<PAGE>
COLONIAL
INTERMEDIATE
HIGH INCOME
FUND
Annual Report
October 31, 1997
<PAGE>
- --------------------------------------------------------------------------------
COLONIAL INTERMEDIATE HIGH INCOME FUND
HIGHLIGHTS
NOVEMBER 1, 1996 - OCTOBER 31, 1997
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:
x High monthly income potential
x Attractive long-term total return potential
x Broad diversification
PORTFOLIO MANAGER COMMENTARY: "The Fund remains well diversified with exposure
in many sectors of the market. This includes companies exhibiting stable cash
flow such as domestic cable companies; companies in growth areas such as
satellite and wireless communications; and less cyclical companies such as
supermarkets and consumer nondurables. As we look ahead, we anticipate some
volatility in the equity market which could impact the high yield market.
Additionally, we see potential for a slowdown in earnings of U.S. companies,
resulting from weakness in the financial markets abroad and a reduction in
exports. As a result, we expect to pare back some of our cyclical holdings."
-Andrea Feingold
COLONIAL INTERMEDIATE HIGH INCOME FUND PERFORMANCE
- --------------------------------------------------------------------------------
Distributions declared per share $0.702
- --------------------------------------------------------------------------------
NAV MARKET PRICE
12-month total return, assuming
reinvestment of all distributions 16.32% 16.97%
- --------------------------------------------------------------------------------
Price per share $7.27 $7.56
- --------------------------------------------------------------------------------
Top Corporate Issuers* Top Five Sectors*
1.Nextel Communication, Inc. .... 3.1% 1. Manufacturing ................ 21.6%
2.Revlon ........................ 2.7% 2. Transportation, Electric,
3.Mesa Operating Co. ............ 2.3% Gas, Sanitation Services ..... 13.9%
4.Cablevision Systems Corp. ..... 2.3% 3. Services ..................... 13.8%
5.Allied Waste Industries ....... 2.2% 4. Chemicals .................... 10.7%
5. Mining & Energy .............. 8.1%
*Corporate issuers are calculated as a percent of total 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.
- --------------------------------------------------------------------------------
2
<PAGE>
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
I am pleased to present your Fund's annual report for [PICTURE OF HAROLD
the 12-month period ended October 31, 1997. This report W. COGGER]
gives us the opportunity to reflect on the investment
environment for the past year and on the performance of
your Fund.
The economy continues to show signs of well-balanced
growth with subdued inflation. This positive economic
environment enabled companies to generate strong cash flow by issuing equity,
high yield bonds, and financing at a relatively low interest rate. In turn,
strong demand positively impacted the Fund's performance.
At the end of the period, the stock market experienced an anticipated
correction. We expect to see some degree of volatility in the high yield market
in the coming months as lower than expected corporate earnings are reported. The
corporate earnings that drive the movement of the stock market are the same
corporate earnings that impact a corporation's ability to pay its high yield
debt.
Even though there is an inherent line between the two sectors, investors in the
high yield market could benefit from stock market performance while enjoying the
reduced level of risk typically associated with the bond market. To help reduce
the impact of market volatility, we offer professional management and broad
diversification, while remaining committed to providing monthly income on your
behalf.
As always, we thank you for the opportunity to help meet your investment goals
through the Colonial family of funds.
Respectfully,
/s/ Harold W. Cogger
Harold W. Cogger
President
December 10, 1997
Because market conditions change frequently, there can be no assurance that the
trends described herein will continue, come to pass or affect Fund performance.
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
INFORMATION ABOUT YOUR FUND'S
INVESTMENT POLICIES
At their meeting held on April 18, 1997, your Trustees approved a change to the
Fund's investment objective. Previously, the investment objective was to
"provide high current income by investing in high yield fixed income
securities." Under the restated objective, the Fund will "seek high current
income and total return by investing primarily in lower-rated corporate debt
securities."
The Trustees also approved several changes to the Fund's investment policies,
which will:
* Eliminate the requirements imposed by Standard & Poor's Corporation (S&P) and
Moody's Investors Service, Inc. (Moody's) relating to the rating of the Senior
Extendible Notes (Notes). The Fund redeemed the Notes on July 15, 1996.
* Eliminate a restriction on the Fund's investments in securities rated below
CCC (by S&P) or Caa (by Moody's). The Fund may invest, under normal
conditions, 80% of its total assets (other than cash and government
securities) in lower-rated debt securities. The Fund may purchase bonds in the
lowest rating categories (C for Moody's and D for S&P) and comparable unrated
securities. However, the Fund will only purchase securities rated Ca or lower
by Moody's or CC or lower by S&P if the Adviser believes that the quality of
such securities is higher than indicated by the rating.
* Eliminate a 20% restriction on the Fund's investment of its assets in unrated
securities. *Allow the Fund to invest up to 20% of its total assets in common
stocks, usually as a result of warrants associated with debt instruments
purchased by the Fund, but also under certain circumstances to seek capital
appreciation.
* Allow the Fund to invest more than 20% of its assets in zero coupon securities
and securities that pay interest with more securities (so-called "payment-
in-kind" securities). The Fund may invest in debt securities of any payment
method including, fixed and adjustable interest rates, zero coupon securities,
step coupon bonds and payment-in-kind securities. When economic conditions
cause a narrowing of yield spreads between these securities and higher-rated
securities, the Fund may invest up to 100% of its assets in higher-rated
securities. The dollar weighted average maturity of the Fund's portfolio will
normally be between 3 and 10 years.
* Allow the Fund to make temporary cash investments in additional types of money
market securities.
The changes in the Fund's investment policies parallel those that have been made
over time for similar Colonial open-end funds. The Trustees believe these
changes are in the best interests of shareholders.
- --------------------------------------------------------------------------------
4
<PAGE>
INVESTMENT PORTFOLIO
OCTOBER 31, 1997 (IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE FIXED INCOME BONDS &
NOTES (a) - 93.9% PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - 42.1%
CHEMICALS & ALLIED PRODUCTS - 10.9%
Agricultural Minerals & Chemical Co., L.P.,
10.750% 09/30/03 $ 2,250 $2,413
Applied Extrusion Technologies Inc.,
11.500% 04/01/02 1,500 1,605
Hydrochem Industrial Service,
10.375% 08/01/07 (b) 490 506
LaRoche Industries, Inc.,
9.500% 09/15/07 (b) 1,000 992
PCI Chemicals Canada, Inc.,
9.250% 10/15/07 (b)(c) 250 250
Revlon Consumer Products Corp.,
10.500% 02/15/03
2,250 2,374
Revlon Worldwide Corp.,
(d) 03/15/01
1,725 1,182
Sterling Chemicals, Inc.,
11.750% 08/15/06 1,000 1,110
Texas Petrochemical Corp.,
11.125% 07/01/06 2,000 2,205
Trans-Resources Corp.,
11.875% 07/01/02 1,500 1,575
-----------
14,212
-----------
ELECTRONIC & ELECTRICAL EQUIPMENT - 4.2%
Amphenol Corp.,
9.875% 05/15/07 1,225 1,286
L-3 Communications Corp.,
10.375% 05/01/07 500 539
LDM Technologies, Inc.,
10.750% 01/15/07 1,275 1,393
Unisys Corp.,
11.750% 10/15/04 2,000 2,260
-----------
5,478
-----------
FABRICATED METAL - 2.4%
Euramax International, PLC,
11.250% 10/01/06 1,500 1,620
Renco Metals, Inc.,
11.500% 07/01/03 500 530
US Can Corp.,
10.125% 10/15/06 1,000 1,042
-----------
3,192
-----------
</TABLE>
5
<PAGE>
Investment Portfolio/October 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS &
NOTES (a) - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
MANUFACTURING - CONT.
FOOD & KINDRED PRODUCTS - 3.0%
Chiquita Brands International, Inc.,
10.250% 11/01/06 $ 1,000 $ 1,085
Pilgrim's Pride Corp.,
10.875% 08/01/03 450 472
Sun World International Corp.,
11.250% 04/15/04 (b) 1,280 1,373
Windy Hill Pet Food Co., Inc.,
9.750% 05/15/07
1,000 1,015
-----------
3,945
-----------
MACHINERY & COMPUTER EQUIPMENT - 1.9%
IMO Industries,
11.750% 05/01/06 1,370 1,507
Nortek, Inc.,
9.875% 03/01/04 1,000 1,015
-----------
2,522
-----------
MEASURING & ANALYZING INSTRUMENTS - 0.4%
Intertek Finance, PLC,
10.250% 11/01/06 500 520
-----------
MISCELLANEOUS MANUFACTURING - 7.0%
Clark-Schwebel, Inc.,
10.500% 04/15/06 1,000 1,080
ISP Holdings, Inc.:
9.000% 10/15/03 1,000 1,037
9.750% 02/15/02 1,500 1,586
Insilco Corp.,
10.250% 08/15/07 (b) 800 834
Keystone Consolidated Industries, Inc.,
9.625% 08/01/07 (b)
1,500 1,522
Polymer Group, Inc.,
9.000% 07/01/07 1,000 1,000
Shop Vac Corp.,
10.625% 09/01/03 1,000 1,070
Syratech Corp.,
11.000% 04/15/07 1,000 965
-----------
9,094
-----------
PAPER PRODUCTS - 4.1%
Gaylord Container Corp.,
9.750% 06/15/07 (b)(c) 1,000 1,020
</TABLE>
6
<PAGE>
Investment Portfolio/October 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Repap New Brunswick, Inc.:
9.875% 07/15/00 $ 500 $ 512
10.625% 04/15/05 1,000 1,000
Riverwood International Corp.,
10.625% 08/01/07 (b) 1,500 1,575
Stone Container Corp.,
12.250% 04/01/02 1,250 1,306
-----------
5,413
-----------
PETROLEUM REFINING - 0.2%
Benton Oil & Gas Co.,
9.375% 11/01/07 300 297
-----------
PRIMARY METAL - 3.0%
Algoma Steel, Inc.,
12.375% 07/15/05 1,500 1,732
Kaiser Aluminum & Chemical Corp.,
10.875% 10/15/06 2,000 2,205
-----------
3,937
-----------
PRINTING & PUBLISHING - 0.8%
Hollinger International Publishing,
9.250% 03/15/07 1,000 1,030
-----------
RUBBER & PLASTIC - 1.2%
Burke Industries, Inc.,
10.000% 08/15/07 (b) 1,500 1,552
-----------
STONE, CLAY, GLASS & CONCRETE - 0.4%
Anchor Glass Container Corp.,
11.250% 04/01/05 (b) 500 541
-----------
TEXTILE MILL PRODUCTS - 0.1%
Collins & Aikman Floorcoverings Co.,
10.000% 01/15/07 100 103
-----------
TRANSPORTATION EQUIPMENT - 2.5%
Aftermarket Technology Corp.,
Series B,
12.000% 08/01/04 860 955
Collins & Aikman Products Co.,
11.500% 04/15/06 2,000 2,265
-----------
3,220
-----------
- --------------------------------------------------------------------------------
MINING & ENERGY - 9.8%
CRUDE PETROLEUM & NATURAL GAS - 2.3%
Mesa Operating Co.,
10.625% 07/01/06 1,250 1,437
</TABLE>
7
<PAGE>
Investment Portfolio/October 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS &
NOTES (a) - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
MINING & ENERGY - CONT.
CRUDE PETROLEUM & NATURAL GAS - CONT.
Mesa Operating Co.,
stepped coupon,
(11.625% 07/01/06 (e) 7/01/01) $2,000 $1,605
----------
3,042
----------
OIL & GAS EXTRACTION - 4.7%
Forcenergy, Inc.,
9.500% 11/01/06 550 578
HS Resources, Inc.,
9.250% 11/15/06 500 514
Nuevo Energy Co.,
9.500% 04/15/06 1,100 1,177
Pride Petroleum Services, Inc.,
9.375% 05/01/07 500 530
Santa Fe Energy Resources, Inc.,
11.000% 05/15/04 1,500 1,631
United Meridian Corp.,
10.375% 10/15/05 1,610 1,755
----------
6,185
----------
OIL & GAS FIELD SERVICES - 2.8%
Magnum Hunter Resources, Inc.,
10.000% 06/01/07 (b) 750 769
Parker Drilling Corp.,
9.750% 11/15/06 1,500 1,605
Petsec Energy, Inc.,
9.500% 06/15/07 (b) 1,250 1,284
----------
3,658
----------
- --------------------------------------------------------------------------------
RETAIL TRADE - 4.3%
FOOD STORES
Pathmark Stores, Inc.,
9.625% 05/01/03 1,500 1,417
Ralphs Grocery Co.,
10.450% 06/15/04 1,475 1,623
Shoppers Food Warehouse Corp.,
9.750% 06/15/04 (b) 1,500 1,500
Star Markets Co.,
13.000% 11/01/04 1,000 1,137
----------
5,677
----------
</TABLE>
8
<PAGE>
Investment Portfolio/October 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
SERVICES - 14.2%
AMUSEMENT & RECREATION - 0.6%
E&S Holdings,
10.375% 10/01/06 $ 1,000 $ 850
-----------
BUSINESS SERVICES - 4.9%
AmeriServ Food Co.,
10.125% 07/15/07 (b) 2,000 2,080
Borg Warner Security Corp.,
9.625% 03/15/07 1,500 1,549
DecisionOne Corp.,
9.750% 08/01/07 500 515
Loomis Fargo & Co.,
10.000% 01/15/04 1,000 985
Pierce Leahy Corp.,
11.125% 07/15/06 1,105 1,249
-----------
6,378
-----------
HOTEL, CAMPS & LODGING - 8.7%
Eldorado Resorts Corp.,
10.500% 08/15/06 2,005 2,185
Harvey Casinos Resorts,
10.625% 06/01/06 1,750 1,907
HMH Properties, Inc.,
9.500% 05/15/05 1,500 1,583
Horseshoe Gaming, LLC,
9.375% 06/15/07 (b) 1,500 1,534
Showboat, Inc.,
13.000% 08/01/09 2,250 2,588
Station Casinos, Inc.,
10.125% 03/15/06 500 506
Wyndham Hotel Corp.,
10.500% 05/15/06 1,000 1,143
-----------
11,446
-----------
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 23.5%
AIR TRANSPORTATION - 3.8%
U.S. Air, Inc.,
10.375% 03/01/13 2,000 2,235
ValueJet, Inc.,
10.500% 04/15/01 1,500 1,489
Mohegan Tribal Gaming,
13.500% 11/15/02 1,000 1,280
-----------
5,004
-----------
</TABLE>
9
<PAGE>
Investment Portfolio/October 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
CORPORATE FIXED INCOME BONDS &
NOTES (a) - CONT. PAR VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - CONT.
BROADCASTING - 5.3%
Allbritton Communications Co.,
9.750% 11/30/07 $2,000 $ 2,010
Sullivan Broadcasting, Inc.,
10.250% 12/15/05 2,000 2,115
Young Broadcasting Corp.,
11.750% 11/15/04 2,500 2,756
-----------
6,881
-----------
CABLE - 3.2%
Diamond Cable Communication PLC,
stepped coupon,
(10.750% 02/15/07 (e)02/15/02) 1,000 648
Marcus Cable Co., L.P.,
11.875% 10/01/05 1,500 1,627
Telewest Communication PLC,
stepped coupon,
(11.000% 10/01/07 (e)10/01/00) 2,500 1,875
-----------
4,150
-----------
COMMUNICATIONS - 0.7%
Echostar Communications Corp.,
stepped coupon,
(12.875% 06/01/04 (e)06/01/99) 1,000 895
-----------
SANITARY SERVICES - 2.2%
Allied Waste North America,
10.250% 12/01/06 (b) 2,000 2,170
Allied Waste Industries, Inc.,
stepped coupon,
(11.3000% 06/01/07 (e)06/01/02) 1,000 680
-----------
2,850
-----------
TELECOMMUNICATIONS - 7.7%
Brooks Fiber Properties, Inc.,
stepped coupon,
(10.875% 03/01/06 (e)03/01/01) 250 202
BTI Telecom Corp.,
10.500% 09/15/07 (b) 500 495
Comcast Cellular Holdings, Inc.,
9.500% 05/01/07 1,500 1,553
Intermedia Communications, Inc.,
stepped coupon,
(11.25% 07/15/07 (e)07/15/02) 1,000 655
</TABLE>
10
<PAGE>
Investment Portfolio/October 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C> <C>
Metrocall, Inc.,
9.750% 11/01/07 (b) $ 750 $ 743
Metronet Communications-Units,
12.000% 08/15/07 (b)(f) 250 278
Nextel Communications, Inc.,
stepped coupon:
(9.750% 08/15/04 (e)02/15/99) 2,000 1,710
(9.750% 10/31/07 (b)(e)10/31/02) 2,000 1,143
Pegasus Communications Corp.,
9.625% 10/15/05 (b) 500 501
RCN Corp.,
stepped coupon,
(11.125% 10/15/07 (b)(e)10/15/02) 750 431
Sprint Spectrum L.P.,
stepped coupon,
(12.500% 08/15/06 (e)08/15/01) 2,000 1,540
Teleport Communications Group, Inc.,
stepped coupon,
(11.125% 07/01/07 (e)7/01/01) 1,000 785
-----------
10,036
-----------
TRANSPORTATION SERVICES - 0.6%
Williams Scotsman, Inc.,
9.875% 06/01/07 750 773
-----------
TOTAL CORPORATE FIXED INCOME
BONDS & NOTES (cost of $117,625)
122,881
-----------
COMMON STOCKS - 0.3% SHARES
- --------------------------------------------------------------------------------
MINING & ENERGY - 0.2%
OIL & GAS EXTRACTION
Pioneer Natural Resources (g) 8 327
-----------
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.1%
COMMUNICATIONS - 0.1%
Nextel Communications, Inc. Class A (g)(h) 3 79
-----------
MOTOR FREIGHT & WAREHOUSING - 0.0%
St. Johnsbury Trucking Co. (g)(h) 79 1
Sun Carriers, Inc. (g)(h) 326 3
-----------
4
-----------
TOTAL COMMON STOCKS (cost of $1,301) 410
-----------
</TABLE>
11
<PAGE>
Investment Portfolio/October 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PREFERRED STOCKS - 5.8% SHARES VALUE
- --------------------------------------------------------------------------------
<S> <C> <C>
FINANCE, INSURANCE & REAL ESTATE - 0.2%
DEPOSITORY INSTITUTIONS
Cal Fed Bancorp, Inc.
9.125%, Series A 9 $ 224
-----------
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 5.6%
CABLE - 4.2%
Cablevision Systems Corp:
11.750%, Series H, PIK 10 1,168
11.125%, Series M, PIK 16 1,796
Time Warner, Inc.,
10.25%, Series M 2 2,501
-----------
5,465
-----------
COMMUNICATIONS - 1.4%
Nextel Communications, Inc. (b)
13.000%, PIK,
1 1,090
American Communications Services, Inc., (b)
12.750%, (i)
456
K-III Communications Corp., (b)
9.200%,
3 294
-----------
1,840
-----------
TOTAL PREFERRED STOCKS (cost of $7,130)
7,529
-----------
ADJUSTABLE RATE PREFERRED STOCKS - 0.0%
- --------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION, ELECTRIC,
GAS & SANITARY SERVICES - 0.0%
Telecommunication
Nextlink Communications 14.000%, (i) 11
-----------
TOTAL ADJUSTABLE RATE PREFERRED STOCKS (cost of $9)
11
-----------
TOTAL INVESTMENTS - 100.0% (cost of $126,065)(j)
130,831
-----------
SHORT-TERM OBLIGATIONS PAR
- --------------------------------------------------------------------------------
Fed Home Loan Mortgage Corp.,
5.370% (k) 01/26/98 (l) $ 2,000 1,975
5.520% (k) 11/03/97 1,472 1,471
-----------
3,446
-----------
TOTAL SHORT-TERM OBLIGATIONS (cost of $3,447) 3,446
-----------
</TABLE>
12
<PAGE>
Investment Portfolio/October 31, 1997
- --------------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES, NET $ (26,503)
- --------------------------------------------------------------------------------
NET ASSETS $ 107,774
------------
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Industry classification percentages are based on total investments.
Total investments represents 121.4% 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, 1997, the value of these
securities amounted to $24,933 or 23.1% of net assets.
(c) These securities have been purchased on a delayed delivery basis for
settlement at a future date beyond the customary settlement time.
(d) Zero coupon bond.
(e) Currently zero coupon. Shown parenthetically is the next interest
rate to be paid and the date the Fund will begin accruing this rate.
(f) Each unit consists of one senior discount note and one warrant to
purchase common stock.
(g) Non-income producing.
(h) Represents fair value as determined in good faith under the
direction of the Trustees.
(i) Rounds to less than one.
(j) Cost for federal income tax purposes is the same.
(k) Rate represents yield at date of purchase.
(l) This security with a total market value of $1,975, is being used to
collateralize the delayed purchase indicated in note (c) above.
Acronym Name
------------ ---------------
PIK Payment-In-Kind
See notes to financial statements.
13
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
OCTOBER 31, 1997
<TABLE>
<CAPTION>
(in thousands except for per share amount)
ASSETS
<S> <C> <C>
Investments at value (cost $126,065) $ 130,831
Short-term obligations (cost $3,447) 3,446
---------
134,277
Cash $ 1,062
Receivable for:
Interest 2,835
Investments sold 1,275
Dividends 33
Other 9 5,214
--------- ---------
Total Assets 139,491
LIABILITIES
Payable for:
Investments purchased 2,669
Distributions 845
Interest 787
Accrued:
Deferred Trustees fees 2
Other 14
Notes payable 27,400
---------
Total Liabilities 31,717
---------
NET ASSETS at value for 14,818
shares of beneficial interest outstanding $ 107,774
---------
Net asset value per share $ 7.27
---------
COMPOSITION OF NET ASSETS
Capital paid in $ 132,746
Undistributed net investment income 263
Accumulated net realized loss (30,000)
Net unrealized appreciation 4,765
---------
$ 107,774
---------
</TABLE>
14
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED OCTOBER 31, 1997
<TABLE>
<CAPTION>
(in thousands)
INVESTMENT INCOME
<S> <C> <C>
Interest $ 12,703
Dividends 363
--------
13,066
EXPENSES
Management fee $ 680
Transfer agent 51
Bookkeeping fee 46
Trustees fee 14
Custodian fee 12
Audit fee 41
Legal fee 19
Reports to shareholders 12
Other 67
--------
Total operating expenses 942
Interest expense 2,048
--------
Total expenses 2,990
Custodian Credits Earned (7) 2,983
-------- --------
Net Investment Income 10,083
--------
NET REALIZED & UNREALIZED GAIN ON PORTFOLIO POSITIONS
Net realized gain 3,311
Change in net unrealized appreciation during
the period 2,525
--------
Net Gain 5,836
--------
Increase in Net Assets from Operations $ 15,919
--------
</TABLE>
See notes to financial statements.
15
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
<TABLE>
<CAPTION>
Year ended
(in thousands) October 31
---------------------------
INCREASE (DECREASE) IN NET ASSETS 1997 1996
<S> <C> <C>
Operations:
Net investment income $ 10,083 $ 9,809
Net realized gain 3,311 2,367
Net unrealized appreciation 2,525 1,553
--------- ---------
Net Increase from Operations 15,919 13,729
Distributions from net investment income (10,294) (9,870)
--------- ---------
5,625 3,859
Fund share transactions
Value of distributions reinvested 2,224 2,082
--------- ---------
Total Increase 7,849 5,941
NET ASSETS
Beginning of period
99,925 93,984
--------- ---------
End of period (including undistributed net
investment income of $263 and $300,
respectively) $ 107,774 $ 99,925
--------- ---------
NUMBER OF FUND SHARES
Issued for distributions reinvested 312 308
Outstanding at
Beginning of period 14,506 14,198
--------- ---------
End of period 14,818 14,506
--------- ---------
</TABLE>
See notes to financial statements.
16
<PAGE>
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended
(in thousands) October 31
----------
INCREASE (DECREASE) IN NET ASSETS 1997
----------
Operations:
<S> <C> <C>
Net investment income (a) $ 8,385
Net increase in cash from investment activity (b) 727
-------
Net Increase from Operations 9,112
Distributions from net investment income (8,051)
-------
1,061
Cash
Beginning of period 1
-------
End of period $ 1,062
-------
Notes to statement of cash flows:
a) Reconciliation of net investment income:
Net investment income per books $ 10,083
Net change in assets and liabilities related
to income and expenses, including net
accretion and amortization (1,698)
-----------
Net investment income-cash basis $ 8,385
-----------
b) Net increase in cash from investment
activity
Receipts for investments sold $ 1,001,702
Cost of investments purchased (1,000,975)
-----------
$ 727
-----------
</TABLE>
See notes to financial statements.
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
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
18
<PAGE>
Notes to Financial Statements/October 31, 1997
- --------------------------------------------------------------------------------
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, 1997.
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 Adviser) is
the investment adviser 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 Adviser provides bookkeeping and pricing services for
$27,000 per year plus 0.035% of the Fund's average net assets over $50 million.
19
<PAGE>
Notes to Financial Statements/October 31, 1997
- --------------------------------------------------------------------------------
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES - CONT.
- --------------------------------------------------------------------------------
OTHER: The Fund pays no compensation to its officers, all of whom are
employees of the Adviser.
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, 1997, purchases and sales
of investments, other than short-term obligations, were $115,927,940 and
$116,964,240, respectively, of which none and $2,318,589, respectively, were
U.S. government securities.
Unrealized appreciation (depreciation) at October 31, 1997, based on cost of
investments for both financial statement and federal income tax purposes was:
Gross unrealized appreciation $ 6,245,892
Gross unrealized depreciation (1,480,936)
-----------
Net unrealized appreciation $ 4,764,956
-----------
Capital loss carryforwards: At October 31, 1997, 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 $18,431,000
2000 9,467,000
2003 2,103,000
-----------
$30,001,000
-----------
Expired capital loss carryforwards, if any, are recorded as a reduction of
capital paid in.
To the extent loss carryforwards are used to offset any future realized gains,
it is unlikely that such gains would be distributed since they may be taxable to
shareholders as ordinary income.
OTHER: The Fund may focus its investments in certain industries, sub-
jecting it to greater risk than a fund that is more diversified.
NOTE 4. LOAN AGREEMENT
- --------------------------------------------------------------------------------
At October 31, 1997, the Fund had a $27,400,000 term loan with Bank of America
Illinois which bears interest at 7.33% per annum, due June 14, 1999. The Fund is
required to maintain certain asset coverage with respect to the loan.
20
<PAGE>
FINANCIAL HIGHLIGHTS
Selected per share data, total return, ratios and supplemental data throughout
each period are as follows:
<TABLE>
<CAPTION>
Year ended October 31
---------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Net asset value -
Beginning of period $ 6.890 $ 6.620 $ 6.280
-------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.699(b) 0.699 0.696
Net realized and
unrealized gain (loss) 0.383 0.258 0.340
-------- ------- -------
Total from Investment
Operations 1.082 0.957 1.036
-------- ------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.702) (0.687) (0.696)
-------- ------- -------
Net asset value -
End of period $ 7.270 $ 6.890 $ 6.620
-------- ------- -------
Market price per share $ 7.562 $ 7.125 $ 6.875
-------- ------- -------
Total return - based on market
value (a) 16.97% 14.62% 33.00%
-------- ------- -------
RATIOS TO AVERAGE NET ASSETS
Operating expenses 0.89%(b) 0.98%(b) 0.95%(b)
Interest and amortization of
deferred debt issuance expenses 1.96% 2.07% 1.94%
Total expenses 2.85% 3.05% 2.89%
Net investment income 9.63%(b) 10.11%(b) 10.76%(b)
Portfolio turnover 92% 92% 92%
Net assets at end
of period (000) $107,774 $99,925 $93,984
</TABLE>
(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.
Prior years' ratios are net of benefits received, if any.
21
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Selected per share data, total return, ratios and supplemental data throughout
each period are as follows:
<TABLE>
<CAPTION>
Year ended October 31
-----------------------
1994 1993
<S> <C> <C>
Net asset value -
Beginning of period $ 6.920 $ 6.430
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income
0.693 0.709
Net realized and
unrealized gain (loss) (0.587) 0.497
------- -------
Total from Investment
Operations
0.106 1.206
------- -------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income
(0.746) (0.716)
------- -------
Net asset value -
End of period $ 6.280 $ 6.920
------- -------
Market price per share $ 5.750 $ 6.625
------- -------
Total return - based on market
value (a) (2.80)% 17.89%
------- -------
RATIOS TO AVERAGE NET ASSETS
Operating expenses 0.97% 1.00%
Interest and amortization of
deferred debt issuance expenses 1.91% 2.66%
Total expenses 2.88% 3.66%
Net investment income 10.40% 10.62%
Portfolio turnover 160% 135%
Net assets at end
of period (000) $87,519 $95,164
</TABLE>
(a) Total return at market value assuming all distributions reinvested and
excluding brokerage commissions.
- -----------------------------------------------------------------------------
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
---- ----------- --------- ----------- ------------
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
1993 $27,400,000 347% NA 100
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO 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, 1997, 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, 1997 by correspondence with the custodian and brokers and the
application of alternative auditing procedures where confirmations from brokers
were not received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
December 10, 1997
23
<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 pu
rchased under the Plan are held in uncertificated form. Each shareholder's pro
xy 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 Investors Services Group, the Plan agent, by mail at P.O.
Box 1376, Boston, MA 02104 or by phone at 1-800-331-1710.
- --------------------------------------------------------------------------------
24
<PAGE>
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25
<PAGE>
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26
<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Intermediate High Income Fund is:
First Data Investors Services Group
P.O. Box 1376
Boston, MA 02104
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.
27
<PAGE>
- --------------------------------------------------------------------------------
TRUSTEES
ROBERT J. BIRNBAUM
Retired (formerly Special Counsel, Dechert, Price & Rhoads; President and Chief
Operating Officer, New York Stock Exchange, Inc.)
TOM BLEASDALE
Retired (formerly Chairman of the Board and Chief Executive Officer, Shore Bank
& Trust Company)
LORA S. COLLINS
Attorney (formerly Attorney, Kramer, Levin, Naftalis, Nessen, Kamin & Frankel)
JAMES E. GRINNELL
Private Investor (formerly Senior Vice President-Operations, The Rockport
Company)
WILLIAM D. IRELAND, JR.
Retired (formerly Chairman of the Board, Bank of New England-Worcester)
RICHARD W. LOWRY
Private Investor (formerly Chairman and Chief Executive Officer, U.S. Plywood
Corporation)
WILLIAM E. MAYER
Partner, Development Capital, L.L.C. (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 and Chief Executive Officer, Hannaford
Bros. Co.)
JOHN J. NEUHAUSER
Dean, Boston College School of Management
GEORGE L. SHINN
Financial Consultant (formerly Chairman, Chief Executive Officer and Consultant,
The First Boston Corporation)
ROBERT L. SULLIVAN
Retired Partner, Peat Marwick Main & Co. (formerly Management Consultant,
Saatchi and Saatchi Consulting Ltd. and Principal and International Practice
Director, Management Consulting, Peat Marwick Main & Co.)
SINCLAIR WEEKS, JR.
Chairman of the Board, Reed & Barton Corporation
IH-02/351E-1097(12/97)
- --------------------------------------------------------------------------------
