investments purchased 2,464
Distributions 1,144
Interest 1,210
Accrued:
Deferred Trustees fees 2
Other 12
Notes payable 47,300
--------
Total Liabilities 52,132
--------
NET ASSETS at value for 20,067
shares of beneficial interest outstanding $124,480
--------
Net asset value per share $ 6.20
--------
COMPOSITION OF NET ASSETS
Capital paid in $166,769
Undistributed net investment income 503
Accumulated net realized loss (28,425)
Net unrealized depreciation (14,367)
--------
$124,480
--------
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1998
(in thousands)
INVESTMENT INCOME
Interest $ 14,348
Dividends 793
--------
15,141
EXPENSES
Management fee $ 775
Transfer agent 53
Bookkeeping fee 50
Trustees fee 13
Custodian fee 4
Audit fee 42
Legal fee 6
Reports to shareholders 16
Other 89
--------
Total operating expenses 1,048
Interest expense 2,521 3,569
-------- --------
Net Investment Income 11,572
--------
NET REALIZED & UNREALIZED GAIO (LOSS) ON PORTFOLIO POSITIONS
Net realized gain 1,756
Change in net unrealized depreciation during
the period (19,132)
--------
Net Loss (17,376)
--------
Decrease in Net Assets from Operations $ (5,804)
--------
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
Year ended
(in thousands) October 31
-----------------------
INCREASE (DECREASE) IN NET ASSETS 1998 1997
Operations:
Net investment income $ 11,572 $ 10,083
Net realized gain 1,756 3,311
Net unrealized appreciation (depreciation) (19,132) 2,525
- -------------------------------------------------------------------------------
Net Increase (Decrease) from Operations (5,804) 15,919
Distributions from net investment income (11,513) (10,294)
- -------------------------------------------------------------------------------
(17,317) 5,625
Fund share transactions
Receipts for shares issued in rights offering 32,310 -
Value of distributions reinvested 1,713 2,224
-------- --------
Net Increase from Fund Share
Transactions 34,023 2,224
-------- --------
Total Increase 16,706 7,849
NET ASSETS
Beginning of period 107,774 99,925
-------- --------
End of period (including undistributed net
investment income of $503 and $263,
respectively) $124,480 $107,774
-------- --------
NUMBER OF FUND SHARES
Shares issued in rights offering 5,010 -
Issued for distributions reinvested 239 312
Outstanding at
Beginning of period 14,818 14,506
-------- --------
End of period 20,067 14,818
-------- --------
See notes to financial statements.
<PAGE>
STATEMENT OF CASH FLOWS
Year ended
(in thousands) October 31
-------------------------
INCREASE (DECREASE) IN NET ASSETS 1998
- --------------------------------------------------------------------------------
Operations:
Net investment income (a) $ 8,574
Net decrease in cash from investment activity (b) (52,339)
-----------
Net decrease from Operations (43,765)
Financing:
Net proceeds received from rights offering (net of
expenses of $243,328) 32,310
Net increase in additional borrowings 19,900
-----------
Net decrease from Financing 52,210
--------
Distributions from net investment income (9,503)
--------
(1,058)
Cash
Beginning of period 1,062
--------
End of period $ 4
--------
Notes to statement of cash flows:
(a) Reconciliation of net investment income:
Net investment income per books $ 11,572
Net change in assets and liabilities related
to income and expenses, including net
accretion and amortization (2,998)
-----------
Net investment income-cash basis $ 8,574
-----------
(b) Net increase in cash from investment
activity
Receipts for investments sold $ 1,427,750
Cost of investments purchased (1,480,089)
------------
$ (52,339)
------------
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
NOTE 1. ACCOUNTING POLICIES
...............................................................................
ORGANIZATION: Colonial Intermediate High Income Fund (the Fund), is a
Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as a diversified, closed-end, management investment company.
The Fund's investment objective is to seek high current income and total return
by investing primarily in lower-rated corporate debt securities. The Fund
authorized an unlimited number of shares.
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 consistently followed by the Fund in the
preparation of its financial statements.
SECURITY VALUATION AND TRANSACTIONS: Debt securities 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.
Equity securities generally are valued at the last sale price or, in the case of
unlisted or listed securities for which there were no sales during the day, at
current quoted bid prices.
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.
STATEMENT OF CASH FLOWS: Information on financial transactions which have been
settled through the receipt or disbursement of cash is presented in the
Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows is
the amount included in the Fund's Statement of Assets and Liabilities and
represents cash on hand at its custodian bank account and does not include any
short-term investments at October 31, 1998.
FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a
regulated investment company and to distribute all of its taxable 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; premium and
market discount are not amortized or accreted.
The value of additional securities received as an interest payment is recorded
as income and as the cost basis of such securities.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders are
recorded on the ex-date.
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.
OTHER: Corporate actions are recorded on the ex-date.
The Fund's custodian takes possession through the federal book-entry system of
securities collateralizing repurchase agreements. Collateral is marked-to-market
daily to ensure that the market value of the underlying assets remains
sufficient to protect the Fund. The Fund may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
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 equal to 0.65% annually of
the Fund's average weekly net assets.
BOOKKEEPING FEE: The Advisor provides bookkeeping and pricing services for
$27,000 per year plus 0.035% of the Fund's average net assets over $50 million.
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
the Fund's assets.
NOTE 3. PORTFOLIO INFORMATION
...............................................................................
INVESTMENT ACTIVITY: During the year ended October 31, 1998, purchases and sales
of investments, other than short-term obligations, were $144,261,657 and
$101,043,459 respectively.
Unrealized appreciation (depreciation) at October 31, 1998, based on cost of
investments for both financial statement and federal income tax purposes was:
Gross unrealized appreciation $ 1,606,060
Gross unrealized depreciation (15,973,206)
-------------
Net unrealized depreciation $(14,367,146)
-------------
CAPITAL LOSS CARRYFORWARDS: At October 31, 1998, 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
------------------- ------------------
1999 $16,855,000
2000 9,467,000
2003 2,103,000
-----------
$28,425,000
-----------
Expired capital loss carryforwards, if any, are recorded as a reduction of
capital piid 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: The Fund may focus its investments in certain industries, subjecting
it to greater risk than a fund that is more diversified.
NOTE 4. LOAN AGREEMENT
...............................................................................
At October 31, 1998, the Fund had four term loans outstanding with Bank of
America Illinois, totaling $47,300,000. A $27,400,000 term loan which bears
interest at 7.33% per annum, due June 14, 1999, a $6,900,000 term loan which
bears interest at 6.37% per annum, due May 19, 2001, a $9,200,000 term loan
which bears interest at 6.26% per annum, due June 29, 2001, and a $3,800,000
revolving loan which bears interest at 6.29375% per annum, due June 30, 1999.
The Fund is required to maintain certain asset coverage with respect to the
loans.
NOTE 5. RIGHTS OFFERING
...............................................................................
In a rights offering commencing May 26, 1998, shareholders exercised rights to
purchase 5,010,532 shares at $6.50 per share for proceeds, net of expenses, of
approximately $32,000,000.
<PAGE>
FINANCIAL HIGHLIGHTS
Selected per share data, total return, ratios and supplemental data throughout
each period are as follows:
Year ended October 31
-----------------------------------------
1998 1997 1996
Net asset value -
Beginning of period $ 7.270 $ 6.890 $ 6.620
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.699 0.699 (b) 0.699
Net realized and unrealized
gain (loss) (1.077) 0.383 0.258
-------- -------- -------
Total from Investment
Operations (0.378) 1.082 0.957
-------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.692) (0.702) (0.687)
-------- -------- --------
Net asset value -
End of period $ 6.200 $ 7.270 $ 6.890
-------- -------- --------
Market price per share $ 6.812 $ 7.562 $ 7.125
-------- -------- --------
Total return - based on market
value (a) (0.74)% 16.97% 14.62%
-------- -------- --------
RATIOS TO AVERAGE NET ASSETS
Operating expenses 0.88% (b) 0.89% (b) 0.98% (b)
Interest and amortization of
deferred debt issuance expenses 2.11% 1.96% 2.07%
Total expenses 2.99% 2.85% 3.05%
Net investment income 9.70% (b) 9.63% (b) 10.11% (b)
Portfolio turnover 69% 92% 92%
Net assets at end
of period (000) $124,480 $107,774 $ 99,925
(a) Total return at market value assuming all distributions reinvested and
excluding brokerage commissions.
(b) The benefits derived from custody credits and directed brokerage
arrangements had an impact of 0.01% and $0.001 per share in 1997 only.
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Selected per share data, total return, ratios and supplemental data throughout
each period are as follows:
Year ended October 31
--------------------------
1995 1994
Net asset value -
Beginning of period $ 6.280 $ 6.920
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.696 0.693
Net realized and unrealized gain (loss) 0.340 (0.587)
------- -------
Total from Investment Operations 1.036 0.106
------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.696) (0.746)
------- -------
Net asset value -
End of period $ 6.620 $ 6.280
------- -------
Market price per share $ 6.875 $ 5.750
------- -------
Total return - based on market
value (a) 33.00% (2.80)%
------- -------
RATIOS TO AVERAGE NET ASSETS
Operating expenses 0.95% (b) 0.97%
Interest and amortization of
deferred debt issuance expenses 1.94% 1.91%
Total expenses 2.89% 2.88%
Net investment income 10.76% (b) 10.40%
Portfolio turnover 92% 160%
Net assets at end
of period (000) $ 93,984 $ 87,519
(a) Total return at market value assuming all distributions reinvested and
excluding brokerage commissions.
(b) The benefits derived from custody credits and directed brokerage
arrangements had no impact.
- -----------------------------------------------------------------------------
SENIOR SECURITIES OF COLONIAL INTERMEDIATE HIGH INCOME FUND: (UNAUDITED)
Involuntary
Total Asset liquidating Approximate
amount coverage preference market value
Year outstanding per share per unit per unit
1998 $47,300,000 263% NA 100
1997 $27,400,000 393% NA 100
1996 $27,400,000 365% NA 100
1995 $27,400,000 343% NA 100
1994 $27,400,000 319% NA 100
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
T0 THE TRUSTEES AND THE SHAREHOLDERS OF COLONIAL INTERMEDIATE
HIGH INCOME FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations, of cash
flows and of changes in net assets and the financial highlights present fairly,
in all material respects, the financial position of Colonial Intermediate High
Income Fund at October 31, 1998, the results of its operations, the changes in
its net assets and the financial highlights for the periods indicated, in
conformity with generally accepted accounting principles. These financial
statements and the financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of portfolio positions at October 31, 1998
by correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
December 11, 1998
<PAGE>
DIVIDEND REINVESTMENT PLAN
As a shareholder in the Fund you are eligible to participate in the Dividend
Reinvestment Plan.
The Fund generally distributes net investment income monthly and capital gains
annually. Under the Fund's Dividend Reinvestment Plan (the "Plan") all
distributions will be reinvested automatically in additional shares of the Fund,
unless the shareholder elects to receive cash or the shares are held in broker
or nominee name and a reinvestment service is not provided by the broker or
nominee. All cash distributions will be mailed by check directly to the record
holder by the dividend paying agent.
If the market price of the shares on the distribution payment date is equal to
or greater than the net asset value, Plan participants will be issued shares at
the higher of net asset value or 95% of the market price. The aggregate market
value of the shares may constitute income to shareholders for federal income tax
purposes. However, if the market price of the shares is less than the net asset
value, shares will be bought as soon as practicable (but no more than 30 days
after the distribution, except as may be required to comply with federal
securities laws) in the open market for the accounts of Plan participants. If,
during this purchase period, the market price surpasses the net asset value, the
average per share price paid may exceed the net asset value of the shares,
resulting in the acquisition of fewer shares than if the distribution had been
in newly-issued shares.
All Plan accounts receive written confirmations of all transactions. Shares
purchased under the Plan are held in uncertificated form. Each shareholder's
proxy includes shares purchased pursuant to the Plan. The automatic reinvestment
of distributions does not relieve participants of any income tax payable on the
distributions.
Fees and expenses of the Plan other than brokerage charges will be paid by the
Fund. No brokerage charges are incurred on shares issued directly by the Fund.
Participants will bear a pro-rata share of brokerage charges incurred on open
market purchases.
A Plan participant may terminate his or her participation by written notice to
the Plan agent. The Plan may be amended or terminated on 30 days written notice
to the Plan participants. All correspondence concerning the Plan should be
directed to First Data Investor Services Group, Inc., the Plan agent, by mail at
P.O. Box 8030, Boston, MA 02266-8030 or by phone at 1-800-331-1710.
<PAGE>
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<PAGE>
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<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Intermediate High Income Fund is:
First Data Investor Services Group, Inc.
P.O. Box 8030
Boston, MA 02266-8030
1-800-331-1710
Colonial Intermediate High Income 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 Intermediate High
Income Fund.
<PAGE>
TRUSTEES
ROBERT J. BIRNBAUM
Consultant (formerly Special Counsel, Dechert, Price & Rhoads; President and
Chief Operating Officer, New York Stock Exchange, Inc.; President, American
Stock Exchange, Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
JOHN 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)
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
Dean, Boston College School of Management
ROBERT L. SULLIVAN
Retired Partner, KPMG Peat Marwick 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)
IH-02/265G-1098 (12/98) 98/1320
