UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5567
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Colonial Intermediate High Income Fund
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(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
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(Address of principal executive offices) (Zip code)
Russell Kane, Esq.
Columbia Management Group, Inc.
One Financial Center
Boston, MA 02111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-772-3363
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Date of fiscal year end: 11/30/2003
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Date of reporting period: 11/30/2003
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
COLONIAL INTERMEDIATE HIGH INCOME FUND ANNUAL REPORT
NOVEMBER 30, 2003
Photo of: New York Stock Exchange newspaper and 10-key calculator.
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
It was another solid year for the US bond market. However, the positive gains
reported from all major sectors masked an extremely volatile environment. Most
of the gains were actually earned in the first half of the reporting period and
they were sufficient to offset losses or declining performance in the second
half.
From December through mid-June, interest rates generally declined and bond
prices rose as the economy struggled to gain a solid footing and the nation
prepared to go to war. In June, the yield on the 10-year Treasury note fell to a
45-year low of just over 3.1%. High-yield bonds were the primary beneficiaries
of this trend as investors seemed willing to put their fears aside and look to
better times ahead. However, after the major military battles of the war were
declared over and the economy showed clear signs of picking up, interest rates
began to rise and bond prices came down in most sectors. The 10-year yield
reached a high of 4.4% in August, then moved within a tight range around 4.0% to
4.2% for the remainder of the period. As the environment changed, high-yield and
mortgage bonds held up better than other sectors while Treasury bonds lagged.
This reversal of fortune for bonds and a shift of investor enthusiasm back to
stocks, which drove equity returns back into double digit territory, serve as a
reminder that a diversified portfolio may offer the best opportunity for
long-term investment success. Talk to your financial advisor if you're uncertain
about the level of diversification of your portfolio. Your advisor can help you
keep your investments on track.
As always, thank you for investing in Colonial Funds. We look forward to
continuing to serve you in the years ahead.
Sincerely,
/s/ Joseph R. Palombo
Joseph R. Palombo
President
January 12, 2004
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Not FDIC Insured
May Lose Value
No Bank Guarantee
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Economic and market conditions change frequently. There is no assurance that
trends described in this report will continue or commence.
PORTFOLIO MANAGERS' REPORT
The Board of Trustees for Colonial Intermediate High Income Fund approved the
change of the fund's fiscal year end from October 31 to November 30. As a
result, this report covers the 13-month period since the last annual report. The
next report you receive will be for the six-month period through May 2004.
Colonial Intermediate High Income Fund returned 39.19%,1 based on investment at
net asset value (NAV), for the 13-month period ended November 30, 2003. The fund
underperformed the Lipper High Current Yield Funds (Leveraged) Category average,
which returned 47.02%.2 We believe the fund trailed its peers chiefly because of
its emphasis on higher quality bonds early in the period. Lower quality issues
were the sector's strongest performers. However, our performance was aided
during the last six months of the period as we shifted toward selected
lower-quality issues.
With economic data improving, the yield differential between Treasuries and
high-yield issues narrowed significantly and prices of lower-quality bonds moved
higher. Default rates fell to 3.1% in November, the lowest figure in three
years. And as investors became less risk-averse, cash flows into high-yield
bonds exceeded last year's figures by a wide margin.
To increase exposure to better-performing sectors, we brought holdings of bonds
rated single-B or lower to 75% of the portfolio, a strategy that aided results
as the period wore on. The bonds of energy provider, Dynegy, telecom company,
Qwest and Charter Communications, a cable operator, (0.5%, 1.8% and 1.5% of
total investments, respectively) all rose after refinancing debt.3 Goodyear's
bonds (0.3% of total investments), purchased when labor frictions depressed
prices, later moved higher. Airline holdings improved as travel volumes grew and
financial restructurings were completed. Conversely, our underweight in the
rallying financial sector held back results.
In another move that benefited the portfolio, we reduced expenses by negotiating
lower interest rates on fund borrowings. The fund's policies allow it to borrow
money for investment purposes without having to sell current holdings.
---------------
1 Average annual total return.
2 Lipper Inc., a widely respected data provider, calculates an average total
return for mutual funds with similar investment objectives.
3 Holdings are disclosed as of November 30, 2003.
PRICE PER SHARE AS OF 11/30/03 ($)
Net asset value 3.57
-----------------------------
Market price 3.50
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13-MONTH TOTAL RETURN
AS OF 11/30/03 (%)
Net asset value 39.19(1)
-----------------------------
Market price 36.15(1)
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Lipper High Current
Yield Funds (Leveraged)
Category average 47.02(1)
-----------------------------
All results shown assume reinvestment of distributions.
DISTRIBUTIONS DECLARED PER
SHARE 11/1/02 - 11/30/03 ($)
0.35
-----------------------------
TOP 5 SECTORS AS OF 11/30/03 (%)
Telecommunications 9.2
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Amusement & recreation 8.7
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Cable 8.6
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Chemicals &
allied products 8.5
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Printing & publishing 7.2
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TOP 10 CORPORATE ISSUERS
AS OF 11/30/03 (%)
Qwest 1.8
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Huntsman 1.5
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Charter Communications 1.5
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Dex Media 1.3
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Nextel Communications 1.3
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QDI LLC 1.3
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Allied Waste 1.2
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CSC Holdings 1.2
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D.R. Horton 1.1
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Premier International
Foods 1.1
-----------------------------
Sector breakdowns are calculated as a percentage of net assets. Corporate
issuers are calculated as a percentage of total investments including short-term
investments. Because the fund is actively managed, there can be no guarantee
that the fund will continue to hold securities of these issuers in these sectors
in the future.
1
PORTFOLIO MANAGERS' REPORT (CONTINUED)
As the economy continues to expand, we believe that lower-quality credits have
the potential to continue to deliver better returns than higher-grade sectors,
although absolute returns may not reach the historical highs of 2003. Many
high-yield bonds are being refinanced with lower-coupon instruments, and rising
interest rates could have a negative impact on bonds generally. Therefore, we
are being especially selective in our choices of longer-maturity, lower-coupon
investments. We are also monitoring market conditions with particular regard to
the fund's lower-rated holdings, as we continue to emphasize credit selection.
/s/ Gregg R. Smalley
/s/ Kevin L. Cronk
/s/ Thomas A. LaPointe
Gregg R. Smalley, CFA, a member of the High Yield Portfolio Management Team at
Columbia Management Advisors, Inc. (the "advisor"), has been a portfolio manager
of Colonial Intermediate High Income Fund since June 2000. Mr. Smalley joined an
affiliate of the advisor in August 1997 as a research analyst specializing in
the energy, cable, and telecom industries.
Kevin L. Cronk, CFA, a member of the advisor's High Yield Portfolio Management
Team, has co-managed the fund since February 2003. Mr. Cronk joined an affiliate
of the advisor in August 1999 as a research analyst specializing in the
chemicals, healthcare and telecom industries. Prior to joining the advisor, Mr.
Cronk was an investment associate in the High Yield Group at Putnam Investments
from May 1996 to July 1999.
Thomas A. LaPointe, CFA, a member of the advisor's High Yield Portfolio
Management Team, has co-managed the fund since February 2003. Mr. LaPointe
joined an affiliate of the advisor in February 1999 as a senior member of the
Fixed Income Department's research group and has provided high yield analytical
support to mutual funds investing in the metals, gaming and European telecom
industries. Prior to joining the advisor, Mr. LaPointe was a convertible
arbitrage analyst at the Canadian Imperial Bank of Commerce from April 1998 to
February 1999.
Past performance is no guarantee of future investment results. Current
performance may be higher or lower than the performance data quoted.
Investing in high-yield bonds involves greater credit risk and other risks not
associated with investing in higher-quality bonds. Bond investing also involves
interest rate risk, which means that bond prices may change as interest rates
increase or decrease.
2
INVESTMENT PORTFOLIO
November 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES - 127.5% PAR VALUE
----------------------------------------------------------------------------------------------------------
AGRICULTURE - 0.8%
AGRICULTURE PRODUCTION - 0.8%
Hines Nurseries, Inc.,
10.250% 10/01/11 (a) $ 140,000 $ 151,562
Seminis, Inc.,
10.250% 10/01/13 (a) 438,000 464,280
-----------
615,842
-----------
----------------------------------------------------------------------------------------------------------
CONSTRUCTION - 4.4%
BUILDING CONSTRUCTION - 4.4%
Associated Materials, Inc.,
9.750% 04/15/12 325,000 351,000
Atrium Companies, Inc.,
10.500% 05/01/09 210,000 223,388
D.R. Horton, Inc.,
9.750% 09/15/10 955,000 1,126,900
K. Hovnanian Enterprises, Inc.:
8.875% 04/01/12 170,000 185,725
10.500% 10/01/07 340,000 399,075
Nortek Holdings, Inc.,
(b) 05/15/11 (a) 500,000 355,000
Standard Pacific Corp.,
9.250% 04/15/12 415,000 460,650
William Lyon Homes, Inc.,
10.750% 04/01/13 210,000 235,200
-----------
3,336,938
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----------------------------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 2.0%
DEPOSITORY INSTITUTIONS - 0.6%
Dollar Financial Group, Inc.,
9.750% 11/15/11 (a) 330,000 339,900
Western Financial Bank,
9.625% 05/15/12 65,000 72,800
-----------
412,700
-----------
FINANCIAL SERVICES - 0.8%
FINOVA Group, Inc.,
7.500% 11/15/09 585,000 324,675
LaBranche & Co., Inc.,
12.000% 03/02/07 310,000 294,500
-----------
619,175
-----------
REAL ESTATE - 0.6%
Forest City Enterprises, Inc.,
7.625% 06/01/15 165,000 172,425
Thornburg Mortgage, Inc.,
8.000% 05/15/13 250,000 262,500
-----------
434,925
-----------
----------------------------------------------------------------------------------------------------------
MANUFACTURING - 42.1%
APPAREL - 1.2%
Broder Brothers,
11.250% 10/15/10 (a) 280,000 282,800
Levi Strauss & Co.,
12.250% 12/15/12 505,000 363,600
PAR VALUE
----------------------------------------------------------------------------------------------------------
Perry Ellis International, Inc.,
8.875% 09/15/13 (a) $ 40,000 $ 41,600
Warnaco, Inc.,
8.875% 06/15/13 (a) 100,000 101,750
William Carter Co.,
10.875% 08/15/11 94,000 106,808
-----------
896,558
-----------
AUTO PARTS & EQUIPMENT - 2.4%
Accuride Corp.,
9.250% 02/01/08 120,000 121,200
Cummins, Inc.,
9.500% 12/01/10 (a) 295,000 339,250
Dana Corp.:
9.000% 08/15/11 210,000 238,875
10.125% 03/15/10 200,000 229,000
Delco Remy International, Inc.,
10.625% 08/01/06 115,000 112,700
Goodyear Tire & Rubber Co.,
7.857% 08/15/11 380,000 324,900
Metaldyne Corp.,
10.000% 11/01/13 (a) 170,000 164,900
Rexnord Corp.,
10.125% 12/15/12 130,000 141,700
TRW Automotive, Inc.:
9.375% 02/15/13 (a) 85,000 96,050
11.000% 02/15/13 (a) 45,000 52,875
-----------
1,821,450
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CHEMICALS & ALLIED PRODUCTS - 8.5%
Avecia Group PLC,
11.000% 07/01/09 840,000 722,400
Bio-Rad Laboratories, Inc.,
7.500% 08/15/13 340,000 365,500
Equistar Chemicals LP:
10.125% 09/01/08 215,000 227,900
10.625% 05/01/11 (a) 200,000 211,000
FMC Corp.,
10.250% 11/01/09 215,000 251,550
Huntsman ICI Holdings LLC,
(b) 12/31/09 3,580,000 1,557,300
IMC Global, Inc.,
10.875% 08/01/13 (a) 235,000 247,925
Koppers Industries, Inc.:
9.875% 12/01/07 490,000 506,131
9.875% 10/15/13 (a) 360,000 390,600
Lyondell Chemical Co.,
9.625% 05/01/07 415,000 426,413
MacDermid, Inc.,
9.125% 07/15/11 205,000 229,088
Phibro Animal Health Corp.,
13.000% 12/01/07 (a) 320,000 329,600
PolyOne Corp.,
10.625% 05/15/10 85,000 81,600
Scotts Co.,
6.625% 11/15/13 (a) 40,000 40,300
See notes to investment portfolio.
3
INVESTMENT PORTFOLIO (CONTINUED)
November 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
----------------------------------------------------------------------------------------------------------
MANUFACTURING (CONTINUED)
CHEMICALS & ALLIED PRODUCTS (CONTINUED)
Terra Capital, Inc.,
12.875% 10/15/08 $ 475,000 $ 552,188
Westlake Chemical Corp.,
8.750% 07/15/11 (a) 195,000 210,113
-----------
6,349,608
-----------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.4%
General Cable Corp.,
9.500% 11/15/10 (a) 80,000 84,400
UCAR Finance, Inc.,
10.250% 02/15/12 255,000 281,775
-----------
366,175
-----------
FABRICATED METAL - 0.6%
Earle M. Jorgensen Co.,
9.750% 06/01/12 425,000 463,250
-----------
FOOD & KINDRED PRODUCTS - 6.1%
Bavaria SA,
8.875% 11/01/10 (a) 410,000 406,027
Constellation Brands, Inc.,
8.125% 01/15/12 270,000 295,650
Del Monte Corp.,
9.250% 05/15/11 500,000 548,750
Dole Food Co., Inc.,
8.625% 05/01/09 (c) 415,000 447,163
Merisant Co.,
9.500% 07/15/13 (a) 205,000 210,125
Pinnacle Foods,
8.250% 12/01/13 (a) 385,000 396,550
Premier International Foods PLC,
12.000% 09/01/09 1,000,000 1,090,000
Roundy's, Inc.,
8.875% 06/15/12 410,000 434,600
Smithfield Foods, Inc.,
8.000% 10/15/09 435,000 478,500
Tabletop Holdings, Inc.,
(d) 05/15/14
(12.250% 11/15/08) (a) 525,000 283,500
-----------
4,590,865
-----------
FURNITURE & FIXTURES - 1.7%
C&A Floor Covering, Inc.,
9.750% 02/15/10 225,000 241,313
Congoleum Corp.,
8.625% 08/01/08 225,000 135,000
Juno Lighting, Inc.,
11.875% 07/01/09 295,000 320,813
Norcraft Companies,
9.000% 11/01/11 (a) 140,000 147,350
Simmons Co.,
10.250% 03/15/09 100,000 107,000
Tempur-Pedic, Inc.,
10.250% 08/15/10 (a) 265,000 296,138
-----------
1,247,614
-----------
PAR VALUE
----------------------------------------------------------------------------------------------------------
MEASURING & ANALYZING INSTRUMENTS - 0.5%
Fisher Scientific International, Inc.,
8.125% 05/01/12 $ 326,000 $ 349,635
-----------
MISCELLANEOUS MANUFACTURING - 6.2%
AGCO Corp.,
9.500% 05/01/08 400,000 437,000
Applied Extrusion Technologies, Inc.,
10.750% 07/01/11 320,000 248,000
Ball Corp.,
6.875% 12/15/12 125,000 131,250
Berry Plastics Corp.,
10.750% 07/15/12 (a) 250,000 283,750
Case New Holland, Inc.,
9.250% 08/01/11 (a) 245,000 274,400
Crown European Holdings SA,
10.875% 03/01/13 280,000 323,400
Flowserve Corp.,
12.250% 08/15/10 361,000 418,760
Owens-Brockway Glass Container,
8.250% 05/15/13 600,000 627,000
Owens-Illinois, Inc.:
7.150% 05/15/05 75,000 76,688
7.500% 05/15/10 75,000 75,000
SPX Corp.,
7.500% 01/01/13 250,000 267,500
Tekni-Plex, Inc.,
12.750% 06/15/10 455,000 482,300
Terex Corp.,
10.375% 04/01/11 320,000 358,400
TriMas Corp.,
9.875% 06/15/12 625,000 635,938
-----------
4,639,386
-----------
PAPER PRODUCTS - 3.6%
Buckeye Technologies, Inc.:
8.500% 10/01/13 (a) 60,000 63,750
9.250% 09/15/08 235,000 237,350
Caraustar Industries, Inc.,
9.875% 04/01/11 255,000 270,300
Georgia-Pacific Corp.,
8.875% 02/01/10 610,000 687,775
Jefferson Smurfit Corp.,
8.250% 10/01/12 250,000 266,875
MDP Acquisitions PLC,
9.625% 10/01/12 525,000 582,750
Millar Western Forest Products,
7.750% 11/15/13 (a) 225,000 226,150
Norske Skog Canada Ltd.,
8.625% 06/15/11 150,000 153,000
Tembec Industries, Inc.,
8.500% 02/01/11 225,000 218,250
-----------
2,706,200
-----------
See notes to investment portfolio.
4
INVESTMENT PORTFOLIO (CONTINUED)
November 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
----------------------------------------------------------------------------------------------------------
MANUFACTURING (CONTINUED)
PRIMARY METAL - 1.9%
Bayou Steel Corp.,
9.500% 05/15/08 (e) $1,000,000 $ 190,000
IMCO Recycling, Inc.,
10.375% 10/15/10 (a) 205,000 192,700
Kaiser Aluminum & Chemical Corp.,
10.875% 10/15/06 (e) 780,000 674,700
Oregon Steel Mills, Inc.,
10.000% 07/15/09 280,000 224,000
Steel Dynamics, Inc.:
9.500% 03/15/09 80,000 87,400
9.500% 03/15/09 (a) 80,000 87,400
-----------
1,456,200
-----------
PRINTING & PUBLISHING - 7.0%
Advanstar Communications, Inc.,
12.000% 02/15/11 500,000 512,500
Dex Media, Inc.,
8.000% 11/15/13 (a) 320,000 324,000
Dex Media East LLC,
12.125% 11/15/12 565,000 678,000
Dex Media West LLC,
9.875% 08/15/13 (a) 280,000 317,800
Hollinger, Inc.,
11.875% 03/01/11 (a) 295,000 321,550
Moore North America Finance, Inc.,
7.875% 01/15/11 (a) 165,000 187,275
PriMedia, Inc.,
8.875% 05/15/11 560,000 581,000
Quebecor Media, Inc.,
11.125% 07/15/11 925,000 1,061,438
Von Hoffmann Corp.:
10.250% 03/15/09 495,000 519,750
10.250% 03/15/09 (a) 125,000 131,250
Yell Finance BV,
10.750% 08/01/11 488,000 573,400
-----------
5,207,963
-----------
TRANSPORTATION EQUIPMENT - 2.0%
BE Aerospace, Inc.,
8.875% 05/01/11 375,000 341,250
Dura Operating Corp.:
8.625% 04/15/12 345,000 350,175
9.000% 05/01/09 250,000 231,250
Hexcel Corp.,
9.750% 01/15/09 220,000 229,350
Newcor, Inc.,
6.000% 01/01/13 (f) 215,562 93,599
Sequa Corp.,
8.875% 04/01/08 200,000 217,500
-----------
1,463,124
-----------
----------------------------------------------------------------------------------------------------------
PAR VALUE
----------------------------------------------------------------------------------------------------------
MINING & ENERGY - 6.6%
OIL & GAS EXTRACTION - 5.4%
Benton Oil & Gas Co.,
9.375% 11/01/07 $ 485,000 $ 480,150
Chesapeake Energy Corp.:
7.750% 01/15/15 280,000 301,000
8.125% 04/01/11 140,000 152,600
Compton Petroleum Corp.,
9.900% 05/15/09 325,000 354,250
Denbury Resources, Inc.,
7.500% 04/01/13 165,000 171,188
Encore Acquisition Co.,
8.375% 06/15/12 325,000 344,500
Energy Partners Ltd.,
8.750% 08/01/10 125,000 132,031
Forest Oil Corp.,
8.000% 06/15/08 400,000 430,000
Houston Exploration Co.,
7.000% 06/15/13 (a) 80,000 81,000
Magnum Hunter Resources, Inc.,
9.600% 03/15/12 135,000 151,875
Pioneer Natural Resources Co.,
9.625% 04/01/10 10,000 12,265
Pogo Producing Co.,
8.250% 04/15/11 965,000 1,068,738
Stone Energy Corp.,
8.250% 12/15/11 220,000 235,950
Tom Brown, Inc.,
7.250% 09/15/13 180,000 188,100
-----------
4,103,647
-----------
OIL & GAS FIELD SERVICES - 1.2%
J. Ray McDermott SA,
11.000% 12/15/13 (a)(g) 280,000 281,400
Newpark Resources, Inc.,
8.625% 12/15/07 290,000 298,700
Premcor Refining Group, Inc.,
7.500% 06/15/15 235,000 240,875
Trico Marine Services, Inc.,
8.875% 05/15/12 85,000 55,250
-----------
876,225
-----------
----------------------------------------------------------------------------------------------------------
RETAIL TRADE - 3.7%
APPAREL & ACCESSORY STORES - 0.6%
Gap, Inc.,
8.800% 12/15/08 285,000 348,413
Saks, Inc.,
8.250% 11/15/08 105,000 119,438
-----------
467,851
-----------
FOOD STORES - 0.4%
Delhaize America, Inc.,
8.125% 04/15/11 100,000 113,283
Winn-Dixie Stores, Inc.,
8.875% 04/01/08 210,000 207,375
-----------
320,658
-----------
----------------------------------------------------------------------------------------------------------
See notes to investment portfolio.
5
INVESTMENT PORTFOLIO (CONTINUED)
November 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
----------------------------------------------------------------------------------------------------------
RETAIL TRADE (CONTINUED)
MISCELLANEOUS RETAIL - 2.1%
General Nutrition Center,
8.500% 12/01/10 (a)(g) $ 120,000 $ 122,400
Hollywood Entertainment Corp.,
9.625% 03/15/11 350,000 376,250
JC Penney Co., Inc.,
8.000% 03/01/10 415,000 477,250
Rite Aid Corp.,
9.250% 06/01/13 550,000 589,875
-----------
1,565,775
-----------
RESTAURANTS - 0.6%
Domino's, Inc.,
8.250% 07/01/11 (a) 80,000 84,300
Yum! Brands, Inc.,
7.700% 07/01/12 305,000 349,225
-----------
433,525
-----------
----------------------------------------------------------------------------------------------------------
SERVICES - 20.5%
AMUSEMENT & RECREATION - 8.7%
Ameristar Casinos, Inc.,
10.750% 02/15/09 400,000 458,000
Boyd Gaming Corp.,
8.750% 04/15/12 125,000 135,625
Circus-Circus & Eldorado/Silver Legacy,
10.125% 03/01/12 225,000 228,938
Hard Rock Hotel, Inc.,
8.875% 06/01/13 (a) 290,000 304,500
Hollywood Casino Shreveport,
13.000% 08/01/06 (h) 670,000 479,050
Mohegan Tribal Gaming Authority,
8.000% 04/01/12 500,000 540,000
Park Place Entertainment Corp.,
9.375% 02/15/07 435,000 486,113
Pinnacle Entertainment, Inc.,
8.750% 10/01/13 900,000 904,500
Poster Financial Group, Inc.,
8.750% 12/01/11 (a)(g) 60,000 61,500
Regal Cinemas, Inc.,
9.375% 02/01/12 350,000 397,250
River Rock Entertainment,
9.750% 11/01/11 (a) 290,000 308,850
Royal Caribbean Cruises Ltd.,
8.000% 05/15/10 225,000 242,719
Six Flags, Inc.,
9.500% 02/01/09 845,000 855,563
Town Sports International, Inc.,
9.625% 04/15/11 170,000 181,900
Trump Casino Holdings LLC,
11.625% 03/15/10 260,000 232,700
Venetian Casino Resort LLC,
11.000% 06/15/10 325,000 376,188
Wynn Las Vegas LLC,
12.000% 11/01/10 300,000 346,500
-----------
6,539,896
-----------
PAR VALUE
----------------------------------------------------------------------------------------------------------
AUTO EQUIPMENT & RENTAL SERVICES - 1.2%
NationsRent, Inc.,
9.500% 10/15/10 (a) $ 425,000 $ 440,938
United Rentals, Inc.,
10.750% 04/15/08 255,000 284,325
Williams Scotsman, Inc.,
9.875% 06/01/07 200,000 197,000
-----------
922,263
-----------
BUSINESS SERVICES - 1.1%
Iron Mountain, Inc.,
6.625% 01/01/16 330,000 321,750
Stratus Technologies, Inc.,
10.375% 12/01/08 (a) 320,000 327,200
Xerox Corp.,
7.125% 06/15/10 160,000 164,800
-----------
813,750
-----------
FUNERAL SERVICES - 1.5%
Service Corp. International,
7.700% 04/15/09 600,000 622,500
Stewart Enterprises, Inc.,
10.750% 07/01/08 400,000 450,000
-----------
1,072,500
-----------
HEALTH SERVICES - 5.6%
AmerisourceBergen Corp.,
8.125% 09/01/08 175,000 193,813
Coventry Health Care, Inc.,
8.125% 02/15/12 525,000 578,813
HCA, Inc.,
8.750% 09/01/10 275,000 318,038
IASIS Healthcare Corp.,
13.000% 10/15/09 305,000 342,363
InSight Health Services Corp.,
9.875% 11/01/11 340,000 357,425
Magellan Health Services, Inc.,
9.375% 11/15/07 (a)(e) 385,000 425,425
MedQuest, Inc.,
11.875% 08/15/12 500,000 548,125
PacifiCare Health Systems, Inc.,
10.750% 06/01/09 500,000 575,000
Tenet Healthcare Corp.,
6.375% 12/01/11 450,000 416,250
United Surgical Partners
International, Inc.,
10.000% 12/15/11 400,000 451,000
-----------
4,206,252
-----------
HOTELS, CAMPS & LODGING - 1.7%
Host Marriott LP,
9.500% 01/15/07 340,000 371,875
Inn of the Mountain Gods Resort & Casino,
12.000% 11/15/10 (a) 200,000 210,500
Starwood Hotels & Resorts Worldwide, Inc.,
7.875% 05/01/12 625,000 694,531
-----------
1,276,906
-----------
See notes to investment portfolio.
6
INVESTMENT PORTFOLIO (CONTINUED)
November 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
----------------------------------------------------------------------------------------------------------
SERVICES (CONTINUED)
OTHER SERVICES - 0.7%
Corrections Corp. of America,
9.875% 05/01/09 $ 300,000 $ 336,000
Wackenhut Corrections Corp.,
8.250% 07/15/13 (a) 160,000 168,800
-----------
504,800
-----------
----------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 45.8%
AEROSPACE - 0.5%
TransDigm, Inc.,
8.375% 07/15/11 (a) 200,000 211,000
Vought Aircraft Industries, Inc.,
8.000% 07/15/11 (a) 160,000 162,000
-----------
373,000
-----------
AIR TRANSPORTATION - 1.9%
Delta Air Lines, Inc.,
7.900% 12/15/09 470,000 376,000
Northwest Airlines, Inc.,
9.875% 03/15/07 615,000 547,350
U.S. Airways, Inc.,
10.375% 03/01/13 (m) 1,512,096 521,673
-----------
1,445,023
-----------
BROADCASTING - 4.2%
CanWest Media, Inc.,
10.625% 05/15/11 585,000 663,975
Corus Entertainment, Inc.,
8.750% 03/01/12 200,000 220,000
Emmis Communications Corp.,
(d) 03/15/11
(12.500% 03/15/06) 561,000 511,913
Sinclair Broadcast Group, Inc.,
8.750% 12/15/11 250,000 273,750
Spanish Broadcasting System, Inc.,
9.625% 11/01/09 80,000 84,000
TV Azteca SA de CV,
10.500% 02/15/07 745,000 763,625
XM Satellite Radio Holdings, Inc.,
(d) 12/31/09
(14.000% 12/31/05) 474,415 412,741
Videotron Ltee,
6.875% 01/15/14 (a) 235,000 242,050
-----------
3,172,054
-----------
CABLE - 6.9%
Charter Communications Holdings LLC:
(d) 04/01/11
(9.920% 04/01/04) 1,580,000 1,208,700
10.000% 04/01/09 135,000 112,020
10.250% 09/15/10 190,000 193,563
Comcast UK Cable Partners Ltd.,
11.200% 11/15/07 750,000 753,750
CSC Holdings, Inc.,
7.625% 04/01/11 300,000 303,000
PAR VALUE
----------------------------------------------------------------------------------------------------------
DirecTV Holdings LLC,
8.375% 03/15/13 $ 300,000 $ 339,375
EchoStar DBS Corp.,
6.375% 10/01/11 (a) 600,000 600,000
Insight Communications Co., Inc.,
(d) 02/15/11
(12.250% 02/15/06) 415,000 328,888
Insight Midwest LP,
9.750% 10/01/09 335,000 354,263
Northland Cable Television, Inc.,
10.250% 11/15/07 495,000 490,050
Rogers Cable, Inc.,
6.250% 06/15/13 165,000 165,515
Shaw Communications, Inc.,
7.500% 11/20/13 400,000 305,520
-----------
5,154,644
-----------
COMMUNICATION SERVICES - 1.5%
Crown Castle International Corp.,
10.750% 08/01/11 350,000 388,500
SBA Communications Corp.,
10.250% 02/01/09 535,000 490,863
SpectraSite, Inc.,
8.250% 05/15/10 (a) 200,000 212,000
-----------
1,091,363
-----------
ELECTRIC, GAS & SANITARY SERVICES - 2.1%
Allied Waste North America, Inc.:
6.500% 11/15/10 (a) 670,000 670,000
8.500% 12/01/08 505,000 552,975
CMS Energy Corp.,
8.900% 07/15/08 335,000 355,519
-----------
1,578,494
-----------
ELECTRIC SERVICES - 6.9%
AES Corp.:
9.000% 05/15/15 (a) 570,000 621,300
9.500% 06/01/09 255,000 274,125
Beaver Valley Funding Corp.,
9.000% 06/01/17 355,000 405,499
Caithness Coso Funding Corp.,
9.050% 12/15/09 534,950 580,421
Calpine Corp.:
8.500% 07/15/10 (a) 315,000 291,375
8.500% 02/15/11 445,000 322,625
8.625% 08/15/10 220,000 159,500
Edison Mission Energy,
9.875% 04/15/11 380,000 381,900
Illinois Power Co.,
11.500% 12/15/10 150,000 177,000
MSW Energy Holdings LLC:
7.375% 09/01/10 (a) 170,000 172,550
8.500% 09/01/10 (a) 375,000 402,188
Nevada Power Co.:
9.000% 08/15/13 (a) 185,000 201,881
10.875% 10/15/09 340,000 384,200
Orion Power Holdings, Inc.,
12.000% 05/01/10 150,000 175,500
See notes to investment portfolio.
7
INVESTMENT PORTFOLIO (CONTINUED)
November 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
----------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES (CONTINUED)
ELECTRIC SERVICES (CONTINUED)
PSE&G Energy Holdings, Inc.,
8.625% 02/15/08 $ 395,000 $ 419,688
Tiers-Mir-2001-14,
7.200% 06/15/04 (a)(e) 410,000 200,900
-----------
5,170,652
-----------
MOTOR, FREIGHT & WAREHOUSING - 1.7%
QDI LLC:
9.000% 11/15/10 (a) 370,000 383,875
12.000% 06/15/09 (a)(f) 167,717 180,296
12.500% 06/15/08 (f) 685,000 699,248
-----------
1,263,419
-----------
PIPELINES - 4.1%
Coastal Corp.,
7.750% 06/15/10 645,000 567,600
Dynegy Holdings, Inc.:
8.750% 02/15/12 300,000 289,500
9.875% 07/15/10 (a) 160,000 174,400
10.125% 07/15/13 (a) 40,000 44,000
GulfTerra Energy Partners LP,
8.500% 06/01/10 275,000 301,125
Northwest Pipeline Corp.,
8.125% 03/01/10 130,000 144,300
Sonat, Inc.,
7.625% 07/15/11 565,000 485,900
Southern Natural Gas Co.,
8.875% 03/15/10 250,000 278,125
Williams Companies, Inc.,
8.125% 03/15/12 765,000 826,200
-----------
3,111,150
-----------
POLLUTION CONTROL - 0.4%
EnviroSource, Inc.,
14.000% 12/15/08 (f) 273,663 264,401
-----------
RADIOTELEPHONE COMMUNICATIONS - 5.3%
ACC Escrow Corp.,
10.000% 08/01/11 (a) 225,000 246,375
AirGate PCS, Inc.,
(d) 10/01/09
(13.500% 10/01/04) 129,000 83,850
Dobson Communications Corp.,
8.875% 10/01/13 (a) 440,000 442,750
Nextel Communications, Inc.,
9.375% 11/15/09 1,060,000 1,152,750
Nextel Partners, Inc.,
11.000% 03/15/10 290,000 320,450
Rogers Cantel, Inc.,
9.750% 06/01/16 735,000 867,300
Triton PCS, Inc.,
8.750% 11/15/11 125,000 120,000
US Unwired, Inc.,
(d) 11/01/09
(13.375% 11/01/04) 800,000 532,000
PAR VALUE
----------------------------------------------------------------------------------------------------------
Western Wireless Corp.,
9.250% 07/15/13 $ 200,000 $ 207,000
-----------
3,972,475
-----------
RAILROAD - 0.9%
Kansas City Southern Railway Co.,
7.500% 06/15/09 215,000 219,838
TFM SA de CV,
12.500% 06/15/12 380,000 420,850
-----------
640,688
-----------
TELECOMMUNICATIONS - 7.6%
American Towers, Inc.,
7.250% 12/01/11 (a) 210,000 210,525
Amkor Technology, Inc.:
9.250% 02/15/08 285,000 319,200
10.500% 05/01/09 270,000 288,900
Avaya, Inc.,
11.125% 04/01/09 220,000 258,500
Carrier1 International SA,
13.250% 02/15/09 (e) 750,000 67,500
Cincinnati Bell, Inc.,
8.375% 01/15/14 (a) 320,000 336,000
Colt Telecom Group PLC,
12.000% 12/15/06 245,000 244,388
FairPoint Communications, Inc.,
11.875% 03/01/10 175,000 205,625
Horizon PCS, Inc.,
13.750% 06/15/11 (e) 415,000 93,375
Innova S. de R.L.,
9.375% 09/19/13 (a) 100,000 102,375
Level 3 Communications, Inc.,
(d) 12/01/08
(10.500% 12/01/03) 355,000 331,925
Lucent Technologies, Inc.,
6.450% 03/15/29 335,000 253,763
MCI Communications Corp.:
7.125% 06/15/27 (e) 120,000 97,200
7.500% 08/20/04 (e) 465,000 376,650
Qwest Capital Funding, Inc.:
7.250% 02/15/11 810,000 771,525
7.750% 02/15/31 385,000 338,800
Qwest Corp.,
13.500% 12/15/10 (a) 595,000 699,125
Time Warner Telecom, Inc.:
9.750% 07/15/08 470,000 479,400
10.125% 02/01/11 203,000 238,050
-----------
5,712,826
-----------
TRANSPORTATION SERVICES - 1.8%
Allied Holdings, Inc.,
8.625% 10/01/07 190,000 182,400
Petroleum Helicopters, Inc.,
9.375% 05/01/09 530,000 571,075
Stena AB:
7.500% 11/01/13 (g) 160,000 160,504
9.625% 12/01/12 255,000 283,688
See notes to investment portfolio.
8
INVESTMENT PORTFOLIO (CONTINUED)
November 30, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
----------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES (CONTINUED)
TRANSPORTATION SERVICES (CONTINUED)
Teekay Shipping Corp.,
8.875% 07/15/11 $ 150,000 $ 170,250
-----------
1,367,917
-----------
----------------------------------------------------------------------------------------------------------
WHOLESALE TRADE - 1.6%
DURABLE GOODS - 1.6%
Kinetic Concepts, Inc.,
7.375% 05/15/13 (a) 120,000 123,600
Playtex Products, Inc.,
9.375% 06/01/11 500,000 496,250
Steinway Musical Instruments, Inc.,
8.750% 04/15/11 550,000 577,500
-----------
1,197,350
-----------
TOTAL CORPORATE FIXED-INCOME BONDS & NOTES
(cost of $95,680,538) 95,597,112
-----------
PREFERRED STOCKS - 3.0% SHARES
----------------------------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.8%
REAL ESTATE - 0.8%
iStar Financial, Inc.:
7.800% 13,000 326,219
7.875% 11,007 282,054
-----------
608,273
-----------
----------------------------------------------------------------------------------------------------------
MANUFACTURING - 0.3%
FOOD & KINDRED PRODUCTS - 0.1%
Constellation Brands, Inc.,
5.750% 2,425 78,206
-----------
PRINTING & PUBLISHING - 0.2%
PriMedia, Inc.:
8.625% 30 2,715
9.200% 1,615 149,388
-----------
152,103
-----------
----------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 1.9%
BROADCASTING - 0.6%
Spanish Broadcasting System, Inc.,
10.750% (a) 430 432,150
-----------
CABLE - 1.2%
CSC Holdings, Inc.:
11.125% 349 36,907
11.750% 7,979 839,790
-----------
876,697
-----------
POLLUTION CONTROL - 0.1%
EnviroSource, Inc.,
7.250% (f) 929 106,835
-----------
TOTAL PREFERRED STOCKS
(cost of $2,418,206) 2,254,264
-----------
CONVERTIBLE BONDS - 1.6% PAR VALUE
----------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 1.6%
TELECOMMUNICATIONS - 1.6%
Colt Telecom Group PLC:
2.000% 03/29/06 (a) EUR 265,000 $ 337,010
2.000% 12/16/06 (a) 130,000 165,410
Nortel Networks Corp.,
4.250% 09/01/08 $ 720,000 682,020
-----------
TOTAL CONVERTIBLE BONDS
(cost of $959,452) 1,184,440
-----------
COMMON STOCKS - 1.5% (I) SHARES
----------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 1.5%
CABLE - 0.5%
NTL, Inc. 5,942 387,181
Ono Finance PLC 750 1
-----------
387,182
-----------
POLLUTION CONTROL - 0.8%
EnviroSource, Inc. (f) 8,000 576,000
Fairlane Management Corp. (f)(j) 8,000 --
-----------
576,000
-----------
RADIOTELEPHONE COMMUNICATIONS - 0.2%
Nextel Communications, Inc., Class A 6,196 156,944
-----------
TOTAL COMMON STOCKS
(cost of $1,081,597) 1,120,126
-----------
WARRANTS - 0.2% (I) UNITS
----------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 0.2%
BROADCASTING - 0.2%
XM Satellite Radio Holdings, Inc.:
Expires 12/31/09 70 126,000
Expires 03/15/10 (a) 600 12,450
-----------
138,450
-----------
CABLE - 0.0%
Cable Satisfaction International, Inc.,
Expires 03/01/05 (a) 970 10
Ono Finance PLC,
Expires 05/31/09 (a) 175 2
-----------
12
-----------
COMMUNICATION SERVICES - 0.0%
UbiquiTel, Inc.,
Expires 04/15/10 (a) 525 5
-----------
MOTOR, FREIGHT & WAREHOUSING - 0.0%
QDI LLC,
Expires 01/15/07 (a)(f) 2,041 31,288
-----------
See notes to investment portfolio.
9
INVESTMENT PORTFOLIO (CONTINUED)
November 30, 2003
WARRANTS (CONTINUED) UNITS VALUE
----------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS - 0.0%
AT&T Canada, Inc.,
Expires 08/15/07 (a)(f)(j) 250 $ --
Carrier1 International SA,
Expires 02/19/09 (a)(e) 347 3
Horizon PCS, Inc.,
Expires 10/01/10 (a) 665 1
Jazztel PLC,
Expires 07/15/10 (a)(j) 350 --
-----------
4
-----------
TOTAL WARRANTS
(cost of $105,737) 169,759
-----------
SHORT-TERM OBLIGATION - 2.7% PAR
----------------------------------------------------------------------------------------------------------
Federal Home Loan Discount Note,
0.940% 12/01/03 (k)
(cost of $2,048,000) $2,048,000 2,048,000
-----------
TOTAL INVESTMENTS - 136.5%
(cost of $102,293,530) (l) 102,373,701
-----------
OTHER ASSETS & LIABILITIES, NET - (36.5)% (27,421,703)
----------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $74,951,998
===========
NOTES TO INVESTMENT PORTFOLIO:
--------------------------------------------------------------------------------
(a) This security is exempt from registration under Rule 144A of the Securities
Act of 1933 and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At November 30, 2003, the value
of these securities amounted to $18,779,327, which represents 25.1% of net
assets.
(b) Zero coupon bond.
(c) Interest rates on variable rate securities change periodically. The rate
listed is as of November 30, 2003.
(d) Stepped coupon bond. Currently accruing at zero. Shown parenthetically is
the next interest rate to be paid and the date the Fund will begin accruing
this rate.
(e) As of November 30, 2003, the Fund held securities of certain issuers that
have filed for bankruptcy protection under Chapter 11 representing 2.8% of
net assets. This issuer is in default of certain debt covenants. Income is
not being accrued.
(f) Represents fair value as determined in good faith under the direction of the
Board of Trustees.
(g) This security has been purchased on a delayed delivery basis.
(h) The issuer is in default of certain debt covenants. Income is not being
accrued.
(i) Non-income producing.
(j) Security has no value.
(k) Rate represents yield at date of purchase.
(l) Cost for federal income tax purposes is $102,213,746.
(m) Income is not being accrued on this security.
As of November 30, 2003, the Fund had entered into the following forward
currency exchange contracts:
NET
CONTRACTS IN EXCHANGE SETTLEMENT UNREALIZED
TO DELIVER FOR DATE DEPRECIATION
----------------------------------------------------------------
CAD 400,000 USD 306,244 12/15/03 $ (1,843)
EUR 398,600 USD 456,796 12/08/03 (21,283)
-----------
$ (23,126)
-----------
ACRONYM NAME
----------------------------------------------------------------
CAD Canadian Dollar
EUR Euro
USD United States Dollar
See notes to financial statements.
10
INVESTMENT PORTFOLIO
October 31, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES - 126.8% PAR VALUE
----------------------------------------------------------------------------------------------------------
AGRICULTURE - 0.8%
AGRICULTURE PRODUCTION - 0.8%
Hines Nurseries, Inc.,
10.250% 10/01/11 (a) $ 140,000 $ 148,400
Seminis, Inc.,
10.250% 10/01/13 (a) 438,000 464,280
-----------
612,680
-----------
----------------------------------------------------------------------------------------------------------
CONSTRUCTION - 4.0%
BUILDING CONSTRUCTION - 4.0%
Associated Materials, Inc.,
9.750% 04/15/12 325,000 349,375
Atrium Companies, Inc.,
10.500% 05/01/09 210,000 225,225
D.R. Horton, Inc.,
9.750% 09/15/10 955,000 1,105,412
K. Hovnanian Enterprises, Inc.:
8.875% 04/01/12 170,000 185,725
10.500% 10/01/07 340,000 402,475
Standard Pacific Corp.,
9.250% 04/15/12 415,000 456,500
William Lyon Homes, Inc.,
10.750% 04/01/13 210,000 233,100
-----------
2,957,812
-----------
----------------------------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 1.1%
DEPOSITORY INSTITUTIONS - 0.1%
Western Financial Bank,
9.625% 05/15/12 65,000 71,663
-----------
FINANCIAL SERVICES - 0.4%
LaBranche & Co., Inc.,
12.000% 03/02/07 310,000 317,750
-----------
REAL ESTATE - 0.6%
Forest City Enterprises, Inc.,
7.625% 06/01/15 165,000 171,600
Thornburg Mortgage, Inc.,
8.000% 05/15/13 250,000 262,500
-----------
434,100
-----------
----------------------------------------------------------------------------------------------------------
MANUFACTURING - 42.5%
APPAREL - 1.4%
Broder Brothers,
11.250% 10/15/10 (a) 280,000 287,000
Levi Strauss & Co.,
12.250% 12/15/12 540,000 445,500
Perry Ellis International, Inc.,
8.875% 09/15/13 (a) 40,000 41,400
Warnaco, Inc.,
8.875% 06/15/13 (a) 100,000 107,000
William Carter Co.,
10.875% 08/15/11 145,000 163,850
-----------
1,044,750
-----------
AUTO PARTS & EQUIPMENT - 2.8%
Accuride Corp.,
9.250% 02/01/08 120,000 119,400
PAR VALUE
----------------------------------------------------------------------------------------------------------
Cummins, Inc.,
9.500% 12/01/10 (a) $ 295,000 $ 339,250
Dana Corp.:
9.000% 08/15/11 210,000 233,100
10.125% 03/15/10 200,000 225,000
Delco Remy International, Inc.,
10.625% 08/01/06 115,000 109,250
Goodyear Tire & Rubber Co.,
7.857% 08/15/11 380,000 323,950
Metaldyne Corp.,
10.000% 11/01/13 (a) 170,000 165,750
Rexnord Corp.,
10.125% 12/15/12 130,000 144,300
TRW Automotive, Inc.,
11.000% 02/15/13 (a) 315,000 371,700
-----------
2,031,700
-----------
CHEMICALS & ALLIED PRODUCTS - 8.7%
Avecia Group PLC,
11.000% 07/01/09 840,000 781,200
Bio-Rad Laboratories, Inc.,
7.500% 08/15/13 (a) 340,000 361,250
Equistar Chemicals LP,
10.125% 09/01/08 215,000 225,750
FMC Corp.,
10.250% 11/01/09 215,000 248,862
Huntsman ICI Holdings LLC,
(b) 12/31/09 3,580,000 1,360,400
IMC Global, Inc.,
10.875% 08/01/13 (a) 235,000 239,700
Koppers Industries, Inc.:
9.875% 12/01/07 490,000 512,050
9.875% 10/15/13 (a) 360,000 381,600
Lyondell Chemical Co.,
9.625% 05/01/07 770,000 777,700
MacDermid, Inc.,
9.125% 07/15/11 205,000 228,575
Phibro Animal Health Corp.,
13.000% 12/01/07 (a) 320,000 329,600
PolyOne Corp.,
10.625% 05/15/10 165,000 145,200
Scotts Co.,
6.625% 11/15/13 (a) 40,000 40,600
Terra Capital, Inc.,
12.875% 10/15/08 475,000 548,625
Westlake Chemical Corp.,
8.750% 07/15/11 (a) 195,000 205,725
-----------
6,386,837
-----------
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.4%
UCAR Finance, Inc.,
10.250% 02/15/12 255,000 282,413
-----------
FABRICATED METAL - 0.6%
Earle M. Jorgensen Co.,
9.750% 06/01/12 425,000 462,187
-----------
See notes to investment portfolio.
11
INVESTMENT PORTFOLIO (CONTINUED)
October 31, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
----------------------------------------------------------------------------------------------------------
MANUFACTURING (CONTINUED)
FOOD & KINDRED PRODUCTS - 5.3%
Bavaria SA,
8.875% 11/01/10 (a) $ 410,000 $ 403,866
Constellation Brands, Inc.,
8.125% 01/15/12 270,000 295,650
Del Monte Corp.,
9.250% 05/15/11 500,000 552,500
Dole Food Co., Inc.,
8.625% 05/01/09 (c) 415,000 448,200
Merisant Co.,
9.500% 07/15/13 (a) 205,000 221,400
Premier International Foods PLC,
12.000% 09/01/09 1,000,000 1,090,000
Roundy's, Inc.,
8.875% 06/15/12 410,000 428,450
Smithfield Foods, Inc.,
8.000% 10/15/09 435,000 478,500
-----------
3,918,566
-----------
FURNITURE & FIXTURES - 1.6%
C&A Floor Covering, Inc.,
9.750% 02/15/10 225,000 238,500
Congoleum Corp.,
8.625% 08/01/08 225,000 90,000
Juno Lighting, Inc.,
11.875% 07/01/09 295,000 320,815
Norcraft Companies,
9.000% 11/01/11 (a) 140,000 147,000
Simmons Co.,
10.250% 03/15/09 100,000 107,000
Tempur-Pedic, Inc.,
10.250% 08/15/10 (a) 265,000 292,163
-----------
1,195,478
-----------
MEASURING & ANALYZING INSTRUMENTS - 0.6%
Fisher Scientific International, Inc.,
8.125% 05/01/12 375,000 403,125
-----------
MISCELLANEOUS MANUFACTURING - 6.6%
AGCO Corp.,
9.500% 05/01/08 400,000 436,000
Applied Extrusion Technologies, Inc.,
10.750% 07/01/11 320,000 243,200
Ball Corp.,
6.875% 12/15/12 125,000 129,063
Case New Holland, Inc.,
9.250% 08/01/11 (a) 245,000 270,725
Crown European Holdings SA,
10.875% 03/01/13 280,000 319,200
Flowserve Corp.,
12.250% 08/15/10 361,000 415,150
Owens-Brockway Glass Container,
8.250% 05/15/13 600,000 628,500
Owens-Illinois, Inc.,
7.150% 05/15/05 150,000 154,125
Silgan Holdings, Inc.,
6.750% 11/15/13 (a)(d) 80,000 80,000
PAR VALUE
----------------------------------------------------------------------------------------------------------
SPX Corp.,
7.500% 01/01/13 $ 250,000 $ 268,125
Tekni-Plex, Inc.,
12.750% 06/15/10 915,000 940,162
Terex Corp.,
10.375% 04/01/11 320,000 358,400
TriMas Corp.,
9.875% 06/15/12 625,000 618,750
-----------
4,861,400
-----------
PAPER PRODUCTS - 3.4%
Buckeye Technologies, Inc.:
8.500% 10/01/13 (a) 60,000 62,775
9.250% 09/15/08 235,000 236,175
Caraustar Industries, Inc.,
9.875% 04/01/11 255,000 265,200
Georgia-Pacific Corp.,
8.875% 02/01/10 610,000 696,925
Jefferson Smurfit Corp.,
8.250% 10/01/12 250,000 263,125
MDP Acquisitions PLC,
9.625% 10/01/12 525,000 582,750
Norske Skog Canada Ltd.,
8.625% 06/15/11 150,000 153,000
Tembec Industries, Inc.,
8.500% 02/01/11 225,000 218,250
-----------
2,478,200
-----------
PRIMARY METAL - 1.8%
Bayou Steel Corp.,
9.500% 05/15/08 (e) 1,000,000 235,000
IMCO Recycling, Inc.,
10.375% 10/15/10 (a) 205,000 202,950
Kaiser Aluminum & Chemical Corp.,
10.875% 10/15/06 (e) 780,000 592,800
Oregon Steel Mills, Inc.,
10.000% 07/15/09 250,000 205,000
Steel Dynamics, Inc.,
9.500% 03/15/09 80,000 88,000
-----------
1,323,750
-----------
PRINTING & PUBLISHING - 7.0%
Advanstar Communications, Inc.,
12.000% 02/15/11 500,000 500,000
American Greetings Corp.,
11.750% 07/15/08 255,000 294,525
Dex Media East LLC,
12.125% 11/15/12 565,000 678,000
Dex Media West LLC,
9.875% 08/15/13 (a) 280,000 318,500
Hollinger, Inc.,
11.875% 03/01/11 (a) 295,000 324,500
Moore North America Finance, Inc.,
7.875% 01/15/11 (a) 165,000 176,963
PriMedia, Inc.,
8.875% 05/15/11 560,000 579,600
Quebecor Media, Inc.,
11.125% 07/15/11 925,000 1,066,062
See notes to investment portfolio.
12
INVESTMENT PORTFOLIO (CONTINUED)
October 31, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
----------------------------------------------------------------------------------------------------------
MANUFACTURING (CONTINUED)
PRINTING & PUBLISHING (CONTINUED)
Von Hoffmann Corp.:
10.250% 03/15/09 $ 495,000 $ 532,125
10.250% 03/15/09 (a) 125,000 134,375
Yell Finance BV,
10.750% 08/01/11 488,000 561,200
-----------
5,165,850
-----------
TRANSPORTATION EQUIPMENT - 2.3%
BE Aerospace, Inc.,
8.875% 05/01/11 575,000 517,500
Dura Operating Corp.:
8.625% 04/15/12 345,000 350,175
9.000% 05/01/09 250,000 230,000
Hexcel Corp.,
9.750% 01/15/09 220,000 229,350
Newcor, Inc.,
6.000% 01/01/13 (f) 215,562 93,599
Sequa Corp.,
8.875% 04/01/08 200,000 216,000
Wabtec Corp.,
6.875% 07/31/13 (a) 80,000 82,200
-----------
1,718,824
-----------
----------------------------------------------------------------------------------------------------------
MINING & ENERGY - 6.5%
OIL & GAS EXTRACTION - 5.5%
Benton Oil & Gas Co.,
9.375% 11/01/07 485,000 485,000
Chesapeake Energy Corp.:
7.750% 01/15/15 280,000 301,700
8.125% 04/01/11 140,000 152,775
Compton Petroleum Corp.,
9.900% 05/15/09 325,000 355,875
Denbury Resources, Inc.,
7.500% 04/01/13 165,000 169,950
Encore Acquisition Co.,
8.375% 06/15/12 325,000 349,375
Energy Partners Ltd.,
8.750% 08/01/10 125,000 128,750
Forest Oil Corp.,
8.000% 06/15/08 400,000 428,000
Houston Exploration Co.,
7.000% 06/15/13 (a) 80,000 80,600
Magnum Hunter Resources, Inc.,
9.600% 03/15/12 135,000 148,500
Pioneer Natural Resources Co.,
9.625% 04/01/10 10,000 12,310
Pogo Producing Co.,
8.250% 04/15/11 965,000 1,066,325
Stone Energy Corp.,
8.250% 12/15/11 220,000 235,400
Tom Brown, Inc.,
7.250% 09/15/13 100,000 104,500
-----------
4,019,060
-----------
PAR VALUE
----------------------------------------------------------------------------------------------------------
OIL & GAS FIELD SERVICES - 1.0%
Newpark Resources, Inc.,
8.625% 12/15/07 $ 290,000 $ 296,525
Premcor Refining Group, Inc.,
7.500% 06/15/15 235,000 240,875
Tesoro Petroleum Corp.,
8.000% 04/15/08 105,000 111,037
Trico Marine Services, Inc.,
8.875% 05/15/12 125,000 85,000
-----------
733,437
-----------
----------------------------------------------------------------------------------------------------------
RETAIL TRADE - 3.8%
APPAREL & ACCESSORY STORES - 0.6%
Gap, Inc.,
8.800% 12/15/08 285,000 346,988
Saks, Inc.,
8.250% 11/15/08 105,000 119,175
-----------
466,163
-----------
FOOD STORES - 0.4%
Delhaize America, Inc.,
8.125% 04/15/11 100,000 110,250
Winn-Dixie Stores, Inc.,
8.875% 04/01/08 210,000 205,275
-----------
315,525
-----------
MISCELLANEOUS RETAIL - 2.0%
Hollywood Entertainment Corp.,
9.625% 03/15/11 350,000 379,750
JC Penney Co., Inc.,
8.000% 03/01/10 415,000 461,687
Rite Aid Corp.,
9.250% 06/01/13 550,000 595,375
-----------
1,436,812
-----------
RESTAURANTS - 0.8%
Domino's, Inc.,
8.250% 07/01/11 (a) 200,000 211,500
Yum! Brands, Inc.,
7.700% 07/01/12 305,000 341,600
-----------
553,100
-----------
----------------------------------------------------------------------------------------------------------
SERVICES - 20.3%
AMUSEMENT & RECREATION - 8.2%
Ameristar Casinos, Inc.,
10.750% 02/15/09 400,000 460,000
Boyd Gaming Corp.,
8.750% 04/15/12 125,000 135,625
Circus-Circus & Eldorado/Silver Legacy,
10.125% 03/01/12 375,000 383,906
Hard Rock Hotel, Inc.,
8.875% 06/01/13 (a) 290,000 305,225
Hollywood Casino Shreveport,
13.000% 08/01/06 (g) 670,000 479,050
Mohegan Tribal Gaming Authority,
8.000% 04/01/12 500,000 543,750
See notes to investment portfolio.
13
INVESTMENT PORTFOLIO (CONTINUED)
October 31, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
----------------------------------------------------------------------------------------------------------
SERVICES (CONTINUED)
AMUSEMENT & RECREATION (CONTINUED)
Park Place Entertainment Corp.,
9.375% 02/15/07 $ 435,000 $ 483,937
Pinnacle Entertainment, Inc.,
8.750% 10/01/13 900,000 897,750
Regal Cinemas, Inc.,
9.375% 02/01/12 350,000 395,500
Royal Caribbean Cruises Ltd.,
8.000% 05/15/10 225,000 240,750
Six Flags, Inc.,
9.500% 02/01/09 845,000 829,156
Town Sports International, Inc.,
9.625% 04/15/11 170,000 181,900
Venetian Casino Resort LLC,
11.000% 06/15/10 325,000 373,750
Wynn Las Vegas LLC,
12.000% 11/01/10 300,000 345,000
-----------
6,055,299
-----------
AUTO EQUIPMENT & RENTAL SERVICES - 1.2%
NationsRent, Inc.,
9.500% 10/15/10 (a) 425,000 439,875
United Rentals, Inc.,
10.750% 04/15/08 255,000 285,600
Williams Scotsman, Inc.,
9.875% 06/01/07 200,000 202,000
-----------
927,475
-----------
BUSINESS SERVICES - 0.7%
Iron Mountain, Inc.,
6.625% 01/01/16 330,000 321,750
Xerox Corp.,
7.125% 06/15/10 160,000 163,600
-----------
485,350
-----------
FUNERAL SERVICES - 1.5%
Service Corp. International,
7.700% 04/15/09 600,000 622,500
Stewart Enterprises, Inc.,
10.750% 07/01/08 400,000 452,000
-----------
1,074,500
-----------
HEALTH SERVICES - 6.3%
AmerisourceBergen Corp.,
8.125% 09/01/08 175,000 189,438
Coventry Health Care, Inc.,
8.125% 02/15/12 525,000 568,312
HCA, Inc.,
8.750% 09/01/10 670,000 774,259
IASIS Healthcare Corp.,
13.000% 10/15/09 305,000 342,363
InSight Health Services Corp.,
9.875% 11/01/11 340,000 364,650
Magellan Health Services, Inc.,
9.375% 11/15/07 (a)(e) 385,000 419,650
MedQuest, Inc.,
11.875% 08/15/12 500,000 540,000
PAR VALUE
----------------------------------------------------------------------------------------------------------
PacifiCare Health Systems, Inc.,
10.750% 06/01/09 $ 500,000 $ 576,250
Tenet Healthcare Corp.,
6.375% 12/01/11 450,000 418,500
United Surgical Partners
International, Inc.,
10.000% 12/15/11 400,000 444,000
-----------
4,637,422
-----------
HOTELS, CAMPS & LODGING - 1.7%
Host Marriott LP,
9.500% 01/15/07 340,000 375,700
Inn of the Mountain Gods Resort
& Casino,
12.000% 11/15/10 (a)(d) 200,000 209,000
Starwood Hotels & Resorts
Worldwide, Inc.,
7.875% 05/01/12 625,000 690,625
-----------
1,275,325
-----------
OTHER SERVICES - 0.7%
Corrections Corp. of America,
9.875% 05/01/09 300,000 336,000
Wackenhut Corrections Corp.,
8.250% 07/15/13 (a) 160,000 169,600
-----------
505,600
-----------
----------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 46.4%
AEROSPACE - 0.5% TransDigm, Inc.,
8.375% 07/15/11 (a) 200,000 213,500
Vought Aircraft Industries, Inc.,
8.000% 07/15/11 (a) 160,000 161,600
-----------
375,100
-----------
AIR TRANSPORTATION - 2.0%
Delta Air Lines, Inc.,
7.900% 12/15/09 470,000 385,400
Northwest Airlines, Inc.,
9.875% 03/15/07 615,000 538,125
U.S. Airways, Inc.,
10.375% 03/01/13 (m) 1,512,000 521,673
-----------
1,445,198
-----------
BROADCASTING - 4.3%
CanWest Media, Inc.,
10.625% 05/15/11 585,000 666,900
Corus Entertainment, Inc.,
8.750% 03/01/12 200,000 220,000
Emmis Communications Corp.,
(h) 03/15/11
(12.500% 03/15/06) 561,000 510,510
Sinclair Broadcast Group, Inc.,
8.750% 12/15/11 250,000 273,750
Spanish Broadcasting System, Inc.,
9.625% 11/01/09 80,000 83,400
TV Azteca SA de CV,
10.500% 02/15/07 745,000 765,487
See notes to investment portfolio.
14
INVESTMENT PORTFOLIO (CONTINUED)
October 31, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
----------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES (CONTINUED)
BROADCASTING (CONTINUED)
XM Satellite Radio Holdings, Inc.,
(h) 12/31/09
(14.000% 12/31/05) $ 474,415 $ 407,997
Videotron Ltee,
6.875% 01/15/14 (a) 235,000 240,875
-----------
3,168,919
-----------
CABLE - 6.6%
Charter Communications Holdings LLC:
(h) 04/01/11
(9.920% 04/01/04) 1,580,000 1,192,900
10.000% 04/01/09 325,000 269,750
Comcast UK Cable Partners Ltd.,
11.200% 11/15/07 750,000 750,000
CSC Holdings, Inc.,
7.625% 04/01/11 300,000 305,250
DirecTV Holdings LLC,
8.375% 03/15/13 300,000 336,750
EchoStar DBS Corp.,
6.375% 10/01/11 (a) 600,000 597,750
Insight Communications Co., Inc.,
(h) 02/15/11
(12.250% 02/15/06) 415,000 291,537
Insight Midwest LP,
9.750% 10/01/09 335,000 343,375
Northland Cable Television, Inc.,
10.250% 11/15/07 600,000 597,000
Rogers Cable, Inc.,
6.250% 06/15/13 165,000 165,594
-----------
4,849,906
-----------
COMMUNICATION SERVICES - 1.8%
Crown Castle International Corp.:
(h) 05/15/11
(10.375% 05/15/04) 250,000 254,375
10.750% 08/01/11 350,000 392,875
Eircom Funding,
8.250% 08/15/13 (a) 75,000 81,751
SBA Communications Corp.,
10.250% 02/01/09 440,000 391,600
SpectraSite, Inc.,
8.250% 05/15/10 (a) 200,000 212,000
-----------
1,332,601
-----------
ELECTRIC, GAS & SANITARY SERVICES - 3.3%
Allied Waste North America, Inc.:
8.500% 12/01/08 505,000 552,975
10.000% 08/01/09 1,215,000 1,321,312
CMS Energy Corp.,
8.900% 07/15/08 415,000 441,975
PG&E Corp.,
6.875% 07/15/08 (a) 120,000 126,754
-----------
2,443,016
-----------
PAR VALUE
----------------------------------------------------------------------------------------------------------
ELECTRIC SERVICES - 6.8%
AES Corp.:
9.000% 05/15/15 (a) $ 330,000 $ 353,513
9.500% 06/01/09 665,000 709,887
Beaver Valley Funding Corp.,
9.000% 06/01/17 355,000 406,014
Caithness Coso Funding Corp.,
9.050% 12/15/09 534,950 572,397
Calpine Corp.:
8.500% 02/15/11 445,000 315,950
8.625% 08/15/10 220,000 156,200
8.750% 07/15/13 (a) 315,000 287,438
Edison Mission Energy,
9.875% 04/15/11 300,000 277,500
Illinois Power Co.,
11.500% 12/15/10 150,000 179,250
MSW Energy Holdings LLC,
8.500% 09/01/10 (a) 375,000 401,250
Nevada Power Co.:
9.000% 08/15/13 (a) 185,000 193,325
10.875% 10/15/09 340,000 377,400
Orion Power Holdings, Inc.,
12.000% 05/01/10 150,000 173,250
PSE&G Energy Holdings, Inc.,
8.625% 02/15/08 395,000 410,800
Tiers-Mir-2001-14,
7.200% 06/15/04 (a)(e) 410,000 200,900
-----------
5,015,074
-----------
MOTOR, FREIGHT & WAREHOUSING - 0.6%
QDI LLC:
12.000% 06/15/09 (a)(f) 167,717 7,547
12.500% 06/15/08 (f) 685,000 411,000
-----------
418,547
-----------
PIPELINES - 4.7%
Coastal Corp.,
7.750% 06/15/10 645,000 543,412
Dynegy Holdings, Inc.:
8.750% 02/15/12 300,000 282,000
9.875% 07/15/10 (a) 160,000 171,200
10.125% 07/15/13 (a) 40,000 43,200
El Paso Production Holding,
7.750% 06/01/13 (a) 245,000 235,200
GulfTerra Energy Partners LP,
8.500% 06/01/10 275,000 299,750
Northwest Pipeline Corp.,
8.125% 03/01/10 130,000 144,625
Sonat, Inc.,
7.625% 07/15/11 565,000 476,012
Southern Natural Gas Co.,
8.875% 03/15/10 250,000 275,000
Williams Companies, Inc.:
8.125% 03/15/12 765,000 822,375
8.625% 06/01/10 180,000 197,100
-----------
3,489,874
-----------
See notes to investment portfolio.
15
INVESTMENT PORTFOLIO (CONTINUED)
October 31, 2003
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE
----------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES (CONTINUED)
POLLUTION CONTROL - 0.4%
EnviroSource, Inc.,
14.000% 12/15/08 (f) $ 273,663 $ 264,402
-----------
RADIOTELEPHONE COMMUNICATIONS - 5.5%
ACC Escrow Corp.,
10.000% 08/01/11 (a) 225,000 245,250
AirGate PCS, Inc.,
(h) 10/01/09
(13.500% 10/01/04) 129,000 87,075
Dobson Communications Corp.,
8.875% 10/01/13 (a) 440,000 444,400
Nextel Communications, Inc.,
9.375% 11/15/09 1,060,000 1,155,400
Nextel Partners, Inc.,
11.000% 03/15/10 290,000 321,175
Rogers Cantel, Inc.,
9.750% 06/01/16 735,000 858,113
Triton PCS, Inc.,
8.750% 11/15/11 205,000 196,800
US Unwired, Inc.,
(h) 11/01/09
(13.375% 11/01/04) 800,000 532,000
Western Wireless Corp.,
9.250% 07/15/13 200,000 208,500
-----------
4,048,713
-----------
RAILROAD - 0.9%
Kansas City Southern Railway Co.,
7.500% 06/15/09 215,000 221,450
TFM SA de CV,
12.500% 06/15/12 380,000 418,000
-----------
639,450
-----------
TELECOMMUNICATIONS - 7.4%
Amkor Technology, Inc.:
9.250% 02/15/08 285,000 317,062
10.500% 05/01/09 270,000 290,925
Avaya, Inc.,
11.125% 04/01/09 220,000 258,500
Carrier1 International SA,
13.250% 02/15/09 (e) 750,000 22,500
Cincinnati Bell, Inc.,
8.375% 01/15/14 (a)(d) 320,000 321,800
Colt Telecom Group PLC,
12.000% 12/15/06 245,000 244,388
FairPoint Communications, Inc.,
11.875% 03/01/10 175,000 204,750
Horizon PCS, Inc.,
13.750% 06/15/11 (e) 415,000 95,450
Innova S. de R.L.,
9.375% 09/19/13 (a) 100,000 99,625
Level 3 Communications, Inc.,
(h) 12/01/08
(10.500% 12/01/03) 355,000 326,600
PAR VALUE
----------------------------------------------------------------------------------------------------------
Lucent Technologies, Inc.,
6.450% 03/15/29 $ 335,000 $ 261,300
MCI Communications Corp.:
7.125% 06/15/27 (e) 120,000 99,000
7.500% 08/20/04 (e) 465,000 383,625
Qwest Capital Funding, Inc.,
7.250% 02/15/11 810,000 747,225
Qwest Corp.:
8.875% 03/15/12 (a) 315,000 355,950
13.500% 12/15/10 (a) 595,000 696,150
Time Warner Telecom, Inc.:
9.750% 07/15/08 470,000 479,400
10.125% 02/01/11 230,000 236,900
-----------
5,441,150
-----------
TRANSPORTATION SERVICES - 1.6%
Allied Holdings, Inc.,
8.625% 10/01/07 190,000 178,600
Petroleum Helicopters, Inc.,
9.375% 05/01/09 530,000 569,750
Stena AB,
9.625% 12/01/12 255,000 277,950
Teekay Shipping Corp.,
8.875% 07/15/11 150,000 167,250
-----------
1,193,550
-----------
----------------------------------------------------------------------------------------------------------
WHOLESALE TRADE - 1.4%
DURABLE GOODS - 1.4%
Kinetic Concepts, Inc.,
7.375% 05/15/13 (a) 120,000 123,300
Playtex Products, Inc.,
9.375% 06/01/11 380,000 368,600
Steinway Musical Instruments, Inc.,
8.750% 04/15/11 550,000 570,625
-----------
1,062,525
-----------
TOTAL CORPORATE FIXED-INCOME BONDS & NOTES
(cost of $94,293,779) 93,340,178
-----------
PREFERRED STOCKS - 3.1% SHARES
----------------------------------------------------------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.9%
REAL ESTATE - 0.9%
iStar Financial, Inc.:
7.800% 13,000 336,782
7.875% 11,007 289,278
-----------
626,060
-----------
----------------------------------------------------------------------------------------------------------
MANUFACTURING - 0.3%
FOOD & KINDRED PRODUCTS - 0.1%
Constellation Brands, Inc.,
5.750% 2,425 71,537
-----------
See notes to investment portfolio.
16
INVESTMENT PORTFOLIO (CONTINUED)
October 31, 2003
PREFERRED STOCKS (CONTINUED) SHARES VALUE
----------------------------------------------------------------------------------------------------------
MANUFACTURING (CONTINUED)
PRINTING & PUBLISHING - 0.2%
PriMedia, Inc.,
8.625% 30 2,760
9.200% 1,615 151,810
-----------
154,570
-----------
----------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 1.9%
BROADCASTING - 0.6%
Spanish Broadcasting System, Inc.,
10.750% (a) 430 432,150
-----------
CABLE - 1.2%
CSC Holdings, Inc.:
11.125% 349 36,470
11.750% 7,979 831,811
-----------
868,281
-----------
POLLUTION CONTROL - 0.1%
EnviroSource, Inc.,
7.250% (f) 929 106,835
-----------
TOTAL PREFERRED STOCKS
(cost of $2,418,206) 2,259,433
-----------
CONVERTIBLE BONDS - 1.5% PAR
----------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 1.5%
TELECOMMUNICATIONS - 1.5%
Colt Telecom Group PLC:
2.000% 03/29/06 (a) EUR 265,000 313,832
2.000% 12/16/06 (a) 130,000 153,955
Nortel Networks Corp.,
4.250% 09/01/08 $ 720,000 682,049
-----------
TOTAL CONVERTIBLE BONDS
(cost of $959,452) 1,149,836
-----------
COMMON STOCKS - 1.5% (I) SHARES
----------------------------------------------------------------------------------------------------------
MANUFACTURING - 0.0%
PRIMARY METAL - 0.0%
Wheeling-Pittsburgh Corp. (e) 1 4
-----------
----------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 1.5%
CABLE - 0.5%
NTL, Inc. 5,942 366,800
Ono Finance PLC 750 1
-----------
366,801
-----------
POLLUTION CONTROL - 0.8%
EnviroSource, Inc. (f) 8,000 576,000
Fairlane Management Corp. (f)(j) 8,000 --
-----------
576,000
-----------
SHARES VALUE
----------------------------------------------------------------------------------------------------------
RADIOTELEPHONE COMMUNICATIONS - 0.2%
Nextel Communications, Inc., Class A 6,196 $ 149,943
-----------
TOTAL COMMON STOCKS
(cost of $1,266,375) 1,092,748
-----------
WARRANTS - 0.2% (I) UNITS
----------------------------------------------------------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS,
ELECTRIC, GAS & SANITARY SERVICES - 0.2%
BROADCASTING - 0.2%
XM Satellite Radio Holdings, Inc.:
Expires 12/31/09 70 102,550
Expires 03/15/10 (a) 600 12,600
-----------
115,150
-----------
CABLE - 0.0%
Cable Satisfaction International, Inc.,
Expires 03/01/05 (a) 970 10
Ono Finance PLC,
Expires 05/31/09 (a) 175 2
-----------
12
-----------
COMMUNICATION SERVICES - 0.0%
UbiquiTel, Inc.,
Expires 04/15/10 (a) 525 5
-----------
MOTOR, FREIGHT & WAREHOUSING - 0.0%
QDI LLC,
Expires 01/15/07 (a)(j) 2,041 --
-----------
TELECOMMUNICATIONS - 0.0%
AT&T Canada, Inc.,
Expires 08/15/07 (a)(f)(j) 250 --
Carrier1 International SA,
Expires 02/19/09 (a)(e) 347 3
Horizon PCS, Inc.,
Expires 10/01/10 (a) 665 1
Jazztel PLC,
Expires 07/15/10 (a)(j) 350 --
-----------
4
-----------
TOTAL WARRANTS
(cost of $105,737) 115,171
-----------
SHORT-TERM OBLIGATION - 3.5% PAR
----------------------------------------------------------------------------------------------------------
Federal National Mortgage Association,
0.950% 11/03/03 (k)
(cost of $2,588,863) $2,589,000 2,588,863
-----------
TOTAL INVESTMENTS - 136.6%
(cost of $101,632,412) (l) 100,546,229
-----------
OTHER ASSETS & LIABILITIES, NET - (36.6)% (26,923,308)
----------------------------------------------------------------------------------------------------------
Net Assets - 100.0% $73,622,921
===========
See notes to investment portfolio.
17
INVESTMENT PORTFOLIO (CONTINUED)
October 31, 2003
NOTES TO INVESTMENT PORTFOLIO:
--------------------------------------------------------------------------------
(a) This security is exempt from registration under Rule 144A of the Securities
Act of 1933 and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At October 31, 2003, the value
of these securities amounted to $14,762,958, which represents 20.1% of net
assets.
(b) Zero coupon bond.
(c) Interest rates on variable rate securities change periodically. The rate
listed is as of October 31, 2003.
(d) This security has been purchased on a delayed delivery basis.
(e) As of October 31, 2003, the Fund held securities of certain issuers that
have filed for bankruptcy protection under Chapter 11 representing 2.8% of
net assets. This issuer is in default of certain debt covenants. Income is
not being accrued.
(f) Represents fair value as determined in good faith under the direction of the
Board of Trustees.
(g) The issuer is in default of certain debt covenants. Income is not being
accrued.
(h) Stepped coupon bond. Currently accruing at zero. Shown parenthetically is
the next interest rate to be paid and the date the Fund will begin accruing
this rate.
(i) Non-income producing.
(j) Security has no value.
(k) Rate represents yield at date of purchase.
(l) Cost for federal income tax purposes is $101,531,153.
(m) Income is not being accrued on this security.
As of October 31, 2003, the Fund had entered into the following forward currency
exchange contracts:
NET
CONTRACTS IN EXCHANGE SETTLEMENT UNREALIZED
TO DELIVER FOR DATE APPRECIATION
---------------------------------------------------------------
EUR 398,600 USD 466,692 12/08/03 $ 3,975
-------
ACRONYM NAME
---------------------------------------------------------------
EUR Euro
USD United States Dollar
See notes to financial statements.
18
STATEMENTS OF ASSETS AND LIABILITIES
NOVEMBER 30, OCTOBER 31,
2003(a) 2003
-----------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investments, at cost $102,293,530 $101,632,412
------------ ------------
Investments, at value $102,373,701 $100,546,229
Cash 677,763 366,906
Net unrealized appreciation on foreign forward currency contracts -- 3,975
Receivable for:
Investments sold 877,355 1,542,884
Investments sold on a delayed delivery basis 1,200 161,250
Interest 2,048,517 2,225,362
Dividends 11,911 3,714
Deferred Trustees' compensation plan 6,011 6,011
Other assets 5,793 6
------------ ------------
Total Assets 106,002,251 104,856,337
------------ ------------
LIABILITIES:
Net unrealized depreciation on foreign forward currency contracts 23,126 --
Payable for:
Interest 258,540 175,359
Investments purchased 979,773 1,190,946
Investments purchased on a delayed delivery basis 611,779 701,800
Distributions 566,640 566,640
Investment advisory fee 50,913 49,560
Pricing and bookkeeping fees -- 7,734
Audit fee 49,852 32,366
Custody fee 3,619 3,000
Deferred Trustees' fees 6,011 6,011
Notes payable - short-term 14,800,000 14,800,000
Notes payable - long-term 13,700,000 13,700,000
------------ ------------
Total Liabilities 31,050,253 31,233,416
------------ ------------
NET ASSETS $ 74,951,998 $ 73,622,921
============ ============
COMPOSITION OF NET ASSETS:
Paid-in capital $141,241,495 $141,297,388
Overdistributed net investment income (546,000) (544,368)
Accumulated net realized loss (65,801,148) (66,048,265)
Net unrealized appreciation (depreciation) on:
Investments 80,171 (1,086,183)
Foreign currency translations (22,520) 4,349
------------ ------------
NET ASSETS $ 74,951,998 $ 73,622,921
============ ============
Shares outstanding 20,986,678 20,986,678
------------ ------------
Net asset value per share $ 3.57 $ 3.51
============ ============
(a) The Fund has changed its fiscal year end from October 31 to November 30.
See notes to financial statements.
19
STATEMENTS OF OPERATIONS
ONE MONTH ENDED YEAR ENDED
NOVEMBER 30, OCTOBER 31,
2003 (a) 2003
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME:
Interest $ 653,987 $ 8,147,493
Dividends 11,912 156,552
Other income -- 43,944
------------ ------------
Total Investment Income (net of foreign taxes withheld of $99 and $0, respectively) 665,899 8,347,989
------------ ------------
EXPENSES:
Investment advisory fee 67,195 640,668
Pricing and bookkeeping fees 4,141 45,964
Trustees' fees 604 8,393
Custody fee 1,751 14,026
Audit fee 17,736 42,094
Other expenses 9,271 147,237
------------ ------------
Total Operating Expenses 100,698 898,382
Custody earnings credit (324) (1,329)
------------ ------------
Net Operating Expenses 100,374 897,053
Interest expense 84,832 1,335,757
------------ ------------
Net Expenses 185,206 2,232,810
------------ ------------
Net Investment Income 480,693 6,115,179
------------ ------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
AND FOREIGN CURRENCY:
Net realized gain (loss) on:
Investments 265,371 (6,254,963)
Foreign currency transactions 10,168 (34,862)
------------ ------------
Net realized gain (loss) 275,539 (6,289,825)
------------ ------------
Net change in unrealized appreciation/depreciation on:
Investments 1,166,354 21,905,100
Foreign currency translations (26,869) 4,349
------------ ------------
Net change in unrealized appreciation/depreciation 1,139,485 21,909,449
------------ ------------
Net Gain 1,415,024 15,619,624
------------ ------------
Net Increase in Net Assets from Operations $ 1,895,717 $ 21,734,803
------------ ------------
(a) The Fund has changed its fiscal year end from October 31 to November 30.
See notes to financial statements.
20
STATEMENTS OF CHANGES IN NET ASSETS
ONE MONTH ENDED YEAR ENDED OCTOBER 31,
NOVEMBER 30, ------------------------------
INCREASE (DECREASE) IN NET ASSETS: 2003 (a) 2003 2002
-----------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 480,693 $ 6,115,179 $ 7,866,298
Net realized gain (loss) on investments and foreign currency transactions 275,539 (6,289,825) (23,413,598)
Net change in unrealized appreciation/depreciation
on investments and foreign currency translations 1,139,485 21,909,449 8,437,250
------------ ------------ ------------
Net Increase (Decrease) from Operations 1,895,717 21,734,803 (7,110,050)
------------ ------------ ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (566,640) (6,335,103) (7,465,282)
Return of capital -- (439,949) (297,562)
------------ ------------ ------------
Total Distributions Declared to Shareholders (566,640) (6,775,052) (7,762,844)
------------ ------------ ------------
SHARE TRANSACTIONS:
Distributions reinvested -- 528,920 653,667
------------ ------------ ------------
Total Increase (Decrease) in Net Assets 1,329,077 15,488,671 (14,219,227)
NET ASSETS:
Beginning of period 73,622,921 58,134,250 72,353,477
------------ ------------ ------------
End of period (including overdistributed net investment income
of $(546,000), $(544,368) and $(401,061), respectively) $ 74,951,998 $ 73,622,921 $ 58,134,250
============ ============ ============
CHANGES IN SHARES:
Issued for distributions reinvested -- 164,258 184,393
============ ============ ============
(a) The Fund has changed its fiscal year end from October 31 to November 30.
See notes to financial statements.
21
STATEMENTS OF CASH FLOWS
ONE MONTH ENDED YEAR ENDED
NOVEMBER 30, OCTOBER 31,
INCREASE (DECREASE) IN CASH: 2003 (a) 2003
-----------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net investment income $ 480,693 $ 6,115,179
Adjustments to reconcile net investment income
to net cash provided by operating activities:
Purchase of investment securities (8,022,788) (59,155,213)
Proceeds from disposition of investment securities 7,108,959 56,964,157
Purchase (sale) of short-term investments, net 543,049 (1,096,956)
Net realized gain (loss) due to foreign currency transactions 10,168 (34,862)
Decrease in interest and dividend receivable 168,648 172,797
Increase in other assets (5,787) (1,089)
Increase (decrease) in receivable for investments sold 825,579 (1,386,759)
Increase (decrease) in payable for investments purchased (301,194) 1,459,121
Increase in accrued expenses and other liabilities 11,724 8,550
Net amortization/accretion of income (24,735) (104,775)
----------- -----------
Net cash provided by operating activities 794,316 2,940,150
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable -- 4,000,000
Increase (decrease) in interest payable 83,181 (383,125)
Distributions paid in cash (566,640) (6,241,697)
----------- -----------
Net cash used by financing activities (483,459) (2,624,822)
----------- -----------
Net increase in cash 310,857 315,328
CASH:
Beginning of period 366,906 51,578
----------- -----------
End of period $ 677,763 $ 366,906
=========== ===========
Supplemental disclosure of cash flow information:
Non-cash financing activities not included herein consist of reinvestment of
distributions of $0 and $528,920, respectively.
(a) The Fund has changed its fiscal year end from October 31 to November 30.
See notes to financial statements.
22
NOTES TO FINANCIAL STATEMENTS
November 30, 2003
NOTE 1. 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.
INVESTMENT GOAL
The Fund seeks high current income and total return by investing primarily in
high yield fixed income securities in lower-rated categories.
FUND SHARES
The Fund may issue an unlimited number of shares.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue 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
Debt securities generally are valued by a pricing service approved by the Fund's
Board of Trustees, based upon market transactions for normal, institutional-size
trading units of similar securities. The services may use various pricing
techniques which take into account appropriate factors such as yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other data, as
well as broker quotes. Certain securities, which tend to be more thinly traded
and of lesser quality, are priced based on fundamental analysis of the financial
condition of the issuer and the estimated value of any collateral. Valuations
developed through pricing techniques may vary from the actual amounts realized
upon sale of the securities, and the potential variation may be greater for
those securities valued using fundamental analysis. Debt securities for which
quotations are readily available are valued at an over-the-counter or exchange
bid quotation.
Equity securities are valued at the last sale price at the close of the
principal exchange on which they trade. Unlisted securities or listed securities
for which there were no sales during the day are valued at the closing bid price
on such exchanges or over-the-counter markets.
Short-term obligations maturing within 60 days are valued at amortized cost,
which approximates market value.
Forward currency exchange contracts are valued at the prevailing forward
exchange rate of the underlying currencies.
Foreign securities are generally valued at the closing price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded.
Investments for which market quotations are not readily available, which tend to
be more thinly traded and of lesser quality, are valued at fair value as
determined in good faith under consistently applied procedures established by
and under the general supervision of the Board of Trustees. Foreign markets
close each day at various times prior to the close of the New York Stock
Exchange ("NYSE"). Foreign currency exchange rates are generally determined
prior to the close of the NYSE at 12:00 p.m. Eastern (U.S.) time. Occasionally,
events affecting the value of a foreign security may occur subsequent to the
close of the exchange or market which would not be reflected in the computation
of the Fund's net asset value. In such an event, the foreign security will be
valued at the fair value.
SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the specific identification method for both
financial statement and federal income tax purposes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign currency exchange contracts are agreements to exchange one
currency for another at a future date at a specified price. These contracts are
used to minimize the exposure to foreign exchange rate fluctuations during the
period between trade and settlement date of the contracts. The Fund may utilize
forward foreign currency exchange contracts in connection with the settlement of
purchases and sales of securities. The Fund may also enter into these contracts
to hedge certain other foreign currency denominated assets. Contracts to buy
generally are used to acquire exposure to foreign currencies, while contracts to
sell are used to hedge a Fund's investments against currency fluctuations.
Forward currency contracts are valued daily at the current exchange rate of the
underlying currency, resulting in unrealized gains (losses) which become
realized at the time the foreign 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. The use of forward currency contracts does not eliminate
fluctuations in the prices of the Fund'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. A
fund could also be exposed to risk if the
23
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 2003
counterparties of the contracts are unable to fulfill the terms of the
contracts. The Fund's custodian will set aside cash or liquid portfolio
securities equal to the amount of the forward currency contract commitment in a
separate account.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions with institutions that
the Fund's investment advisor has determined are creditworthy. The Fund, through
its custodian, receives delivery of underlying securities collateralizing a
repurchase agreement. Collateral securities are marked-to-market daily to ensure
that their market value is at least equal, at all times, to the repurchase
price. (In the event that the market value of the collateral securities declines
below the repurchase price of the repurchase agreement, additional securities
will be required to be segregated.) A repurchase agreement transaction involves
certain risks in the event of default or insolvency of the counterparty,
including possible delays or restrictions upon a Fund's ability to dispose of
the underlying securities, and a possible decline in the value of the underlying
securities during the period while the Fund seeks to assert its rights.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from registration. In
some cases, the issuer of restricted securities has agreed to register such
securities for resale at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Board of Trustees. The Fund will not
incur any registration costs upon such resale.
DELAYED DELIVERY SECURITIES
The Fund may trade securities on other than normal settlement terms, including
securities purchased or sold on a "when-issued" basis. 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. The Fund's custodian will
set aside cash or liquid portfolio securities equal to the amount of the delayed
delivery commitment in a separate account.
INCOME RECOGNITION
Interest income is recorded on the accrual basis. Premium and discount are
amortized and accreted, respectively, on all debt securities. Corporate actions
and dividend income are recorded on the ex-date except for certain foreign
securities which are recorded as soon after ex-date as the Fund becomes aware of
such, net of non-reclaimable tax withholdings. The value of additional
securities received as an income payment is recorded as income and as the cost
basis of such securities.
FOREIGN CURRENCY TRANSACTIONS
The values of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates. 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 Fund 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.
FEDERAL INCOME TAX STATUS
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, as amended, by distributing
substantially all of its taxable or tax-exempt income, if any, for its tax year,
and as such will not be subject to federal income taxes. In addition, by
distributing in each calendar year substantially all of its net investment
income, capital gains and certain other amounts, if any, the Fund will not be
subject to federal excise tax. Therefore, no federal income or excise tax
provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on ex-date. Net realized capital
gains, if any, are distributed at least annually. Income and capital gains
dividends are determined in accordance with income tax regulations which may
differ from GAAP.
STATEMENT OF CASH FLOWS
The Fund is required to disclose a Statement of Cash Flows due to its average
debt outstanding during the year. Information on financial transactions which
have been settled through the receipt or disbursement of cash is presented in
the Statement of Cash Flows. The cash amount shown in the Statement of Cash
Flows is the amount included within the Fund's Statement of Assets and
Liabilities and represents cash on hand at its custodian bank and does not
include any short-term investments.
NOTE 3. FEDERAL TAX INFORMATION
The timing and character of income and capital gain distributions are determined
in accordance with income tax regulations, which may differ from GAAP.
Reclassifications are made to a Fund's capital accounts for permanent tax
differences to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
For the one month ended November 30, 2003 and the year ended October 31, 2003,
permanent differences resulting primarily
24
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 2003
from differing treatments for discount accretion/premium amortization on debt
securities, distributions in excess, foreign currency transactions and market
discount were identified and reclassified among the components of the Fund's net
assets as follows:
OVERDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED PAID-IN
INCOME LOSS CAPITAL
--------------- ------------ -------
November 30, 2003 $84,315 $ (28,422) $ (55,893)
October 31, 2003 76,617 2,025,961 (2,102,578)
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the one month ended November 30,
2003 and the years ended October 31, 2003 and October 31, 2002 was as follows:
NOVEMBER 30, OCTOBER 31, OCTOBER 31,
2003 2003 2002
------------- ----------- ----------
Distributions paid from:
Ordinary Income* $566,640 $6,335,103 $7,465,282
Tax Return of Capital -- 439,949 297,562
Long-Term Capital Gains -- -- --
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of November 30, 2003 and October 31, 2003, the components of distributable
earnings on a tax basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED NET UNREALIZED
ORDINARY LONG-TERM APPRECIATION
INCOME CAPITAL GAINS (DEPRECIATION)*
------------- ------------- ---------------
November 30, 2003 $-- $-- $ 160,563
October 31, 2003 -- -- (984,551)
* The difference between book-basis and tax-basis net unrealized appreciation
(depreciation) is primarily due to discount accretion/premium amortization
on debt securities.
Unrealized appreciation (depreciation) at November 30, 2003 and October 31,
2003, based on cost of investments for federal income tax purposes was:
NOVEMBER 30, OCTOBER 31,
2003 2003
----------- -----------
Unrealized appreciation $ 7,459,655 $ 7,343,226
Unrealized depreciation (7,299,700) (8,328,150)
----------- -----------
Net unrealized
appreciation (depreciation) $ 159,955 $ (984,924)
----------- -----------
The following capital loss carryforwards are available to reduce taxable income
arising from future net realized gains on investments, if any, to the extent
permitted by the Internal Revenue Code:
NOVEMBER 30, 2003
---------------------------------------------------------
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------- -----------------------
2006 $ 3,034,960
2007 10,437,671
2008 22,694,029
2009 23,203,433
2010 6,431,055
-----------
$65,801,148
===========
OCTOBER 31, 2003
---------------------------------------------------------
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------- -----------------------
2007 $ 3,282,077
2008 10,437,671
2009 22,694,029
2010 23,203,433
2011 6,431,055
-----------
$66,048,265
===========
Capital loss carryforwards of $247,117 and $2,102,577 were utilized and/or
expired during the one month ended November 30, 2003 and the year ended October
31, 2003, respectively, for the Fund.
Expired capital loss carryforwards are recorded as a reduction of paid-in
capital.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
On April 1, 2003, Colonial Management Associates, Inc., the previous investment
advisor to the Fund, merged into Columbia Management Advisors, Inc.
("Columbia"), formerly known as Columbia Management Co., an indirect,
wholly-owned subsidiary of FleetBoston Financial Corporation. As a result of the
merger, Columbia now serves as the Fund's investment advisor. The merger did not
change the way the Fund is managed, the investment personnel assigned to manage
the Fund or the fees paid by the Fund.
INVESTMENT ADVISORY FEE
Columbia is the investment advisor to the Fund and provides administrative and
other services. Columbia receives a monthly fee at the annual rate of 0.65% of
the Fund's average weekly net assets.
In addition, the Fund shall pay Columbia a monthly fee of 20% of the Fund's
monthly "leverage income" (as that term is defined in the management contract).
In the event that the Fund's monthly leverage income is less than zero then
Columbia shall pay the Fund 20% of the Fund's monthly
25
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 2003
leverage income. For the one month ended November 30, 2003 and the year ended
October 31, 2003, the fees paid to Columbia relating to leverage income amount
to $27,251 and $207,576, which represents 0.44% and 0.31%, respectively,
annually of the Fund's average daily net assets.
PRICING AND BOOKKEEPING FEES
Columbia is responsible for providing pricing and bookkeeping services to the
Fund under a pricing and bookkeeping agreement. Under a separate agreement (the
"Outsourcing Agreement"), Columbia has delegated those functions to State Street
Corporation ("State Street").
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average weekly net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average weekly net assets of the Fund for that month. The Fund also pays
additional fees for pricing services. For the one month ended November 30, 2003
and the year ended October 31, 2003, the effective annualized pricing and
bookkeeping fee rate was 0.07%. Columbia pays the total fees collected to State
Street under the Outsourcing Agreement.
FEES PAID TO OFFICERS AND TRUSTEES
The Fund pays no compensation to its officers, all of whom are employees of
Columbia or its affiliates.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
CUSTODY CREDITS
The Fund has an agreement with its custodian bank under which custody fees may
be reduced by balance credits. The Fund could have invested a portion of the
assets utilized in connection with the expense offset arrangement in an
income-producing asset if it had not entered into such an agreement.
NOTE 5. PORTFOLIO INFORMATION
PURCHASES AND SALES OF SECURITIES
For the one month ended November 30, 2003 and the year ended October 31, 2003,
the cost of purchases and proceeds from sales of securities, excluding
short-term obligations, were:
PURCHASES SALES
----------- -----------
November 30, 2003 $ 8,022,788 $ 7,108,959
October 31, 2003 59,155,213 56,964,157
NOTE 6. LOAN AGREEMENT
At November 30, 2003 and October 31, 2003, the Fund had term loans and a
revolving loan outstanding with Bank of America NA, together totaling
$28,500,000 for each period.
These loans are comprised of a $13,700,000 term loan which bears interest at
3.12% per annum, due August 26, 2005, a $9,700,000 term loan which bears
interest at 4.37% per annum, due June 13, 2004, and a $5,100,000 revolving loan,
due August 26, 2004. The revolving loan is a floating rate loan which had a
weighted average interest rate of 1.97% and 3.59% at November 30, 2003 and
October 31, 2003, respectively. At November 30, 2003 and October 31, 2003, the
average daily loan balance was $28,500,000 and $26,193,151 at a weighted average
interest rate of 3.57% and 5.06%, respectively. The Fund is subject to certain
covenants including, but not limited to, requirements with respect to asset
coverage, portfolio diversification and liquidity.
NOTE 7. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
FOREIGN SECURITIES
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 other
foreign governmental laws or restrictions. In addition, the liquidity of foreign
securities may be more limited than that of domestic securities.
HIGH-YIELD SECURITIES
Investing in high-yield securities may involve greater credit risk and
considerations not typically associated with investing in U.S. Government bonds
and other higher quality fixed income securities. These securities are
non-investment grade securities, often referred to as "junk bonds." Economic
downturns and industry events may disrupt the high yield market and impair the
ability of issuers to repay principal and interest. Also, an increase in
interest rates would likely have an adverse impact on the value of such
obligations. Moreover, high-yield securities may be less liquid due to the
extent that there is no established retail secondary market and because of a
decline in the value of such securities.
26
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as follows:
ONE MONTH
ENDED YEAR ENDED OCTOBER 31,
NOVEMBER 30, -----------------------------------------------------------------
2003 (a) 2003 2002 2001 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 3.51 $ 2.79 $ 3.51 $ 4.83 $ 5.97 $ 6.20
-------- -------- -------- -------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.02(b) 0.29(b) 0.38(b)(c) 0.51(b) 0.67 0.70
Net realized and unrealized gain (loss) on
investments and foreign currency 0.07 0.75 (0.73)(c) (1.26) (1.10) (0.23)
-------- -------- -------- -------- -------- ---------
Total from Investment Operations 0.09 1.04 (0.35) (0.75) (0.43) 0.47
-------- -------- -------- -------- -------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.03) (0.30) (0.36) (0.55) (0.69) (0.70)
In excess of net investment income -- -- -- -- (0.02) --
Return of capital -- (0.02) (0.01) (0.02) -- --
-------- -------- -------- -------- -------- ---------
Total Distributions Declared
to Shareholders (0.03) (0.32) (0.37) (0.57) (0.71) (0.70)
======== ======== ======== ======== ======== =========
NET ASSET VALUE, END OF PERIOD $ 3.57 $ 3.51 $ 2.79 $ 3.51 $ 4.83 $ 5.97
======== ======== ======== ======== ======== =========
Market price per share $ 3.50 $ 3.65 $ 2.79 $ 3.49 $ 4.63 $ 5.63
======== ======== ======== ======== ======== =========
Total return -- based on market value (d) (3.40)%(e) 44.56% (10.43)% (14.26)% (6.12)% (7.89)%
======== ======== ======== ======== ======== =========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (f) 1.63%(g) 1.35% 1.25% 1.31% 0.92% 0.89%
Interest and amortization of deferred
debt issuance expenses 1.38%(g) 2.00% 2.73% 2.98% 2.79% 2.48%
Total expenses (f) 3.01%(g) 3.35% 3.98% 4.29% 3.71% 3.37%
Net investment income (f) 7.82%(g) 9.18% 11.38%(c) 11.96% 11.88% 10.82%
Portfolio turnover rate 7%(e) 64% 54% 52% 42% 44%
Net assets, end of period (000's) $ 74,952 $ 73,623 $ 58,134 $ 72,353 $ 98,333 $ 121,018
(a) The Fund has changed its fiscal year end from October 31 to November 30.
(b) Per share data was calculated using average shares outstanding during the
period.
(c) Effective November 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting discount on all debt securities. The effect of this
change for the year ended October 31, 2002, was to increase the net
investment income per share by $0.02, increase the net realized and
unrealized loss per share by $0.02 and increase the ratio of net investment
income to average net assets from 10.92% to 11.38%. Per share data and
ratios for periods prior to October 31, 2002 have not been restated to
reflect this change in presentation.
(d) Total return at market value assuming all distributions reinvested at
prices calculated in accordance with the Dividend Reinvestment Plan.
(e) Not annualized.
(f) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(g) Annualized.
27
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period is as follows:
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 7.27 $ 6.89 $ 6.62 $ 6.28 $ 6.92
-------- -------- -------- -------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.70 0.70 0.70 0.70 0.69
Net realized and unrealized gain (loss) on investments
and foreign currency (1.08) 0.38 0.26 0.34 (0.58)
-------- -------- -------- -------- ---------
Total from Investment Operations (0.38) 1.08 0.96 1.04 0.11
-------- -------- -------- -------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.69) (0.70) (0.69) (0.70) (0.75)
-------- -------- -------- -------- ---------
NET ASSET VALUE, END OF PERIOD $ 6.20 $ 7.27 $ 6.89 $ 6.62 $ 6.28
======== ======== ======== ======== =========
Market price per share $ 6.81 $ 7.56 $ 7.13 $ 6.88 $ 5.75
======== ======== ======== ======== =========
Total return-- based on market value (a) (0.74)% 16.97% 14.62% 33.00% (2.80)%
======== ======== ======== ======== =========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (b) 0.88% 0.89% 0.98% 0.95% 0.97%
Interest and amortization of deferred
debt issuance expenses 2.11% 1.96% 2.07% 1.94% 1.91%
Total expenses (b) 2.99% 2.85% 3.05% 2.89% 2.88%
Net investment income (b) 9.70% 9.63% 10.11% 10.76% 10.40%
Portfolio turnover rate 69% 92% 92% 92% 160%
Net assets, end of period (000's) $124,480 $107,774 $ 99,925 $ 93,984 $ 87,519
(a) Total return at market value assuming all distributions reinvested at
prices calculated in accordance with the Dividend Reinvestment Plan.
(b) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%, except for
the year ended 1997 which had a 0.01% impact.
28
FINANCIAL HIGHLIGHTS (CONTINUED)
LOAN AGREEMENT ASSET COVERAGE REQUIREMENTS
ASSET COVERAGE
TOTAL AMOUNT PER $1,000 OF
DATE OUTSTANDING INDEBTEDNESS
-------- ----------- ------------
11/30/03 $28,500,000 $3,630
10/31/03 28,500,000 3,583
10/31/02 24,500,000 3,373
10/31/01 30,500,000 3,372
10/31/00 47,300,000 3,079
10/31/99 47,300,000 3,558
10/31/98 47,300,000 3,632
10/31/97 27,400,000 4,933
10/31/96 27,400,000 4,647
10/31/95 27,400,000 4,430
10/31/94 27,400,000 4,194
29
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES AND THE SHAREHOLDERS OF COLONIAL INTERMEDIATE HIGH INCOME FUND
In our opinion, the accompanying statements of assets and liabilities, including
the investment portfolios, and the related statements of operations, cash flows
and changes in net assets, and the financial highlights present fairly, in all
material respects, the financial position of Colonial Intermediate High Income
Fund (the "Fund") at November 30, 2003 and October 31, 2003, and the results of
its operations, its cash flows, the changes in its net assets, and its financial
highlights for the periods indicated, in conformity with accounting principles
generally accepted in the United States of America. These financial statements
and 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 auditing standards
generally accepted in the United States of America, 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 securities at
November 30, 2003 and October 31, 2003 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 12, 2004
30
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS
On May 21, 2003, the Annual Meeting of Shareholders of the Fund was held to
conduct a vote for or against the approval of the following Item listed on the
Fund's Proxy Statement for said Meeting. On February 28, 2003, the record date
for the Meeting, the Fund had 20,867,809 shares outstanding. The votes cast were
as follows:
PROPOSAL 1.
ELECTION OF TRUSTEES: FOR WITHHELD
----------------------------- --------------- -------------
Douglas A. Hacker 18,228,140 433,268
Janet Langford Kelly 18,250,790 410,618
John J. Neuhauser 18,250,534 410,874
Joseph R. Palombo 18,235,184 426,224
Mr. Hacker, Ms. Kelly, Mr. Neuhauser and Mr. Palombo were elected as Trustees of
the Fund. Each will serve for three years or until a successor is elected.
The Board of Trustees is divided into the following three classes, each with a
term expiring in the indicated year:
2004 2005 2006
------------ ---------- -------------
Mr. Macera* Mr. Lowry Mr. Hacker
Mr. Stitzel Mr. Mayer Ms. Kelly
Mr. Theobald Mr. Nelson Mr. Neuhauser
Ms. Verville Mr. Palombo
*Effective June 18, 2003, Mr. Macera retired from the Board of Trustees.
31
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 asset value of the shares, resulting
in the acquisition of fewer shares than if the distribution had been in
newly-issued shares.
All Plan accounts receive written confirmations of all transactions. Shares
purchased under the Plan are held in uncertificated form. Each shareholder's
proxy includes shares purchased pursuant to the Plan. The automatic reinvestment
of distributions does not relieve participants of any income tax payable on the
distributions.
Fees and expenses of the Plan other than brokerage charges will be paid by the
Fund. No brokerage charges are incurred on shares issued directly by the Fund.
Participants will bear a pro-rata share of brokerage charges incurred on open
market purchases.
A Plan participant may terminate his or her participation by written notice to
the Plan agent. The Plan may be amended or terminated on 90 days written notice
to the Plan participants. All correspondence concerning the Plan should be
directed to PFPC Inc., the Plan agent, by mail at P.O. Box 43027, Providence, RI
02940-3027 or by phone at 1-800-331-1710.
32
TRUSTEES
Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth were
appointed to the Board of Trustees of the Fund. Messrs. Simpson and Woolworth
had been directors of 15 Columbia Funds and 20 funds in the CMG Fund Trust. Also
effective October 8, 2003, the incumbent trustees of the Fund were elected as
directors of the 15 Columbia Funds and as trustees of the 20 funds in the CMG
Fund Trust. The new combined Board of Trustees/Directors of the Fund now
oversees 119 funds in the Columbia Funds Complex (including the former Liberty
Funds, former Stein Roe Funds, Columbia Funds and CMG Funds). Several of these
trustees/directors also serve on the Boards of other funds in the Columbia Funds
Complex.
The Trustees/Directors serve terms of indefinite duration. The names, addresses
and ages of the Trustees/Directors and officers of the Funds in the Columbia
Funds complex, the year each was first elected or appointed to office, their
principal business occupations during at least the last five years, the number
of portfolios overseen by each Trustee/Director and other directorships they
hold are shown below. Each officer listed below serves as an officer of each
Fund in the Columbia Funds Complex.
Number of
portfolios in
Year first Columbia Funds
elected or Complex Other
Position appointed Principal occupation(s) overseen by directorships
Name, address and age with Funds to office1 during past five years Trustee/Director held
------------------------------------------------------------------------------------------------------------------------------------
Disinterested Trustees
----------------------
Douglas A. Hacker Trustee 1996 Executive Vice President-Strategy of United Airlines 119 Orbitz
(age 48) (airline) since December, 2002 (formerly President (online
P.O. Box 66100 of UAL Loyalty Services (airline) from September, travel
Chicago, IL 60666 2001 to December, 2002; Executive Vice President company)
and Chief Financial Officer of United Airlines
from March, 1993 to September, 2001)
Janet Langford Kelly Trustee 1996 Chief Administrative Officer and Senior Vice 119 None
(age 45) President, Kmart Holding Corporation (consumer goods)
3100 West Beaver Road since September, 2003 (formerly Executive Vice
Troy, MI 48084-3163 President-Corporate Development and Administration,
General Counsel and Secretary, Kellogg Company (food
manufacturer), from September, 1999 to August, 2003;
Senior Vice President, Secretary and General Counsel,
Sara Lee Corporation (branded, packaged, consumer-
products manufacturer) from January, 1995 to
September, 1999).
Richard W. Lowry Trustee 1995 Private Investor since August, 1987 (formerly 124(3) None
(age 67) Chairman and Chief Executive Officer, U.S. Plywood
10701 Charleston Drive Corporation (building products manufacturer)).
Vero Beach, FL 32963
Charles R. Nelson Trustee 1981 Professor of Economics, University of Washington, 119 None
(age 61) since January, 1976; Ford and Louisa Van Voorhis
Department of Economics Professor of Political Economy, University of
University of Washington Washington, since September, 1993; Director,
Seattle, WA 98195 Institute for Economic Research, University of
Washington, since September, 2001; Adjunct
Professor of Statistics, University of Washington,
since September, 1980; Associate Editor, Journal of
Money Credit and Banking, since September, 1993;
consultant on econometric and statistical matters.
John J. Neuhauser Trustee 1985 Academic Vice President and Dean of Faculties 122(3,4) Saucony,
(age 60) since August, 1999, Boston College (formerly Inc.
84 College Road Dean, Boston College School of Management from (athletic
Chestnut Hill, MA 02467-3838 footwear); September, 1977 to September, 1999). SkillSoft
Corp.
(e-learning)
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie L.L.P. 119 None
(age 58)
1211 S.W. 5th Avenue
Suite 1500
Portland, OR 97204
33
TRUSTEES (CONTINUED)
Number of
portfolios in
Year first Columbia Funds
elected or Complex Other
Position appointed Principal occupation(s) overseen by directorships
Name, address and age with Funds to office1 during past five years Trustee/Director held
------------------------------------------------------------------------------------------------------------------------------------
Disinterested Trustees (continued)
----------------------------------
Thomas E. Stitzel Trustee 1998 Business Consultant since 1999 (formerly Professor 119 None
(age 67) of Finance from 1975 to 1999, College of Business,
2208 Tawny Woods Place Boise State University); Chartered Financial Analyst.
Boise, ID 83706
Thomas C. Theobald Trustee 1996 Managing Director, William Blair Capital Partners 119 Anixter
(age 66) and (private equity investing) since September, 1994. International
27 West Monroe Street, Chairman of (network
Suite 3500 the Board6 support
Chicago, IL 60606 equipment
distributor),
Jones Lang
LaSalle (real
estate
management
services) and
MONY Group
(life
insurance)
Anne-Lee Verville Trustee 1998 Author and speaker on educational systems needs 120(4) Chairman of
(age 58) (formerly General Manager, Global Education the Board of
359 Stickney Hill Road Industry, IBM Corporation (computer and technology) Directors,
Hopkinton, NH 03229 from 1994 to 1997, and President, Applications Enesco Group,
Solutions Division from 1991 to 1994, IBM Corporation Inc.
(global education and global applications)). (designer,
importer and
distributor
of giftware
and
collectibles)
Richard L. Woolworth Trustee 1991 Retired Since December 2003 (formerly Chairman 119 NW Natural
(age 62) and Chief Executive Officer, The Regence Group (a natural
100 S.W. Market Street (regional health insurer); Chairman and Chief gas service
#1500 Executive Officer, provider) BlueCross BlueShield
Portland, OR 97207 of Oregon; Certified Public Accountant,
Arthur Young & Company).
34
TRUSTEES (CONTINUED)
Number of
portfolios in
Year first Columbia Funds
elected or Complex Other
Position appointed Principal occupation(s) overseen by directorships
Name, address and age with Funds to office1 during past five years Trustee/Director held
------------------------------------------------------------------------------------------------------------------------------------
Interested Trustees
-------------------
William E. Mayer2 Trustee 1994 Managing Partner, Park Avenue Equity Partners 121(3) Lee
(age 63) (private equity) since February, 1999 (formerly Enterprises
399 Park Avenue Founding Partner, Development Capital LLC from (print
Suite 3204 November 1996 to February, 1999; Dean and media), WR
New York, NY 10022 Professor, College of Business and Management, Hambrecht +
University of Maryland from October, 1992 to Co.
November, 1996). (financial
service
provider) and
First Health
(healthcare)
Joseph R. Palombo2 Trustee 2000 Executive Vice President and Chief Operating 120(5) None
(age 50) and Officer of Columbia Management Group, Inc. since
One Financial Center President December, 2001 and Director, Executive Vice
Boston, MA 02111 President and Chief Operating Officer of Columbia
Management Advisors, Inc. (Advisor) since April,
2003 (formerly Chief Operations Officer of Mutual
Funds, Liberty Financial Companies, Inc. from August,
2000 to November, 2001; Executive Vice President
of Stein Roe & Farnham Incorporated (Stein Roe)
from April, 1999 to April, 2003; Director of
Colonial Management Associates, Inc. (Colonial)
from April, 1999 to April, 2003; Director of
Stein Roe from September, 2000 to April, 2003)
President of Columbia Funds and Galaxy Funds
since February, 2003 (formerly Vice President
from September 2002 to February 2003); Manager
of Columbia Floating Rate Limited Liability
Company since October, 2000; (formerly Vice
President of the Columbia Funds from April,
1999 to August, 2000; Chief Operating Officer
and Chief Compliance Officer, Putnam Mutual
Funds from December, 1993 to March, 1999).
1 In December 2000, the boards of each of the former Liberty Funds and former
Stein Roe Funds were combined into one board of trustees responsible for
the oversight of both fund groups (collectively, the "Liberty Board"). In
October 2003, the trustees on the Liberty Board were elected to the boards
of the Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the
"CMG Funds Board"); simultaneous with that election, Patrick J. Simpson and
Richard L. Woolworth, who had been directors on the Columbia Board and
trustees on the CMG Funds Board, were appointed to serve as trustees of the
Liberty Board. The date shown is the earliest date on which a
trustee/director was elected or appointed to the board of a Fund in the
Columbia Funds complex.
2 Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht +
Co. Mr. Palombo is an interested person as an employee of the Advisor.
3 Messrs. Lowry, Neuhauser and Mayer each also serve as a director/trustee of
the All-Star Funds, currently consisting of 2 funds, which are advised by
an affiliate of the Advisor.
4 Mr. Neuhauser and Ms. Verville also serve as disinterested directors of
Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the
Advisor.
5 Mr. Palombo also serves as an interested director of Columbia Management
Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor.
6 Mr. Theobald was appointed as Chairman of the Board effective December 10,
2003. Prior to that date, Mr. Palombo was Chairman of the Board.
35
OFFICERS
Year first
Position with elected or
Columbia appointed
Name, address and age funds to office Principal occupation(s) during past five years
------------------------------------------------------------------------------------------------------------------------------------
Officers
Vicki L. Benjamin Chief 2001 Controller of the Columbia Funds and of the Liberty All-Star
(Age 42) Accounting Funds since May, 2002; Chief Accounting Officer of the
One Financial Center Officer and Columbia Funds and Liberty All-Star Funds since June, 2001;
Boston, MA 02111 Controller Controller and Chief Accounting Officer of the Galaxy
Funds since September, 2002 (formerly Vice President, Corporate
Audit, State Street Bank and Trust Company from May, 1998 to
April, 2001).
J. Kevin Connaughton Treasurer 2000 Treasurer of the Columbia Funds and of the Liberty All-Star Funds
(Age 39) since December, 2000; Vice President of the Advisor since April,
One Financial Center 2003 (formerly Controller of the Liberty Funds and of the Liberty
Boston, MA 02111 All-Star Funds from February, 1998 to October, 2000); Treasurer of
the Galaxy Funds since September 2002; Treasurer, Columbia
Management Multi-Strategy Hedge Fund, LLC since December, 2002
(formerly Vice President of Colonial from February, 1998 to
October, 2000).
David A. Rozenson Secretary 2003 Secretary of the Columbia Funds and of the Liberty All-Star Funds
(Age 49) since December, 2003; Senior Counsel, Fleet Boston Financial
One Financial Center Corporation since January, 1996; Associate General Counsel,
Boston, MA 02111 Columbia Management Group since November, 2002.
36
TRANSFER AGENT
--------------------------------------------------------------------------------
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Intermediate High Income Fund is:
PFPC
P.O. Box 8030
Boston, MA 02266-8030
The fund mails one shareholder report to each shareholder address. Shareholders
can order additional reports by calling 800-331-1710. In addition,
representatives at that number can provide shareholders information about the
fund.
Financial advisors who want additional information about the fund may speak to a
representative at 800-426-3750. A description of the policies and procedures
that the fund uses to determine how to vote proxies relating to its portfolio
securities is available (i) without charge, upon request, by calling
800-331-1710 and (ii) on the Securities and Exchange Commission's website at
http:/www.sec.gov.
This report has been prepared for shareholders of Colonial Intermediate High
Income Fund.
COLONIAL INTERMEDIATE HIGH INCOME FUND ANNUAL REPORT
110-02/573Q-1103 (01/04) 03/3843
Item 2. Code of Ethics.
(a) The registrant has, as of the end of the period covered by this report,
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, regardless
of whether these individuals are employed by the registrant or a third
party.
(b) During the period covered by this report, there were not any amendments to
a provision of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, there were not any waivers or
implicit waivers to a provision of the code of ethics adopted in 2(a)
above.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Trustees has determined that Douglas A. Hacker,
Thomas E. Stitzel, Anne-Lee Verville and Richard L. Woolworth, each of whom are
members of the registrant's Board of Trustees and Audit Committee, each qualify
as an audit committee financial expert. Mr. Hacker, Mr. Stitzel, Ms. Verville
and Mr. Woolworth are each independent trustees, as defined in paragraph (a)(2)
of this item's instructions and collectively constitute the entire Audit
Committee.
Item 4. Principal Accountant Fees and Services.
Not applicable at this time.
Item 5. Audit Committee of Listed Registrants.
Not applicable at this time.
Item 6. Reserved.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Fund has delegated to Columbia Management Advisors, Inc. (the "Advisor") the
responsibility to vote proxies relating to portfolio securities held by the
Fund. In deciding to delegate this responsibility to the Advisor, the Board of
Trustees of the Trust reviewed and approved the policies and procedures adopted
by the Advisor. These included the procedures that the Advisor follows when a
vote presents a conflict between the interests of the Fund and its shareholders
and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner
considered by the Advisor to be in the best interest of the Fund and its
shareholders without regard to any benefit to the Advisor, its affiliates, its
other clients or other persons. The Advisor examines each proposal and votes
against the proposal, if, in its judgment, approval or adoption of the proposal
would be expected to impact adversely the current or potential market value of
the issuer's securities. The Advisor also examines each proposal and votes the
proxies against the proposal, if, in its judgment, the proposal would be
expected to affect adversely the best interest of the Fund. The Advisor
determines the best interest of the Fund in light of the potential economic
return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having
predetermined voting guidelines. For those proposals that require special
consideration or in instances where special circumstances may require varying
from the predetermined guideline, the Advisor's Proxy Committee determines the
vote in the best interest of the Fund, without consideration of any benefit to
the Advisor, its affiliates, its other clients or other persons. A member of the
Proxy Committee is prohibited from voting on any proposal for which he or she
has a conflict of interest by reason of a direct relationship with the issuer or
other party affected by a given proposal. Persons making recommendations to the
Proxy Committee or its members are required to disclose to the Committee any
relationship with a party making a proposal or other matter known to the person
that would create a potential conflict of interest.
The Advisor has three classes of proxy proposals. The first two classes are
predetermined guidelines to vote for or against specific proposals, unless
otherwise directed by the Proxy Committee. The third class is for proposals
given special consideration by the Proxy Committee. In addition, the Proxy
Committee considers requests to vote on proposals in the first two classes other
than according to the predetermined guidelines.
The Advisor generally votes in favor of proposals related to the following
matters: selection of auditors (unless the auditor receives more than 50% of its
revenues from non-audit activities from the company and its affiliates),
election of directors (unless the proposal gives management the ability to alter
the size of the board without shareholder approval), different persons for
chairman of the board /chief executive officer (unless, in light of the size of
the company and the nature of its shareholder base, the role of chairman and CEO
are not held by different persons), compensation (if provisions are consistent
with standard business practices), debt limits (unless proposed specifically as
an anti-takeover action), indemnifications (unless for negligence and or
breaches of fiduciary duty), meetings, name of company, principal office (unless
the purpose is to reduce regulatory or financial supervision), reports and
accounts (if the certifications required by Sarbanes-Oxley Act of 2002 have been
provided), par value, shares (unless proposed as an anti-takeover action), share
repurchase programs, independent committees, and equal opportunity employment.
The Advisor generally votes against proposals related to the following matters:
super majority voting, cumulative voting, preferred stock, warrants, rights,
poison pills, reclassification of common stock and meetings held by written
consent.
The Advisor gives the following matters special consideration: new proposals,
proxies of investment company shares (other than those covered by the
predetermined guidelines), mergers/acquisitions (proposals where a hostile
merger/acquisition is apparent or where the Advisor represents ownership in more
than one of the companies involved), shareholder proposals (other than those
covered by the predetermined guidelines), executive/director compensation (other
than those covered by the predetermined guidelines), pre-emptive rights and
proxies of international issuers which block securities sales between submission
of a proxy and the meeting (proposals for these securities are voted only on the
specific instruction of the Proxy Committee and to the extent practicable in
accordance with predetermined guidelines).
In addition, if a portfolio manager or other party involved with a client of the
Advisor or Fund account concludes that the interest of the client or Fund
requires that a proxy be voted on a proposal other than according to the
predetermined guidelines, he or she may request that the Proxy Committee
consider voting the proxy differently. If any person (or entity) requests the
Proxy Committee (or any of its members) to vote a proxy other than according to
a predetermined guideline, that person must furnish to the Proxy Committee a
written explanation of the reasons for the request and a description of the
person's (or entity's) relationship with the party proposing the matter to
shareholders or any other matter known to the person (or entity) that would
create a potential conflict of interest.
The Proxy Committee may vary from the predetermined guideline if it determines
that voting on the proposal according to the predetermined guideline would be
expected to impact adversely the current or potential market value of the
issuer's securities or to affect adversely the best interest of the client.
References to the best interest of a client refer to the interest of the client
in terms of the potential economic return on the client's investment. In
determining the vote on any proposal, the Proxy Committee does not consider any
benefit other than benefits to the owner of the securities to be voted.
The Advisor's Proxy Committee is composed of operational and investment
representatives of its regional offices as well as senior representatives of the
Advisor's equity investments, equity research, compliance and legal functions.
During the first quarter of each year, the Proxy Committee reviews all
guidelines and establishes guidelines for expected new proposals. In addition to
these reviews and its other responsibilities described above, its functions
include annual review of its Proxy Voting Policy and Procedures to ensure
consistency with internal policies and regulatory agency policies, and
development and modification of voting guidelines and procedures as it deems
appropriate or necessary.
The Advisor uses Institutional Shareholder Services ("ISS"), a third party
vendor, to implement its proxy voting process. ISS provides proxy analysis,
record keeping services and vote disclosure services.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable at this time.
Item 9. Submission of Matters to a Vote of Security Holders.
Not applicable at this time.
Item 10. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial
officer, based on their evaluation of the registrant's disclosure controls
and procedures as of a date within 90 days of the filing of this report,
have concluded that such controls and procedures are adequately designed to
ensure that information required to be disclosed by the registrant in Form
N-CSR is accumulated and communicated to the registrant's management,
including the principal executive officer and principal financial officer,
or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's last fiscal half-year (the
registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11. Exhibits.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR
attached hereto as Exhibit 99.CODE ETH
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of
1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Colonial Intermediate High Income Fund
------------------------------------------------------------------
By (Signature and Title) /s/ Joseph R. Palombo
------------------------------------------------------
Joseph R. Palombo, President
Date January 14, 2004
--------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title) /s/ Joseph R. Palombo
------------------------------------------------------
Joseph R. Palombo, President
Date January 14, 2004
--------------------------------------------------------------------------
By (Signature and Title) /s/ J. Kevin Connaughton
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J. Kevin Connaughton, Treasurer
Date January 14, 2004
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