UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
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)
Vincent Pietropaolo, 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: 1-617-772-3698
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Date of fiscal year end: 11/30/05
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Date of reporting period: 05/31/05
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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. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
COLONIAL INTERMEDIATE HIGH INCOME FUND SEMIANNUAL REPORT
May 31, 2005
[cover photo of newspaper and calculator]
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
PRESIDENT'S MESSAGE
Dear Shareholder:
In 2004, Colonial Funds became part of Columbia Management, the asset management
division of Bank of America, one of the largest, most respected financial
institutions in the United States. As a direct result of this merger, a number
of changes are in the works that we believe offer significant potential benefits
for our shareholders. First, some funds may be merged in order to eliminate
redundancies, others may be liquidated and fund management teams will be aligned
to maximize performance potential. You will receive more detailed information
about these changes if your fund is affected and you may be asked to vote on
certain fund changes. In this matter, your timely response will enable us to
implement the changes in 2005.
As a result of these changes, we believe we will offer shareholders an even
stronger lineup of investment options. What will not change as we enter this
next phase of consolidation is our commitment to the highest standards of
performance and our dedication to superior service. Change for the good has
another name: it's called improvement. It helps move us forward, and we believe
that it represents progress for all our shareholders in their quest for
long-term financial success.
In the pages that follow, you'll find a detailed report from the fund's managers
on key factors that influenced your fund's performance. We hope that you will
read the manager reports carefully and discuss any questions you might have with
your financial advisor.
As always, we thank you for choosing Colonial Funds. We appreciate your
continued confidence. And, we look forward to helping you keep your long-term
financial goals on target in the years to come.
Sincerely,
/s/ Christopher L. Wilson
Christopher L. Wilson
President, Columbia Funds
Christopher L. Wilson is Head of Mutual Funds for Columbia Management, President
of Columbia Funds, President & CEO of Nations Funds and President of Galaxy
Funds, responsible for the day-to-day delivery of mutual fund services to the
firm's investors. With the exception of distribution, Chris oversees all aspects
of the mutual fund services operation, including treasury, investment accounting
and shareholder and broker services. Chris joined Bank of America in August
2004.
The views expressed in the President's Message and Portfolio Managers' Report
reflect the current views of the respective parties. These views are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions that are difficult to predict so actual outcomes and results may
differ significantly from the views expressed. These views are subject to change
at any time based upon economic, market or other conditions and the respective
parties disclaim any responsibility to update such views. These views may not be
relied on as investment advice and, because investment decisions for a Colonial
fund are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any particular Colonial fund. References to specific
company securities should not be construed as a recommendation or investment
advice.
PORTFOLIO MANAGERS' REPORT
For the six-month period ended May 31, 2005, Colonial Intermediate High Income
Fund returned 0.25%, based on its market price. The fund returned negative 2.01%
based on investment at net asset value. The average return of the Lipper High
Current Yield Funds (Leveraged) Category was negative 0.46%.1 We believe that
the fund's shortfall relative to its peer group can be attributed to its
emphasis on low quality bonds, which led the high-yield marketplace in 2004 but
gave up ground during this reporting period.
THE HIGH-YIELD RALLY PAUSED
After more than two years of strong performance, high-yield bonds gave back some
of their gains during the period. Within the fixed income universe, securities
ranked below investment grade have been the primary beneficiaries of a growing
economy and an accompanying decline in corporate default rates. These factors
made investors more willing to purchase lower quality bonds in order to achieve
yields that were unavailable in the Treasury market. Within the high-yield
category, the lowest quality securities were the strongest performers as the
sector rallied, a trend that greatly benefited the fund with its emphasis on the
low end of the quality spectrum.
However, the landscape began to change in March. Early in the month, the yield
advantage of lower quality bonds over investment-grade securities narrowed to
historical lows. The sector was subsequently hurt by the deteriorating credit
quality at Ford (which was not in the portfolio) and General Motors (GM) (0.2%
of total investments), which created concerns that leveraged hedge funds and
high-grade managers might be forced to sell high-yield positions and resulted in
lower prices for high-yield bonds.2 By the end of the period, lesser quality
securities lagged the market.
TELECOM LED THE MARKET
Bonds of wireless telecom providers were especially strong over the past fiscal
year, driven by strong subscriber growth and steady revenue per user. However,
the most important catalyst to the sector's strong market performance was the
wave of consolidation that swept through the industry. The groundbreaking merger
between Cingular and AT&T Wireless closed at the beginning of the fund's fiscal
year. Late in 2004,
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1 Lipper Inc., a widely respected data provider in the industry, calculates
an average total return (assuming reinvestment of distributions) for mutual
funds with investment objectives similar to those of the fund. Lipper makes
no adjustment for the effect of sales loads.
2 Holdings are disclosed as of May 31, 2005, and are subject to change.
(sidebar)
PRICE PER SHARE
AS OF 05/31/05 ($)
Net asset value 3.63
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Market price 3.36
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6-MONTH (CUMULATIVE) TOTAL
RETURN AS OF 05/31/05 (%)
Net asset value -2.01
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Market price 0.25
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Lipper High Current
Yield Funds (Leveraged)
Category average -0.46
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All results shown assume
reinvestment of distributions.
DISTRIBUTIONS DECLARED PER
SHARE 12/01/04-05/31/05 ($)
0.17
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TOP 5 SECTORS AS OF
05/31/05 (%)
Telecommunication
services 11.9
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Media 10.0
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Lodging 5.8
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Electric 5.5
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Chemicals 4.2
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Sector breakdowns are calculated as
a percentage of total investments.
TOP 10 CORPORATE ISSUERS
AS OF 05/31/05 (%)
Qwest 2.4
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El Paso Corp. 1.7
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Charter Communications 1.3
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MDP Acquisitions 1.2
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D.R. Horton 1.1
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Dex Media 1.0
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Calpine 1.0
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Spanish Broadcasting
System 1.0
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Allied Waste North
America 0.9
-------------------------------
Hollywood Park 0.9
-------------------------------
Corporate issuers are calculated as a percentage of total 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)
Nextel and Sprint announced that they would merge, and ALLTEL announced that it
would purchase Western Wireless in early 2005. The fund registered a solid gain
when it sold its Western Wireless bonds after the takeover announcement.
Positions in Nextel bonds (0.7% of total investments) and common stock, as well
as the bonds of several companies affiliated with Sprint also aided performance.
Although the fund emerged relatively unscathed by the weakness in the automotive
sector, it was hurt by its holdings in the airline and paper and packaging
industries. We sold the fund's Delta Airlines holdings but retained the fund's
position in Northwest Airlines (0.4% of total investments), whose financial
condition has since weakened considerably amid higher oil prices and a
protracted wage-and-benefit struggle with its labor unions. In the paper and
packaging industry the inability to pass on higher costs hurt results, and fund
holdings such as Abitibi-Consolidated and Tembec Industries were poor performers
(0.2% and 0.2% of total investments, respectively).
A FAVORABLE BUT GUARDED OUTLOOK FOR HIGH YIELD
We believe that solid economic growth will continue to create a favorable
environment for the high-yield market, although growth is likely to be slower
than it was in 2004. So far, the Federal Reserve has balanced economic growth
and inflation through a series of short-term interest-rate hikes, which
commenced in June 2004. As long as inflation is kept in check and short-term
rates do not increase faster than expected, we are optimistic about the
prospects for the high-yield market.
/s/ Gregg R. Smalley /s/ Kevin L. Cronk /s/ Thomas A. LaPointe
Gregg R. Smalley Kevin L. Cronk Thomas A. LaPointe
Gregg R. Smalley, CFA, has managed Colonial Intermediate High Income Fund since
June 2000 and has been with the advisor or its predecessors or affiliate
organizations since August 1997.
Kevin L. Cronk, CFA, has co-managed Colonial Intermediate High Income Fund since
February 2003 and has been with the advisor or its predecessors or affiliate
organizations since August 1999.
Thomas A. LaPointe, CFA, has co-managed Colonial Intermediate High Income Fund
since February 2003 and has been with the advisor or its predecessors or
affiliate organizations since February 1999.
2
PORTFOLIO MANAGERS' REPORT (CONTINUED)
Performance data quoted represents past performance and current performance may
be lower or higher. Past performance is no guarantee of future results.
Investing in fixed-income securities may involve certain risks, including the
credit quality of individual issuers, possible prepayments, market or economic
developments and yield and share price fluctuations due to changes in interest
rates. When interest rates go up, bond prices typically drop, and vice versa.
Investing in high-yield or "junk bonds" offers the potential for higher income
than investments in investment-grade bonds but they also have a higher degree of
risk. Changes in economic conditions or other circumstances may adversely affect
a high-yield bond issuer's ability to make timely principal and interest
payments.
3
INVESTMENT PORTFOLIO
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES - 124.7% PAR ($) VALUE ($)
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BASIC MATERIALS - 11.5%
CHEMICALS - 5.7%
AGRICULTURAL CHEMICALS - 2.0%
IMC Global, Inc.
10.875% 08/01/13 310,000 362,700
Terra Capital, Inc.
12.875% 10/15/08 475,000 561,687
UAP Holding Corp.
(a) 07/15/12
(10.750% 01/15/08) 295,000 236,000
United Agri Products
8.250% 12/15/11 321,000 325,815
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1,486,202
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CHEMICALS-DIVERSIFIED - 3.0%
BCP Crystal US Holdings Corp.
9.625% 06/15/14 150,000 168,000
EquiStar Chemicals LP
10.625% 05/01/11 575,000 636,813
Huntsman International LLC
7.375% 01/01/15 (b) 260,000 255,450
Huntsman LLC
12.000% 07/15/12 (b) 310,000 356,500
Innophos Investments Holdings, Inc., PIK
10.771% 02/15/15 (b)(c) 195,456 173,954
Lyondell Chemical Co.
9.625% 05/01/07 240,000 254,400
10.875% 05/01/09 5,000 5,150
NOVA Chemicals Corp.
6.500% 01/15/12 170,000 165,750
Westlake Chemical Corp.
8.750% 07/15/11 257,000 278,845
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2,294,862
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CHEMICALS-SPECIALTY - 0.7%
Rhodia SA
8.875% 06/01/11 560,000 533,400
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533,400
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Chemicals Total 4,314,464
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FOREST PRODUCTS & PAPER - 4.1%
FORESTRY - 0.6%
Millar Western Forest Products Ltd.
7.750% 11/15/13 225,000 205,875
Tembec Industries, Inc.
8.500% 02/01/11 320,000 248,000
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453,875
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PAPER & RELATED PRODUCTS - 3.5%
Abitibi-Consolidated, Inc.
8.375% 04/01/15 260,000 255,450
Boise Cascade LLC
6.016% 10/15/12 (b)(c) 175,000 171,500
7.125% 10/15/14 (b) 190,000 180,025
PAR ($) VALUE ($)
-----------------------------------------------------------
Buckeye Technologies, Inc.
8.500% 10/01/13 60,000 61,800
9.250% 09/15/08 188,000 188,000
Caraustar Industries, Inc.
9.875% 04/01/11 235,000 228,537
Fraser Papers, Inc.
8.750% 03/15/15 (b) 315,000 285,469
Georgia-Pacific Corp.
8.000% 01/15/24 200,000 229,000
Neenah Paper, Inc.
7.375% 11/15/14 (b) 130,000 122,850
Newark Group, Inc.
9.750% 03/15/14 440,000 382,800
NewPage Corp.
10.000% 05/01/12 (b) 180,000 176,400
12.000% 05/01/13 (b) 225,000 219,938
Norske Skog Canada Ltd.
8.625% 06/15/11 190,000 191,900
-----------
2,693,669
-----------
Forest Products & Paper Total 3,147,544
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IRON/STEEL - 1.0%
METAL-IRON - 0.5%
Wise Metals Group LLC
10.250% 05/15/12 415,000 344,450
-----------
344,450
-----------
STEEL-PRODUCERS - 0.2%
Steel Dynamics, Inc.
9.500% 03/15/09 160,000 170,400
-----------
170,400
-----------
STEEL-SPECIALTY - 0.3%
UCAR Finance, Inc.
10.250% 02/15/12 205,000 213,713
-----------
213,713
-----------
Iron/Steel Total 728,563
-----------
METALS & MINING - 0.7%
METAL-ALUMINUM - 0.6%
Kaiser Aluminum & Chemical Corp.
10.875% 10/15/06 (d) 505,000 441,875
-----------
441,875
-----------
MINING SERVICES - 0.1%
HudBay Mining & Smelting Co., Ltd.
9.625% 01/15/12 (b) 105,000 101,850
-----------
101,850
-----------
Metals & Mining Total 543,725
-----------
BASIC MATERIALS TOTAL 8,734,296
-----------
See Accompanying Notes to Financial Statements.
4
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-----------------------------------------------------------
COMMUNICATIONS - 25.6%
MEDIA - 11.6%
BROADCAST SERVICES/PROGRAMS - 0.6%
Fisher Communications, Inc.
8.625% 09/15/14 190,000 201,875
XM Satellite Radio Holdings, Inc.
8.710% 05/01/09 (c) 250,000 252,500
-----------
454,375
-----------
CABLE TV - 5.3%
Atlantic Broadband Finance LLC
9.375% 01/15/14 (b) 390,000 366,600
Cablevision Systems Corp.
8.000% 04/15/12 (b) 130,000 135,688
Charter Communications Holdings LLC
9.920% 04/01/11 1,560,000 1,138,800
10.250% 09/15/10 190,000 192,375
CSC Holdings, Inc.
6.750% 04/15/12 (b) 185,000 187,312
7.625% 04/01/11 200,000 212,000
DirecTV Holdings LLC
8.375% 03/15/13 225,000 249,187
EchoStar DBS Corp.
6.375% 10/01/11 400,000 402,000
Insight Midwest LP
9.750% 10/01/09 195,000 203,775
Northland Cable Television, Inc.
10.250% 11/15/07 415,000 408,775
Pegasus Satellite Communications, Inc.
11.250% 01/15/10 (b)(d) 435,000 250,125
Telenet Group Holding NV
(a) 06/15/14
(11.500% 12/15/08) (b) 400,000 294,000
-----------
4,040,637
-----------
MULTIMEDIA - 2.0%
Advanstar Communications, Inc.
(a) 10/15/11
(15.000% 10/15/05) 310,000 300,700
12.000% 02/15/11 345,000 363,113
Haights Cross Communications, Inc.
(a) 08/15/11
(12.500% 02/15/09) 315,000 192,150
Haights Cross Operating Co.
11.750% 08/15/11 195,000 211,575
11.750% 08/15/11 (b) 135,000 146,475
Quebecor Media, Inc.
11.125% 07/15/11 290,000 321,175
-----------
1,535,188
-----------
PUBLISHING-NEWSPAPERS - 0.4%
Hollinger, Inc.
11.875% 03/01/11 (b)(e) 122,000 125,660
12.875% 03/01/11 (b) 177,000 194,700
-----------
320,360
-----------
PAR ($) VALUE ($)
-----------------------------------------------------------
PUBLISHING-PERIODICALS - 2.1%
CBD Media Holdings LLC & Finance, Inc.
9.250% 07/15/12 235,000 229,125
Dex Media East LLC
12.125% 11/15/12 367,000 439,482
Dex Media West LLC
9.875% 08/15/13 374,000 428,230
Dex Media, Inc.
(a) 11/15/13
(9.000% 11/15/08) 250,000 199,375
WDAC Subsidiary Corp.
8.375% 12/01/14 (b) 290,000 271,150
-----------
1,567,362
-----------
TELEVISION - 1.2%
Paxson Communications Corp.
(a) 01/15/09
(12.250% 01/15/06) 375,000 346,875
10.750% 07/15/08 320,000 312,000
Sinclair Broadcast Group, Inc.
8.750% 12/15/11 250,000 265,000
-----------
923,875
-----------
Media Total 8,841,797
-----------
TELECOMMUNICATION SERVICES - 14.0%
CELLULAR TELECOMMUNICATIONS - 5.3%
American Cellular Corp.
10.000% 08/01/11 425,000 414,375
Dobson Cellular Systems, Inc.
8.375% 11/01/11 (b) 95,000 96,425
Dobson Communications Corp.
8.875% 10/01/13 565,000 459,062
Horizon PCS, Inc.
11.375% 07/15/12 (b) 190,000 208,525
iPCS Escrow Co.
11.500% 05/01/12 170,000 187,850
Nextel Communications, Inc.
7.375% 08/01/15 315,000 340,988
Nextel Partners, Inc.
8.125% 07/01/11 390,000 424,125
Rogers Cantel, Inc.
9.750% 06/01/16 385,000 462,000
Rogers Wireless, Inc.
8.000% 12/15/12 225,000 240,750
Rural Cellular Corp.
8.250% 03/15/12 320,000 325,200
UbiquiTel Operating Co.
9.875% 03/01/11 335,000 361,800
US Unwired, Inc.
10.000% 06/15/12 500,000 547,500
-----------
4,068,600
-----------
See Accompanying Notes to Financial Statements.
5
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-----------------------------------------------------------
COMMUNICATIONS - (CONTINUED)
TELECOMMUNICATION SERVICES - (CONTINUED)
SATELLITE TELECOMMUNICATIONS - 1.7%
Inmarsat Finance II PLC
(a) 11/15/12
(10.375% 11/15/08) 425,000 312,375
Intelsat Bermuda Ltd.
8.250% 01/15/13 (b) 455,000 461,825
New Skies Satellites NV
9.125% 11/01/12 (b) 210,000 207,900
PanAmSat Corp.
9.000% 08/15/14 111,000 120,713
Zeus Special Subsidiary Ltd.
(a) 02/01/15
(9.250% 02/01/10) (b) 330,000 207,900
-----------
1,310,713
-----------
TELECOMMUNICATION EQUIPMENT - 0.4%
Lucent Technologies, Inc.
6.450% 03/15/29 335,000 289,775
-----------
289,775
-----------
TELECOMMUNICATION SERVICES - 1.3%
Axtel SA de CV
11.000% 12/15/13 430,000 459,025
Time Warner Telecom, Inc.
9.750% 07/15/08 160,000 160,000
10.125% 02/01/11 425,000 412,250
-----------
1,031,275
-----------
TELEPHONE-INTEGRATED - 4.3%
Cincinnati Bell, Inc.
8.375% 01/15/14 545,000 535,462
Qwest Capital Funding, Inc.
7.250% 02/15/11 935,000 864,875
7.750% 02/15/31 435,000 355,612
Qwest Services Corp.
13.500% 12/15/10 (b) 1,125,000 1,276,875
US LEC Corp.
11.890% 10/01/09 (c) 215,000 221,988
-----------
3,254,812
-----------
WIRELESS EQUIPMENT - 1.0%
American Towers, Inc.
7.250% 12/01/11 335,000 350,912
SBA Telecommunications, Inc.
(a) 12/15/11
(9.750% 12/15/07) 230,000 201,250
SpectraSite, Inc.
8.250% 05/15/10 175,000 185,063
-----------
737,225
-----------
Telecommunication Services Total 10,692,400
-----------
COMMUNICATIONS TOTAL 19,534,197
-----------
PAR ($) VALUE ($)
-----------------------------------------------------------
CONSUMER CYCLICAL - 27.6%
AIRLINES - 1.2%
AIRLINES - 1.2%
Continental Airlines, Inc.
7.568% 12/01/06 570,000 473,100
Northwest Airlines, Inc.
9.875% 03/15/07 735,000 459,375
-----------
932,475
-----------
Airlines Total 932,475
-----------
APPAREL - 1.9%
APPAREL MANUFACTURERS - 1.9%
Broder Brothers Co.
11.250% 10/15/10 190,000 196,650
11.250% 10/15/10 (b) 135,000 139,725
Levi Strauss & Co.
9.750% 01/15/15 (b) 770,000 748,825
Phillips-Van Heusen Corp.
7.250% 02/15/11 300,000 306,750
8.125% 05/01/13 60,000 63,000
-----------
1,454,950
-----------
Apparel Total 1,454,950
-----------
AUTO MANUFACTURERS - 0.6%
AUTO-CARS/LIGHT TRUCKS - 0.2%
General Motors Corp.
8.375% 07/15/33 200,000 154,000
-----------
154,000
-----------
AUTO-MEDIUM & HEAVY DUTY TRUCKS - 0.4%
Navistar International Corp.
7.500% 06/15/11 320,000 322,400
-----------
322,400
-----------
Auto Manufacturers Total 476,400
-----------
AUTO PARTS & EQUIPMENT - 2.4%
AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL - 1.2%
Cooper-Standard Automotive, Inc.
8.375% 12/15/14 540,000 448,200
Delco Remy International, Inc.
9.375% 04/15/12 330,000 250,800
Dura Operating Corp.
8.625% 04/15/12 240,000 217,200
-----------
916,200
-----------
AUTO/TRUCK PARTS & EQUIPMENT-REPLACEMENT - 0.3%
Rexnord Corp.
10.125% 12/15/12 200,000 210,500
-----------
210,500
-----------
RUBBER-TIRES - 0.9%
Goodyear Tire & Rubber Co.
7.857% 08/15/11 505,000 483,538
12.250% 03/01/11 150,000 166,500
-----------
650,038
-----------
Auto Parts & Equipment Total 1,776,738
-----------
See Accompanying Notes to Financial Statements.
6
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-----------------------------------------------------------
CONSUMER CYCLICAL (CONTINUED)
DISTRIBUTION/WHOLESALE - 0.2%
DISTRIBUTION/WHOLESALE - 0.2%
Buhrmann US, Inc.
7.875% 03/01/15 (b) 180,000 172,800
-----------
172,800
-----------
Distribution/Wholesale Total 172,800
-----------
ENTERTAINMENT - 4.0%
GAMBLING (NON-HOTEL) - 0.6%
Global Cash Access LLC
8.750% 03/15/12 390,000 419,250
-----------
419,250
-----------
MUSIC - 1.3%
Steinway Musical Instruments, Inc.
8.750% 04/15/11 265,000 275,600
Warner Music Group
7.375% 04/15/14 380,000 378,100
WMG Holdings Corp., PIK
9.760% 12/15/14 (b)(c) 320,000 316,519
-----------
970,219
-----------
RESORTS/THEME PARKS - 0.8%
Six Flags, Inc.
9.625% 06/01/14 710,000 614,150
-----------
614,150
-----------
THEATERS - 1.3%
AMC Entertainment, Inc.
9.875% 02/01/12 620,000 616,919
LCE Acquisition Corp.
9.000% 08/01/14 (b) 385,000 373,450
-----------
990,369
-----------
Entertainment Total 2,993,988
-----------
HOME BUILDERS - 2.6%
BUILDING-RESIDENTIAL/COMMERCIAL - 2.6%
D.R. Horton, Inc.
9.750% 09/15/10 955,000 1,122,125
K. Hovnanian Enterprises, Inc.
8.875% 04/01/12 170,000 181,050
10.500% 10/01/07 340,000 374,000
Standard Pacific Corp.
9.250% 04/15/12 275,000 302,500
-----------
1,979,675
-----------
Home Builders Total 1,979,675
-----------
HOME FURNISHINGS - 0.9%
APPLIANCES - 0.4%
ALH Finance LLC
8.500% 01/15/13 345,000 312,225
-----------
312,225
-----------
PAR ($) VALUE ($)
-----------------------------------------------------------
HOME FURNISHINGS - 0.5%
WII Components, Inc.
10.000% 02/15/12 370,000 360,750
-----------
360,750
-----------
Home Furnishings Total 672,975
-----------
LEISURE TIME - 1.5%
LEISURE & RECREATIONAL PRODUCTS - 0.1%
K2, Inc.
7.375% 07/01/14 115,000 119,025
-----------
119,025
-----------
RECREATIONAL CENTERS - 1.4%
AMF Bowling Worldwide, Inc.
10.000% 03/01/10 370,000 370,000
Equinox Holdings, Inc.
9.000% 12/15/09 405,000 415,125
Town Sports International, Inc.
(a) 02/01/14
(11.000% 02/01/09) 435,000 250,125
-----------
1,035,250
-----------
Leisure Time Total 1,154,275
-----------
LODGING - 7.9%
CASINO HOTELS - 7.9%
Caesars Entertainment, Inc.
9.375% 02/15/07 435,000 466,537
Circus & Eldorado/Silver Legacy Capital Corp.
10.125% 03/01/12 355,000 371,863
Hard Rock Hotel, Inc.
8.875% 06/01/13 440,000 468,600
Hollywood Casino Shreveport
13.000% 08/01/06 (f) 950,000 774,250
Inn of the Mountain Gods Resort & Casino
12.000% 11/15/10 325,000 375,375
MGM Mirage
6.750% 09/01/12 415,000 425,375
Mohegan Tribal Gaming Authority
6.125% 02/15/13 (b) 210,000 211,050
Penn National Gaming, Inc.
6.750% 03/01/15 (b) 550,000 552,750
Pinnacle Entertainment, Inc.
8.250% 03/15/12 155,000 155,775
8.750% 10/01/13 790,000 817,650
River Rock Entertainment
9.750% 11/01/11 250,000 270,000
Seneca Gaming Corp.
7.250% 05/01/12 285,000 288,206
Station Casinos, Inc.
6.875% 03/01/16 95,000 97,375
Virgin River Casino Corp.
(a) 01/15/13
(12.750% 01/15/09) (b) 240,000 153,600
9.000% 01/15/12 (b) 133,000 136,990
See Accompanying Notes to Financial Statements.
7
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-----------------------------------------------------------
CONSUMER CYCLICAL (CONTINUED)
LODGING (CONTINUED)
CASINO HOTELS (CONTINUED)
Wynn Las Vegas LLC
6.625% 12/01/14 (b) 450,000 432,000
-----------
5,997,396
-----------
Lodging Total 5,997,396
-----------
RETAIL - 3.7%
RETAIL-AUTOMOBILES - 0.4%
Asbury Automotive Group, Inc.
8.000% 03/15/14 320,000 305,600
-----------
305,600
-----------
RETAIL-DRUG STORES - 0.8%
Jean Coutu Group, Inc. (PJC)
8.500% 08/01/14 240,000 233,400
Rite Aid Corp.
7.500% 01/15/15 (b) 115,000 106,663
9.250% 06/01/13 255,000 241,612
-----------
581,675
-----------
RETAIL-HOME FURNISHINGS - 0.5%
Tempur-Pedic, Inc.
10.250% 08/15/10 322,000 354,200
-----------
354,200
-----------
RETAIL-JEWELRY - 0.3%
Finlay Fine Jewelry Corp.
8.375% 06/01/12 300,000 256,500
-----------
256,500
-----------
RETAIL-MAJOR DEPARTMENT STORES - 0.5%
Saks, Inc.
7.000% 12/01/13 423,000 385,459
-----------
385,459
-----------
RETAIL-PROPANE DISTRIBUTORS - 0.6%
Ferrellgas Partners LP
8.750% 06/15/12 275,000 270,875
Suburban Propane Partners LP
6.875% 12/15/13 (b) 175,000 164,500
-----------
435,375
-----------
RETAIL-RESTAURANTS - 0.3%
Landry's Restaurants, Inc.
7.500% 12/15/14 (b) 295,000 275,087
-----------
275,087
-----------
RETAIL-VIDEO RENTAL - 0.3%
Movie Gallery, Inc.
11.000% 05/01/12 (b) 240,000 247,200
-----------
247,200
-----------
Retail Total 2,841,096
-----------
PAR ($) VALUE ($)
-----------------------------------------------------------
TEXTILES - 0.7%
TEXTILE-PRODUCTS - 0.7%
Collins & Aikman Floorcoverings, Inc.
9.750% 02/15/10 265,000 278,912
INVISTA
9.250% 05/01/12 (b) 235,000 255,563
-----------
534,475
-----------
Textiles Total 534,475
-----------
CONSUMER CYCLICAL TOTAL 20,987,243
-----------
-----------------------------------------------------------
CONSUMER NON-CYCLICAL - 17.6%
AGRICULTURE - 0.3%
TOBACCO - 0.3%
Alliance One International, Inc.
11.000% 05/15/12 (b) 245,000 249,288
-----------
249,288
-----------
Agriculture Total 249,288
-----------
BEVERAGES - 0.3%
BEVERAGES-WINE/SPIRITS - 0.3%
Constellation Brands, Inc.
8.125% 01/15/12 245,000 256,025
-----------
256,025
-----------
Beverages Total 256,025
-----------
BIOTECHNOLOGY - 0.5%
MEDICAL-BIOMEDICAL/GENE - 0.5%
Bio-Rad Laboratories, Inc.
7.500% 08/15/13 340,000 357,000
-----------
357,000
-----------
Biotechnology Total 357,000
-----------
COMMERCIAL SERVICES - 4.9%
COMMERCIAL SERVICES - 0.9%
Iron Mountain, Inc.
7.750% 01/15/15 215,000 211,775
Language Line Holdings, Inc.
11.125% 06/15/12 480,000 475,200
-----------
686,975
-----------
COMMERCIAL SERVICES-FINANCE - 0.7%
Dollar Financial Group, Inc.
9.750% 11/15/11 490,000 510,825
-----------
510,825
-----------
FUNERAL SERVICES & RELATED ITEMS - 0.5%
Service Corp. International
7.700% 04/15/09 405,000 429,300
-----------
429,300
-----------
PRINTING-COMMERCIAL - 0.8%
Sheridan Group
10.250% 08/15/11 250,000 257,500
Vertis, Inc.
13.500% 12/07/09 (b) 515,000 386,250
-----------
643,750
-----------
See Accompanying Notes to Financial Statements.
8
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-----------------------------------------------------------
CONSUMER NON-CYCLICAL (CONTINUED)
COMMERCIAL SERVICES (CONTINUED)
PRIVATE CORRECTIONS - 1.0%
Corrections Corp. of America
6.250% 03/15/13 (b) 360,000 348,300
GEO Group, Inc.
8.250% 07/15/13 405,000 389,812
-----------
738,112
-----------
RENTAL AUTO/EQUIPMENT - 1.0%
NationsRent, Inc.
9.500% 10/15/10 275,000 291,500
9.500% 05/01/15 (b) 250,000 246,250
Williams Scotsman, Inc.
9.875% 06/01/07 230,000 225,400
-----------
763,150
-----------
Commercial Services Total 3,772,112
-----------
COSMETICS/PERSONAL CARE - 1.4%
COSMETICS & TOILETRIES - 1.4%
DEL Laboratories, Inc.
8.000% 02/01/12 (b) 405,000 344,250
Elizabeth Arden, Inc.
7.750% 01/15/14 245,000 248,675
Revlon Consumer Products Corp.
8.625% 02/01/08 260,000 240,500
9.500% 04/01/11 (b) 265,000 243,800
-----------
1,077,225
-----------
Cosmetics/Personal Care Total 1,077,225
-----------
FOOD - 2.5%
FOOD-CONFECTIONERY - 0.6%
Merisant Co.
9.500% 07/15/13 (b) 245,000 180,075
Tabletop Holdings, Inc.
(a) 05/15/14
(12.250% 11/15/08) (b) 755,000 271,800
-----------
451,875
-----------
FOOD-MISCELLANEOUS/DIVERSIFIED - 1.2%
Dole Food Co., Inc.
8.625% 05/01/09 317,000 334,435
Pinnacle Foods Holding Corp.
8.250% 12/01/13 470,000 399,500
Reddy Ice Holdings, Inc.
(a) 11/01/12
(10.500% 11/01/08) (b) 230,000 157,550
-----------
891,485
-----------
FOOD-RETAIL - 0.7%
Stater Brothers Holdings, Inc.
8.125% 06/15/12 555,000 538,350
-----------
538,350
-----------
Food Total 1,881,710
-----------
PAR ($) VALUE ($)
-----------------------------------------------------------
HEALTHCARE SERVICES - 4.8%
DIALYSIS CENTERS - 0.3%
DaVita, Inc.
7.250% 03/15/15 (b) 270,000 271,350
-----------
271,350
-----------
MEDICAL-HMO - 0.5%
Coventry Health Care, Inc.
8.125% 02/15/12 340,000 364,650
-----------
364,650
-----------
MEDICAL-HOSPITALS - 1.1%
Tenet Healthcare Corp.
9.875% 07/01/14 790,000 845,300
-----------
845,300
-----------
MEDICAL-OUTPATIENT/HOME MEDICAL - 0.3%
Select Medical Corp.
7.625% 02/01/15 (b) 210,000 206,325
-----------
206,325
-----------
MRI/MEDICAL DIAGNOSTIC IMAGING - 1.8%
InSight Health Services Corp.
9.875% 11/01/11 520,000 444,600
MedQuest, Inc.
11.875% 08/15/12 450,000 450,000
MQ Associates, Inc.
(a) 08/15/12
(12.250% 08/15/08) 805,000 458,850
-----------
1,353,450
-----------
PHYSICIAN PRACTICE MANAGEMENT - 0.8%
US Oncology Holdings, Inc.
8.620% 03/15/15 (b)(c) 200,000 190,000
US Oncology, Inc.
9.000% 08/15/12 390,000 413,400
-----------
603,400
-----------
Healthcare Services Total 3,644,475
-----------
HOUSEHOLD PRODUCTS/WARES - 1.6%
CONSUMER PRODUCTS-MISCELLANEOUS - 1.6%
Amscan Holdings, Inc.
8.750% 05/01/14 525,000 488,250
Jostens IH Corp.
7.625% 10/01/12 280,000 270,200
Playtex Products, Inc.
9.375% 06/01/11 430,000 451,500
-----------
1,209,950
-----------
Household Products/Wares Total 1,209,950
-----------
PHARMACEUTICALS - 1.3%
MEDICAL-DRUGS - 0.8%
Elan Finance PLC
7.750% 11/15/11 (b) 495,000 425,700
See Accompanying Notes to Financial Statements.
9
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-----------------------------------------------------------
CONSUMER NON-CYCLICAL (CONTINUED)
PHARMACEUTICALS (CONTINUED)
MEDICAL-DRUGS (CONTINUED)
Warner Chilcott Corp.
8.750% 02/01/15 (b) 215,000 202,100
-----------
627,800
-----------
MEDICAL-WHOLESALE DRUG DISTRIBUTION - 0.5%
Nycomed A/S, PIK
11.750% 09/15/13 (b) EUR 305,000 337,579
-----------
337,579
-----------
Pharmaceuticals Total 965,379
-----------
CONSUMER NON-CYCLICAL TOTAL 13,413,164
-----------
-----------------------------------------------------------
ENERGY - 8.2%
OIL & GAS - 4.0%
OIL & GAS DRILLING - 0.8%
Ocean Rig Norway AS
10.250% 06/01/08 USD 325,000 328,250
Pride International, Inc.
7.375% 07/15/14 220,000 238,150
-----------
566,400
-----------
OIL COMPANIES-EXPLORATION & PRODUCTION - 2.9%
Chesapeake Energy Corp.
6.375% 06/15/15 (b) 90,000 90,450
7.500% 06/15/14 230,000 247,250
Compton Petroleum Corp.
9.900% 05/15/09 475,000 507,062
Delta Petroleum Corp.
7.000% 04/01/15 (b) 200,000 185,500
Energy Partners Ltd.
8.750% 08/01/10 205,000 212,175
Magnum Hunter Resources, Inc.
9.600% 03/15/12 283,000 314,130
Petroquest Energy, Inc.
10.375% 05/15/12 (b) 225,000 220,500
Whiting Petroleum Corp.
7.250% 05/01/12 455,000 453,863
-----------
2,230,930
-----------
OIL REFINING & MARKETING - 0.3%
Premcor Refining Group, Inc.
7.500% 06/15/15 235,000 254,975
-----------
254,975
-----------
Oil & Gas Total 3,052,305
-----------
OIL & GAS SERVICES - 0.4%
OIL-FIELD SERVICES - 0.4%
Newpark Resources, Inc.
8.625% 12/15/07 270,000 268,650
-----------
268,650
-----------
Oil & Gas Services Total 268,650
-----------
PAR ($) VALUE ($)
-----------------------------------------------------------
PIPELINES - 3.8%
PIPELINES - 3.8%
Coastal Corp.
7.625% 09/01/08 215,000 212,313
7.750% 06/15/10 605,000 601,975
Dynegy Holdings, Inc.
6.875% 04/01/11 300,000 285,000
9.875% 07/15/10 (b) 360,000 389,700
Northwest Pipeline Corp.
8.125% 03/01/10 130,000 141,050
Sonat, Inc.
7.625% 07/15/11 645,000 635,325
Southern Natural Gas Co.
8.875% 03/15/10 250,000 271,562
Williams Companies, Inc.
8.125% 03/15/12 310,000 351,075
-----------
2,888,000
-----------
Pipelines Total 2,888,000
-----------
ENERGY TOTAL 6,208,955
-----------
-----------------------------------------------------------
FINANCIALS - 5.0%
DIVERSIFIED FINANCIAL SERVICES - 4.2%
FINANCE-AUTO LOANS - 0.1%
General Motors Acceptance Corp.
6.875% 09/15/11 90,000 79,002
-----------
79,002
-----------
FINANCE-INVESTMENT BANKER/BROKER - 1.5%
E*Trade Financial Corp.
8.000% 06/15/11 275,000 287,375
LaBranche & Co., Inc.
11.000% 05/15/12 775,000 837,000
-----------
1,124,375
-----------
SPECIAL PURPOSE ENTITY - 2.6%
Dow Jones CDX High Yield Index
8.250% 06/29/10 (b) 2,000,000 1,985,000
-----------
1,985,000
-----------
Diversified Financial Services Total 3,188,377
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.4%
REITS-HOTELS - 0.1%
La Quinta Properties, Inc.
7.000% 08/15/12 100,000 103,250
-----------
103,250
-----------
REITS-MORTGAGE - 0.3%
Thornburg Mortgage, Inc.
8.000% 05/15/13 225,000 225,000
-----------
225,000
-----------
Real Estate Investment Trusts Total 328,250
-----------
See Accompanying Notes to Financial Statements.
10
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-----------------------------------------------------------
FINANCIALS (CONTINUED)
SAVINGS & LOANS - 0.4%
SAVINGS & LOANS/THRIFTS-WESTERN US - 0.4%
Western Financial Bank
9.625% 05/15/12 255,000 274,125
-----------
274,125
-----------
Savings & Loans Total 274,125
-----------
FINANCIALS TOTAL 3,790,752
-----------
-----------------------------------------------------------
INDUSTRIALS - 21.7%
AEROSPACE & DEFENSE - 2.1%
AEROSPACE/DEFENSE-EQUIPMENT - 2.1%
Argo-Tech Corp.
9.250% 06/01/11 285,000 305,663
BE Aerospace, Inc.
8.875% 05/01/11 375,000 382,500
Sequa Corp.
8.875% 04/01/08 185,000 196,100
9.000% 08/01/09 160,000 171,200
Standard Aero Holdings, Inc.
8.250% 09/01/14 (b) 265,000 272,950
TransDigm, Inc.
8.375% 07/15/11 250,000 260,000
-----------
1,588,413
-----------
Aerospace & Defense Total 1,588,413
-----------
BUILDING MATERIALS - 1.7%
BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS - 0.5%
Associated Materials, Inc.
(a) 03/01/14
(11.250% 03/01/09) 290,000 172,550
Nortek, Inc.
8.500% 09/01/14 200,000 179,000
-----------
351,550
-----------
BUILDING PRODUCTS-CEMENT/AGGREGATION - 0.8%
RMCC Acquisition Co.
9.500% 11/01/12 (b) 370,000 358,900
U.S. Concrete, Inc.
8.375% 04/01/14 310,000 286,750
-----------
645,650
-----------
BUILDING PRODUCTS-DOORS & WINDOWS - 0.4%
ACIH, Inc.
(a) 12/15/12
(11.500% 12/15/07) (b) 425,000 267,750
-----------
267,750
-----------
Building Materials Total 1,264,950
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 0.5%
WIRE & CABLE PRODUCTS - 0.5%
Coleman Cable, Inc.
9.875% 10/01/12 (b) 430,000 397,750
-----------
397,750
-----------
Electrical Components & Equipment Total 397,750
-----------
PAR ($) VALUE ($)
-----------------------------------------------------------
ELECTRONICS - 0.6%
ELECTRONIC COMPONENTS-MISCELLANEOUS - 0.6%
Flextronics International Ltd.
6.250% 11/15/14 135,000 135,000
Sanmina-SCI Corp.
6.750% 03/01/13 (b) 355,000 335,475
-----------
470,475
-----------
Electronics Total 470,475
-----------
ENGINEERING & CONSTRUCTION - 0.6%
BUILDING & CONSTRUCTION-MISCELLANEOUS - 0.6%
J. Ray McDermott SA
11.000% 12/15/13 (b) 445,000 489,500
-----------
489,500
-----------
Engineering & Construction Total 489,500
-----------
ENVIRONMENTAL CONTROL - 2.2%
NON-HAZARDOUS WASTE DISPOSAL - 2.0%
Allied Waste North America, Inc.
7.250% 03/15/15 (b) 225,000 212,625
7.875% 04/15/13 495,000 497,475
8.500% 12/01/08 255,000 263,925
Waste Services, Inc.
9.500% 04/15/14 (b) 560,000 551,600
-----------
1,525,625
-----------
RECYCLING - 0.2%
IMCO Recycling Escrow, Inc.
9.000% 11/15/14 (b) 120,000 123,900
-----------
123,900
-----------
Environmental Control Total 1,649,525
-----------
HAND/MACHINE TOOLS - 0.2%
MACHINE TOOLS & RELATED PRODUCTS - 0.2%
Newcor, Inc.
6.000% 01/31/13
(7.500% 01/31/08) (g)(h) 215,562 131,493
-----------
131,493
-----------
Hand/Machine Tools Total 131,493
-----------
MACHINERY-DIVERSIFIED - 0.5%
MACHINERY-GENERAL INDUSTRY - 0.5%
Douglas Dynamics LLC
7.750% 01/15/12 (b) 370,000 357,050
-----------
357,050
-----------
Machinery-Diversified Total 357,050
-----------
METAL FABRICATE/HARDWARE - 2.0%
METAL PROCESSORS & FABRICATION - 1.3%
Altra Industrial Motion, Inc.
9.000% 12/01/11 (b) 250,000 240,000
See Accompanying Notes to Financial Statements.
11
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-----------------------------------------------------------
INDUSTRIALS (CONTINUED)
METAL FABRICATE/HARDWARE (CONTINUED)
METAL PROCESSORS & FABRICATION (CONTINUED)
Mueller Holdings, Inc.
(a) 04/15/14
(14.750% 04/15/09) 295,000 210,925
10.000% 05/01/12 225,000 236,250
TriMas Corp.
9.875% 06/15/12 445,000 358,225
-----------
1,045,400
-----------
METAL PRODUCTS-FASTENERS - 0.7%
FastenTech, Inc.
11.500% 05/01/11 490,000 516,950
-----------
516,950
-----------
Metal Fabricate/Hardware Total 1,562,350
-----------
MISCELLANEOUS MANUFACTURING - 2.5%
DIVERSIFIED MANUFACTURING OPERATORS - 1.8%
Bombardier, Inc.
6.300% 05/01/14 (b) 575,000 506,000
J.B. Poindexter & Co.
8.750% 03/15/14 350,000 330,750
Koppers Industries, Inc.
9.875% 10/15/13 310,000 330,150
Trinity Industries, Inc.
6.500% 03/15/14 165,000 159,225
-----------
1,326,125
-----------
FILTRATION/SEPARATE PRODUCTS - 0.3%
Polypore International, Inc.
(a) 10/01/12
(10.500% 10/01/08) (b) 485,000 243,712
-----------
243,712
-----------
MISCELLANEOUS MANUFACTURING - 0.4%
Samsonite Corp.
8.875% 06/01/11 295,000 308,275
-----------
308,275
-----------
Miscellaneous Manufacturing Total 1,878,112
-----------
PACKAGING & CONTAINERS - 4.1%
CONTAINERS-METAL/GLASS - 1.9%
Crown European Holdings SA
10.875% 03/01/13 480,000 553,200
Owens-Brockway Glass Container
6.750% 12/01/14 200,000 202,000
8.250% 05/15/13 600,000 648,000
Owens-Illinois, Inc.
7.500% 05/15/10 75,000 79,125
-----------
1,482,325
-----------
CONTAINERS-PAPER/PLASTIC - 2.2%
Consolidated Container Co. LLC
(a) 06/15/09
(10.750% 06/15/07) 280,000 215,600
PAR ($) VALUE ($)
-----------------------------------------------------------
Jefferson Smurfit Corp.
8.250% 10/01/12 450,000 445,500
PIK,
11.500% 10/01/15 (b) EUR 448,573 425,205
MDP Acquisitions PLC
9.625% 10/01/12 USD 365,000 363,175
Portola Packaging, Inc.
8.250% 02/01/12 295,000 184,375
Tekni-Plex, Inc.
8.750% 11/15/13 (b) 45,000 39,150
-----------
1,673,005
-----------
Packaging & Containers Total 3,155,330
-----------
TRANSPORTATION - 4.7%
TRANSPORTATION-MARINE - 2.1%
Ship Finance International Ltd.
8.500% 12/15/13 795,000 761,212
Stena AB
7.500% 11/01/13 500,000 481,250
9.625% 12/01/12 355,000 380,738
-----------
1,623,200
-----------
TRANSPORTATION-RAILROAD - 0.7%
TFM SA de CV
9.375% 05/01/12 (b) 375,000 388,125
12.500% 06/15/12 100,000 116,000
-----------
504,125
-----------
TRANSPORTATION-SERVICES - 1.4%
CHC Helicopter Corp.
7.375% 05/01/14 275,000 265,375
7.375% 05/01/14 (b) 250,000 241,250
Petroleum Helicopters, Inc.
9.375% 05/01/09 530,000 548,550
-----------
1,055,175
-----------
TRANSPORTATION-TRUCK - 0.5%
Allied Holdings, Inc.
8.625% 10/01/07 145,000 53,650
QDI LLC
9.000% 11/15/10 400,000 364,000
-----------
417,650
-----------
Transportation Total 3,600,150
-----------
INDUSTRIALS TOTAL 16,545,098
-----------
-----------------------------------------------------------
TECHNOLOGY - 0.4%
SEMICONDUCTORS - 0.4%
ELECTRONIC COMPONENTS-SEMICONDUCTORS - 0.4%
Amkor Technology, Inc.
9.250% 02/15/08 370,000 325,600
-----------
325,600
-----------
Semiconductors Total 325,600
-----------
TECHNOLOGY TOTAL 325,600
-----------
See Accompanying Notes to Financial Statements.
12
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-----------------------------------------------------------
UTILITIES - 7.1%
ELECTRIC - 7.1%
ELECTRIC-GENERATION - 1.9%
AES Corp.
9.000% 05/15/15 (b) 110,000 122,925
9.500% 06/01/09 455,000 505,050
Edison Mission Energy
9.875% 04/15/11 480,000 556,800
Texas Genco LLC
6.875% 12/15/14 (b) 245,000 252,043
-----------
1,436,818
-----------
ELECTRIC-INTEGRATED - 1.8%
CMS Energy Corp.
8.900% 07/15/08 385,000 411,950
Nevada Power Co.
9.000% 08/15/13 185,000 207,200
10.875% 10/15/09 340,000 379,100
PSE&G Energy Holdings LLC
8.625% 02/15/08 395,000 416,725
-----------
1,414,975
-----------
INDEPENDENT POWER PRODUCER - 3.4%
Caithness Coso Funding Corp.
9.050% 12/15/09 440,156 470,967
Calpine Corp.
8.500% 07/15/10 (b) 365,000 266,450
Calpine Generating Co. LLC
11.500% 04/01/11 255,000 219,300
12.390% 04/01/11 (c) 610,000 536,800
MSW Energy Holdings LLC
7.375% 09/01/10 170,000 171,275
8.500% 09/01/10 375,000 388,125
Orion Power Holdings, Inc.
12.000% 05/01/10 425,000 508,938
-----------
2,561,855
-----------
Electric Total 5,413,648
-----------
UTILITIES TOTAL 5,413,648
-----------
TOTAL CORPORATE FIXED-INCOME BONDS & NOTES
(cost of $97,590,472) 94,952,953
-----------
PREFERRED STOCKS - 2.6% SHARES
-----------------------------------------------------------
COMMUNICATIONS - 1.8%
MEDIA - 1.8%
PUBLISHING-PERIODICALS - 0.0%
PriMedia, Inc.
8.625% 04/01/10 30 2,933
-----------
2,933
-----------
RADIO - 1.3%
Spanish Broadcasting System, Inc., PIK
10.750% 949 1,020,175
-----------
1,020,175
-----------
SHARES VALUE ($)
-----------------------------------------------------------
TELEVISION - 0.5%
Paxson Communications Corp., PIK
14.250% 11/15/06 51 336,801
-----------
336,801
-----------
Media Total 1,359,909
-----------
COMMUNICATIONS TOTAL 1,359,909
-----------
-----------------------------------------------------------
FINANCIALS - 0.8%
REAL ESTATE INVESTMENT TRUSTS - 0.8%
REITS-DIVERSIFIED - 0.8%
iStar Financial, Inc.
7.800% 13,000 329,875
7.875% 11,007 282,742
-----------
612,617
-----------
Real Estate Investment Trusts Total 612,617
-----------
FINANCIALS TOTAL 612,617
-----------
TOTAL PREFERRED STOCKS
(cost of $1,914,050) 1,972,526
-----------
COMMON STOCKS - 1.7%
-----------------------------------------------------------
CONSUMER DISCRETIONARY - 0.1%
HOTELS, RESTAURANTS & LEISURE - 0.1%
Alliance Gaming Corp. (i) 5,500 71,445
Trump Entertainment Resorts, Inc. (i) 1,000 13,000
-----------
Hotels, Restaurants & Leisure Total 84,445
-----------
CONSUMER DISCRETIONARY TOTAL 84,445
-----------
-----------------------------------------------------------
ENERGY - 0.1%
ENERGY EQUIPMENT & SERVICES - 0.1%
Hornbeck Offshore Services, Inc. (i) 2,800 69,020
-----------
Energy Equipment & Services Total 69,020
-----------
ENERGY TOTAL 69,020
-----------
-----------------------------------------------------------
INDUSTRIALS - 0.1%
COMMERCIAL SERVICES & SUPPLIES - 0.1%
Allied Waste Industries, Inc. (i) 7,250 55,897
Fairlane Management Corp. (g)(i)(j) 8,000 --
-----------
Commercial Services & Supplies Total 55,897
-----------
INDUSTRIALS TOTAL 55,897
-----------
-----------------------------------------------------------
MATERIALS - 0.1%
CHEMICALS - 0.1%
Lyondell Chemical Co. 5,000 118,700
-----------
Chemicals Total 118,700
-----------
MATERIALS TOTAL 118,700
-----------
-----------------------------------------------------------
TELECOMMUNICATION SERVICES - 1.2%
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.5%
NTL, Inc. (i) 5,942 381,952
-----------
Diversified Telecommunication Services Total 381,952
-----------
See Accompanying Notes to Financial Statements.
13
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
COMMON STOCKS (CONTINUED) SHARES VALUE ($)
-----------------------------------------------------------
TELECOMMUNICATION SERVICES (CONTINUED)
WIRELESS TELECOMMUNICATION SERVICES - 0.7%
Alamosa Holdings, Inc. (i) 11,653 143,915
Nextel Communications, Inc.,
Class A (i) 6,196 186,995
SBA Communications Corp.,
Class A (i) 16,090 179,886
-----------
Wireless Telecommunication Services Total 510,796
-----------
TELECOMMUNICATION
SERVICES TOTAL 892,748
-----------
-----------------------------------------------------------
UTILITIES - 0.1%
MULTI-UTILITIES & UNREGULATED POWER - 0.1%
Dynegy Holdings, Inc., Class A (i) 23,000 106,950
-----------
Multi-Utilities & Unregulated Power Total 106,950
-----------
UTILITIES TOTAL 106,950
-----------
TOTAL COMMON STOCKS
(cost of $1,662,531) 1,327,760
-----------
CONVERTIBLE BONDS - 1.1% PAR ($)
-----------------------------------------------------------
COMMUNICATIONS - 0.8%
TELECOMMUNICATION SERVICES - 0.8%
TELECOMMUNICATION EQUIPMENT - 0.8%
Nortel Networks Corp.
4.250% 09/01/08 645,000 592,433
-----------
592,433
-----------
Telecommunication Services Total 592,433
-----------
COMMUNICATIONS TOTAL 592,433
-----------
-----------------------------------------------------------
UTILITIES - 0.3%
ELECTRIC - 0.3%
INDEPENDENT POWER PRODUCER - 0.3%
Mirant Corp.
2.500% 06/15/21 (d) 280,000 221,197
-----------
221,197
-----------
Electric Total 221,197
-----------
UTILITIES TOTAL 221,197
-----------
TOTAL CONVERTIBLE BONDS
(cost of $775,438) 813,630
-----------
MUNICIPAL BOND (TAXABLE) - 0.8%
-----------------------------------------------------------
CA Cabazon Band Mission Indians
13.000% 10/01/11 (e) 575,000 597,695
-----------
CALIFORNIA TOTAL 597,695
-----------
TOTAL MUNICIPAL BOND (TAXABLE)
(cost of $575,000) 597,695
-----------
WARRANTS - 0.1% UNITS VALUE ($)
-----------------------------------------------------------
COMMUNICATIONS - 0.0%
MEDIA - 0.0%
BROADCAST SERVICES/PROGRAMS - 0.0%
XM Satellite Radio Holdings, Inc.
Expires 03/15/10 (b)(i) 600 37,800
-----------
37,800
-----------
Media Total 37,800
-----------
TELECOMMUNICATION SERVICES - 0.0%
CELLULAR TELECOMMUNICATIONS - 0.0%
UbiquiTel, Inc.
Expires 04/15/10 (b)(i) 525 5
-----------
5
-----------
TELECOMMUNICATION SERVICES - 0.0%
Jazztel PLC
Expires 07/15/10 (b)(g)(i)(j) 350 --
-----------
--
-----------
Telecommunication Services Total 5
-----------
COMMUNICATIONS TOTAL 37,805
-----------
-----------------------------------------------------------
INDUSTRIALS - 0.1%
METAL FABRICATE/HARDWARE - 0.1%
METAL PROCESSORS & FABRICATION - 0.1%
Mueller Holdings, Inc.
Expires 04/15/14 (b)(i) 375 43,125
-----------
43,125
-----------
Metal Fabricate/Hardware Total 43,125
-----------
TRANSPORTATION - 0.0%
TRANSPORTATION-TRUCKS - 0.0%
QDI LLC
Expires 01/15/07 (b)(g)(i) 2,041 6,001
-----------
6,001
-----------
Transportation Total 6,001
-----------
INDUSTRIALS TOTAL 49,126
-----------
TOTAL WARRANTS
(cost of $97,124) 86,931
-----------
See Accompanying Notes to Financial Statements.
14
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
SHORT-TERM OBLIGATION - 3.9% PAR ($) VALUE ($)
-----------------------------------------------------------
U.S. GOVERNMENT AGENCY - 3.9%
Federal Home Loan Bank
2.980% 06/01/05(k) 2,960,000 2,960,000
-----------
TOTAL SHORT-TERM OBLIGATION
(cost of $2,960,000) 2,960,000
-----------
TOTAL INVESTMENTS - 134.9%
(cost of $105,574,615)(l) 102,711,495
-----------
OTHER ASSETS & LIABILITIES, NET - (34.9)% (26,565,441)
-----------------------------------------------------------
NET ASSETS - 100.0% 76,146,054
===========
NOTES TO INVESTMENT PORTFOLIO:
--------------------------------------------------------------------------------
(a) Step bond. This security is currently not paying coupon. Shown
parenthetically is the next interest rate to be paid and the date the Fund
will begin accruing at this rate.
(b) Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
May 31, 2005, these securities amounted to $23,907,510, which represents
31.4% of net assets.
(c) The interest rate shown on floating rate or variable rate securities
reflects the rate at May 31, 2005.
(d) The issuer has filed for bankruptcy protection under Chapter 11, and is in
default of certain debt covenants. Income is not being accrued. At May 31,
2005, the value of these securities amounted to $913,197, which represents
1.2% of net assets.
(e) Illiquid security.
(f) The issuer is in default of certain debt covenants. Income is not being
accrued. At May 31, 2005, the value of this security represents 1.0% of net
assets.
(g) Represents fair value as determined in good faith under procedures approved
by the Board of Trustees.
(h) Step bond. Shown parenthetically is the next interest rate to be paid.
(i) Non-income producing security.
(j) Security has no value.
(k) The rate shown represents the annualized yield at the date of purchase.
(l) Cost for federal income tax purposes is $105,597,849.
At May 31, 2005, the Fund had entered into the following forward currency
exchange contracts:
FORWARD CURRENCY AGGREGATE SETTLEMENT UNREALIZED
CONTRACTS TO BUY VALUE FACE VALUE DATE DEPRECIATION
------------------------------------------------------------
EUR $174,795 $179,010 06/01/2005 $(4,215)
EUR 98,536 103,445 06/20/2005 (4,909)
-------
$(9,124)
-------
FORWARD CURRENCY AGGREGATES SETTLEMENT UNREALIZED
CONTRACTS TO SELL VALUE FACE VALUE DATE APPRECIATION
------------------------------------------------------------
EUR $174,795 $183,311 06/01/2005 $ 8,516
EUR 634,326 660,745 06/20/2005 26,419
EUR 117,011 120,530 06/20/2005 3,519
EUR 103,579 106,070 07/27/2005 2,491
-------
$40,945
-------
At May 31, 2005, the composition of the Fund by revenue source is as follows:
% OF
HOLDINGS BY REVENUE SOURCE NET ASSETS
----------------------------------------------------------
Corporate Fixed-Income Bonds & Notes 124.7%
Preferred Stocks 2.6
Common Stocks 1.7
Convertible Bonds 1.1
Municipal Bond (Taxable) 0.8
Warrants 0.1
Short-Term Obligation 3.9
Other Assets & Liabilities, Net (34.9)
------
100.0%
------
ACRONYM NAME
---------------------------------------------------------
EUR Euro
PIK Payment-In-Kind
REIT Real Estate Investment Trust
USD United States Dollar
See Accompanying Notes to Financial Statements.
15
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2005 (Unaudited)
ASSETS:
Investments, at cost $105,574,615
------------
Investments, at value $102,711,495
Net unrealized appreciation on
foreign forward currency contracts 40,945
Receivable for:
Investments sold 870,179
Interest 2,240,320
Dividends 12,880
Reimbursement due from Investment Advisor 805
Deferred Trustees' compensation plan 9,681
------------
Total Assets 105,886,305
------------
LIABILITIES:
Payable to custodian bank 191,086
Net unrealized depreciation on
foreign forward currency contracts 9,124
Payable for:
Interest 52,121
Investments purchased 260,195
Distributions 546,091
Investment advisory fee 53,519
Transfer agent fee 16,490
Pricing and bookkeeping fees 9,233
Custody fee 2,346
Deferred Trustees' fees 9,681
Notes payable - short-term 14,800,000
Notes payable - long-term 13,700,000
Other liabilities 90,365
------------
Total Liabilities 29,740,251
------------
NET ASSETS $ 76,146,054
============
COMPOSITION OF NET ASSETS:
Paid-in capital $141,303,724
Undistributed net investment income 487,624
Accumulated net realized loss (62,813,569)
Net unrealized appreciation (depreciation) on:
Investments (2,863,120)
Foreign currency translations 31,395
------------
NET ASSETS $ 76,146,054
============
Shares outstanding 21,003,496
------------
Net asset value per share $ 3.63
============
STATEMENT OF OPERATIONS
For the Six Months Ended May 31, 2005 (Unaudited)
INVESTMENT INCOME:
Interest $ 4,536,839
Dividends 112,828
------------
Total Investment Income 4,649,667
------------
EXPENSES:
Investment advisory fee 407,967
Transfer agent fee 24,022
Pricing and bookkeeping fees 34,434
Trustees' fees 4,392
Custody fee 9,658
Other expenses 69,665
------------
Total Operating Expenses 550,138
Interest expense 485,670
------------
Total Expenses 1,035,808
Custody earnings credit (1,023)
------------
Net Expenses 1,034,785
------------
Net Investment Income 3,614,882
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain (loss) on:
Investments 346,121
Foreign currency transactions 16,761
Net realized loss on disposal of investments
purchased/sold in error (See Note 7) --
------------
Net realized gain 362,882
------------
Net change in unrealized appreciation
(depreciation) on:
Investments (5,605,511)
Foreign currency translations 31,395
------------
Net change in unrealized
appreciation (depreciation) (5,574,116)
------------
Net Loss (5,211,234)
------------
Net Decrease in Net Assets from Operations $ (1,596,352)
------------
See Accompanying Notes to Financial Statements.
16
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS YEAR
ENDED ENDED
MAY 31, NOVEMBER 30,
INCREASE (DECREASE) IN NET ASSETS: 2005 2004
---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,614,882 $ 7,163,795
Net realized gain on investments and foreign currency transactions 362,882 2,728,923
Net change in unrealized appreciation (depreciation)
on investments and foreign currency translations (5,574,116) 2,684,740
----------- -----------
Net Increase (Decrease) from Operations (1,596,352) 12,577,458
----------- -----------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (3,486,580) (6,362,697)
----------- -----------
SHARE TRANSACTIONS:
Distributions reinvested -- 62,227
----------- -----------
Total Increase (Decrease) in Net Assets (5,082,932) 6,276,988
NET ASSETS:
Beginning of period 81,228,986 74,951,998
----------- -----------
End of period $76,146,054 $81,228,986
----------- -----------
Undistributed net investment income at end of period $ 487,624 $ 359,322
=========== ===========
CHANGES IN SHARES:
Issued for distributions reinvested -- 16,818
=========== ===========
See Accompanying Notes to Financial Statements.
17
STATEMENT OF CASH FLOWS
For the Six Months Ended May 31, 2005 (Unaudited)
INCREASE (DECREASE) IN CASH
--------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net investment income $ 3,614,882
Adjustments to reconcile net investment income
to net cash provided by operating activities:
Purchase of investment securities (32,210,088)
Proceeds from disposition of investment securities 33,646,561
Proceeds from disposition of short-term investments, net 424,000
Net realized gain from foreign currency transactions 16,761
Increase in dividend and interest receivable (60,929)
Increase in other assets (2,094)
Increase in receivable for investments sold (198,932)
Decrease in payable for investments purchased (688,744)
Decrease in accrued expenses and other liabilities (37,817)
Net amortization/accretion of income (346,567)
------------
Net cash provided by operating activities 4,157,033
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable (1,000,000)
Increase in interest payable 2,398
Distributions paid in cash (3,444,573)
------------
Net cash used by financing activities (4,442,175)
------------
Net decrease in cash (285,142)
CASH:
Beginning of period 94,056
------------
End of period $ (191,086)
============
See Accompanying Notes to Financial Statements.
18
NOTES TO FINANCIAL STATEMENTS
May 31, 2005 (Unaudited)
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 pricing services 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. Debt securities for which quotations are readily
available are valued at an over-the-counter or exchange bid quotation. Certain
debt 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.
Equity securities are valued at the last sale price on the principal exchange on
which they trade, except for securities traded on the NASDAQ, which are valued
at the NASDAQ official close price. 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 debt 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 last sale 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.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
generally determined at 2:00 p.m. Eastern (U.S.) time. Events affecting the
values of such foreign securities and such exchange rates may occur between the
times at which they are determined and the close of the customary trading
session of the NYSE, which would not be reflected in the computation of the
Fund's net asset value. If events materially affecting the values of such
foreign securities occur and it is determined that market quotations are not
reliable, then these foreign securities will be valued at their fair value using
procedures approved by the Board of Trustees.
Investments for which market quotations are not readily available, or have
quotations which management believes are not appropriate, are valued at fair
value under procedures approved by the Board of Trustees.
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 the 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
19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2005 (Unaudited)
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. The
Fund could also be exposed to risk if the counterparties of the contracts are
unable to fulfill the terms of the contracts.
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 identifies cash or
liquid portfolio securities in an amount equal to the delayed delivery
commitment.
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 include 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.
For financial statement purposes, 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, and will distribute
substantially all of its taxable income, if any, for its tax year, and as such
will not be subject to federal income taxes. In addition, the Fund intends to
distribute in each calendar year substantially all of its net investment income,
capital gains and certain other amounts, if any, such that the Fund should 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.
STATEMENT OF CASH FLOWS
Information on financial transactions which have been settled through the
receipt or disbursement of cash is presented in the Statement of Cash Flows. The
cash amount shown in the Statement of Cash Flows is the amount included within
the Fund's Statement of Assets and Liabilities and includes cash on hand at its
custodian bank and does not include any short-term investments.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended November 30, 2004
was as follows:
NOVEMBER 30,
2004
----------
Distributions paid from:
Ordinary Income $6,362,697
Long-Term Capital Gains --
Unrealized appreciation and depreciation at May 31, 2005, based on cost of
investments for federal income tax purposes, excluding any unrealized
appreciation and depreciation from changes in the value of other assets and
liabilities resulting from changes in exchange rates, was:
Unrealized appreciation $ 3,303,794
Unrealized depreciation (6,190,148)
-----------
Net unrealized depreciation $(2,886,354)
===========
The following capital loss carryforwards, determined as of November 30, 2004,
may be available to reduce taxable income arising from future net realized gains
on investments, if any, to the extent permitted by the Internal Revenue Code:
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
----------------- -----------------------
2006 $ 410,216
2007 10,437,671
2008 22,694,029
2009 23,203,433
2010 6,431,055
-----------
$63,176,404
===========
20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2005 (Unaudited)
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISORY FEE
Columbia Management Advisors, Inc. ("Columbia"), an indirect wholly owned
subsidiary of Bank of America Corporation ("BOA"), is the investment advisor to
the Fund and provides administrative and other services to the Fund. Columbia
receives a monthly investment advisory 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 leverage income. For the
six months ended May 31, 2005, the Fund paid fees of $149,909 to Columbia under
this agreement, which represents 0.38% annually of the Fund's average daily net
assets. This amount is included in "Investment advisory fee" on the Statement of
Operations.
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"). As a result, Columbia pays the total fees received
to State Street under the Outsourcing Agreement.
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 based on the number of securities held by
the Fund. For the six months ended May 31, 2005, the Fund's annualized effective
pricing and bookkeeping fee rate, inclusive of out-of-pocket expenses, was
0.086%.
CUSTODY CREDITS
The Fund has an agreement with its custodian bank under which custody fees may
be reduced by balance credits. These credits are recorded as a reduction of
total expenses on the Statement of Operations. 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.
FEES PAID TO OFFICERS AND TRUSTEES
With the exception of one officer, all officers of the Fund are employees of
Columbia or its affiliates and receive no compensation from the Fund. The Board
of Trustees appointed a Chief Compliance Officer to the Fund in accordance with
federal securities regulations. The Fund, along with other affiliated funds,
will pay its pro-rata share of the expenses associated with the Office of the
Chief Compliance Officer. The Fund's fee for the Office of the Chief Compliance
Officer will not exceed $15,000 per year.
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.
OTHER
Columbia provides certain services to the Fund related to Sarbanes-Oxley
compliance. For the six months ended May 31, 2005, the Fund paid $791 to
Columbia for such services. This amount is included in "Other expenses" on the
Statement of Operations.
NOTE 5. PORTFOLIO INFORMATION
For the six months ended May 31, 2005, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $32,210,088 and
$33,646,561, respectively.
NOTE 6. LOAN AGREEMENT
At May 31, 2005, the Fund had term loans and a revolving loan outstanding with
State Street, totaling $28,500,000. The term loans are comprised of a
$13,700,000 loan which bears interest at 3.12% per annum, due August 26, 2005
and a $2,000,000 loan which bears interest at 3.13% per annum, due August 26,
2005. The revolving loan is a $12,800,000 floating rate loan, maturing on August
23, 2005. At May 31, 2005, the average daily loan balance was $29,329,670 at a
weighted average interest rate of 3.32%. The Fund is subject to certain
covenants including, but not limited to, requirements with respect to asset
coverage, portfolio diversification and liquidity.
NOTE 7. TRADING LOSS
During the six months ended May 31, 2005, the Fund entered into a foreign
forward currency exchange contract which resulted in a trading error. This
position was subsequently closed at a loss of $805 and the Fund is in the
process of being reimbursed by Columbia.
NOTE 8. 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.
21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2005 (Unaudited)
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 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 to the extent that there is no established
secondary market.
LEGAL PROCEEDINGS
On February 9, 2005, Columbia and Columbia Funds Distributor, Inc.
(collectively, the "Columbia Group") entered into an Assurance of Discontinuance
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the Securities and
Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG
Settlement are referred to collectively as the "Settlements". The Settlements
contain substantially the same terms and conditions as outlined in the
agreements in principle which Columbia Group entered into with the SEC and NYAG
in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also undertaken to implement certain
governance measures designed to maintain the independence of their boards of
trustees. The NYAG Settlement also, among other things, requires Columbia and
its affiliates, Banc of America Capital Management, LLC and BACAP Distributors,
LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds
management fees collectively by $32 million per year for five years, for a
projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan to be developed by an independent distribution consultant, who
is acceptable to the SEC staff and the Columbia Funds' independent trustees. The
distribution plan must be based on a methodology developed in consultation with
the Columbia Group and the Fund's independent trustees and not unacceptable to
the staff of the SEC. At this time, the distribution plan is still under
development. As such, any gain to the fund or its shareholders can not currently
be determined.
As a result of these matters or any adverse publicity or other developments
resulting from them, the market price of fund shares could decline.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A
copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed
suit against certain funds, the Trustees of the Columbia Funds, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities. More than 300 cases including those
filed against entities unaffiliated with the funds, their Boards, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities have been transferred to the Federal
District Court in Maryland and consolidated in a multi-district proceeding (the
"MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the
MDL have been consolidated under the lead case. The fund derivative plaintiffs
allege that the funds were harmed by market timing and late trading activity and
seek, among other things, removal of the trustees of the Columbia Funds, removal
of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts
state court alleging that the conduct, including market timing, entitles Class B
shareholders in certain Columbia funds to an exemption from contingent deferred
sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has
been removed to federal court in Massachusetts and the federal Judicial Panel
has conditionally ordered its transfer to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this
litigation on any fund, if any, can not currently be made. On January 11, 2005,
a putative class action lawsuit was filed in federal district court in
Massachusetts against, among others, the Trustees of the Columbia Funds and
Columbia. The lawsuit alleges that defendants violated common law duties to fund
shareholders as well as sections of the Investment Company Act of 1940, by
failing to ensure that the Fund and other affiliated funds participated in
securities class action settlements for which the funds were eligible.
Specifically, plaintiffs allege that defendants failed to submit proof of claims
in connection with settlements of securities class action lawsuits filed against
companies in which the funds held positions.
In 2004, certain Columbia funds, advisers and affiliated entities were named as
defendants in certain purported shareholder class and derivative actions making
claims, including claims under the Investment Company and the Investment
Advisers Acts of
22
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2005 (Unaudited)
1940 and state law. The suits allege, inter alia, that the fees and expenses
paid by the funds are excessive and that the advisers and their affiliates
inappropriately used fund assets to distribute the funds and for other improper
purpose. On March 2, 2005, the actions were consolidated in the Massachusetts
federal court as In re Columbia Entities Litigation. The plaintiffs filed a
consolidated amended complaint on June 9, 2005.
The Fund and the other defendants to these actions, including Columbia and
various of its affiliates, certain other mutual funds advised by Columbia and
its affiliates, and various directors of such funds, have denied these
allegations and are contesting the plaintiffs' claims. These proceedings are
ongoing, however, based on currently available information, Columbia believes
that these lawsuits are without merit, that the likelihood they will have a
material adverse impact on any fund is remote, and that the lawsuits are not
likely to materially affect its ability to provide investment management
services to its clients, including the Fund.
23
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as follows:
(UNAUDITED)
SIX MONTHS ONE MONTH
ENDED YEAR ENDED ENDED YEAR ENDED OCTOBER 31,
MAY 31, NOVEMBER 30, NOVEMBER 30, ----------------------------------
2005 2004 2003 (a) 2003 2002 2001
-----------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 3.87 $ 3.57 $ 3.51 $ 2.79 $ 3.51 $ 4.83
------------ ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (b) 0.17 0.34 0.02 0.29 0.38(c) 0.51
Net realized and unrealized gain
(loss) on investments and
foreign currency (0.24) 0.26 0.07 0.75 (0.73)(c) (1.26)
------------ ----------- ----------- ----------- ----------- -----------
Total from Investment
Operations (0.07) 0.60 0.09 1.04 (0.35) (0.75)
------------ ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.17) (0.30) (0.03) (0.30) (0.36) (0.55)
Return of capital -- -- -- (0.02) (0.01) (0.02)
------------ ----------- ----------- ----------- ----------- -----------
Total Distributions Declared
to Shareholders (0.17) (0.30) (0.03) (0.32) (0.37) (0.57)
------------ ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 3.63 $ 3.87 $ 3.57 $ 3.51 $ 2.79 $ 3.51
------------ ----------- ----------- ----------- ----------- -----------
Market price per share $ 3.36 $ 3.51 $ 3.50 $ 3.65 $ 2.79 $ 3.49
------------ ----------- ----------- ----------- ----------- -----------
Total return--based on
market value (d) 0.25%(e)(f) 9.24% (3.40)%(e) 44.56% (10.43)% (14.26)%
------------ ----------- ----------- ----------- ----------- -----------
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Operating expenses (g) 1.38%(h) 1.48% 1.63%(h) 1.35% 1.25% 1.31%
Interest and amortization of
deferred debt issuance expenses 1.22%(h) 1.18% 1.38%(h) 2.00% 2.73% 2.98%
Total expenses (g) 2.60%(h) 2.66% 3.01%(h) 3.35% 3.98% 4.29%
Net investment income (g) 9.07%(h) 9.25% 7.82%(h) 9.18% 11.38%(c) 11.96%
Portfolio turnover rate 31%(e) 80% 7%(e) 64% 54% 52%
Net assets, end of period (000's) $ 76,146 $ 81,229 $ 74,952 $ 73,623 $ 58,134 $ 72,353
(a) The Fund 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) Total return includes a voluntary reimbursement by the Investment Advisor
for a realized investment loss. This reimbursement had an impact of less
than 0.01% on the Fund's total return.
(g) The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(h) Annualized.
24
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period is as follows:
YEAR ENDED OCTOBER 31,
-------------------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996 1995
------------ ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, BEGINNING OF PERIOD $ 5.97 $ 6.20 $ 7.27 $ 6.89 $ 6.62 $ 6.28
------------ ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.67 0.70 0.70 0.70 0.70 0.70
Net realized and unrealized gain (loss)
on investments and foreign currency (1.10) (0.23) (1.08) 0.38 0.26 0.34
------------ ----------- ----------- ----------- ----------- -----------
Total from Investment Operations (0.43) 0.47 (0.38) 1.08 0.96 1.04
------------ ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.69) (0.70) (0.69) (0.70) (0.69) (0.70)
In excess of net investment income (0.02) -- -- -- -- --
------------ ----------- ----------- ----------- ----------- -----------
Total Distributions Declared to Shareholders (0.71) (0.70) (0.69) (0.70) (0.69) (0.70)
------------ ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 4.83 $ 5.97 $ 6.20 $ 7.27 $ 6.89 $ 6.62
------------ ----------- ----------- ----------- ----------- -----------
Market price per share $ 4.63 $ 5.63 $ 6.81 $ 7.56 $ 7.13 $ 6.88
------------ ----------- ----------- ----------- ----------- -----------
Total return--based on market value (a) (6.12)% (7.89)% (0.74)% 16.97% 14.62% 33.00%
------------ ----------- ----------- ----------- ----------- -----------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (b) 0.92% 0.89% 0.88% 0.89% 0.98% 0.95%
Interest and amortization of deferred
debt issuance expenses 2.79% 2.48% 2.11% 1.96% 2.07% 1.94%
Total expenses (b) 3.71% 3.37% 2.99% 2.85% 3.05% 2.89%
Net investment income (b) 11.88% 10.82% 9.70% 9.63% 10.11% 10.76%
Portfolio turnover rate 42% 44% 69% 92% 92% 92%
Net assets, end of period (000's) $ 98,333 $ 121,018 $ 124,480 $ 107,774 $ 99,925 $ 93,984
(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 October 31, 1997 which had a 0.01% impact.
25
FINANCIAL HIGHLIGHTS (CONTINUED)
LOAN AGREEMENT ASSET COVERAGE REQUIREMENTS
ASSET COVERAGE
TOTAL AMOUNT PER $1,000 OF
DATE OUTSTANDING INDEBTEDNESS
--------- ----------- ------------
05/31/05* $28,500,000 $3,672
11/30/04 29,500,000 3,754
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
* Unaudited
26
SHAREHOLDER MEETING RESULTS
RESULTS OF THE ANNUAL MEETING OF SHAREHOLDERS
On May 25, 2005, 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 March 10, 2005, the record date for
the Meeting, the Fund had 21,003,496 shares outstanding. The votes cast were as
follows:
PROPOSAL 1.
ELECTION FOR TRUSTEES: FOR WITHHELD
---------------------------------------------------------------------------
Richard W. Lowry 16,831,194 251,261
William E. Mayer 16,822,113 260,342
Charles R. Nelson 16,813,848 268,607
Richard L. Woolworth 16,831,694 250,761
27
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 1-800-730-6001.
28
BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENT
Section 15(c) of the Investment Company Act of 1940 (the "1940 Act") requires
that the Board of Trustees/Directors (the "Board") of the Columbia Funds (the
"Funds"), including a majority of the Trustees and Directors (collectively, the
"Trustees") who are not "interested persons" of the Trusts, as defined in the
1940 Act (the "Independent Trustees"), annually review and approve the terms of
the Funds' investment advisory agreements. At a meeting held on October 13,
2004, the Board reviewed and approved the management contracts ("Advisory
Agreement") with Columbia Management Advisors, Inc. ("CMA") for the Fund.
At meetings held on September 23, 2004 and October 12, 2004, the Advisory Fees
and Expenses Committee (the "Committee") of the Board considered the factors
described below relating to the selection of CMA and the approval of the
Advisory Agreement. At a meeting held on October 13, 2004, the Board, including
the Independent Trustees (who were advised by their independent legal counsel),
considered these factors and reached the conclusions described below.
NATURE, EXTENT AND QUALITY OF SERVICES
The Board considered information regarding the nature, extent and quality of
services that CMA provides to the Fund under the Advisory Agreement. CMA
provided the most recent investment adviser registration form ("Form ADV") and
code of ethics for CMA to the Board. The Board reviewed information on the
status of Securities and Exchange Commission ("SEC") and New York Attorney
General ("NYAG") proceedings against CMA and certain of its affiliates,
including the agreement in principle entered into with the SEC and the NYAG on
March 15, 2004 to settle civil complaints filed by the SEC and the NYAG relating
to trading activity in mutual fund shares.1
The Board evaluated the ability of CMA, including its resources, reputation and
other attributes, to attract and retain highly qualified research, advisory and
supervisory investment professionals. The Board considered information regarding
CMA's compensation program for its personnel involved in the management of the
Fund.
Based on these considerations and other factors, including those referenced
below, the Board concluded that they were generally satisfied with the nature,
extent and quality of the investment advisory services provided to the Fund by
CMA.
FUND PERFORMANCE AND EXPENSES
CMA provided the Board with relative performance and expense information for the
Fund in a report prepared by Lipper Inc. ("Lipper") an independent provider of
investment company data. The Board considered the total return performance
information, which included the ranking of the Fund within a performance
universe made up of funds with the same Lipper investment classification and
objective (the "Performance Universe") by total return for one-year, three-year,
five-year, ten-year or life of fund periods, as applicable. They also considered
the Fund's performance in comparison to the performance results of a group (the
"Performance Peer Group") of funds selected by Lipper based on similarities in
fund type (e.g. open-end), investment classification and objective, asset size,
load type and 12b-1/service fees and other expense features, and to the
performance results of the Fund's benchmark index. The Board reviewed a
description of Lipper's methodology for selecting the mutual funds in the Fund's
Performance Peer Group and Performance Universe.
The Board considered statistical information regarding the Fund's total expenses
and certain components thereof, including management fees (both actual
management fees based on expenses for advisory and administrative fees including
any reductions for fee waivers and expense reimbursements as well as contractual
management fees that are computed for a hypothetical level of assets), actual
non-management expenses, and fee waivers/caps and expense reimbursements. They
also considered comparisons of these expenses to the expense information for
funds within a group (the "Expense Peer Group") selected by Lipper based on
similarities in fund type (e.g. open-end), investment classification and
objective, asset size, load type and 12b-1/service fees and other expense
features (but which, unlike the Performance Peer Group,may include funds with
several different investment classifications and objectives) and an expense
universe ("Expense Universe") selected by Lipper based on the criteria for
determining the Expense Peer Group other than asset size. The expense
information in the Lipper report took into account all existing fee waivers and
expense reimbursements as well as all voluntary advisory fee reductions
applicable to certain Funds that were being proposed by management in order to
reduce the aggregate advisory fees received from mutual funds advised by CMA and
Banc of America Capital Management, LLC ("BACAP") by $32 million per year for
five years as contemplated by the agreement in principle with the NYAG.
The Committee also considered the projected impact on expenses of these Funds
resulting from the overall cost reductions that management anticipated would
result from the proposed shift to a common group of service providers for
transfer agency, fund accounting and custody services for mutual funds advised
by Bank of America affiliates.
The Board also considered information in the Lipper report that ranked each Fund
based on (i) each Fund's one-year performance and actual management fees, (ii)
each Fund's one-year performance and total expenses and (iii) each Fund's 3-year
performance and total expenses. Based on these comparisons and expense and
performance rankings of the Fund in the Lipper Report, CMA determined an overall
score for the Fund. The Committee and the Board also considered projected
savings to the Fund that would result from certain modifications in soft dollar
arrangements.
The Committee also considered more detailed information relating to certain
Funds, including the Fund, that were highlighted for additional review based
upon the fact that they
--------------
1 On February 9, 2005, CMA and its affiliate, Columbia Funds Distributor,
Inc., entered into settlement agreements with the SEC and the NYAG that
contain substantially the terms outlined in the agreements in principle.
29
BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENT (CONTINUED)
ranked poorly in terms of overall expense or management fees, maintained poor
performance or demonstrated a combination of below average to poor performance
while maintaining below average or poor expense rankings. At its September 23,
2004 meeting, the Committee discussed these Funds with management and in
executive session. The Committee requested additional information from
management regarding the cause(s) of the below-average relative performance of
these Funds, any remedial actions management recommended to improve performance
and the general standards for review of portfolio manager performance. At its
October 12, 2004 meeting, the Committee considered additional information
provided by management regarding these Funds. The Fund was identified for
further review based on poor relative one- and three-year relative performance
against total expenses (based on net asset value). Management noted that the
Fund's performance had been negatively impacted by the fact that interest rates
payable under a loan facility for the Fund were higher than current market
interest rates. Management further noted that the loan facility had been
replaced in August 2004 with a new loan facility with lower interest rates.
Management also noted the Fund's other expenses included in the total expense
ratio were expected to improve due to projected lower fund accounting expenses.
The Board also considered management's proposal to merge or liquidate some of
these Funds. Based on these considerations and other factors, the Board
concluded that the overall performance and expense results supported by the
approval of the Advisory Agreements for each Fund.
INVESTMENT ADVISORY FEE RATES
The Board reviewed and considered the proposed contractual investment advisory
fee rates (the "Advisory Agreement Rates") payable by the Funds to CMA for
investment advisory services. In addition, the Board reviewed and considered the
existing and proposed fee waiver and reimbursement arrangements applicable to
the Advisory Agreement Rates and considered the Advisory Agreement Rates after
taking the fee waivers and reimbursements into account (the "Net Advisory
Rates"). At previous meetings, the Committee had separately considered
management's proposal to reduce annual investment advisory fees for certain
Funds under the NYAG agreement in principle and the impact of these reductions
on each affected Fund. Additionally, the Board considered information comparing
the Advisory Agreement Rates and Net Advisory Rates (both on a stand-alone basis
and on a combined basis with the Funds' administration fee rates) with those of
the other funds in the Expense Peer Group. The Board concluded that the Advisory
Agreement Rates and Net Advisory Rates represented reasonable compensation to
CMA, in light of the nature, extent and quality of the services provided to the
Funds, the fees paid and expenses borne by comparable funds and the costs that
CMA incurs in providing these services to the Funds.
PROFITABILITY
The Board considered a detailed profitability analysis of CMA based on 2003
financial statements, adjusted to take into account advisory fee reductions
implemented in November 2003 and proposed reductions under the NYAG proposed
settlement. The Board concluded that, in light of the costs of providing
investment management and other services to the Funds, the profits and other
ancillary benefits that CMA and its affiliates received for providing these
services to the Funds were not unreasonable.
ECONOMIES OF SCALE
In evaluating potential economies of scale, the Board considered CMA's proposal
to implement a standardized breakpoint schedule for combined advisory and
administrative fees for the majority of the funds of the same general asset type
within the Columbia Funds complex (other than index and closed-end funds). The
Board noted that the standardization of the breakpoints would not result in a
fee increase for any Fund. The Board concluded that any actual or potential
economies of scale are, or will be, shared fairly with Fund shareholders,
including most particularly through Advisory Agreement Rate breakpoints at
current and reasonably foreseeable asset levels.
INFORMATION ABOUT SERVICES TO OTHER CLIENTS
In evaluating the proposed fee reductions under the NYAG agreement in principle,
the Board considered information regarding the advisory fee rates charged by
BACAP for the Nations Funds. Members of the Committee and the Board had also
separately reviewed advisory fee rates for variable insurance product funds
advised by CMA. This information assisted the Board in assessing the
reasonableness of fees paid under the Advisory Agreements in light of the
nature, extent and quality of services provided under those agreements.
OTHER BENEFITS TO CMA
The Board considered information regarding potential "fall-out" or ancillary
benefits received by CMA and its affiliates as a result of their relationship
with the Funds. These benefits could include benefits directly attributable to
the relationship of CMA with the Funds (such as soft dollar credits) and
benefits potentially derived from an increase in the business of CMA as a result
of their relationship with the Funds (such as the ability to market to
shareholders other financial products offered by CMA and its affiliates).
OTHER FACTORS AND BROADER REVIEW
The Board reviews detailed materials provided by CMA annually as part of the
approval process under Section 15(c) of the 1940 Act. The Board also regularly
reviews and assesses the quality of the services that the Funds receive
throughout the year. In this regard, the Board reviews information provided by
CMA at their regular meetings, including, among other things, a detailed
portfolio review, and detailed fund performance reports. In addition, the Board
interviews the heads of each investment area at each regular meeting of the
Board and selected portfolio managers of the Funds at various times throughout
the year. After considering the above-described factors and based on the
deliberations and their evaluation of the information provided to them, the
Board concluded that re-approval of the Advisory Agreements for each of the
Funds was in the best interest of the Funds and their shareholders. Accordingly,
the Board unanimously approved the Advisory Agreements.
30
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TRANSFER AGENT
--------------------------------------------------------------------------------
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Intermediate High Income Fund is:
PFPC, Inc.
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 800-730-6001. 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 fund's proxy voting policies and procedures is available
(i) at www.columbiamanagement.com; (ii) on the Securities and Exchange
Commission's website at www.sec.gov, and (iii) without charge, upon request, by
calling 800-730-6001. Information regarding how the fund voted proxies relating
to portfolio securities during the 12-month period ended June 30, 2004 is
available from the SEC's website. Information regarding how the fund voted
proxies relating to portfolio securities is also available at
www.columbiamanagement.com.
The fund files a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is
available on the SEC's website at www.sec.gov and may be reviewed and copied at
the SEC's Public Reference Room in Washington, DC. Information on the operation
of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Annual Certifications -- As required, on June 13, 2005, the fund submitted to
the New York Stock Exchange ("NYSE") the annual certification of the fund's
Chief Executive Officer certifying that he is not aware of any violation of the
NYSE's Corporate Governance listing standards. The fund also has included the
certifications of the fund's Chief Executive Officer and Chief Financial Officer
required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to the
fund's Form N-CSR filed with the Securities and Exchange Commission for the
annual period.
This report has been prepared for shareholders of Colonial Intermediate High
Income Fund.
COLONIAL INTERMEDIATE HIGH INCOME FUND SEMIANNUAL REPORT
SHC-44/87167-0605 (07/05) 05/6518
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS
The registrant's "Schedule I - Investments in securities of unaffiliated
issuers" (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form
N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Registrant Purchases of Equity Securities*
(a) (b) (c) (d)
Total Number of Maximum Number of
Shares Purchased as Shares that May Yet
Period Total Number Average Price Part of Publicly Be Purchased Under
of Shares Purchased Paid Per Share Announced Plans or Programs the Plans or Programs
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12/01/04 through 12/31/04 14,687 $3.59 14,687 N/A
01/01/05 through 01/31/05 20,530 $3.77 20,530 N/A
02/01/05 through 02/28/05 14,844 $3.73 14,844 N/A
03/01/05 through 03/31/05 15,361 $3.59 15,361 N/A
04/01/05 through 04/30/05 15,680 $3.54 15,680 N/A
05/01/05 through 05/31/05 16,807 $3.36 16,807 N/A
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Total 97,909 $3.60 97,909 N/A
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* Includes shares purchased by the Dividend Reinvestment Agent pursuant to
the Registrant's Dividend Reinvestment Plan.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have not been any material changes to the procedures by which shareholders
may recommend nominees to the registrant's board of directors, since those
procedures were last disclosed in response to the requirements of Item
7(d)(2)(ii)(G) of Schedule 14A or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officers, 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 second
fiscal quarter of the period covered by
this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR: Not
applicable at this time.
(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
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By (Signature and Title) /S/ Christopher L. Wilson
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Christopher L. Wilson, President
Date July 28, 2005
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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/ Christopher L. Wilson
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Christopher L. Wilson, President
Date July 28, 2005
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By (Signature and Title) /S/ J. Kevin Connaughton
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J. Kevin Connaughton, Treasurer
Date July 28, 2005
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