<PAGE>
[Graphic Omitted]
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COLONIAL INTERMARKET INCOME TRUST I ANNUAL REPORT
- -----------------------------------------------------
November 30, 1998
<PAGE>
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COLONIAL INTERMARKET INCOME TRUST I HIGHLIGHTS
DECEMBER 1, 1997 - NOVEMBER 30, 1998
INVESTMENT OBJECTIVE: Colonial InterMarket Income Trust I seeks as high a level
of current income and total return as is consistent with prudent risk, by
diversifying investments primarily in U.S. and foreign government, and
lower-rated corporate debt securities.
THE FUND IS DESIGNED TO OFFER:
|X| Potential for higher, more consistent income
|X| Diversification to help reduce risk and improve price stability
|X| Monthly distributions to help meet your financial needs
PORTFOLIO MANAGER COMMENTARY: "During the past 12 months, each of the Trust's
principal investment sectors experienced attractive returns at different times,
highlighting the advantage of diversification. During the first half of the
period, strong economic growth and good corporate earnings benefited high-yield
corporate bonds. Emerging-market bonds in eastern Europe and Latin America also
had good performance during the first part of the year. Later, as investors
became concerned with global financial issues, they sought strong liquidity and
high credit quality. This "flight to quality" increased demand for U.S. Treasury
bonds, pushing up prices and generating attractive gains in this sector."
- Carl Ericson
COLONIAL INTERMARKET INCOME TRUST I PERFORMANCE
12-month distributions declared per share $1.014
- -------------------------------------------------------------------------------
12-month total return, assuming
reinvestment of all distributions
|X| NAV 6.85%
|X| Market Price 6.26%
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Price per share on 11/30/98
|X| NAV $11.13
|X| Market Price $10.56
- -------------------------------------------------------------------------------
GOVERNMENT BREAKDOWN
SECURITIES BREAKDOWN TOP FIVE FOREIGN COUNTRIES
(as of 11/30/98) (as of 11/30/98)
- ------------------------------------- -------------------------------------
1. High yield corporate ..... 40.6% 1. United Kingdom ........... 6.9%
2. U.S. govt. & agency ...... 30.4% 2. Greece ................... 3.3%
3. Foreign govt. & agency ... 25.2% 3. Mexico ................... 2.8%
4. Other .................... 3.8% 4. Argentina ................ 2.4%
5. Australia ................ 2.3%
Securities breakdown and country weightings are calculated as a percentage of
total net assets.
Because the Trust is actively managed, there can be no guarantee the Trust will
continue to maintain these country weightings or invest in these sectors in the
future.
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<PAGE>
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PRESIDENT'S MESSAGE
TO FUND SHAREHOLDERS
[Photo of Stephen E. Gibson]
I am pleased to present the annual report for Colonial InterMarket Income Trust
I. This report reflects on the investment environment for the 12 months ended
November 30, 1998.
The past 12 months were characterized by changing investment conditions.
Initially, investors were concerned with the Asian economic crisis and its
potential impact on financial markets worldwide. During the summer, the
emergence of serious economic problems in Russia and Latin America renewed
concerns of a global economic slowdown. As a result, investors around the world
sought "safe havens" in strong currencies and relatively stable investments.
This "flight to quality" increased demand for U.S. government bonds, and
interest rates fell sharply. During the last part of the period, the Federal
Reserve Board announced three successive interest rate cuts, sending U.S. stock
and bond prices higher as investors generally concluded that lower rates would
stimulate the world's economies. 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 considerable volatility during the year, the Trust's diversification
acted to cushion the negative effects of dramatic market swings. The three
market sectors in which the Trust invests generally are not synchronized. As a
result, the Trust's diversification among foreign government, U.S. government
and corporate bonds may provide shareholders with a stabilizing effect during
periods of market uncertainty, as well as current income and long-term growth
potential.
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.
Respectfully,
/s/ Stephen E. Gibson
Stephen E. Gibson
President
January 13, 1999
Because market and economic conditions change, there can be no assurance that
the trends described above will continue.
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<PAGE>
INVESTMENT PORTFOLIO
NOVEMBER 30, 1998 (IN THOUSANDS)
BONDS & NOTES - 96.2%
- -------------------------------------------------------------------------------
CORPORATE FIXED-INCOME BONDS & NOTES - 40.3% PAR VALUE
- -------------------------------------------------------------------------------
CONSTRUCTION - 0.6%
BUILDING CONSTRUCTION
Nortek, Inc.,
8.875% 08/01/08 (a) $ 750 $ 765
--------
- ----------------------------------------------------------------------------
MANUFACTURING - 16.7%
CHEMICALS & ALLIED PRODUCTS - 4.3%
ClimaChem, Inc.,
10.750% 12/01/07 500 512
HydroChem Industrial Services, Inc.,
10.375% 08/01/07 490 465
LaRoche Industries, Inc.,
9.500% 09/15/07 1,000 820
PCI Chemicals Canada, Inc.,
9.250% 10/15/07 (b) 250 205
Revlon Consumer Products Corp.,
9.000% 11/01/06 1,000 1,029
Sterling Chemicals, Inc.,
11.750% 08/15/06 500 430
Styling Technology Corp.,
10.875% 07/01/08 (a) 500 468
Texas Petrochemical Corp.,
11.125% 07/01/06 400 400
Trans Resources, Inc.,
10.750% 03/15/08 1,000 990
--------
5,319
--------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.2%
Amphenol Corp.,
9.875% 05/15/07 250 258
--------
FABRICATED METAL - 0.8%
Euramax International, PLC,
11.250% 10/01/06 (c) 1,000 995
--------
FOOD & KINDRED PRODUCTS - 0.7%
Chiquita Brands International, Inc.,
10.250% 11/01/06 750 788
--------
MACHINERY & COMPUTER EQUIPMENT - 0.7%
IMO Industries, Inc.,
11.750% 05/01/06 750 780
--------
MEASURING & ANALYZING INSTRUMENTS - 0.4%
Intertek Finance, PLC,
10.250% 11/01/06 (c) 500 501
--------
MISCELLANEOUS MANUFACTURING - 4.2%
AEI Holding Co.,
10.000% 11/15/07 500 515
Eagle-Picher Industries, Inc.,
9.375% 03/01/08 875 836
Huntsman Corp.,
9.500% 07/01/07 (d) 500 500
ISG Resources, Inc.,
10.000% 04/15/08 250 251
Newcor, Inc.,
9.875% 03/01/08 1,000 960
Tekni-Plex, Inc.,
9.250% 03/01/08 500 522
Thermadyne Holdings Corp.,
9.875% 06/01/08 850 816
Werner Holdings Co., Inc.,
10.000% 11/15/07 750 743
--------
5,143
--------
PAPER PRODUCTS - 1.3%
Repap New Brunswick, Inc.,
10.625% 04/15/05 750 596
Riverwood International Corp.,
10.625% 08/01/07 1,000 1,023
--------
1,619
--------
PRIMARY METALS - 2.9%
Algoma Steel, Inc.,
12.375% 07/15/05 1,000 800
Bayou Steel Corp.,
9.500% 05/15/08 500 479
Keystone Consolidated Industries, Inc.,
9.625% 08/01/07 500 494
WCI Steel, Inc.,
10.000% 12/01/04 1,000 1,025
WHX Corp.,
10.500% 04/15/05 750 723
--------
3,521
--------
PRINTING & PUBLISHING - 0.4%
American Lawyer Media, Inc.,
9.750% 12/15/07 450 472
--------
RUBBER & PLASTIC - 0.2%
Burke Industries, Inc.,
10.000% 08/15/07 300 297
--------
TRANSPORTATION EQUIPMENT - 0.6%
LDM Technologies, Inc.,
10.750% 01/15/07 750 742
--------
- -------------------------------------------------------------------------------
MINING & ENERGY - 2.1%
OIL & GAS EXTRACTION - 1.8%
Magnum Hunter Resources, Inc.,
10.000% 06/01/07 750 638
Mariner Energy Corp.,
10.500% 08/01/06 1,000 910
Petsec Energy, Inc.,
9.500% 06/15/07 750 615
--------
2,163
--------
OIL & GAS FIELD SERVICES - 0.3%
Chiles Offshore Corp.,
10.000% 05/01/08 500 430
--------
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RETAIL TRADE - 1.6%
FOOD STORES
Pathmark Stores, Inc.:
9.625% 05/01/03 1,000 1,000
stepped coupon, (10.750% 11/01/99)
(e) 11/01/03 750 615
Richmont Marketing Specialists, Inc.,
10.125% 12/15/07 (a) 500 365
--------
1,980
--------
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SERVICES - 3.1%
AMUSEMENT & RECREATION - 0.9%
Regal Cinemas, Inc.,
9.500% 06/01/08 (a) 1,000 1,050
--------
BUSINESS SERVICES - 0.4%
PSINet, Inc.,
10.000% 02/15/05 500 506
--------
HEALTH SERVICES - 0.4%
Conmed Corp.,
9.000% 03/15/08 500 500
--------
HOTELS, CAMPS & LODGING - 0.8%
Station Casinos, Inc.,
8.875% 12/01/08 (d) 1,000 1,010
--------
PERSONAL SERVICES - 0.6%
Williams Scotsman, Inc.,
9.875% 06/01/07 750 784
--------
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TRANSPORTATION, COMMUNICATION,
ELECTRIC, GAS & SANITARY SERVICES - 16.2%
AIR TRANSPORTATION - 0.6%
Trans World Airlines, Inc.,
11.375% 03/01/06 1,000 690
--------
BROADCASTING - 1.9%
LIN Holding Corp.,
stepped coupon, (10.000% 03/01/03)
(e) 03/01/08 1,000 695
Renaissance Media Group,
stepped coupon, (10.000% 04/15/03)
(e) 04/15/08 875 604
Young Broadcasting Corp.,
10.125% 02/15/05 1,000 1,050
--------
2,349
--------
CABLE - 2.8%
Comcast UK Cable Partners Ltd.,
stepped coupon, (11.200% 11/15/00)
(e) 11/15/07 (c) 1,250 1,075
Diamond Cable Co.,
stepped coupon, (10.750% 02/15/02)
(e) 02/15/07 1,000 720
Northland Cable Television, Inc.,
10.250% 11/15/07 250 265
Shop At Home, Inc.,
11.000% 04/01/05 500 505
Telewest Communication, PLC,
stepped coupon, (11.000% 10/01/00)
(e) 10/01/07 (c) 1,000 840
--------
3,405
--------
COMMUNICATIONS - 1.6%
Call-Net Enterprises, Inc.,
stepped coupon, (8.940% 08/15/03)
(e) 08/15/08 750 450
Price Communications Wireless, Inc., PIK,
11.250% 08/15/08 500 490
Splitrock Services, Inc.,
11.750% 07/15/08 (a) 500 445
Time Warner Telecom L.L.C.,
9.750% 07/15/08 500 530
--------
1,915
--------
MOTOR FREIGHT & WAREHOUSING - 0.2%
MTL, Inc.,
10.000% 06/15/06 (a) 250 250
--------
SANITARY SERVICES - 0.7%
Allied Waste Industries, Inc.,
stepped coupon, (11.300% 06/01/02)
(e) 06/01/07 1,000 865
--------
TELECOMMUNICATIONS - 8.4%
Adelphia Communications Corp.,
9.875% 03/01/07 750 827
Arch Communication Group, Inc.,
12.750% 07/01/07 250 236
Clearnet Communications, Inc.,
stepped coupon, (14.750% 12/15/00)
(e) 12/15/05 750 656
GST Telecom/GST Network Funding, Inc.,
stepped coupon, (10.500% 05/01/03)
(e) 05/01/08 (a) 500 244
Hyperion Telecommunications, Inc.,
stepped coupon, (13.000% 04/15/01)
(e) 04/15/03 (a) 500 375
Intermedia Communications, Inc.,
stepped coupon, (11.250% 07/15/02)
(e) 07/15/07 500 355
Level 3 Communications, Inc.:
9.125% 05/01/08 500 500
stepped coupon, (10.500% 12/01/03)
(e) 12/01/08 (d) 2,500 1,500
McLeodUSA, Inc.:
8.375% 03/15/08 500 503
9.500% 11/01/08 (a) 1,000 1,070
Metrocall, Inc.,
9.750% 11/01/07 750 750
Metronet Communications Corp.:
12.000% 08/15/07 250 278
stepped coupon, (9.950% 06/15/03)
(e) 06/15/08 500 310
Nextlink Communications, Inc.,
stepped coupon, (9.450% 04/15/03) 500 295
(e) 04/15/08
Price Communications Wireless,
9.125% 12/15/06 (a) 750 780
RCN Corp.,
stepped coupon, (11.125% 10/15/02)
(e) 10/15/07 750 437
Sprint Spectrum L.P.,
stepped coupon, (12.500% 08/15/01)
(e) 08/15/06 750 688
Verio, Inc.,
10.375% 04/01/05 500 502
--------
10,306
--------
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES (cost of $50,605) 49,403
--------
U.S. GOVERNMENT & AGENCY OBLIGATIONS - 30.4%
- ----------------------------------------------------------------------------
Government National Mortgage Association:
9.000% 2016 1,307 1,406
10.500% 2015- 2020 142 156
11.000% 2018- 2019 821 917
--------
2,479
--------
U.S. Treasury Bonds:
8.750% 05/15/17 3,125 4,383
11.625% 11/15/04 (f) 12,602 17,026
12.000% 08/15/13 (f)(g) 5,952 9,108
--------
30,517
--------
U.S. Treasury Notes,
11.875% 11/15/03 3,214 4,211
--------
TOTAL U.S. GOVERNMENT & AGENCY
OBLIGATIONS (cost of $35,754) 37,207
--------
FOREIGN GOVERNMENT &
AGENCY OBLIGATIONS - 25.2% CURRENCY
- ----------------------------------------------------------------------------
Argentina Global Bonds,
11.375% 01/30/17 (h) 2,150 2,159
Government of Canada,
10.000% 06/01/08 C$ 520 465
Government of France:
8.500% 04/25/03 FF 8,980 1,893
8.500% 10/25/08 FF 1,650 394
Government of Mexico,
11.375% 09/15/16 (i) 2,615 2,780
Government of Sweden,
10.250% 05/05/03 SK 10,800 1,659
Hellenic Republic:
8.600% 03/26/08 GD 346,000 1,299
8.800% 06/19/07 GD 190,000 713
8.900% 03/21/04 GD 571,000 2,056
Province of Ontario,
8.250% 12/01/05 C$ 2,043 1,571
Republic of Argentina,
11.250% 04/10/06 (j) DM 1,200 756
Republic of Brazil,
10.125% 05/15/27 (k) 1,920 1,439
Republic of Bulgaria (Brady),
6.688% 07/28/11 (l) 1,500 1,093
Republic of Panama,
8.875% 09/30/27 (m) 650 613
Russian Federation,
11.000% 07/24/18 (n) 650 156
Treasury Corp. Victoria:
10.250% 11/15/06 A$ 1,691 1,396
12.500% 10/15/03 A$ 1,670 1,380
United Kingdom Treasury:
9.000% 08/06/12 KB 980 2,302
10.000% 02/26/01 KB 1,395 2,521
10.000% 09/08/03 KB 1,785 3,574
United Mexican States,
10.375% 01/29/03 (o) DM 980 615
--------
TOTAL FOREIGN GOVERNMENT & AGENCY
OBLIGATIONS (cost of $30,696) 30,834
--------
CORPORATE CONVERTIBLE BONDS - 0.3%
- ----------------------------------------------------------------------------
MINING & ENERGY - 0.3%
OIL & GAS EXTRACTION
HS Resources, Inc.,
(cost of $398) 9.250% 11/15/06 400 396
--------
TOTAL BONDS & NOTES (cost of $117,453) 117,840
--------
PREFERRED STOCKS - 2.5% SHARES
- ----------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.2%
DEPOSITORY INSTITUTIONS
California Federal Bancorp Corp.,
9.125%, Series A 9 220
--------
- ----------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION,
ELECTRIC, GAS & SANITARY SERVICES - 2.3%
BROADCASTING - 0.2%
PRIMEDIA, Inc., 9.200% 3 291
--------
CABLE - 0.3%
EchoStar Communications Corp., 12.125% (p) 309
--------
TELECOMMUNICATIONS - 1.8%
Concentric Network Corp., 13.500% 1 447
Nextel Communications, Inc.:
11.125%, PIK 1 517
13.000%, PIK 1 1,248
--------
2,212
--------
TOTAL PREFERRED STOCKS (cost of $3,048) 3,032
--------
WARRANTS - 0.0% (q)(r)
- ----------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION,
ELECTRIC, GAS & SANITARY SERVICES - 0.0%
COMMUNICATIONS - 0.0%
Clearnet Communications, Inc., 2 16
(expires 09/15/05)
Splitrock Services, Inc., (a)
(expires 07/15/08) 1 5
--------
21
--------
TELECOMMUNICATION - 0.0%
Metronet Communications Corp., (a)
(expires 08/15/07) (p) 9
--------
TOTAL WARRANTS (cost of $21) 30
--------
COMMON STOCKS - 0.0% (q)(r)
- ----------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATION,
ELECTRIC, GAS & SANITARY SERVICES - 0.0%
MOTOR FREIGHT & WAREHOUSING
St. Johnsbury Trucking Co. 16 (p)
Sun Carriers, Inc. 65 1
--------
TOTAL COMMON STOCKS (cost of $180) 1
--------
TOTAL INVESTMENTS - 98.7% (cost of $120,702)(s) 120,903
--------
SHORT-TERM OBLIGATIONS - 2.4% PAR
- ----------------------------------------------------------------------------
Repurchase agreement with ABN AMRO Chicago Corp.,
dated 11/30/98, due 12/01/98 at 5.200%, collateralized
by U.S. Treasury notes with various maturities to
2021, market value $3,041 (repurchase proceeds
$2,973) $ 2,973 2,973
--------
FORWARD CURRENCY CONTRACTS - 0.1% (t) 110
- ----------------------------------------------------------------------------
OTHER ASSETS & LIABILITIES - (1.2)% (1,496)
- ----------------------------------------------------------------------------
NET ASSETS - 100.0% $122,490
--------
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) 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 November 30,
1998, the value of these securities amounted to $6,341 or 5.2% of net
assets.
(b) This is a Canadian security. Par amount is stated in U.S. dollars.
(c) This is a British security. Par amount is stated in U.S. dollars.
(d) These securities have been purchased on a delayed delivery basis for
settlement at a future date beyond customary settlement time.
(e) Currently zero coupon. Shown parenthetically is the interest rate to be paid
and the date the Fund will begin accruing this rate.
(f) These securities, or a portion thereof, with a total market value of $16,283
are being used to collateralize the forward currency contracts shown below.
(g) This security, or a portion thereof, with a total market value of $3,283 is
being used to collateralize the delayed delivery purchases indicated in note
(d) above.
(h) This is an Argentinean security. Par amount is stated in U.S. dollars.
(i) This is a Mexican security. Par amount is stated in U.S. dollars.
(j) This is an Argentinean security. Par amount is stated in German
Deutschemarks.
(k) This is a Brazilian security. Par amount is stated in U.S. dollars.
(l) This is a Bulgarian security. Par amount is stated in U.S. dollars.
(m) This is a Panamanian security. Par amount is stated in U.S. dollars.
(n) This is a Russian security. Par amount is stated in U.S. dollars.
(o) This is a Mexican security. Par amount is stated in German Deutschemarks.
(p) Rounds to less than one.
(q) Non-income producing.
(r) Represents fair value as determined in good faith under the direction of the
Trustees.
(s) Cost for federal income tax purposes is $120,840.
(t) As of November 30, 1998, the Fund had entered into the following forward
currency exchange contracts:
Net Unrealized
Appreciation
Contracts In Exchange Settlement (Depreciation)
to Deliver For Date (U.S$)
-------------- ------------ ---------- -------------
A$ 4,138 US$ 2,590 12/07/1998 $ (8)
C$ 3,135 US$ 2,030 12/14/1998 (16)
SK 13,723 US$ 1,705 12/16/1998 18
KB 4,380 US$ 7,339 12/21/1998 126
FF 6,720 US$ 1,175 01/13/1999 (10)
-----
$ 110
-----
Summary of Securities
by Country/Currency Currency Value % of Total
----------------------------------------------------------------------
United States $ 86,453 71.5
United Kingdom KB 11,808 9.8
Greece GD 4,068 3.3
Mexico 3,395 2.8
Argentina 2,915 2.4
Australia A$ 2,776 2.3
France FF 2,287 1.9
Canada C$ 2,241 1.9
Sweden SK 1,659 1.4
Brazil 1,439 1.2
Bulgaria 1,093 0.9
Panama 613 0.5
Russia 156 0.1
-------- -----
$120,903 100.0
-------- -----
Certain securities are listed by country of underlying exposure but may
trade predominantly on other exchanges.
Acronym Name
------- ----
PIK Payment-In-Kind
DM German Deutschemarks
See notes to financial statements.
<PAGE>
STATEMENT OF ASSETS & LIABILITIES
NOVEMBER 30, 1998
(in thousands except for per share amount)
ASSETS
Investments at value (cost $120,702) $ 120,903
Short-term obligations 2,973
---------
123,876
Receivable for:
Interest $ 2,348
Unrealized appreciation on forward
currency contracts 144
Other 18 2,510
------- ---------
Total Assets 126,386
LIABILITIES
Payable for:
Investments purchased 2,985
Distributions 859
Unrealized depreciation on forward
currency contracts 34
Accrued:
Deferred Trustees fees 4
Other 14
-------
Total Liabilities 3,896
---------
NET ASSETS at value for 11,009
shares of beneficial interest outstanding $ 122,490
---------
Net asset value per share $ 11.13
---------
COMPOSITION OF NET ASSETS
Capital paid in $ 122,282
Undistributed net investment income 81
Accumulated net realized loss (192)
Net unrealized appreciation on:
Investments 201
Foreign currency transactions 118
---------
$ 122,490
---------
See notes to financial statements.
<PAGE>
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED NOVEMBER 30, 1998
(in thousands)
INVESTMENT INCOME
Interest $ 10,988
Dividends 394
---------
11,382
EXPENSES
Management fee $ 933
Transfer agent 35
Bookkeeping fee 35
Trustees fee 14
Custodian fee 22
Audit fee 35
Legal fee 5
Reports to shareholders 12
Other 60 1,151
------- ---------
Net Investment Income 10,231
---------
NET REALIZED & UNREALIZED GAIN (LOSS) ON PORTFOLIO POSITIONS
Net realized gain (loss) on:
Investments (41)
Foreign currency transactions 626
-------
Net Realized Gain 585
Net change in unrealized depreciation
during the period on:
Investments (3,160)
Foreign currency transactions (15)
-------
Net Change in Unrealized Depreciation (3,175)
---------
Net Loss (2,590)
---------
Increase in Net Assets from Operations $ 7,641
---------
See notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
(in thousands) Year ended November 30
------------------------
INCREASE (DECREASE) IN NET ASSETS 1998 1997
Operations:
Net investment income $ 10,231 $ 10,074
Net realized gain 585 2,029
Net unrealized depreciation (3,175) (2,173)
-------- --------
Net Increase from Operations 7,641 9,930
Distributions:
From net investment income (10,230) (10,754)
In excess of net investment income (26) -
From net realized gains (305) -
In excess of net realized gains (601) -
-------- --------
Total Decrease (3,521) (824)
-------- --------
NET ASSETS
Beginning of period 126,011 126,835
-------- --------
End of period (including undistributed and net
of overdistributed net investment income of
$81 and $70, respectively) $122,490 $126,011
-------- --------
NUMBER OF FUND SHARES
Outstanding at end of period 11,009 11,009
-------- --------
See notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998
NOTE 1. ACCOUNTING POLICIES
- ------------------------------------------------------------------------------
ORGANIZATION: Colonial InterMarket Income Trust I (the Trust), is a
Massachusetts business trust registered under the Investment Company Act of
1940, as amended, as a diversified, closed-end, management investment company.
The Trust's investment objective is to seek as high a level of current income
and total return as is consistent with prudent risk, by diversifying investments
primarily in U.S. and foreign government and lower-rated corporate debt
securities. The Trust 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 that are consistently followed by the Trust 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.
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.
Forward currency contracts are valued based on the weighted value of the
exchange traded contracts with similar durations.
Short-term obligations with a maturity of 60 days or less are valued at
amortized cost.
The value of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates.
Portfolio positions for which market quotations are not readily available are
valued at fair value under procedures approved by the Trustees.
Security transactions are accounted for on the date the securities are
purchased, sold or mature.
Cost is determined and gains (losses) are based upon the specific identification
method for both financial statement and federal income tax purposes.
The Trust 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 Trust to subsequently invest at less advantageous prices.
FEDERAL INCOME TAXES: Consistent with the Trust'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 Trust's capital
accounts to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
FOREIGN CURRENCY TRANSACTIONS: Net realized and unrealized gains (losses) on
foreign currency transactions includes gains (losses) arising from the
fluctuation in exchange rates between trade and settlement dates on securities
transactions, gains (losses) arising from the disposition of foreign currency
and currency gains (losses) between the accrual and payment dates on dividends,
interest income and foreign withholding taxes.
The Trust does not distinguish that portion of gains (losses) on investments
which is due to changes in foreign exchange rates from that which is due to
changes in market prices of the investments. Such fluctuations are included with
the net realized and unrealized gains (losses) on investments.
FORWARD CURRENCY CONTRACTS: The Trust may enter into forward currency contracts
to purchase or sell foreign currencies at predetermined exchange rates in
connection with the settlement of purchases and sales of securities.
The Trust may also enter into forward currency contracts to hedge certain other
foreign currency denominated assets. The contracts are used to minimize the
exposure to foreign exchange rate fluctuations during the period between trade
and settlement date of the contracts. All contracts are marked-to-market daily,
resulting in unrealized gains (losses) which become realized at the time the
forward currency contracts are closed or mature. Realized and unrealized gains
(losses) arising from such transactions are included in net realized and
unrealized gains (losses) on foreign currency transactions. Forward currency
contracts do not eliminate fluctuations in the prices of the Trust's portfolio
securities. While the maximum potential loss from such contracts is the
aggregate face value in U.S. dollars at the time the contract was opened,
exposure is typically limited to the change in value of the contract (in U.S.
dollars) over the period it remains open. Risks may also arise if counterparties
fail to perform their obligations under the contracts.
OTHER: Corporate actions are recorded on the ex-date (except for certain foreign
securities which are recorded as soon after ex-date as the Trust becomes aware
of such), net of nonreclaimable tax withholdings. Where a high level of
uncertainty as to collection exists, income on securities is recorded net of all
tax withholdings with any rebates recorded when received.
The Trust'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 Trust. The Trust may experience costs and delays in
liquidating the collateral if the issuer defaults or enters bankruptcy.
NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES
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MANAGEMENT FEE: Colonial Management Associates, Inc. (the Advisor) is the
investment Advisor of the Trust and furnishes accounting and other services and
office facilities for a monthly fee equal to 0.75% annually of the Trust's
average weekly net assets.
BOOKKEEPING FEE: The Advisor provides bookkeeping and pricing services for
$18,000 per year plus 0.0233% of the Trust's average net assets over $50
million.
OTHER: The Trust pays no compensation to its officers, all of whom are employees
of the Advisor.
The Trust'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 Trust's assets.
NOTE 3. PORTFOLIO INFORMATION
- ------------------------------------------------------------------------------
INVESTMENT ACTIVITY: During the year ended November 30, 1998, purchases and
sales of investments, other than short-term obligations, were $123,479,920 and
$119,112,450, respectively, of which $13,710,559 and $9,759,992, respectively,
were U.S. government securities.
Unrealized appreciation (depreciation) at November 30, 1998, based on cost of
investments for federal income tax purposes was:
Gross unrealized appreciation $ 3,580,683
Gross unrealized depreciation (3,517,299)
-----------
Net unrealized appreciation $ 63,384
-----------
CAPITAL LOSS CARRYFORWARDS: At November 30, 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
------------- -------------
2008 $ 58,000
Expired capital loss carryforwards, if any, are recorded as a reduction of
capital paid in.
To the extent loss carryforwards are used to offset any future realized gains,
it is unlikely that such gains would be distributed since they may be taxable to
shareholders as ordinary income.
OTHER: There are certain additional risks involved when investing in foreign
securities that are not inherent with investments in domestic securities. These
risks may involve foreign currency exchange rate fluctuations, adverse political
and economic developments and the possible prevention of currency exchange or
the imposition of other foreign governmental laws or restrictions.
The Trust may focus its investments in certain industries, subjecting it to
greater risk than a trust that is more diversified.
<PAGE>
FINANCIAL HIGHLIGHTS
Selected per share data, total return, ratios and supplemental data throughout
each period are as follows:
<TABLE>
<CAPTION>
Year ended November 30
----------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Net asset value -
Beginning of period $ 11.450 $ 11.520 $ 11.270
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.945 0.911 1.003
Net realized and
unrealized gain (loss) (0.251) (0.004) 0.242
-------- -------- --------
Total from Investment
Operations 0.694 0.907 1.245
-------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.930) (0.977) (0.995)
In excess of net investment income (0.002) - -
From net realized gains (0.028) - -
In excess of net realized gains (0.054) - -
-------- -------- --------
Total Distributions
Declared to Shareholders (1.014) (0.977) (0.995)
-------- -------- --------
Net asset value -
End of period $ 11.130 $ 11.450 $ 11.520
-------- -------- --------
Market price per share -
End of period $ 10.562 $ 10.940 $ 10.630
-------- -------- --------
Total return - based on
net asset value (a) 6.85% 8.71% 11.94%
-------- -------- --------
Total return - based on
market value (b) 6.26% 12.62% 8.30%
-------- -------- --------
RATIOS TO AVERAGE NET ASSETS
Expenses (c) 0.93% 0.96% 0.95%
Net investment income (c) 8.22% 8.06% 8.33%
Portfolio turnover 99% 154% 117%
Net assets at end
of period (000) $ 122,490 $ 126,011 $ 126,835
(a) Total return at net asset value assuming all distributions reinvested.
(b) Total return at market value assuming all distributions reinvested and excluding brokerage
commissions.
(c) The benefits derived from custody credits and directed brokerage arrangements had no impact.
</TABLE>
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1998 Federal Tax Information (unaudited)
An average of 25% of the Fund's investments, as of the end of each
quarter, were in direct obligations of the U.S. Treasury.
Approximately 25% of the Fund's distributions (18% of gross
income) were derived from interest on direct investments in U.S.
Treasury bonds, notes, and bills.
- -------------------------------------------------------------------------------
<PAGE>
FINANCIAL HIGHLIGHTS - CONT.
Selected per share data, total return, ratios and supplemental data throughout
each period are as follows:
Year ended November 30
----------------------------
1995 1994
Net asset value -
Beginning of period $ 10.410 $ 12.010
-------- --------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.986 0.980
Net realized and
unrealized gain (loss) 0.822 (1.271)
-------- --------
Total from Investment
Operations 1.808 (0.291)
-------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.948) (0.970)
From net realized gains -- (0.339)
-------- --------
Total Distributions
Declared to Shareholders (0.948) (1.309)
-------- --------
Net asset value -
End of period $ 11.270 $ 10.410
-------- --------
Market price per share -
End of period $ 10.750 $ 10.000
-------- --------
Total return - based on
net asset value (a) 18.46% (2.67)%
-------- --------
Total return - based on
market value (b) 17.67% (5.42)%
-------- --------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.97% (c) 0.98%
Net investment income 8.73% (c) 8.84%
Portfolio turnover 77% 99%
Net assets at end
of period (000) $124,097 $114,568
(a) Total return at net asset value assuming all distributions reinvested.
(b) Total return at market value assuming all distributions reinvested and
excluding brokerage commissions.
(c) The benefits derived from custody credits and directed brokerage
arrangements had no impact. Prior years' ratios are net of benefits
received, if any.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
T0 THE TRUSTEES AND SHAREHOLDERS OF COLONIAL INTERMARKET INCOME TRUST I
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Colonial InterMarket Income Trust I
at November 30, 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 Trust'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 November 30, 1998
by correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 13, 1999
<PAGE>
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DIVIDEND REINVESTMENT PLAN
As a shareholder in the Trust you are eligible to participate in the Dividend
Reinvestment Plan.
The Trust generally distributes net investment income and net short-term capital
gains monthly and net long-term capital gains annually. Under the Trust's
Dividend Reinvestment Plan (the "Plan") all distributions are reinvested
automatically in additional shares of the Trust, 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 Trust 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. However, if the market
price of 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. The aggregate market value
of the shares may constitute taxable income to shareholders for federal income
tax purposes.
All Plan accounts receive monthly written confirmations of all transactions.
Shares purchased under the Plan ordinarily are held in uncertificated form,
although each participant has the right to receive certificates for whole shares
owned by the participant. 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.
There is no charge to Plan participants for reinvesting distributions. Fees and
expenses of the Plan other than brokerage charges are paid by the Trust.
Participants bear a pro-rata share of brokerage charges incurred on open market
purchases of shares issued under the Plan.
A shareholder may elect not to participate or terminate his or her participation
in the Plan by written notice to the Plan administrator. Such notice must be
received by the Plan administrator before the dividend record date in order to
be effective with respect to that dividend. The Plan may be amended or
terminated on 30 days' written notice to the Plan participants. Upon withdrawal
by any participant or any termination of the Plan, certificates for whole shares
will be issued and cash payments will be made for any fractional shares. All
correspondence concerning the Plan should be directed to State Street Bank and
Trust Company, the Trust's dividend disbursing agent and administrator of the
Plan, at P.O. Box 8200, Boston, Massachusetts 02266-8200.
- --------------------------------------------------------------------------------
<PAGE>
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<PAGE>
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<PAGE>
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial InterMarket Income Trust I is:
State Street Bank and Trust Company
P.O. Box 8200
Boston, MA 02266-8200
1-800-426-5523
Colonial InterMarket Income Trust I 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 InterMarket Income
Trust I.
<PAGE>
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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)
CI-02/344G-1198 (1/99) 98/1422
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