-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GjoUJctjkYKVGsYtwWAld30g5BgdfhA5L9Zdl8CoCs5Sncx3a8bMEI6Mds6obxnB stZbsuSwydvU8C2wVVkSiQ== 0000883163-98-000004.txt : 19980108 0000883163-98-000004.hdr.sgml : 19980108 ACCESSION NUMBER: 0000883163-98-000004 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971031 FILED AS OF DATE: 19980107 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLONIAL INTERMEDIATE HIGH INCOME FUND CENTRAL INDEX KEY: 0000833021 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-30D SEC ACT: SEC FILE NUMBER: 811-05567 FILM NUMBER: 98501862 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CNTR CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6174263750 N-30D 1 COLONIAL INTERMEDIATE HIGH INCOME FUND Annual Report October 31, 1997 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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 INVESTMENT PORTFOLIO OCTOBER 31, 1997 (IN THOUSANDS)
CORPORATE FIXED INCOME BONDS & NOTES (a) - 93.9% PAR VALUE - -------------------------------------------------------------------------------- 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 -----------
5 Investment Portfolio/October 31, 1997
- -------------------------------------------------------------------------------- CORPORATE FIXED INCOME BONDS & NOTES (a) - CONT. PAR VALUE - -------------------------------------------------------------------------------- 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
6 Investment Portfolio/October 31, 1997 - --------------------------------------------------------------------------------
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
7 Investment Portfolio/October 31, 1997
- -------------------------------------------------------------------------------- CORPORATE FIXED INCOME BONDS & NOTES (a) - CONT. PAR VALUE - -------------------------------------------------------------------------------- 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 ----------
8 Investment Portfolio/October 31, 1997
- -------------------------------------------------------------------------------- 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 -----------
9 Investment Portfolio/October 31, 1997
- -------------------------------------------------------------------------------- CORPORATE FIXED INCOME BONDS & NOTES (a) - CONT. PAR VALUE - -------------------------------------------------------------------------------- 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
10 Investment Portfolio/October 31, 1997
- -------------------------------------------------------------------------------- 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 -----------
11 Investment Portfolio/October 31, 1997
- -------------------------------------------------------------------------------- PREFERRED STOCKS - 5.8% SHARES VALUE - -------------------------------------------------------------------------------- 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 -----------
12 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 STATEMENT OF ASSETS & LIABILITIES OCTOBER 31, 1997
(in thousands except for per share amount) ASSETS 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 ---------
14 STATEMENT OF OPERATIONS FOR THE YEAR ENDED OCTOBER 31, 1997
(in thousands) INVESTMENT INCOME 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 --------
See notes to financial statements. 15 STATEMENT OF CHANGES IN NET ASSETS
Year ended (in thousands) October 31 --------------------------- INCREASE (DECREASE) IN NET ASSETS 1997 1996 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 --------- ---------
See notes to financial statements. 16 STATEMENT OF CASH FLOWS
Year ended (in thousands) October 31 ---------- INCREASE (DECREASE) IN NET ASSETS 1997 ---------- Operations: 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 -----------
See notes to financial statements. 17 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 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 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 FINANCIAL HIGHLIGHTS Selected per share data, total return, ratios and supplemental data throughout each period are as follows:
Year ended October 31 --------------------------------------- 1997 1996 1995 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
(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 FINANCIAL HIGHLIGHTS - CONT. Selected per share data, total return, ratios and supplemental data throughout each period are as follows:
Year ended October 31 ----------------------- 1994 1993 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
(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 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 - -------------------------------------------------------------------------------- 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 THIS PAGE INTENTIONALLY LEFT BLANK 25 THIS PAGE INTENTIONALLY LEFT BLANK 26 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 - -------------------------------------------------------------------------------- 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) - -------------------------------------------------------------------------------- -----END PRIVACY-ENHANCED MESSAGE-----