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
-------------------------------------
(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: November 30, 2005
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Date of reporting period: November 30, 2005
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS
[GRAPHIC OMMITED]
COLONIAL INTERMEDIATE HIGH INCOME FUND ANNUAL REPORT
NOVEMBER 30, 2005
----------------------------
Not Fdic | May Lose Value
Insured ------------------
| No Bank Guarantee
----------------------------
PRESIDENT'S MESSAGE
The views expressed in the President's Letter 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.
Dear Shareholder:
The US financial markets withstood a host of unfavorable factors to deliver a
year of positive investment returns. Record energy prices took a significant
bite out of household budgets and raised operating costs for industry. Higher
short-term interest rates made borrowing more expensive. Two catastrophic
hurricanes exacted an enormous personal toll from Americans living in the Gulf
Coast: the storms claimed lives, disrupted energy flows and dealt a sharp blow
to local job markets. Yet, the US economy moved ahead at a healthy pace during
the 12-month period that began December 1, 2004 and ended November 30, 2005.
FIXED INCOME MARKETS DELIVERED MODEST GAINS
In this environment, the US fixed income markets delivered positive but modest
returns. Short-term interest rates rose steadily as the Federal Reserve Board
raised a key intrabank lending rate. Longer-term rates remained low during most
of the year. However, the yield on the 10-year US Treasury note, a bellwether
for the bond market edged up to 4.5% by the end of this reporting period. In
this environment, most domestic bond market sectors delivered low single-digit
returns. Generally, high-yield bonds continued to perform well despite a setback
in the spring, when bonds of certain high profile companies were downgraded.
However, municipal bonds generally performed better than high yield bonds--even
before accounting for their tax-exempt status--as state revenues increased and
budgets stabilized.
In the pages that follow, your fund's manager discusses key factors that
influenced performance. We urge you to read this report carefully and discuss
any questions you might have with your financial advisor.
As always, we thank you for choosing Colonial Funds.
Sincerely,
/s/ Christopher L. Wilson
Christopher L. Wilson
President, Columbia Funds
Christopher L. Wilson is Head of Mutual Funds for Columbia Management and
President of Columbia 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.
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PORTFOLIO MANAGERS' REPORT
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For the 12-month period ended November 30, 2005, Colonial Intermediate High
Income Fund returned negative 1.63%, based on its market price. The fund
returned 1.39% based on investment at net asset value. The average return of the
Lipper High Current Yield Funds (Leveraged) Category was 3.35%. 1 We believe
this shortfall can be attributed to the fund's larger exposure to the
higher-risk segment of the high-yield market, which came under increasing
pressure during the 12-month period.
Despite steady economic growth and historically low corporate default rates--an
environment that would ordinarily translate into strong demand for lower-quality
bonds--market sentiment turned negative amid highly publicized financial
difficulties within the automotive sector. In the wake of credit downgrades at
Ford (which was not in the portfolio) and General Motors (1.3% of total
investments) 2, investors became more cautious about assuming the risks inherent
in securities rated CCC or lower, a category in which the fund had considerable
investments at the beginning of the period. As market leadership shifted toward
higher quality names, we reduced our commitment to the CCC category from 28.0%
at the beginning of the period to just 18.5% at the end of the period.
When Ford Motor Credit and GM lost their investment-grade status, they
immediately became the largest issuers in the high-yield market. The fund
established initial positions in both credits, taking a cautious stance. While
automotive companies face significant operational challenges in the years ahead,
we believe that Ford and GM bonds enjoy some credit protection in the form of
profitable finance subsidiaries, which, in theory, could be spun off from their
respective parent companies. Because these bonds are unusually liquid, we
believe that we will be able to adjust our holdings as circumstances warrant.
Another development that negatively impacted the fund was increasing interest
rates on the fund's Term Loan and Revolving Loan. The fund enhances returns by
borrowing money to invest in high-yield securities at higher rates than its cost
of funds. As interest rates rose during the year, this had the impact of
increasing the fund's expenses for interest payments on these loans. This was
not fully offset by increased income from the fund's investments as the
short-term interest rates on the fund's loans rose faster than the long-term
yields on the fund's investments.
(Sidebar)
PRICE PER SHARE
AS OF 11/30/05 ($)
Market price 3.15
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Net asset value 3.60
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1-YEAR TOTAL RETURN
AS OF 11/30/05 (%)*
Market price -1.63
----------------------------------------
Net asset value 1.39
----------------------------------------
Lipper High Current
Yield Funds (Leveraged)
Category average 3.35
----------------------------------------
All results shown assume
reinvestment of distributions.
DISTRIBUTIONS DECLARED PER SHARE
12/01/04-11/30/05 ($)
0.32
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QUALITY BREAKDOWN
AS OF 11/30/05 (%)
BBB 0.6
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BB 19.0
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B 49.1
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CCC 18.5
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CC 1.2
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Non-rated 0.1
----------------------------------------
Equity, Preferred Stocks 3.5
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Cash equivalents 8.0
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TOP 10 CORPORATE ISSUERS
AS OF 11/30/05 (%)
Qwest 2.3
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El Paso** 2.2
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General Motors 1.3
----------------------------------------
Williams Companies 1.0
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Spanish Broadcasting
System 1.0
----------------------------------------
Charter Communications 1.0
----------------------------------------
Pinnacle Entertainment 1.0
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MedQuest** 0.9
----------------------------------------
Allied Waste North
America 0.9
----------------------------------------
Owens-Brockway Glass
Container 0.8
----------------------------------------
Quality breakdown and corporate issuers are calculated as a percentage of total
investments. Ratings shown in the quality breakdowns represent the rating
assigned to a particular bond by one of the following nationally recognized
rating agencies: Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., Moody's Investors Service, Inc. or Fitch Ratings, Ltd. Ratings are
relative and subjective and are not absolute standards of quality. The fund's
credit quality does not remove market risk.
___________________
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 November 30, 2005, and are subject to change.
* See Page 24 for long term returns based on market price.
** Includes affiliated companies.
| 1
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PORTFOLIO MANAGERS' REPORT (CONTINUED)
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WIRELESS, ENERGY AND UTILITY SECTORS GENERATED SOLID RETURNS
Some of the fund's best performers were in the wireless, energy and other
utility sectors. The wireless telecom sector exhibited strong growth and also
benefited from ongoing industry consolidation. As a result, fund holdings
Nextel, Western Wireless, US Unwired and Alamosa PCS were all involved in
acquisitions by investment grade companies. Energy and other utility companies
posted unusually robust operating results, boosted by sustained high prices for
oil and gas. The fund added to its positions in companies such as Chesapeake
Energy Corp. and The Williams Companies, Inc. (0.5% and 1.0% of total
investments, respectively).
AIRLINES, PAPER AND PACKAGING AND CABLE TELEVISION SECTORS WERE DISAPPOINTMENTS
Returns on certain airline bonds were disappointing, as the industry was
besieged by higher oil prices as well as ongoing labor difficulties. Although we
sold the fund's Delta Air Lines, Inc. bonds well before the company's bankruptcy
filing, we sustained a loss on the transaction, as we did on our sale of
Northwest later in the period. In the paper and packaging industry, companies
were hurt by their inability to pass on higher costs and also by a strong
Canadian dollar. Cable television bonds were weak performers because of
intensifying competition and steadily increasing debt levels. We reduced our
position in Charter Communications, Inc. (1.0% of total investments) following
the announcement of a debt exchange offer, a move that minimized the near-term
impact to the fund.
LOOKING AHEAD
Our outlook for the high-yield market remains cautiously optimistic. We expect
solid economic growth and modest inflation in 2006. Even more important, we
expect the Federal Reserve to halt its short-term interest rate hikes sometime
in the first half of 2006. The resulting environment may be favorable to
high-yield bonds. However, we have taken a neutral stance toward the market
because we believe that prevailing prices already reflect these positive
prospects.
/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 the 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 the fund since February 2003 and has
been with the advisor or its predecessors or affiliate organizations since
February 1999.
2 |
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PORTFOLIO MANAGERS' REPORT (CONTINUED)
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SHARES OF CLOSED-END FUNDS FREQUENTLY TRADE AT A DISCOUNT TO NET ASSET VALUE.
THE PRICE OF THE FUND'S SHARES IS DETERMINED BY A NUMBER OF FACTORS, SEVERAL OF
WHICH ARE BEYOND THE CONTROL OF THE FUND. THEREFORE, THE FUND CANNOT PREDICT
WHETHER ITS SHARES WILL TRADE AT, BELOW OR ABOVE NET ASSET VALUE.
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 also has 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
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INVESTMENT PORTFOLIO
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November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES - 118.2% PAR ($) VALUE ($)
-------------------------------------------------------------------------------
BASIC MATERIALS - 10.9%
CHEMICALS - 6.2%
AGRICULTURAL CHEMICALS - 1.9%
IMC Global, Inc.
10.875% 08/01/13 310,000 360,375
Terra Capital, Inc.
12.875% 10/15/08 420,000 489,300
UAP Holding Corp.
(a) 07/15/12
(10.750% 01/15/08) 295,000 253,700
United Agri Products
8.250% 12/15/11 321,000 335,445
-----------
1,438,820
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CHEMICALS-DIVERSIFIED - 3.7%
BCP Crystal US Holdings Corp.
9.625% 06/15/14 215,000 238,650
EquiStar Chemicals LP
10.625% 05/01/11 315,000 348,863
Huntsman International LLC
7.375% 01/01/15(b) 260,000 250,900
Huntsman LLC
11.500% 07/15/12 310,000 350,300
Innophos Investments Holdings, Inc., PIK
12.340% 02/15/15(b)(c) 207,248 195,230
Lyondell Chemical Co.
9.625% 05/01/07 340,000 357,000
Nell AF SARL
8.375% 08/15/15(b) 180,000 176,400
8.375% 08/15/15(b) EUR 160,000 188,640
NOVA Chemicals Corp.
6.500% 01/15/12 USD 410,000 400,775
7.561% 11/15/13(b)(c) 255,000 260,100
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2,766,858
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CHEMICALS-SPECIALTY - 0.6%
Rhodia SA
8.875% 06/01/11 460,000 466,900
-----------
466,900
-----------
Chemicals Total 4,672,578
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FOREST PRODUCTS & PAPER - 3.8%
FORESTRY - 0.4%
Millar Western Forest Products Ltd.
7.750% 11/15/13 150,000 115,500
Tembec Industries, Inc.
8.500% 02/01/11 330,000 199,650
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315,150
-----------
PAPER & RELATED PRODUCTS - 3.4%
Abitibi-Consolidated, Inc.
8.375% 04/01/15 260,000 252,200
Boise Cascade LLC
7.025% 10/15/12(c) 315,000 308,700
7.125% 10/15/14 190,000 174,800
PAR ($) VALUE ($)
-------------------------------------------------------------------------------
Buckeye Technologies, Inc.
8.500% 10/01/13 60,000 60,000
Caraustar Industries, Inc.
9.875% 04/01/11 235,000 235,588
Georgia-Pacific Corp.
8.000% 01/15/24 705,000 682,087
Neenah Paper, Inc.
7.375% 11/15/14 130,000 115,700
Newark Group, Inc.
9.750% 03/15/14 370,000 325,600
NewPage Corp.
10.000% 05/01/12 240,000 234,600
Norske Skog
8.625% 06/15/11 190,000 185,725
-----------
2,575,000
-----------
Forest Products & Paper Total 2,890,150
-----------
IRON/STEEL - 0.8%
STEEL-PRODUCERS - 0.2%
Steel Dynamics, Inc.
9.500% 03/15/09 160,000 168,600
-----------
168,600
-----------
STEEL-SPECIALTY - 0.6%
UCAR Finance, Inc.
10.250% 02/15/12 405,000 428,288
-----------
428,288
-----------
Iron/Steel Total 596,888
-----------
METALS & MINING - 0.1%
MINING SERVICES - 0.1%
Hudson Bay Mining & Smelting Co., Ltd.
9.625% 01/15/12 105,000 111,563
-----------
111,563
-----------
Metals & Mining Total 111,563
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BASIC MATERIALS TOTAL 8,271,179
-----------
-------------------------------------------------------------------------------
COMMUNICATIONS - 24.8%
MEDIA - 9.9%
BROADCAST SERVICES/PROGRAMS - 0.3%
Fisher Communications, Inc.
8.625% 09/15/14 190,000 200,450
-----------
200,450
-----------
CABLE TV - 4.2%
Atlantic Broadband Finance LLC
9.375% 01/15/14 390,000 351,975
Charter Communications Holdings II LLC
10.250% 09/15/10 290,000 290,000
Charter Communications Holdings LLC
9.920% 04/01/14(b) 1,210,000 756,250
CSC Holdings, Inc.
6.750% 04/15/12(b) 185,000 176,213
7.625% 04/01/11 690,000 688,275
4 | See Accompanying Notes to Financial Statements.
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INVESTMENT PORTFOLIO (CONTINUED)
--------------------------------------------------------------------------------
November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-------------------------------------------------------------------------------
COMMUNICATIONS - (CONTINUED)
MEDIA - (CONTINUED)
CABLE TV - (CONTINUED)
EchoStar DBS Corp.
6.625% 10/01/14 390,000 376,350
Insight Midwest LP
9.750% 10/01/09 195,000 201,337
Pegasus Satellite Communications, Inc.
11.250% 01/15/10(b)(d) 435,000 43,500
Telenet Group Holding NV
(a) 06/15/14
(11.500% 12/15/08)(b) 343,000 273,971
-----------
3,157,871
-----------
MULTIMEDIA - 1.4%
Advanstar Communications, Inc.
15.000% 10/15/11 310,000 324,725
Haights Cross Operating Co.
11.750% 08/15/11 120,000 130,200
Lamar Media Corp.
6.625% 08/15/15(b) 310,000 311,550
Quebecor Media, Inc.
11.125% 07/15/11 290,000 313,925
-----------
1,080,400
-----------
PUBLISHING-NEWSPAPERS - 0.4%
Hollinger, Inc.
11.875% 03/01/11(b) 122,000 122,000
12.875% 03/01/11(b) 177,000 186,735
-----------
308,735
-----------
PUBLISHING-PERIODICALS - 2.2%
Dex Media West LLC
9.875% 08/15/13 624,000 694,980
Dex Media, Inc.
(a) 11/15/13
(9.000% 11/15/08) 250,000 197,500
PriMedia, Inc.
8.875% 05/15/11 530,000 510,125
WDAC Subsidiary Corp.
8.375% 12/01/14(b) 290,000 278,400
-----------
1,681,005
-----------
TELEVISION - 1.4%
LIN Television Corp.
6.500% 05/15/13(b) 95,000 91,438
Paxson Communications Corp.
(a) 01/15/09
(12.250% 01/15/06) 375,000 386,719
10.750% 07/15/08 105,000 107,887
Sinclair Broadcast Group, Inc.
8.750% 12/15/11 450,000 475,875
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1,061,919
-----------
Media Total 7,490,380
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PAR ($) VALUE ($)
-------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES - 14.9%
CELLULAR TELECOMMUNICATIONS - 5.7%
American Cellular Corp.
10.000% 08/01/11 365,000 396,025
Digicel Ltd.
9.250% 09/01/12(b) 340,000 350,200
Dobson Cellular Systems, Inc.
8.375% 11/01/11 390,000 413,400
Horizon PCS, Inc.
11.375% 07/15/12 190,000 218,975
iPCS Escrow Co.
11.500% 05/01/12 170,000 195,925
Nextel Communications, Inc.
7.375% 08/01/15 315,000 331,046
Nextel Partners, Inc.
8.125% 07/01/11 390,000 418,275
Rogers Cantel, Inc.
9.750% 06/01/16 385,000 460,075
Rogers Wireless, Inc.
8.000% 12/15/12 225,000 238,500
Rural Cellular Corp.
8.250% 03/15/12 320,000 335,200
9.750% 01/15/10 65,000 65,163
10.041% 11/01/12(b)(c) 285,000 283,575
US Unwired, Inc.
10.000% 06/15/12 500,000 568,750
-----------
4,275,109
-----------
SATELLITE TELECOMMUNICATIONS - 1.9%
Inmarsat Finance II PLC
(a) 11/15/12
(10.375% 11/15/08) 425,000 345,844
Intelsat Bermuda Ltd.
8.250% 01/15/13(b) 640,000 638,400
PanAmSat Corp.
9.000% 08/15/14 226,000 237,582
Zeus Special Subsidiary Ltd.
(a) 02/01/15
(9.250% 02/01/10)(b) 330,000 215,325
-----------
1,437,151
-----------
TELECOMMUNICATION EQUIPMENT - 0.4%
Lucent Technologies, Inc.
6.450% 03/15/29 360,000 309,600
-----------
309,600
-----------
TELECOMMUNICATION SERVICES - 1.1%
Syniverse Technologies, Inc.
7.750% 08/15/13(b) 250,000 254,063
Time Warner Telecom Holdings, Inc.
9.250% 02/15/14 150,000 154,125
See Accompanying Notes to Financial Statements. | 5
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INVESTMENT PORTFOLIO (CONTINUED)
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November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-------------------------------------------------------------------------------
COMMUNICATIONS - (CONTINUED)
TELECOMMUNICATION SERVICES - (CONTINUED)
TELECOMMUNICATION SERVICES - (CONTINUED)
Time Warner Telecom, Inc.
10.125% 02/01/11 425,000 445,187
-----------
853,375
-----------
TELEPHONE-INTEGRATED - 5.1%
Axtel SA de CV
11.000% 12/15/13 255,000 284,963
Cincinnati Bell, Inc.
7.000% 02/15/15 565,000 543,812
Citizens Communications Co.
9.000% 08/15/31 505,000 501,212
Qwest Capital Funding, Inc.
6.875% 07/15/28 710,000 640,775
Qwest Communications International, Inc.
7.500% 02/15/14(b) 440,000 446,600
Qwest Corp.
7.500% 06/15/23 505,000 498,688
8.875% 03/15/12 630,000 710,325
US LEC Corp.
12.716% 10/01/09(c) 215,000 230,050
-----------
3,856,425
-----------
WIRELESS EQUIPMENT - 0.7%
American Towers, Inc.
7.250% 12/01/11 335,000 349,237
SBA Telecommunications, Inc.
(a) 12/15/11
(9.750% 12/15/07) 192,000 175,680
-----------
524,917
-----------
Telecommunication Services Total 11,256,577
-----------
COMMUNICATIONS TOTAL 18,746,957
-----------
-------------------------------------------------------------------------------
CONSUMER CYCLICAL - 22.0%
AIRLINES - 0.6%
AIRLINES - 0.6%
Continental Airlines, Inc.
7.568% 12/01/06 445,000 422,750
-----------
422,750
-----------
Airlines Total 422,750
-----------
APPAREL - 1.7%
APPAREL MANUFACTURERS - 1.7%
Broder Brothers Co.
11.250% 10/15/10 300,000 276,000
Levi Strauss & Co.
9.750% 01/15/15 645,000 667,575
Phillips-Van Heusen Corp.
7.250% 02/15/11 300,000 304,500
8.125% 05/01/13 60,000 62,550
-----------
1,310,625
-----------
Apparel Total 1,310,625
-----------
PAR ($) VALUE ($)
-------------------------------------------------------------------------------
AUTO MANUFACTURERS - 0.7%
AUTO-CARS/LIGHT TRUCKS - 0.3%
General Motors Corp.
8.375% 07/15/33 265,000 180,863
-----------
180,863
-----------
AUTO-MEDIUM & HEAVY DUTY TRUCKS - 0.4%
Navistar International Corp.
7.500% 06/15/11 320,000 308,800
-----------
308,800
-----------
Auto Manufacturers Total 489,663
-----------
AUTO PARTS & EQUIPMENT - 1.9%
AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL - 0.3%
Cooper-Standard Automotive, Inc.
7.000% 12/15/12 90,000 81,450
8.375% 12/15/14 200,000 151,000
-----------
232,450
-----------
AUTO/TRUCK PARTS & EQUIPMENT-REPLACEMENT - 0.7%
Commercial Vehicle Group, Inc.
8.000% 07/01/13(b) 310,000 306,900
Rexnord Corp.
10.125% 12/15/12 200,000 216,250
-----------
523,150
-----------
RUBBER-TIRES - 0.9%
Goodyear Tire & Rubber Co.
9.000% 07/01/15(b) 695,000 679,362
-----------
679,362
-----------
Auto Parts & Equipment Total 1,434,962
-----------
DISTRIBUTION/WHOLESALE - 0.2%
DISTRIBUTION/WHOLESALE - 0.2%
Buhrmann US, Inc.
7.875% 03/01/15 180,000 178,650
-----------
178,650
-----------
Distribution/Wholesale Total 178,650
-----------
ENTERTAINMENT - 2.1%
CASINO SERVICES - 0.3%
Tunica-Biloxi Gaming Authority
9.000% 11/15/15(b) 240,000 239,400
-----------
239,400
-----------
GAMBLING (NON-HOTEL) - 0.4%
Global Cash Access LLC
8.750% 03/15/12 286,000 303,875
-----------
303,875
-----------
6 | See Accompanying Notes to Financial Statements.
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INVESTMENT PORTFOLIO (CONTINUED)
--------------------------------------------------------------------------------
November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-------------------------------------------------------------------------------
CONSUMER CYCLICAL - (CONTINUED)
ENTERTAINMENT - (CONTINUED)
MUSIC - 0.8%
Steinway Musical Instruments, Inc.
8.750% 04/15/11 265,000 276,925
Warner Music Group
7.375% 04/15/14 380,000 370,500
-----------
647,425
-----------
RESORTS/THEME PARKS - 0.6%
Six Flags, Inc.
9.625% 06/01/14 430,000 425,700
-----------
425,700
-----------
Entertainment Total 1,616,400
-----------
HOME BUILDERS - 1.9%
BUILDING-RESIDENTIAL/COMMERCIAL - 1.9%
D.R. Horton, Inc.
9.750% 09/15/10 415,000 466,875
K. Hovnanian Enterprises, Inc.
7.750% 05/15/13 100,000 98,000
8.875% 04/01/12 170,000 175,950
10.500% 10/01/07 340,000 365,500
Standard Pacific Corp.
7.000% 08/15/15 55,000 50,050
9.250% 04/15/12 275,000 280,500
-----------
1,436,875
-----------
Home Builders Total 1,436,875
-----------
HOME FURNISHINGS - 0.3%
HOME FURNISHINGS - 0.3%
WII Components, Inc.
10.000% 02/15/12 260,000 250,900
-----------
250,900
-----------
Home Furnishings Total 250,900
-----------
LEISURE TIME - 1.0%
LEISURE & RECREATIONAL PRODUCTS - 0.2%
Bombardier Recreational Products, Inc.
8.375% 12/15/13 40,000 39,900
K2, Inc.
7.375% 07/01/14 115,000 113,275
-----------
153,175
-----------
RECREATIONAL CENTERS - 0.8%
Equinox Holdings, Inc.
9.000% 12/15/09 260,000 266,500
Town Sports International, Inc.
(a) 02/01/14
(11.000% 02/01/09) 435,000 289,275
-----------
555,775
-----------
Leisure Time Total 708,950
-----------
PAR ($) VALUE ($)
-------------------------------------------------------------------------------
LODGING - 8.9%
CASINO HOTELS - 8.9%
CCM Merger, Inc.
8.000% 08/01/13(b) 100,000 96,750
Chukchansi Economic Development
Authority
8.000% 11/15/13(b) 335,000 336,675
Circus & Eldorado/Silver Legacy
Capital Corp.
10.125% 03/01/12 355,000 375,412
Eldorado Casino Shreveport
10.000% 08/01/12 719,748 676,563
Greektown Holdings LLC
10.750% 12/01/13(b)(e) 335,000 337,094
Hard Rock Hotel, Inc.
8.875% 06/01/13 520,000 555,100
Inn of the Mountain Gods Resort & Casino
12.000% 11/15/10 325,000 339,625
Kerzner International Ltd.
6.750% 10/01/15(b) 475,000 459,562
MGM Mirage
6.750% 09/01/12 480,000 482,400
8.500% 09/15/10 115,000 125,063
Mohegan Tribal Gaming Authority
6.125% 02/15/13 210,000 206,850
Penn National Gaming, Inc.
6.750% 03/01/15 550,000 536,250
Pinnacle Entertainment, Inc.
8.750% 10/01/13 790,000 829,500
San Pasqual Casino
8.000% 09/15/13(b) 265,000 263,675
Seneca Gaming Corp.
7.250% 05/01/12 285,000 288,563
Station Casinos, Inc.
6.000% 04/01/12 390,000 389,025
Wynn Las Vegas LLC
6.625% 12/01/14 450,000 433,125
-----------
6,731,232
-----------
Lodging Total 6,731,232
-----------
RETAIL - 2.4%
RETAIL-AUTOMOBILES - 0.4%
Asbury Automotive Group, Inc.
8.000% 03/15/14 320,000 300,800
-----------
300,800
-----------
RETAIL-DRUG STORES - 0.2%
Rite Aid Corp.
7.500% 01/15/15 115,000 106,375
9.250% 06/01/13 75,000 68,250
-----------
174,625
-----------
RETAIL-HOME FURNISHINGS - 0.5%
Tempur-Pedic, Inc.
10.250% 08/15/10 382,000 410,650
-----------
410,650
-----------
See Accompanying Notes to Financial Statements. | 7
--------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
--------------------------------------------------------------------------------
November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-------------------------------------------------------------------------------
CONSUMER CYCLICAL - (CONTINUED)
RETAIL - (CONTINUED)
RETAIL-PROPANE DISTRIBUTORS - 0.6%
Ferrellgas Partners LP
8.750% 06/15/12 300,000 293,250
Suburban Propane Partners LP
6.875% 12/15/13 175,000 161,437
-----------
454,687
-----------
RETAIL-RESTAURANTS - 0.4%
Landry's Restaurants, Inc.
7.500% 12/15/14 295,000 275,825
-----------
275,825
-----------
RETAIL-VIDEO RENTAL - 0.3%
Movie Gallery, Inc.
11.000% 05/01/12 250,000 187,500
-----------
187,500
-----------
Retail Total 1,804,087
-----------
TEXTILES - 0.3%
TEXTILE-PRODUCTS - 0.3%
INVISTA
9.250% 05/01/12(b) 235,000 252,038
-----------
252,038
-----------
Textiles Total 252,038
-----------
CONSUMER CYCLICAL TOTAL 16,637,132
-----------
--------------------------------------------------------------------------------
CONSUMER NON-CYCLICAL - 17.4%
AGRICULTURE - 0.3%
TOBACCO - 0.3%
Alliance One International, Inc.
11.000% 05/15/12(b) 245,000 212,538
-----------
212,538
-----------
Agriculture Total 212,538
-----------
BEVERAGES - 0.3%
BEVERAGES-WINE/SPIRITS - 0.3%
Constellation Brands, Inc.
8.125% 01/15/12 245,000 254,800
-----------
254,800
-----------
Beverages Total 254,800
-----------
BIOTECHNOLOGY - 0.5%
MEDICAL-BIOMEDICAL/GENE - 0.5%
Bio-Rad Laboratories, Inc.
7.500% 08/15/13 340,000 357,850
-----------
357,850
-----------
Biotechnology Total 357,850
-----------
PAR ($) VALUE ($)
-------------------------------------------------------------------------------
COMMERCIAL SERVICES - 4.5%
COMMERCIAL SERVICES - 0.6%
Iron Mountain, Inc.
7.750% 01/15/15 350,000 351,750
Mac-Gray Corp.
7.625% 08/15/15(b) 90,000 90,675
-----------
442,425
-----------
COMMERCIAL SERVICES-FINANCE - 0.6%
Dollar Financial Group, Inc.
9.750% 11/15/11 440,000 452,100
-----------
452,100
-----------
CONSULTING SERVICES - 0.3%
FTI Consulting, Inc.
7.625% 06/15/13(b) 200,000 205,500
-----------
205,500
-----------
FUNERAL SERVICES & RELATED ITEMS - 0.6%
Service Corp. International
7.700% 04/15/09 405,000 427,275
-----------
427,275
-----------
PRINTING-COMMERCIAL - 0.6%
Sheridan Group
10.250% 08/15/11 210,000 218,400
Vertis, Inc.
13.500% 12/07/09(b) 320,000 252,800
-----------
471,200
-----------
PRIVATE CORRECTIONS - 0.9%
Corrections Corp. of America
6.250% 03/15/13 360,000 360,000
GEO Group, Inc.
8.250% 07/15/13 355,000 347,900
-----------
707,900
-----------
RENTAL AUTO/EQUIPMENT - 0.9%
Ashtead Holdings PLC
8.625% 08/01/15(b) 350,000 360,500
NationsRent, Inc.
9.500% 10/15/10 305,000 333,212
-----------
693,712
-----------
Commercial Services Total 3,400,112
-----------
COSMETICS/PERSONAL CARE - 0.8%
COSMETICS & TOILETRIES - 0.8%
DEL Laboratories, Inc.
8.000% 02/01/12 370,000 297,850
Elizabeth Arden, Inc.
7.750% 01/15/14 330,000 330,000
-----------
627,850
-----------
Cosmetics/Personal Care Total 627,850
-----------
8 | See Accompanying Notes to Financial Statements.
--------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
--------------------------------------------------------------------------------
November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-------------------------------------------------------------------------------
CONSUMER NON-CYCLICAL - (CONTINUED)
FOOD - 2.2%
FOOD-CONFECTIONERY - 0.3%
Merisant Co.
9.500% 07/15/13 215,000 139,750
Merisant Worldwide, Inc.
(a) 05/15/14
(12.250% 11/15/08) 710,000 102,950
-----------
242,700
-----------
FOOD-MISCELLANEOUS/DIVERSIFIED - 1.4%
Dole Food Co., Inc.
8.625% 05/01/09 372,000 383,160
Pinnacle Foods Holding Corp.
8.250% 12/01/13 470,000 455,312
Reddy Ice Holdings, Inc.
(a) 11/01/12
(10.500% 11/01/08) 230,000 179,400
-----------
1,017,872
-----------
FOOD-RETAIL - 0.5%
Stater Brothers Holdings, Inc.
8.125% 06/15/12 415,000 411,888
-----------
411,888
-----------
Food Total 1,672,460
-----------
HEALTHCARE SERVICES - 4.5%
DIALYSIS CENTERS - 0.4%
DaVita, Inc.
7.250% 03/15/15 270,000 274,725
-----------
274,725
-----------
MEDICAL-HMO - 0.5%
Coventry Health Care, Inc.
8.125% 02/15/12 340,000 364,650
-----------
364,650
-----------
MEDICAL-HOSPITALS - 1.1%
HCA, Inc.
7.875% 02/01/11 215,000 229,925
Tenet Healthcare Corp.
9.875% 07/01/14 630,000 634,725
-----------
864,650
-----------
MEDICAL-OUTPATIENT/HOME MEDICAL - 0.3%
Select Medical Corp.
7.625% 02/01/15 210,000 199,500
-----------
199,500
-----------
MRI/MEDICAL DIAGNOSTIC IMAGING - 1.5%
InSight Health Services Corp.
9.875% 11/01/11 325,000 259,188
MedQuest, Inc.
11.875% 08/15/12 450,000 451,125
PAR ($) VALUE ($)
-------------------------------------------------------------------------------
MQ Associates, Inc.
(a) 08/15/12
(12.250% 08/15/08) 805,000 460,862
-----------
1,171,175
-----------
PHYSICIAN PRACTICE MANAGEMENT - 0.7%
US Oncology Holdings, Inc.
9.264% 03/15/15(c) 145,000 142,463
US Oncology, Inc.
9.000% 08/15/12 390,000 414,375
-----------
556,838
-----------
Healthcare Services Total 3,431,538
-----------
HOUSEHOLD PRODUCTS/WARES - 1.5%
CONSUMER PRODUCTS - MISCELLANEOUS - 1.2%
Amscan Holdings, Inc.
8.750% 05/01/14 320,000 240,000
Playtex Products, Inc.
9.375% 06/01/11 340,000 357,000
Visant Corp.
7.625% 10/01/12 280,000 277,200
-----------
874,200
-----------
OFFICE SUPPLIES & FORMS - 0.3%
ACCO Brands Corp.
7.625% 08/15/15 270,000 252,450
-----------
252,450
-----------
Household Products/Wares Total 1,126,650
-----------
PHARMACEUTICALS - 2.8%
MEDICAL-DRUGS - 0.9%
Elan Finance PLC
7.750% 11/15/11 495,000 454,162
Warner Chilcott Corp.
8.750% 02/01/15(b) 270,000 245,700
-----------
699,862
-----------
MEDICAL-GENERIC DRUGS - 0.6%
Mylan Laboratories, Inc.
6.375% 08/15/15(b) 445,000 442,775
-----------
442,775
-----------
MEDICAL-WHOLESALE DRUG DISTRIBUTION - 0.9%
AmerisourceBergen Corp.
5.875% 09/15/15(b) 320,000 320,800
Nycomed A/S, PIK,
11.750% 09/15/13(b) EUR 322,321 386,660
-----------
707,460
-----------
VITAMINS & NUTRITION PRODUCTS - 0.4%
NBTY, Inc.
7.125% 10/01/15(b) USD 265,000 255,063
-----------
255,063
-----------
Pharmaceuticals Total 2,105,160
-----------
CONSUMER NON-CYCLICAL TOTAL 13,188,958
-----------
-------------------------------------------------------------------------------
See Accompanying Notes to Financial Statements. | 9
--------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
--------------------------------------------------------------------------------
November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-------------------------------------------------------------------------------
ENERGY - 10.7%
COAL - 0.6%
COAL - 0.6%
Arch Western Finance LLC
6.750% 07/01/13 415,000 419,150
-----------
419,150
-----------
Coal Total 419,150
-----------
OIL & GAS - 4.2%
OIL & GAS DRILLING - 0.3%
Pride International, Inc.
7.375% 07/15/14 220,000 236,500
-----------
236,500
-----------
OIL COMPANIES-EXPLORATION & PRODUCTION - 3.1%
Chesapeake Energy Corp.
6.375% 06/15/15 145,000 140,650
7.500% 06/15/14 370,000 389,425
Compton Petroleum Corp.
7.625% 12/01/13(b) 310,000 310,775
Delta Petroleum Corp.
7.000% 04/01/15 200,000 187,000
Forest Oil Corp.
8.000% 12/15/11 220,000 242,000
Magnum Hunter Resources, Inc.
9.600% 03/15/12 283,000 305,640
Pogo Producing Co.
6.625% 03/15/15 225,000 219,375
Whiting Petroleum Corp.
7.250% 05/01/12 550,000 552,750
-----------
2,347,615
-----------
OIL REFINING & MARKETING - 0.8%
Premcor Refining Group, Inc.
7.500% 06/15/15 235,000 248,513
Tesoro Corp.
6.625% 11/01/15(b) 325,000 324,187
-----------
572,700
-----------
Oil & Gas Total 3,156,815
-----------
OIL & GAS SERVICES - 0.8%
OIL-FIELD SERVICES - 0.8%
Hornbeck Offshore Services, Inc.
6.125% 12/01/14(b) 365,000 354,050
Newpark Resources, Inc.
8.625% 12/15/07 270,000 270,000
-----------
624,050
-----------
Oil & Gas Services Total 624,050
-----------
PIPELINES - 5.1%
PIPELINES - 5.1%
Coastal Corp.
7.625% 09/01/08 215,000 216,881
PAR ($) VALUE ($)
-------------------------------------------------------------------------------
Colorado Interstate Gas Co.
6.800% 11/15/15(b) 460,000 461,150
Northwest Pipeline Corp.
8.125% 03/01/10 130,000 138,125
Pacific Energy Partners LP
6.250% 09/15/15(b) 410,000 402,825
Sonat, Inc.
7.625% 07/15/11 1,350,000 1,346,625
Southern Natural Gas Co.
8.875% 03/15/10 250,000 267,500
Williams Companies, Inc.
6.375% 10/01/10(b) 860,000 851,400
8.125% 03/15/12 165,000 178,200
-----------
3,862,706
-----------
Pipelines Total 3,862,706
-----------
ENERGY TOTAL 8,062,721
-----------
-------------------------------------------------------------------------------
FINANCIALS - 5.5%
DIVERSIFIED FINANCIAL SERVICES - 4.8%
FINANCE-AUTO LOANS - 1.9%
Ford Motor Credit Co.
7.375% 02/01/11 365,000 333,124
General Motors Acceptance Corp.
8.000% 11/01/31 1,135,000 1,124,740
-----------
1,457,864
-----------
FINANCE-INVESTMENT BANKER/BROKER - 1.6%
E*Trade Financial Corp.
8.000% 06/15/11 355,000 362,100
LaBranche & Co., Inc.
11.000% 05/15/12 775,000 852,500
-----------
1,214,600
-----------
SPECIAL PURPOSE ENTITY - 1.3%
Dow Jones CDX High Yield Index
8.250% 06/29/10(b) 9,800 9,806
8.750% 12/29/10(b) 990,000 994,950
-----------
1,004,756
-----------
Diversified Financial Services Total 3,677,220
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.3%
REITS-MORTGAGE - 0.3%
Thornburg Mortgage, Inc.
8.000% 05/15/13 225,000 219,375
-----------
219,375
-----------
Real Estate Investment Trusts Total 219,375
-----------
10 | See Accompanying Notes to Financial Statements.
--------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
--------------------------------------------------------------------------------
November 30, 2005
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% 05/15/12 255,000 285,600
-----------
285,600
-----------
Savings & Loans Total 285,600
-----------
FINANCIALS TOTAL 4,182,195
-----------
--------------------------------------------------------------------------------
INDUSTRIALS - 19.8%
AEROSPACE & DEFENSE - 2.5%
AEROSPACE/DEFENSE-EQUIPMENT - 2.0%
Argo-Tech Corp.
9.250% 06/01/11 285,000 292,838
BE Aerospace, Inc.
8.500% 10/01/10 375,000 400,312
Sequa Corp.
8.875% 04/01/08 185,000 192,400
9.000% 08/01/09 160,000 168,400
Standard Aero Holdings, Inc.
8.250% 09/01/14 255,000 211,650
TransDigm, Inc.
8.375% 07/15/11 250,000 258,750
-----------
1,524,350
-----------
ELECTRONICS-MILITARY - 0.5%
L-3 Communications Corp.
6.375% 10/15/15(b) 360,000 356,400
-----------
356,400
-----------
Aerospace & Defense Total 1,880,750
-----------
BUILDING MATERIALS - 0.8%
BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS - 0.5%
Nortek, Inc.
8.500% 09/01/14 200,000 192,000
NTK Holdings, Inc.
(a) 03/01/14
(10.750% 09/01/09) 295,000 178,475
-----------
370,475
-----------
BUILDING PRODUCTS-CEMENT/AGGREGATION - 0.3%
RMCC Acquisition Co.
9.500% 11/01/12(b) 265,000 266,325
-----------
266,325
-----------
Building Materials Total 636,800
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 0.3%
WIRE & CABLE PRODUCTS - 0.3%
Coleman Cable, Inc.
9.875% 10/01/12 295,000 253,700
-----------
253,700
-----------
Electrical Components & Equipment Total 253,700
-----------
PAR ($) VALUE ($)
-------------------------------------------------------------------------------
ELECTRONICS - 0.7%
ELECTRONIC COMPONENTS-MISCELLANEOUS - 0.7%
Flextronics International Ltd.
6.250% 11/15/14 305,000 298,900
Sanmina-SCI Corp.
6.750% 03/01/13 200,000 191,000
-----------
489,900
-----------
Electronics Total 489,900
-----------
ENGINEERING & CONSTRUCTION - 0.7%
BUILDING & CONSTRUCTION-MISCELLANEOUS - 0.7%
J. Ray McDermott SA
11.500% 12/15/13(b) 445,000 508,969
-----------
508,969
-----------
Engineering & Construction Total 508,969
-----------
ENVIRONMENTAL CONTROL - 1.7%
NON-HAZARDOUS WASTE DISPOSAL - 1.5%
Allied Waste North America, Inc.
7.250% 03/15/15 225,000 225,281
7.875% 04/15/13 590,000 613,600
Waste Services, Inc.
9.500% 04/15/14 305,000 303,475
-----------
1,142,356
-----------
RECYCLING - 0.2%
Aleris International, Inc.
9.000% 11/15/14 120,000 122,700
-----------
122,700
-----------
Environmental Control Total 1,265,056
-----------
HAND/MACHINE TOOLS - 0.2%
MACHINE TOOLS & RELATED PRODUCTS - 0.2%
Newcor, Inc.
6.000% 01/31/13
(8.500% 01/31/08)(f)(g) 215,562 133,648
-----------
133,648
-----------
Hand/Machine Tools Total 133,648
-----------
MACHINERY-DIVERSIFIED - 1.0%
MACHINERY-GENERAL INDUSTRY - 0.4%
Douglas Dynamics LLC
7.750% 01/15/12(b) 290,000 279,850
-----------
279,850
-----------
MACHINERY-MATERIAL HANDLING - 0.6%
Columbus McKinnon Corp.
8.875% 11/01/13(b) 445,000 462,800
-----------
462,800
-----------
Machinery-Diversified Total 742,650
-----------
See Accompanying Notes to Financial Statements. | 11
--------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
--------------------------------------------------------------------------------
November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-------------------------------------------------------------------------------
INDUSTRIALS - (CONTINUED)
METAL FABRICATE/HARDWARE - 1.5%
METAL PROCESSORS & FABRICATION - 1.0%
Mueller Group, Inc.
10.000% 05/01/12 225,000 236,250
Mueller Holdings, Inc.
(a) 04/15/14
(14.750% 04/15/09) 270,000 197,100
TriMas Corp.
9.875% 06/15/12 360,000 297,000
-----------
730,350
-----------
METAL PRODUCTS-FASTENERS - 0.5%
FastenTech, Inc.
11.500% 05/01/11 395,000 389,075
-----------
389,075
-----------
Metal Fabricate/Hardware Total 1,119,425
-----------
MISCELLANEOUS MANUFACTURING - 2.6%
DIVERSIFIED MANUFACTURING OPERATORS - 2.2%
Bombardier, Inc.
6.300% 05/01/14(b) 640,000 556,800
J.B. Poindexter & Co.
8.750% 03/15/14 350,000 306,250
Koppers Industries, Inc.
9.875% 10/15/13 360,000 392,400
Trinity Industries, Inc.
6.500% 03/15/14 445,000 434,988
-----------
1,690,438
-----------
MISCELLANEOUS MANUFACTURING - 0.4%
Samsonite Corp.
8.875% 06/01/11 295,000 300,900
-----------
300,900
-----------
Miscellaneous Manufacturing Total 1,991,338
-----------
PACKAGING & CONTAINERS - 3.6%
CONTAINERS-METAL/GLASS - 1.8%
Crown Americas LLC
7.750% 11/15/15(b) 410,000 416,150
Owens-Brockway Glass Container, Inc.
6.750% 12/01/14 200,000 191,500
8.250% 05/15/13 600,000 616,500
Owens-Illinois, Inc.
7.500% 05/15/10 130,000 130,325
-----------
1,354,475
-----------
CONTAINERS-PAPER/PLASTIC - 1.8%
Consolidated Container Co., LLC
(a) 06/15/09
(10.750% 06/15/07) 240,000 203,100
PAR ($) VALUE ($)
-------------------------------------------------------------------------------
Jefferson Smurfit Corp.
8.250% 10/01/12 450,000 437,625
PIK,
11.500% 10/01/15(b) EUR 368,616 380,563
MDP Acquisitions PLC
9.625% 10/01/12 USD 365,000 359,525
-----------
1,380,813
-----------
Packaging & Containers Total 2,735,288
-----------
TRANSPORTATION - 4.2%
TRANSPORTATION-MARINE - 2.0%
Ship Finance International Ltd.
8.500% 12/15/13 670,000 643,200
Stena AB
7.500% 11/01/13 500,000 481,250
9.625% 12/01/12 355,000 383,400
-----------
1,507,850
-----------
TRANSPORTATION-RAILROAD - 0.7%
TFM SA de CV
9.375% 05/01/12(b) 375,000 410,625
12.500% 06/15/12 100,000 114,875
-----------
525,500
-----------
TRANSPORTATION-SERVICES - 1.0%
CHC Helicopter Corp.
7.375% 05/01/14 450,000 453,375
Petroleum Helicopters, Inc.
9.375% 05/01/09 320,000 338,400
-----------
791,775
-----------
TRANSPORTATION-TRUCKS - 0.5%
QDI LLC
9.000% 11/15/10 400,000 360,000
-----------
360,000
-----------
Transportation Total 3,185,125
-----------
INDUSTRIALS TOTAL 14,942,649
-----------
-------------------------------------------------------------------------------
TECHNOLOGY - 0.3%
SEMICONDUCTORS - 0.3%
ELECTRONIC COMPONENTS-SEMICONDUCTORS - 0.3%
Amkor Technology, Inc.
9.250% 02/15/08 265,000 255,063
-----------
255,063
-----------
Semiconductors Total 255,063
-----------
TECHNOLOGY TOTAL 255,063
-----------
-------------------------------------------------------------------------------
UTILITIES - 6.8%
ELECTRIC - 6.8%
ELECTRIC-GENERATION - 1.8%
AES Corp.
9.000% 05/15/15(b) 110,000 120,450
9.500% 06/01/09 460,000 495,650
Edison Mission Energy
7.730% 06/15/09 480,000 501,600
12 | See Accompanying Notes to Financial Statements.
--------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
--------------------------------------------------------------------------------
November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
-------------------------------------------------------------------------------
UTILITIES - (CONTINUED)
ELECTRIC - (CONTINUED)
ELECTRIC-GENERATION - (CONTINUED)
Texas Genco LLC
6.875% 12/15/14(b) 245,000 262,150
-----------
1,379,850
-----------
ELECTRIC-INTEGRATED - 1.9%
CMS Energy Corp.
8.900% 07/15/08 425,000 454,219
Nevada Power Co.
9.000% 08/15/13 120,000 132,462
10.875% 10/15/09 221,000 241,995
Sierra Pacific Resources
6.750% 08/15/17(b) 355,000 355,444
TECO Energy, Inc.
7.000% 05/01/12 255,000 266,475
-----------
1,450,595
-----------
INDEPENDENT POWER PRODUCER - 3.1%
Calpine Generating Co., LLC
9.839% 04/01/10(c) 355,000 359,437
Dynegy Holdings, Inc.
6.875% 04/01/11 300,000 291,750
7.125% 05/15/18 140,000 125,300
9.875% 07/15/10(b) 360,000 392,400
MSW Energy Holdings LLC
7.375% 09/01/10 170,000 173,825
8.500% 09/01/10 375,000 397,500
Orion Power Holdings, Inc.
12.000% 05/01/10 515,000 589,675
-----------
2,329,887
-----------
Electric Total 5,160,332
-----------
UTILITIES TOTAL 5,160,332
-----------
TOTAL CORPORATE FIXED-INCOME BONDS & NOTES
(cost of $91,584,407) 89,447,186
-----------
PREFERRED STOCKS - 3.3% SHARES
-------------------------------------------------------------------------------
COMMUNICATIONS - 1.4%
MEDIA - 1.4%
RADIO - 1.4%
Spanish Broadcasting System, Inc., PIK
10.750% 974 1,042,180
-----------
1,042,180
-----------
Media Total 1,042,180
-----------
COMMUNICATIONS TOTAL 1,042,180
-----------
SHARES VALUE ($)
-------------------------------------------------------------------------------
CONSUMER CYCLICAL - 0.3%
LODGING - 0.3%
HOTELS & MOTELS - 0.3%
La Quinta Corp.
9.000% 9,335 235,242
-----------
235,242
-----------
Lodging Total 235,242
-----------
CONSUMER CYCLICAL TOTAL 235,242
-----------
-------------------------------------------------------------------------------
FINANCIALS - 1.6%
REAL ESTATE INVESTMENT TRUSTS - 1.6%
REITS-DIVERSIFIED - 1.6%
iStar Financial, Inc.:
7.800% 13,000 322,969
7.875% 15,007 374,707
SOVEREIGN REAL ESTATE INVESTMENT CORP.
12.000%(b) 365,000 525,600
-----------
1,223,276
-----------
Real Estate Investment Trusts Total 1,223,276
-----------
FINANCIALS TOTAL 1,223,276
-----------
TOTAL PREFERRED STOCKS
(cost of $2,412,290) 2,500,698
-----------
COMMON STOCKS - 1.4%
-------------------------------------------------------------------------------
CONSUMER DISCRETIONARY - 0.3%
HOTELS, RESTAURANTS & LEISURE - 0.3%
Pinnacle Entertainment, Inc. (h) 7,300 174,397
Shreveport Gaming Holdings, Inc. (f)(h) 4,862 70,596
-----------
Hotels, Restaurants & Leisure Total 244,993
-----------
CONSUMER DISCRETIONARY TOTAL 244,993
-----------
-------------------------------------------------------------------------------
INDUSTRIALS - 0.1%
COMMERCIAL SERVICES & SUPPLIES - 0.1%
Allied Waste Industries, Inc. (h) 7,250 60,973
Fairlane Management Corp. (f)(h)(i) 8,000 --
-----------
Commercial Services & Supplies Total 60,973
-----------
INDUSTRIALS TOTAL 60,973
-----------
-------------------------------------------------------------------------------
MATERIALS - 0.1%
CHEMICALS - 0.1%
Lyondell Chemical Co. 5,000 127,150
-----------
Chemicals Total 127,150
-----------
MATERIALS TOTAL 127,150
-----------
-------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES - 0.8%
DIVERSIFIED TELECOMMUNICATION SERVICES - 0.2%
NTL, Inc. (h) 2,942 171,313
-----------
Diversified Telecommunication Services Total 171,313
-----------
See Accompanying Notes to Financial Statements. | 13
--------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
--------------------------------------------------------------------------------
November 30, 2005
COMMON STOCKS (CONTINUED) SHARES VALUE ($)
-------------------------------------------------------------------------------
TELECOMMUNICATION SERVICES - (CONTINUED)
WIRELESS TELECOMMUNICATION SERVICES - 0.6%
Alamosa Holdings, Inc. (h) 11,653 215,347
Sprint Nextel Corp. 7,853 196,639
-----------
Wireless Telecommunication Services Total 411,986
-----------
TELECOMMUNICATION SERVICES TOTAL 583,299
-----------
-------------------------------------------------------------------------------
UTILITIES - 0.1%
INDEPENDENT POWER PRODUCERS & ENERGY TRADERS - 0.1%
Dynegy, Inc., Class A (h) 13,000 62,270
-----------
Independent Power Producers & Energy Traders Total 62,270
-----------
UTILITIES TOTAL 62,270
-----------
TOTAL COMMON STOCKS
(cost of $1,138,953) 1,078,685
-----------
CONVERTIBLE BONDS - 1.2% PAR ($)
-------------------------------------------------------------------------------
COMMUNICATIONS - 0.9%
TELECOMMUNICATION SERVICES - 0.9%
TELECOMMUNICATION EQUIPMENT - 0.8%
Nortel Networks Corp.
4.250% 09/01/08 645,000 604,687
-----------
604,687
-----------
TELEPHONE-INTEGRATED - 0.1%
Qwest Communications International, Inc.
3.500% 11/15/25 75,000 81,750
-----------
81,750
-----------
Telecommunication Services Total 686,437
-----------
COMMUNICATIONS TOTAL 686,437
-----------
-------------------------------------------------------------------------------
UTILITIES - 0.3%
ELECTRIC - 0.3%
INDEPENDENT POWER PRODUCER - 0.3%
Mirant Corp.
2.500% 06/15/21(d) 190,000 199,500
-----------
199,500
-----------
Electric Total 199,500
-----------
UTILITIES TOTAL 199,500
-----------
TOTAL CONVERTIBLE BONDS
(cost of $792,088) 885,937
-----------
MUNICIPAL BOND (TAXABLE) - 0.8% PAR ($) VALUE ($)
-------------------------------------------------------------------------------
CALIFORNIA - 0.8%
CA Cabazon Band Mission Indians
13.000% 10/01/11 575,000 580,985
-----------
CALIFORNIA TOTAL 580,985
-----------
TOTAL MUNICIPAL BOND (TAXABLE)
(cost of $575,000) 580,985
-----------
WARRANTS - 0.1% UNITS
-------------------------------------------------------------------------------
COMMUNICATIONS - 0.1%
MEDIA - 0.1%
BROADCAST SERVICES/PROGRAMS - 0.1%
XM Satellite Radio Holdings, Inc.
Expires 03/15/10(b)(h) 600 27,000
-----------
27,000
-----------
Media Total 27,000
-----------
TELECOMMUNICATION SERVICES - 0.0%
CELLULAR TELECOMMUNICATIONS - 0.0%
UbiquiTel, Inc.
Expires 04/15/10(b)(f)(h) 525 5
-----------
5
-----------
TELECOMMUNICATION SERVICES - 0.0%
Jazztel PLC
Expires 07/15/10(f)(h)(i) 350 --
-----------
--
-----------
Telecommunication Services Total 5
-----------
COMMUNICATIONS TOTAL 27,005
-----------
-------------------------------------------------------------------------------
INDUSTRIALS - 0.0%
METAL FABRICATE/HARDWARE - 0.0%
METAL PROCESSORS &
FABRICATION - 0.0% Mueller Holdings, Inc.
Expires 04/15/14(b)(f)(h) 190 224
-----------
224
-----------
Metal Fabricate/Hardware Total 224
-----------
TRANSPORTATION - 0.0%
TRANSPORTATION-TRUCKS - 0.0%
QDI LLC
Expires 01/15/07(b)(f)(h) 2,041 6,491
-----------
6,491
-----------
Transportation Total 6,491
-----------
INDUSTRIALS TOTAL 6,715
-----------
TOTAL WARRANTS
(cost of $97,124) 33,720
-----------
14 | See Accompanying Notes to Financial Statements.
--------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
--------------------------------------------------------------------------------
November 30, 2005
SHORT-TERM OBLIGATION - 10.8% PAR ($) VALUE ($)
-------------------------------------------------------------------------------
Repurchase agreement with State Street
Bank & Trust Co., dated 11/30/05,
due 12/01/05 at 3.850%, collateralized
by a U.S. Treasury Bond maturing
12/22/05, market value of $8,369,025
(repurchase proceeds $8,204,877) 8,204,000 8,204,000
-----------
TOTAL SHORT-TERM OBLIGATION
(cost of $8,204,000) 8,204,000
-----------
TOTAL INVESTMENTS - 135.8%
(cost of $104,803,862)(j) 102,731,211
-----------
OTHER ASSETS & LIABILITIES, NET - (35.8)% (27,069,554)
-----------
NET ASSETS - 100.0% 75,661,657
===========
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
November 30, 2005, these securities, which did not include any illiquid
securities, except for the following, amounted to $20,281,346, which
represents 26.8% of net assets.
ACQUISITION
SECURITY DATE PAR/UNITS COST VALUE
--------------------------------------------------------------------------------
Hollinger, Inc.: 03/05/03 $177,000 $175,897 $186,735
09/30/04 122,000 122,000 122,000
QDI LLC 06/01/02 2,041 -- 6,491
UbiquiTel, Inc. 04/11/00 525 26,600 5
--------
$315,231
--------
(c) The interest rate shown on floating rate or variable rate securities
reflects the rate at November 30, 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
November 30, 2005, the value of these securities amounted to $243,000,
which represents 0.3% of net assets.
(e) Security purchased on a delayed delivery basis.
(f) Represents fair value as determined in good faith under procedures
approved by the Board of Trustees.
(g) Step bond. Shown parenthetically is the next interest rate to be paid and
the date the Fund will begin accruing at this rate.
(h) Non-income producing security.
(i) Security has no value.
(j) Cost for federal income tax purposes is $104,941,032.
--------------------------------------------------------------------------------
At November 30, 2005, the Fund had entered into the following forward currency
exchange contracts:
FORWARD CURRENCY AGGREGATE SETTLEMENT UNREALIZED
CONTRACTS TO SELL VALUE FACE VALUE DATE DEPRECIATION
--------------------------------------------------------------------------------
EUR $854,862 $852,395 01/23/06 $(2,467)
EUR 99,356 98,604 01/30/06 (752)
-------
$(3,219)
-------
At November 30, 2005, the asset allocation of the Fund is as follows:
% OF
ASSET ALLOCATION (UNAUDITED) NET ASSETS
--------------------------------------------------------------------------------
Corporate Fixed-Income Bonds & Notes 118.2%
Preferred Stocks 3.3
Common Stocks 1.4
Convertible Bonds 1.2
Municipal Bond (Taxable) 0.8
Warrants 0.1
Short-Term Obligation 10.8
Other Assets & Liabilities, Net (35.8)
------
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
--------------------------------------------------------------------------------
November 30, 2005
ASSETS:
Investments, at cost
(including repurchase agreement) $ 104,803,862
--------------
Investments, at value $ 94,527,211
Repurchase agreement, at value 8,204,000
--------------
Total investments, at value 102,731,211
Cash 69,786
Receivable for:
Investments sold 992,140
Interest 1,939,821
Dividends 14,849
Deferred Trustees' compensation plan 12,015
--------------
Total Assets 105,759,822
--------------
LIABILITIES:
Net unrealized depreciation on
foreign forward currency contracts 3,219
Payable for:
Investments purchased 303,431
Investments purchased on a delayed
delivery basis 330,622
Distributions 546,091
Investment advisory fee 26,770
Transfer agent fee 7,145
Pricing and bookkeeping fees 14,268
Trustees' fees 1,483
Custody fee 2,984
Reports to shareholders 23,874
Interest 230,683
Chief compliance officer expenses 974
Deferred Trustees' fees 12,015
Notes payable - short-term 15,000,000
Notes payable - long-term 13,500,000
Other liabilities 94,606
--------------
Total Liabilities 30,098,165
--------------
NET ASSETS $ 75,661,657
--------------
COMPOSITION OF NET ASSETS
Paid-in capital $ 141,302,035
Undistributed net investment income 731,545
Accumulated net realized loss (64,332,751)
Net unrealized appreciation (depreciation) on:
Investments (2,072,651)
Foreign currency translations 33,479
--------------
NET ASSETS $ 75,661,657
--------------
Shares outstanding 21,003,496
--------------
Net asset value per share $ 3.60
--------------
--------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
For the Year Ended November 30, 2005
INVESTMENT INCOME:
Dividends $ 173,107
Interest 8,939,362
--------------
Total Investment Income 9,112,469
--------------
EXPENSES:
Investment advisory fee 777,116
Transfer agent fee 41,113
Pricing and bookkeeping fees 73,633
Trustees' fees 10,450
Custody fee 20,855
Reports to shareholders 55,667
Chief compliance officer expenses
(See Note 4) 4,353
Other expenses 116,665
--------------
Total Operating Expenses 1,099,852
Interest expense 1,116,293
--------------
Total Expenses 2,216,145
Fees and expenses waived or reimbursed
by Investment Advisor (19,077)
Custody earnings credit (3,929)
--------------
Net Expenses 2,193,139
--------------
Net Investment Income 6,919,330
--------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain (loss) on:
Investments (1,042,215)
Foreign currency transactions 100,245
Net realized loss on disposal of investments
purchased/sold in error (See Note 7) --
--------------
Net realized loss (941,970)
--------------
Net change in unrealized appreciation (depreciation) on:
Investments (4,815,042)
Foreign currency translations 33,479
--------------
Net change in unrealized
appreciation (depreciation) (4,781,563)
--------------
Net Loss (5,723,533)
--------------
Net Increase in Net Assets from Operations $ 1,195,797
--------------
16 | See Accompanying Notes to Financial Statements.
--------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
-------------------------------
INCREASE (DECREASE) IN NET ASSETS: 2005 2004
---------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 6,919,330 $ 7,163,795
Net realized gain (loss) on investments and foreign currency transactions (941,970) 2,728,923
Net change in unrealized appreciation (depreciation)
on investments and foreign currency translations (4,781,563) 2,684,740
------------ ------------
Net Increase from Operations 1,195,797 12,577,458
------------ ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (6,763,126) (6,362,697)
------------ ------------
SHARE TRANSACTIONS:
Distributions reinvested -- 62,227
------------ ------------
Total Increase (Decrease) in Net Assets (5,567,329) 6,276,988
NET ASSETS:
Beginning of period 81,228,986 74,951,998
------------ ------------
End of period $ 75,661,657 $ 81,228,986
------------ ------------
Undistributed net investment income at end of period $ 731,545 $ 359,322
------------ ------------
CHANGES IN SHARES:
Issued for distributions reinvested -- 16,818
------------ ------------
See Accompanying Notes to Financial Statements. | 17
--------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS
--------------------------------------------------------------------------------
For the Year Ended November 30, 2005
INCREASE (DECREASE) IN CASH:
-------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net investment income $ 6,919,330
Adjustments to reconcile net investment income
to net cash provided by operating activities:
Purchase of investment securities (67,774,925)
Proceeds from disposition of investment securities 73,879,860
Purchase of short-term investments, net (4,779,006)
Net realized gain due to foreign currency transactions 100,245
Decrease in dividend and interest receivable 237,601
Increase in other assets (3,623)
Increase in receivable for investments sold (320,893)
Decrease in payable for investments purchased (314,886)
Decrease in accrued expenses and other liabilities (35,332)
Net amortization/accretion of income (392,482)
------------
Net cash provided by operating activities 7,515,889
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in notes payable (1,000,000)
Increase in interest payable 180,960
Distributions paid in cash (6,721,119)
------------
Net cash used by financing activities (7,540,159)
------------
Net decrease in cash (24,270)
CASH:
Beginning of period 94,056
------------
End of period $ 69,786
------------
18 | See Accompanying Notes to Financial Statements.
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
November 30, 2005
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 4:00 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. If a security is valued at "fair
value", such value is likely to be different from the last quoted market price
for the security.
Investments for which market quotations are not readily available, or that have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees.
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
| 19
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
November 30, 2005
contracts are closed or mature. Realized and unrealized gains (losses) arising
from such transactions are included in net realized and unrealized gains
(losses) on foreign currency transactions. The use of forward currency contracts
does not eliminate fluctuations in the prices of the Fund's portfolio
securities. While the maximum potential loss from such contracts is the
aggregate face value in U.S. dollars at the time the contract was opened,
exposure is typically limited to the change in value of the contract (in U.S.
dollars) over the period it remains open. The Fund could also be exposed to risk
if the counterparties of the contracts are unable to fulfill the terms of the
contracts.
REPURCHASE AGREEMENTS
The Fund may engage in repurchase agreement transactions with institutions that
the Fund's investment advisor has determined are creditworthy. The Fund, through
its custodian, receives delivery of underlying securities collateralizing a
repurchase agreement. Collateral is at least equal, at all times, to the value
of the repurchase obligation including interest. A repurchase agreement
transaction involves certain risks in the event of default or insolvency of the
counterparty. These risks include possible delays or restrictions upon the
Fund's ability to dispose of the underlying securities and a possible decline in
the value of the underlying securities during the period the Fund seeks to
assert its rights.
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 as segregated with the custodian 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 timing and character of income and capital gain distributions are determined
in accordance with income tax regulations, which may differ from GAAP.
Reclassifications are made to the Fund's capital accounts for permanent tax
differences to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
For the year ended November 30, 2005, permanent book and tax basis differences
resulting primarily from differing treatments for discount accretion/premium
amortization on debt securities, paydown reclassifications, non-deductible
excise tax paid, REIT dividends, foreign currency transactions and market
discount reclassification adjustments were identified and reclassified among the
components of the Fund's net assets as follows:
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT INCOME NET REALIZED LOSS PAID-IN CAPITAL
--------------------- ------------------ ---------------
$216,019 $(214,330) $(1,689)
20 |
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
November 30, 2005
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended November 30, 2005
and November 30, 2004 was as follows:
NOVEMBER 30, NOVEMBER 30,
2005 2004
------------ ------------
Distributions paid from:
Ordinary Income $ 6,763,126 $ 6,362,697
Long-Term Capital Gains -- --
As of November 30, 2005, the components of distributable earnings on a tax basis
were as follows:
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS DEPRECIATION*
------------- -------------- --------------
$1,422,528 $ -- $(2,173,123)
* The differences between book-basis and tax-basis net unrealized
depreciation are primarily due to deferral of losses from wash sales and
discount accretion/premium amortization on debt securities.
Unrealized appreciation and depreciation at November 30, 2005, based on cost of
investments for federal income tax purposes, was:
Unrealized appreciation $ 2,541,238
Unrealized depreciation (4,751,059)
------------
Net unrealized depreciation $ (2,209,821)
============
The following capital loss carryforwards 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
2013 796,437
------------
$ 63,972,841
------------
Under current tax rules, certain capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the following fiscal year.
As of November 30, 2005, post-October capital losses of $358,011 attributed to
security transactions were deferred to December 1, 2005.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISORY FEE
Columbia Management Advisors, LLC ("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. Prior to
September 30, 2005, Columbia Management Advisors, Inc. was investment advisor to
the Fund under the same fee structure. On September 30, 2005, Columbia
Management Advisors, Inc. merged into Banc of America Capital Management, LLC.
At that time, the investment advisor was then renamed Columbia Management
Advisors, LLC. 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).
Effective November 1, 2005, Columbia has voluntarily agreed to waive this fee.
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
year ended November 30, 2005, the Fund paid fees of $246,445 to Columbia under
this agreement, which represents 0.31% annually of the Fund's average weekly 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, the total fees payable under the
pricing and bookkeeping agreement are paid to State Street.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives an
annual fee of $38,000 paid monthly plus an additional monthly fee based on the
level of average weekly net assets for the month; provided that during any
12-month period, the aggregate fee shall not exceed $140,000.
Prior to November 1, 2005, Columbia received from the Fund an annual fee of
$10,000 paid monthly, and in any month that the Fund's average weekly net assets
exceeded $50 million, an additional monthly fee, calculated by taking into
account the fees payable to State Street under the Outsourcing Agreement.
The Fund also reimburses Columbia and State Street for out-of-pocket expenses
and charges, including fees payable to third parties for pricing the Fund's
portfolio securities and direct internal costs incurred by Columbia in
connection with providing fund account oversight and monitoring and certain
other services. For the year ended November 30, 2005, the Fund's effective
pricing and bookkeeping rate, inclusive of out-of-pocket expenses, was 0.094%.
| 21
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
November 30, 2005
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
All officers of the Fund, with the exception of the Fund's Chief Compliance
Officer, 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, pays its pro-rata share of the expenses associated with
the Chief Compliance Officer. The Fund's expenses for 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 year ended November 30, 2005, the Fund paid $1,581 to
Columbia for such services. This amount is included in "Other expenses" on the
Statement of Operations.
NOTE 5. PORTFOLIO INFORMATION
For the year ended November 30, 2005, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $67,774,925 and
$73,879,860, respectively.
NOTE 6. LOAN AGREEMENT
At November 30, 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
$15,000,000 loan which bears interest at 5.08% per annum, due August 25, 2006
and a $7,000,000 loan which bears interest at 5.20% per annum, due August 24,
2007. The revolving loan is a $6,500,000 floating rate loan, maturing on August
25, 2006. Interest is charged at a rate per annum equal to the London Interbank
Offered Rate plus 0.80%. The interest rate at November 30, 2005 was 5.19375%. At
November 30, 2005, the average daily loan balance was $28,913,699 at a weighted
average interest rate of 3.86%. The Fund is subject to certain covenants
including, but not limited to, requirements with respect to asset coverage,
portfolio diversification and liquidity.
NOTE 7. OTHER
During the year ended November 30, 2005, a trading error occurred in connection
with the Fund entering into a foreign forward currency exchange contract in
error. As a result, this position was subsequently closed at a loss of $805 and
the Fund has been 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.
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.
INDUSTRY FOCUS
The Fund may focus its investments in certain industries, subjecting it to
greater risk than a fund that is more diversified.
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged
into Banc of America Capital Management, LLC (now named Columbia Management
Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has
been renamed Columbia Management Distributors, Inc.) (the "Distributor")
(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
22 |
--------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------
November 30, 2005
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 voluntarily
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 to reduce certain Columbia Funds
(including the former 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 funds' 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 funds or their shareholders cannot
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 the 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 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 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, the 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 transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this
litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the 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 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 purposes. 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. On November 30, 2005, the judge dismissed all claims
by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice
of appeal on December 30, 2005.
| 23
--------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period is as follows:
ONE MONTH
ENDED
YEAR ENDED NOVEMBER 30, NOVEMBER 30, YEAR ENDED OCTOBER 31,
---------------------- ------------ ----------------------------------
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) 0.33 0.34 0.02 0.29 0.38(c) 0.51
Net realized and unrealized gain (loss)
on investments and foreign currency (0.28) 0.26 0.07 0.75 (0.73)(c) (1.26)
--------- --------- -------- -------- -------- --------
Total from Investment Operations 0.05 0.60 0.09 1.04 (0.35) (0.75)
--------- --------- -------- -------- -------- --------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.32) (0.30) (0.03) (0.30) (0.36) (0.55)
Return of capital -- -- -- (0.02) (0.01) (0.02)
--------- --------- -------- -------- -------- --------
Total Distributions Declared to Shareholders (0.32) (0.30) (0.03) (0.32) (0.37) (0.57)
--------- --------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 3.60 $ 3.87 $ 3.57 $ 3.51 $ 2.79 $ 3.51
--------- --------- -------- -------- -------- --------
Market price per share $ 3.15 $ 3.51 $ 3.50 $ 3.65 $ 2.79 $ 3.49
--------- --------- -------- -------- -------- --------
Total return -- based on market value (d) (1.63)% 9.24% (3.40)%(e) 44.56% (10.43)% (14.26)%
--------- --------- -------- -------- -------- --------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (f) 1.37% 1.48% 1.63%(g) 1.35% 1.25% 1.31%
Interest and amortization of deferred
debt issuance expenses 1.42% 1.18% 1.38%(g) 2.00% 2.73% 2.98%
Total expenses (f) 2.79% 2.66% 3.01%(g) 3.35% 3.98% 4.29%
Net investment income (f) 8.79% 9.25% 7.82%(g) 9.18% 11.38%(c) 11.96%
Waiver/reimbursement 0.02% -- -- -- -- --
Portfolio turnover rate 66% 80% 7%(e) 64% 54% 52%
Net assets, end of period (000's) $ 75,662 $ 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) The benefits derived from custody credits had an impact of less than
0.01%.
(g) 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
--------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 5.97 $ 6.20 $ 7.27 $ 6.89 $ 6.62
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.67 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
--------- --------- --------- --------- ---------
Total from Investment Operations (0.43) 0.47 (0.38) 1.08 0.96
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.69) (0.70) (0.69) (0.70) (0.69)
In excess of net investment income (0.02) -- -- -- --
--------- --------- --------- --------- ---------
Total Distributions Declared to Shareholders (0.71) (0.70) (0.69) (0.70) (0.69)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 4.83 $ 5.97 $ 6.20 $ 7.27 $ 6.89
--------- --------- --------- --------- ---------
Market price per share $ 4.63 $ 5.63 $ 6.81 $ 7.56 $ 7.13
--------- --------- --------- --------- ---------
Total return -- based on market value (a) (6.12)% (7.89)% (0.74)% 16.97% 14.62%
--------- --------- --------- --------- ---------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (b) 0.92% 0.89% 0.88% 0.89% 0.98%
Interest and amortization of deferred
debt issuance expenses 2.79% 2.48% 2.11% 1.96% 2.07%
Total expenses (b) 3.71% 3.37% 2.99% 2.85% 3.05%
Net investment income (b) 11.88% 10.82% 9.70% 9.63% 10.11%
Portfolio turnover rate 42% 44% 69% 92% 92%
Net assets, end of period (000's) $ 98,333 $ 121,018 $ 124,480 $ 107,774 $ 99,925
(a) Total return at market value assuming all distributions reinvested at
price s calculated in accordance with the Dividend Reinvestment Plan.
(b) The benefits derived from custody credits had an impact of less than
0.01%, except for the year ended October 31, 1997 which had a 0.01%
impact.
| 25
--------------------------------------------------------------------------------
LOAN AGREEMENT ASSET COVERAGE REQUIREMENTS
--------------------------------------------------------------------------------
ASSET COVERAGE
TOTAL AMOUNT PER $1,000 OF
DATE OUTSTANDING INDEBTEDNESS
--------- ------------ --------------
11/30/05 $28,500,000 $3,655
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
26 |
--------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
--------------------------------------------------------------------------------
TO THE TRUSTEES AND THE SHAREHOLDERS OF COLONIAL INTERMEDIATE HIGH INCOME FUND
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations, cash flows
and changes in net assets, and the financial highlights present fairly, in all
material respects, the financial position of Colonial Intermediate High Income
Fund (the "Fund") at November 30, 2005, and the results of its operations, its
cash flows, the changes in its net assets, and its financial highlights for the
periods indicated, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at November 30, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 24, 2006
| 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 Computershare, the Plan agent, by mail at P.O. Box 43010,
Providence, RI 02940-3010 or by phone at 1-800-730-6001.
28 |
--------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
--------------------------------------------------------------------------------
The Trustees/Directors serve terms of indefinite duration. The names, addresses
and ages of the Trustees/Directors and officers of the Funds in the Columbia
Funds Complex, the year each was first elected or appointed to office, their
principal business occupations during at least the last five years, the number
of portfolios overseen by each Trustee/Director and other directorships they
hold are shown below. Each officer listed below serves as an officer of each
Fund in the Columbia Funds Complex.
NAME, ADDRESS AND AGE,
POSITION WITH FUNDS,
YEAR FIRST ELECTED OR PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN COLUMBIA FUNDS
APPOINTED TO OFFICE (1) COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD
------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
DOUGLAS A. HACKER (Age 50) Executive Vice President-Strategy of United Airlines (airline) since December, 2002
c/o Columbia Management (formerly President of UAL Loyalty Services (airline) from September, 2001 to December,
Advisors, LLC 2002; Executive Vice President and Chief Financial Officer of United Airlines from
One Financial Center July, 1999 to September, 2001; Senior Vice President-Finance from March, 1993 to July,
Boston, MA 02111 1999). Oversees 83, Nash Finch Company (food distributor)
Trustee (since 1996)
JANET LANGFORD KELLY (Age 48) Partner, Zelle, Hofmann, Voelbel, Mason & Gette LLP (law firm) since March, 2005;
c/o Columbia Management Adjunct Professor of Law, Northwestern University, since September, 2004 (formerly
Advisors, LLC Chief Administrative Officer and Senior Vice President, Kmart Holding Corporation
One Financial Center (consumer goods) from September, 2003 to March, 2004; Executive Vice
Boston, MA 02111 President-Corporate Development and Administration, General Counsel and Secretary,
Trustee (since 1996) Kellogg Company (food manufacturer), from September, 1999 to August, 2003; Senior Vice
President, Secretary and General Counsel, Sara Lee Corporation (branded, packaged,
consumer-products manufacturer) from January, 1995 to September, 1999). Oversees 83,
None
RICHARD W. LOWRY (Age 69) Private Investor since August, 1987 (formerly Chairman and Chief Executive Officer,
c/o Columbia Management U.S. Plywood Corporation (building products manufacturer)). Oversees 89 (3), None
Advisors, LLC
One Financial Center
Boston, MA 02111
Trustee (since 1995)
CHARLES R. NELSON (Age 62) Professor of Economics, University of Washington, since January, 1976; Ford and Louisa
c/o Columbia Management Van Voorhis Professor of Political Economy, University of Washington, since September,
Advisors, LLC 1993 (formerly Director, Institute for Economic Research, University of Washington from
One Financial Center September, 2001 to June, 2003); Adjunct Professor of Statistics, University of
Boston, MA 02111 Washington, since September, 1980; Associate Editor, Journal of Money Credit and
Trustee (since 1981) Banking, since September, 1993; consultant on econometric and statistical matters.
Oversees 83, None
JOHN J. NEUHAUSER (Age 63) Academic Vice President and Dean of Faculties since August, 1999, Boston College
c/o Columbia Management (formerly Dean, Boston College School of Management from September, 1977 to August,
Advisors, LLC 1999). Oversees 89 (3), Saucony, Inc. (athletic footwear)
One Financial Center
Boston, MA 02111
Trustee (since 1985)
| 29
--------------------------------------------------------------------------------
TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
NAME, ADDRESS AND AGE,
POSITION WITH FUNDS,
YEAR FIRST ELECTED OR PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN COLUMBIA FUNDS
APPOINTED TO OFFICE (1) COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD
------------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES (CONTINUED)
PATRICK J. SIMPSON (Age 61) Partner, Perkins Coie LLP (law firm). Oversees 83, None
c/o Columbia Management
Advisors, LLC
One Financial Center
Boston, MA 02111
Trustee (since 2000)
THOMAS E. STITZEL (Age 69) Business Consultant since 1999 (formerly Professor of Finance from 1975 to 1999, College
c/o Columbia Management of Business, Boise State University); Chartered Financial Analyst. Oversees 83, None
Advisors, LLC
One Financial Center
Boston, MA 02111
Trustee (since 1998)
THOMAS C. THEOBALD (Age 68) Partner and Senior Advisor, Chicago Growth Partners (private equity investing) since
c/o Columbia Management September, 2004 (formerly Managing Director, William Blair Capital Partners (private
Advisors, LLC equity investing) from September, 1994 to September, 2004). Oversees 83, Anixter
One Financial Center International (network support equipment distributor); Ventas, Inc. (real estate
Boston, MA 02111 investment trust); Jones Lang LaSalle (real estate management services) and Ambac
Trustee and Chairman of the Board (4) Financial Group (financial guaranty insurance)
(since 1996)
ANNE-LEE VERVILLE (Age 60) Retired since 1997 (formerly General Manager, Global Education Industry, IBM
c/o Columbia Management Corporation (computer and technology) from 1994 to 1997). Oversees 83, Chairman of the
Advisors, LLC Board of Directors, Enesco Group, Inc. (designer, importer and distributor of giftware
One Financial Center and collectibles)
Boston, MA 02111
Trustee (since 1998)
RICHARD L. WOOLWORTH (Age 64) Retired since December, 2003 (formerly Chairman and Chief Executive Officer, The
c/o Columbia Management Regence Group (regional health insurer); Chairman and Chief Executive Officer,
Advisors, LLC BlueCross BlueShield of Oregon; Certified Public Accountant, Arthur Young & Company).
One Financial Center Oversees 83, Northwest Natural Gas Co. (natural gas service provider)
Boston, MA 02111
Trustee (since 1991)
INTERESTED TRUSTEE
WILLIAM E. MAYER (2) (Age 65) Partner, Park Avenue Equity Partners (private equity) since February, 1999 (formerly
c/o Columbia Management Partner, Development Capital LLC from November 1996, to February, 1999). Oversees
Advisors, LLC 89 (3) , Lee Enterprises (print media), WR Hambrecht + Co. (financial service provider);
One Financial Center Reader's Digest (publishing); OPENFIELD Solutions (retail industry technology provider)
Boston, MA 02111
Trustee (since 1994)
(1) In December 2000, the boards of each of the former Liberty Funds and
former Stein Roe Funds were combined into one board of trustees
responsible for the oversight of both fund groups (collectively, the
"Liberty Board"). In October 2003, the trustees on the Liberty Board were
elected to the boards of the Columbia Funds (the "Columbia Board") and of
the CMG Fund Trust (the "CMG Funds Board"); simultaneous with that
election, Patrick J. Simpson and Richard L. Woolworth, who had been
directors on the Columbia Board and trustees on the CMG Funds Board, were
appointed to serve as trustees of the Liberty Board. The date shown is the
earliest date on which a trustee/director was elected or appointed to the
board of a Fund in the Columbia Funds Complex.
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht +
Co.
(3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the
Liberty All-Star Funds, currently consisting of 2 funds, which are advised
by an affiliate of the Advisor.
(4) Mr. Theobald was appointed as Chairman of the Board effective December 10,
2003.
The Statement of Additional Information includes additional information about
the Trustees of the Funds and is available, without charge, upon request by
calling 800-426-3750.
30 |
--------------------------------------------------------------------------------
TRUSTEES AND OFFICERS (CONTINUED)
--------------------------------------------------------------------------------
NAME, ADDRESS AND AGE,
POSITION WITH COLUMBIA FUNDS,
YEAR FIRST ELECTED OR
APPOINTED TO OFFICE PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS,
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS
CHRISTOPHER L. WILSON (Age 48) Head of Mutual Funds since August, 2004 and Managing Director of the Advisor since
One Financial Center September, 2005; President of the Columbia Funds, Liberty Funds and Stein Roe Funds
Boston, MA 02111 since October, 2004; President and Chief Executive Officer of the Nations Funds since
President (since 2004) January, 2005; President of the Galaxy Funds since April, 2005; Director of Bank of
America Global Liquidity Funds, PLC since May, 2005; Director of Banc of America
Capital Management (Ireland), Limited since May, 2005; Director of FIM Funding, Inc.
since January, 2005; Senior Vice President of Columbia Management Distributors, Inc.
since January, 2005; Director of Columbia Management Services, Inc. since January, 2005
(formerly Senior Vice President of Columbia Management from January, 2005 to August,
2005; Senior Vice President of BACAP Distributors LLC from January, 2005 to July, 2005;
President and Chief Executive Officer, CDC IXIS Asset Management Services, Inc. from
September, 1998 to August, 2004).
J. KEVIN CONNAUGHTON (Age 41) Treasurer of the Columbia Funds since October, 2003 and of the Liberty Funds, Stein Roe
One Financial Center Funds and All-Star Funds since December, 2000; Managing Director of the Advisor since
Boston, MA 02111 September, 2005 (formerly Vice President of Columbia Management from April, 2003 to
Treasurer (since 2000) August, 2005; President of the Columbia Funds, Liberty Funds and Stein Roe Funds from
February, 2004 to October, 2004; Chief Accounting Officer and Controller of the Liberty
Funds and All-Star Funds from February, 1998 to October, 2000); Treasurer of the Galaxy
Funds from September, 2002 to November, 2005 (formerly Treasurer from December, 2002 to
December, 2004 and President from February, 2004 to December, 2004 of the Columbia
Management Multi-Strategy Hedge Fund, LLC; Vice President of Colonial Management
Associates, Inc. from February, 1998 to October, 2000).
MARY JOAN HOENE (Age 56) Senior Vice President and Chief Compliance Officer of the Columbia Funds, Liberty
100 Federal Street Funds, Stein Roe Funds and All-Star Funds since August, 2004; Chief Compliance Officer
Boston, MA 02110 of the Columbia Management Multi-Strategy Hedge Fund, LLC since August 2004; Chief
Senior Vice President and Chief Compliance Officer of the BACAP Alternative Multi-Strategy Hedge Fund LLC since October
Compliance 2004 (formerly Partner, Carter, Ledyard & Milburn LLP from January, 2001 to August,
Officer (since 2004) 2004; Counsel, Carter, Ledyard & Milburn LLP from November, 1999 to December, 2000;
Vice President and Counsel, Equitable Life Assurance Society of the United States from
April, 1998 to November, 1999).
MICHAEL G. CLARKE (Age 36) Chief Accounting Officer of the Columbia Funds, Liberty Funds, Stein Roe Funds and
One Financial Center All-Star Funds since October, 2004; Managing Director of the Advisor since September,
Boston, MA 02111 2005 (formerly Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and
Chief Accounting Officer All-Star Funds from May, 2004 to October, 2004; Assistant Treasurer from June, 2002 to
(since 2004) May, 2004; Vice President, Product Strategy & Development of the Liberty Funds and
Stein Roe Funds from February, 2001 to June, 2002; Assistant Treasurer of the Liberty
Funds, Stein Roe Funds and the All-Star Funds from August, 1999 to February, 2001;
Audit Manager, Deloitte & Touche LLP from May, 1997 to August, 1999).
JEFFREY R. COLEMAN (Age 36) Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and All-Star Funds
One Financial Center since October, 2004 (formerly Vice President of CDC IXIS Asset Management Services,
Boston, MA 02111 Inc. and Deputy Treasurer of the CDC Nvest Funds and Loomis Sayles Funds from February,
Controller (since 2004) 2003 to September, 2004; Assistant Vice President of CDC IXIS Asset Management
Services, Inc. and Assistant Treasurer of the CDC Nvest Funds from August, 2000 to
February, 2003; Tax Manager of PFPC, Inc. from November, 1996 to August, 2000).
R. SCOTT HENDERSON (Age 46) Secretary of the Columbia Funds, Liberty Funds and Stein Roe Funds since December, 2004
One Financial Center (formerly Of Counsel, Bingham McCutchen from April, 2001 to September, 2004; Executive
Boston, MA 02111 Director and General Counsel, Massachusetts Pension Reserves Investment Management
Secretary (since 2004) Board from September, 1997 to March, 2001).
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BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
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The Advisory Fees and Expenses Committee of the Board of Trustees meets one or
more times annually, usually in late summer, to review the advisory agreements
(collectively, the "Agreements") of the funds for which the Trustees serve as
trustees or directors (each a "fund") and determine whether to recommend that
the full Board approve the continuation of the Agreements for an additional
one-year period. After the Committee has made its recommendation, the full
Board, including the Independent Trustees, determines whether to approve the
continuation of the Agreements. In addition, the Board, including the
Independent Trustees, considers matters bearing on the Agreements at most of its
other meetings throughout the year and meets regularly with the heads of each
investment area within Columbia. The Trustees also meet with selected fund
portfolio managers at various times throughout the year. The Trustees receive
and review all materials that they, their legal counsel or Columbia, the funds'
investment adviser, believe to be reasonably necessary for the Trustees to
evaluate the Agreements and determine whether to approve the continuation of the
Agreements. Those materials generally include, among other items, (i)
information on the investment performance of each fund relative to the
performance of peer groups of mutual funds and the fund's performance
benchmarks, (ii) information on each fund's advisory fees and other expenses,
including information comparing the fund's expenses to those of peer groups of
mutual funds and information about any applicable expense caps and fee
"breakpoints," (iii) sales and redemption data, (iv) information about the
profitability of the Agreements to Columbia, and potential "fall-out" or
ancillary benefits that Columbia and its affiliates may receive as a result of
their relationships with the funds and (v) information obtained through
Columbia's response to a questionnaire prepared at the request of the Trustees
by counsel to the funds and independent legal counsel to the Independent
Trustees. The Trustees also consider other information such as (vi) Columbia's
financial results and financial condition, (vii) each fund's investment
objective and strategies and the size, education and experience of Columbia's
investment staffs and their use of technology, external research and trading
cost measurement tools, (viii) the allocation of the funds' brokerage, if any,
including allocations to brokers affiliated with Columbia and the use of "soft"
commission dollars to pay fund expenses and to pay for research products and
services, (ix) Columbia's resources devoted to, and its record of compliance
with, the funds' investment policies and restrictions, policies on personal
securities transactions and other compliance policies, (x) Columbia's response
to various legal and regulatory proceedings since 2003 and (xi) the economic
outlook generally and for the mutual fund industry in particular. In addition,
the Trustees confer with their independent fee consultant and review materials
relating to the Agreements that the independent fee consultant provides.
Throughout the process, the Trustees have the opportunity to ask questions of
and request additional materials from Columbia and to consult independent legal
counsel to the Independent Trustees.
The Board of Trustees most recently approved the continuation of the Agreements
at its October, 2005 meeting, following meetings of the Advisory Fees and
Expenses Committee held in August, September, and October, 2005. In considering
whether to approve the continuation of the Agreements, the Trustees, including
the Independent Trustees, did not identify any single factor as determinative,
and each weighed various factors as he or she deemed appropriate. The Trustees
considered the following matters in connection with their approval of the
continuation of the Agreements: THE NATURE, EXTENT AND QUALITY OF THE SERVICES
PROVIDED TO THE FUNDS UNDER THE AGREEMENTS. The Trustees considered the nature,
extent and quality of the services provided by Columbia and its affiliates to
the funds and the resources dedicated to the funds by Columbia and its
affiliates. Among other things, the Trustees considered (i) Columbia's ability,
including its resources, compensation programs for personnel involved in fund
management, reputation and other attributes, to attract and retain highly
qualified research, advisory and supervisory investment professionals; (ii) the
portfolio management services provided by those investment professionals; and
(iii) the trade execution services provided on behalf of the funds. For each
fund, the Trustees also considered the benefits to shareholders of investing in
a mutual fund that is part of a family of funds offering exposure to a variety
of asset classes and investment disciplines and providing for a variety of fund
and shareholder services. After reviewing those and related factors, the
Trustees concluded, within the context of their overall conclusions regarding
each of the Agreements, that the nature, extent and quality of services provided
supported the continuation of the Agreements. INVESTMENT PERFORMANCE OF THE
FUNDS AND COLUMBIA. The Trustees reviewed information about the performance of
each fund over various time periods, including information prepared by an
independent third party that compared the performance of each fund to the
performance of peer groups of mutual funds and performance benchmarks. The
Trustees also reviewed a description of the third party's methodology for
identifying each fund's peer group for purposes of performance and expense
comparisons. The Trustees also considered additional information that the
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BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (CONTINUED)
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Advisory Fees and Expenses Committee requested from Columbia relating to funds
that presented relatively weaker performance and/or relatively higher expenses.
In the case of each fund that had performance that lagged that of a relevant
peer group for certain (although not necessarily all) periods, the Trustees
concluded that other factors relevant to performance were sufficient, in light
of other considerations, to warrant continuation of the fund's Agreements. Those
factors varied from fund to fund, but included one or more of the following: (i)
that the fund's performance, although lagging in certain recent periods, was
stronger over the longer term; (ii) that the underperformance was attributable,
to a significant extent, to investment decisions that were reasonable and
consistent with the fund's investment strategy and policies and that the fund
was performing as expected, given market conditions and the fund's investment
strategy; (iii) that the fund's performance was competitive when compared to
other relevant performance benchmarks or peer groups; (iv) that Columbia had
taken or was taking steps designed to help improve the fund's investment
performance, including, but not limited to, replacing portfolio managers or
modifying investment strategies; (v) that the fund's advisory fee had recently
been, or was proposed to be, reduced, with the goal of helping the fund's net
return to shareholders become more competitive; and (vi) that other fund
expenses, such as transfer agency or fund accounting fees, have recently been
reduced, with the goal of helping the fund's net return to shareholders become
more competitive. The Trustees also considered Columbia's performance and
reputation generally, the funds' performance as a fund family generally, and
Columbia's historical responsiveness to Trustee concerns about performance and
Columbia's willingness to take steps intended to improve performance. After
reviewing those and related factors, the Trustees concluded, within the context
of their overall conclusions regarding each of the Agreements, that the
performance of each fund and Columbia was sufficient, in light of other
considerations, to warrant the continuation of the Agreements.
THE COSTS OF THE SERVICES PROVIDED AND PROFITS REALIZED BY COLUMBIA AND ITS
AFFILIATES FROM THEIR RELATIONSHIPS WITH THE FUNDS. The Trustees considered the
fees charged to the funds for advisory services as well as the total expense
levels of the funds. That information included comparisons (provided both by
management and by an independent third party) of the funds' advisory fees and
total expense levels to those of their peer groups and information about the
advisory fees charged by Columbia to comparable accounts. In considering the
fees charged to comparable accounts, the Trustees took into account, among other
things, management's representations about the differences between managing
mutual funds as compared to other types of accounts, including the additional
resources required to effectively manage mutual funds and distribute mutual fund
shares. In evaluating each fund's advisory fees, the Trustees also took into
account the demands, complexity and quality of the investment management of the
fund. The Trustees considered reductions in advisory fee rates, implementation
of advisory fee breakpoints, institution of advisory fee waivers, and changes to
expense caps, which benefited a number of the funds. Furthermore, the Trustees
considered the projected impact on expenses resulting from the overall cost
reductions that management anticipated would result from the 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 Trustees
also noted management's stated justification for the fees charged to the funds,
which included information about the performance of the funds, the services
provided to the funds and management's view as to why it was appropriate that
some funds bear advisory fees or total expenses greater than their peer group
medians. The Trustees also considered the compensation directly or indirectly
received by Columbia and its affiliates from their relationships with the funds.
The Trustees reviewed information provided by management as to the profitability
to Columbia and its affiliates of their relationships with the funds, and
information about the allocation of expenses used to calculate profitability.
When reviewing profitability, the Trustees also considered court cases in which
adviser profitability was an issue in whole or in part, the performance of the
relevant funds, the expense levels of the funds, and whether Columbia had
implemented breakpoints and/or expense caps with respect to the funds.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
advisory fees charged to each of the funds were fair and reasonable, and that
the costs of the advisory services generally, and the related profitability to
Columbia and its affiliates of their relationships with the funds, supported the
continuation of the Agreements.
ECONOMIES OF SCALE. The Trustees considered the existence of any economies of
scale in the provision of services by Columbia to each fund and whether those
economies were shared with the fund through breakpoints in the investment
advisory fees or other means, such as expense waivers. The Trustees noted that
many of the funds benefited from breakpoints, expense caps, or both. In
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BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (CONTINUED)
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considering those issues, the Trustees also took note of the costs of the
services provided (both on an absolute and a relative basis) and the
profitability to Columbia and its affiliates of their relationships with the
funds, as discussed above. After reviewing those and related factors, the
Trustees concluded, within the context of their overall conclusions regarding
each of the Agreements, that the extent to which economies of scale were shared
with the funds supported the continuation of the Agreements.
OTHER FACTORS. The Trustees also considered other factors, which included but
were not limited to the following:
o the extent to which each fund had operated in accordance with its
investment objective and its record of compliance with its investment
restrictions, and the compliance programs of the funds and Columbia. They
also considered the compliance-related resources that Columbia and its
affiliates were providing to the funds.
o the nature, quality, cost and extent of administrative and shareholder
services performed by Columbia and its affiliates, both under the
Agreements and under separate agreements for the provision of transfer
agency and administrative services.
o so-called "fall-out benefits" to Columbia, such as the engagement of its
affiliates to provide distribution, brokerage and transfer agency services
to the funds, and the benefits of research made available to Columbia by
reason of brokerage commissions generated by the funds' securities
transactions, as well as possible conflicts of interest associated with
those fall-out and other benefits, and the reporting, disclosure and other
processes in place to disclose and monitor those possible conflicts of
interest.
o the draft report provided by the independent fee consultant, which
included information about and analysis of the funds' fees, expenses and
performance.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel and the independent fee consultant, the Trustees, including
the Independent Trustees, approved the continuance of each of the Agreements
through November 30, 2006.
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SUMMARY OF MANAGEMENT FEE EVALUATION BY INDEPENDENT FEE CONSULTANT
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PREPARED PURSUANT TO THE FEBRUARY 9, 2005
ASSURANCE OF DISCONTINUANCE
BETWEEN THE OFFICE OF
ATTORNEY GENERAL OF NEW YORK STATE AND
COLUMBIA MANAGEMENT ADVISORS, INC. AND
COLUMBIA FUNDS DISTRIBUTOR, INC.
OCTOBER 11, 2005
I. OVERVIEW
Columbia Management Advisors, Inc. ("CMA") and Columbia Funds Distributors, Inc.
("CFD") (CFD together with CMA referred to herein as Columbia Management Group
or "CMG1"), entered into an agreement with the New York Attorney General's
Office in the form of an Assurance of Discontinuance (the "AOD"). The AOD
stipulated that CMA would be permitted to manage or advise the Columbia Funds
only if the Independent Members (as such term is defined in the AOD) of the
Columbia Funds' Board of Trustees/Directors (collectively the "Trustees")
appointed a Senior Officer or an Independent Fee Consultant ("IFC") who, among
other things, is to manage the process by which management fees are negotiated.
On May 15, 2005, the Independent Members of the Board appointed me as the IFC
for the Columbia Funds. This report is the annual written evaluation of the
Columbia Funds for 2005 that I have prepared in my capacity as IFC, as required
by the AOD.
A. DUTIES OF THE INDEPENDENT FEE CONSULTANT
As part of the AOD, the Independent Members of the Columbia Funds' Board of
Trustees/Directors agreed to retain an independent fee consultant who was to
participate in the management fee negotiation process. The IFC is charged with
"... duties and responsibilities [that] include managing the process by which
proposed management fees (including, but not limited to, advisory fees) to be
charged the Columbia Fund[s] are negotiated so that they are negotiated in a
manner which is at arms length and reasonable and consistent with this Assurance
of Discontinuance." However, the IFC does not replace the Trustees in their role
of negotiating management and other fees with CMG and its affiliates. In
particular, the AOD states that "Columbia Advisors may manage or advise a
Columbia Fund only if the reasonableness of the proposed management fees is
determined by the Board of Trustees of the Columbia Fund using ... an annual
independent written evaluation prepared by or under the direction of the ...
Independent Fee Consultant...." This report, pursuant to the AOD, constitutes
the "annual independent written evaluation prepared by or under the direction of
the... Independent Fee Consultant."
The AOD requires the IFC report to consider at least the following:
a) Management fees (including any components thereof) charged by other mutual
fund companies for like services;
b) Management fees (including any components thereof) charged to institutional
and other clients of CMA for like services;
c) Costs to CMA and its affiliates of supplying services pursuant to the
management fee agreements, excluding any intra-corporate profit;
d) Profit margins of CMA and its affiliates from supplying such services;
e) Possible economies of scale as the CMA fund grows larger; and
f) The nature and quality of CMA services, including Columbia Funds'
performance.
This report is designed to assist the Board in evaluating the 2005 contract
renewal for Columbia Funds. In addition, this report points out areas where the
Board may deem additional information and analysis to be appropriate over time.
B. SOURCES OF INFORMATION USED IN MY EVALUATION
I have requested data from CMG and various third party industry data sources or
independent research companies that work in the mutual fund arena. The following
list generally describes the types of information I requested.
1. I collected data on performance, management fees, and expense ratios of both
Columbia Funds and comparable non-Columbia Funds. The sources of this
information were CMG, Lipper Inc. ("Lipper") and Morningstar Inc.
("Morningstar"). While Lipper and Morningstar each selected a different group of
peer funds it deemed appropriate against which to measure the relative
performance and fees of Columbia Funds, I conducted an independent review of the
appropriateness of each peer group.
2. I reviewed data on CMG's expense and profitability that I obtained from CMA
directly.
3. I have reviewed data on the organizational structure of CMG in general.
4. I collected information on profitability from Strategic Insight Mutual Fund
Research and Consulting, LLC ("Strategic Insight"). I used this third-party
independent research as an additional method to gauge the accuracy of the data
collected in (2) above.
1 Prior to the date of this report, CMA merged into an affiliated entity,
Banc of America Capital Management, LLC ("BACAP"), and BACAP then changed
its name to Columbia Management Advisors, LLC which carries on the
business of CMA, and CFD changed its name to Columbia Management
Distributors, Inc.
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SUMMARY OF MANAGEMENT FEE EVALUATION BY INDEPENDENT FEE CONSULTANT (CONTINUED)
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5. I conducted interviews with various CMG staff, including members of the
senior management team, legal staff, heads of affiliates, portfolio managers,
and financial personnel.
6. I reviewed current 2005 Section 15(c) material provided to the Board and
material presented to the Board in the 2004 fee and performance evaluation.
7. I have reviewed various academic research papers, industry publications, and
other available literature dealing with mutual fund operations, profitability,
and other issues. In addition, I have reviewed SEC releases and studies of
mutual fund expenses.
8. I have reviewed documents pertaining to recent mutual fund litigation in
general and publicly available information about litigation where CMG has been
involved.
In addition, I have engaged NERA Economic Consulting ("NERA") and independent
consultant Dr. John Rea to assist me in data management and analysis. Both NERA
and Dr. Rea have extensive experience in the mutual fund industry through
consulting, government positions, or industry trade groups that provide unique
insights and special knowledge pertaining to my independent analysis of fees,
performance, and profitability. I have also retained Shearman & Sterling LLP as
outside counsel to advise me in connection with my review.
C. QUALIFICATIONS AND INDEPENDENCE
I am the Walter H. Carpenter Chair and Professor of Finance at Babson College.
Before this I was the Chief Economist of the U.S. Securities and Exchange
Commission. I have no material relationship with Bank of America or CMG aside
from acting as IFC, and am aware of no relationship with any of their
affiliates. [Resume omitted]
II. EVALUATION OF THE GENERAL PROCESS USED TO NEGOTIATE THE ADVISORY CONTRACT
A. GENERAL CONSIDERATIONS
My analysis considered all factors and information I reviewed on the finances
and operations of Columbia Funds. I gave each factor an appropriate weight in my
overall findings, and no single factor was in itself the sole criterion for a
finding or conclusion. My objective was to assess all of the information
provided and conduct a robust evaluation of Columbia Funds' operations, fees,
and performance.
My analysis and thought processes will and, I believe, should, differ in certain
ways from the processes used by Trustees in their evaluation of the management
agreements. In particular, because of my technical and quantitative background,
I may use techniques and data that Trustees have not previously felt would be
useful. I view this supplemental analysis as appropriate because my role is to
assist Trustees in their decisions, and to the extent that I bring new ideas or
analysis to the evaluation, I believe this improves the process by which
management fees for the Columbia Funds may be negotiated in accordance with the
AOD.
Finally, as part of my role as IFC, I have, from time to time, sent to Trustees
additional papers and reports produced by third parties that I felt had bearing
on the fee negotiation process. I viewed these materials as educational in
nature and felt they would aid Trustees in placing their work in context.
B. CMG MANAGEMENT INTERVIEWS
As a starting point of my analysis, I have met with members of CMG staff to gain
an understanding of the organizational structure and personnel involved in
running the Columbia fund family.
I have had general discussions and have received information about the
management structure of CMG. My conversations with management have been
informative. In addition, I have participated in Board meetings where Trustees
and management have discussed issues relating to management agreements and
performance of Columbia Funds. When I felt it was appropriate, I added my
opinions on particular matters, such as fund performance or fee levels, to the
discussion.
C. TRUSTEES' FEE AND PERFORMANCE EVALUATION PROCESS
After making initial requests for information, members of the Trustees of the
Columbia Funds met in advance of the October Section 15(c) contract approval
meeting to review certain fee, performance and other data for the Columbia Funds
and to ask questions and make requests of management. Trustees have developed a
process to evaluate the fee and expense levels and performance of Columbia
Funds. This process is used to highlight those funds that have been performing
poorly, may have had higher management fees or expense ratios, or both.
The process involves providing instructions to Lipper to prepare specific data
analyses tailored to the Trustees review framework. These instructions include
highlighting funds that hit one or more fee performance "screens." The six
screens the Trustees use are as follows:
a. 5th Lipper quintile in actual management fee;
b. 5th Lipper quintile in total expense ratio;
c. Three or more 5th Lipper quintile rankings in the 1-, 3-, 5- or 10-year
performance rankings;
d. Sum of the Lipper Quintile Rank (1-year performance) and the Lipper Quintile
Rank (actual management fee) totals a number equal to or higher than 8;
e. Sum of the Lipper Quintile Rank (1-year performance) and the Lipper Quintile
Rank (total expense ratio) totals a number equal to or higher than 8; and
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SUMMARY OF MANAGEMENT FEE EVALUATION BY INDEPENDENT FEE CONSULTANT (CONTINUED)
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f. Sum of the Lipper Quintile Rank (3-year performance) and the Lipper Quintile
Rank (total expense ratio) totals a number equal to or higher than 8.
If a fund hits one or more of these screens, it is highlighted for additional
review by the Trustees. This method is only used as an aid for Trustees to
highlight funds and is not the sole test of whether the Board will determine to
take particular actions concerning fees or performance. Funds that have not been
flagged by this screen also may be singled out for fee and performance reasons,
and the Trustees may determine not to take action with respect to the fees or
performance of funds that have been flagged by the screen. These screens
contribute to the basis for discussions on Trustees' views on the Columbia
Funds.
III. FINDINGS
My findings based on my work as IFC are as follows:
1. The Trustees have the relevant information necessary to form an opinion on
the reasonableness of fees and evaluate the performance of the Columbia Funds.
The process the Trustees used in preparing to reach their determination has been
open and informative. In my view, the 2005 process by which the management fees
of the Columbia Funds have been negotiated thus far has been, to the extent
practicable, at arm's length and reasonable and consistent with the AOD.
2. Columbia Funds demonstrated a range of performance relative to their peers. I
find that across the fund complex, 54.26 percent of Columbia Funds have
performance higher than the median of their respective Lipper performance
universe, and 42.55 percent of Columbia Funds have performance higher than the
median of their respective Lipper performance group. In addition, Lipper
performance universe and group comparison showed that Columbia Funds were
distributed roughly evenly across these quintiles. The Trustees have worked with
management to address issues of funds that have demonstrated consistent or
significant underperformance.
3. Columbia Funds demonstrate a range of management fees and expense ratios
relative to their peers. I find that across the fund complex, 58.51 percent of
Columbia Funds have expenses below the median of their Lipper expense universe,
and 53.19 percent of Columbia Funds have expenses below the median of their
Lipper expense group. In addition, Lipper expense universe and group comparisons
show that Columbia Funds are distributed roughly evenly across these quintiles.
The Trustees have taken steps to limit shareholder expenses for certain funds
having management fees significantly above their peers, often though the use of
fee waivers to which CMG has agreed. Consolidation of various funds and fund
families managed by CMG has resulted in substantial savings in non-advisory
expenses.
4. Profitability to CMG of the individual funds ranges widely, but the overall
profitability to CMG of its relationship with the Columbia Funds appears to fall
within a reasonable range. The method of cost allocation to funds is addressed
in the material provided by CMG to the Trustees, but additional information may
be necessary to make a judgment on fund level profitability. My review of
profitability and cost allocation is ongoing, and I plan to continue to develop
my views with regard to fund level profitability.
5. Columbia Funds have instituted fee schedules with breakpoints designed to
enable investors to benefit from fund economies of scale, although 71% of the
funds have not yet reached their first breakpoint. My analysis of the
appropriateness of the breakpoint levels, which I expect will take into account
the cost and profitability of the individual funds, is ongoing.
My work is ongoing and my views may develop over time in light of new
information and analysis.
Respectfully submitted,
Erik R. Sirri
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TRANSFER AGENT
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IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Intermediate High Income Fund is:
Computershare
P.O. Box 43010
Providence, RI 02940-3010
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 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.
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COLONIAL INTERMEDIATE HIGH INCOME FUND ANNUAL REPORT
--------------------------------------------------------------------------------
SHC-42/92591-1105(01/06)05/9249
ITEM 2. CODE OF ETHICS.
(a) The registrant has, as of the end of the period covered by this report,
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions, regardless
of whether these individuals are employed by the registrant or a third
party.
(b) During the period covered by this report, there were not any amendments to
a provision of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, there were not any waivers or
implicit waivers to a provision of the code of ethics adopted in 2(a)
above.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that Douglas A. Hacker, Thomas
E. Stitzel, Anne-Lee Verville and Richard L. Woolworth, each of whom are members
of the registrant's Board of Trustees and Audit Committee, each qualify as an
audit committee financial expert. Mr. Hacker, Mr. Stitzel, Ms. Verville and Mr.
Woolworth are each independent trustees, as defined in paragraph (a)(2) of this
item's instructions and collectively constitute the entire Audit Committee.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Aggregate Audit Fees billed by the principal accountant for professional
services rendered during the fiscal years ended November 30, 2005 and November
30, 2004 are approximately as follows:
2005 2004
$35,500 $32,900
Audit Fees include amounts related to the audit of the registrant's annual
financial statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years.
(b) Aggregate Audit-Related Fees billed by the principal accountant for
professional services rendered during the fiscal years ended November 30, 2005
and November 30, 2004 are approximately as follows:
2005 2004
$3,900 $3,700
Audit-Related Fees include amounts for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported in Audit Fees
above. In both fiscal years 2005 and 2004, Audit-Related Fees include certain
agreed-upon procedures performed for semi-annual shareholder reports.
(c) Aggregate Tax Fees billed by the principal accountant for professional
services rendered during the fiscal years ended November 30, 2005 and November
30, 2004 are approximately as follows:
2005 2004
$2,500 $2,700
Tax Fees in both fiscal years 2005 and 2004 consist primarily of the review of
annual tax returns. Tax fees include amounts for professional services by the
principal accountant for tax compliance, tax advice and tax planning.
(d) Aggregate All Other Fees billed by the principal accountant for professional
services rendered during the fiscal years ended November 30, 2005 and November
30, 2004 are approximately as follows:
2005 2004
$0 $0
All Other Fees include amounts for products and services provided by the
principal accountant, other than the services reported in paragraphs (a) through
(c) above.
None of the amounts described in paragraphs (a) through (d) above were approved
pursuant to the "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01
of Regulation S-X.
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
I. GENERAL OVERVIEW
The Audit Committee of the registrant has adopted a formal policy (the "Policy")
which sets forth the procedures and the conditions pursuant to which the Audit
Committee will pre-approve (i) all audit and non-audit (including audit related,
tax and all other) services provided by the registrant's independent auditor to
the registrant and individual funds
(collectively "Fund Services"), and (ii) all non-audit services provided by the
registrant's independent auditor to the funds' adviser or a control affiliate of
the adviser, that relate directly to the funds' operations and financial
reporting (collectively "Fund-related Adviser Services"). A "control affiliate"
is an entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the funds, and the term "adviser" is
deemed to exclude any unaffiliated sub-adviser whose role is primarily portfolio
management and is sub-contracted or overseen by another investment adviser. The
adviser and control affiliates are collectively referred to as "Adviser
Entities."
The Audit Committee uses a combination of specific (on a case-by-case basis as
potential services are contemplated) and general (pre-determined list of
permitted services) pre-approvals. Unless a type of service has received general
pre-approval, it will require specific pre-approval by the Audit Committee if it
is to be provided by the independent auditor.
The Policy does not delegate the Audit Committee's responsibilities to
pre-approve services performed by the independent auditor to management.
II. GENERAL PROCEDURES
On an annual basis, the Fund Treasurer and/or Director of Trustee Administration
shall submit to the Audit Committee a schedule of the types of Fund Services and
Fund-related Adviser Services that are subject to general pre-approval.
These schedules will provide a description of each type of service that is
subject to general pre-approval and, where possible, will provide estimated fees
for each instance of providing each service. This general pre-approval and
related fees (where provided) will generally cover a one-year period (for
example, from June 1 through May 31 of the following year). The Audit Committee
will review and approve the types of services and review the projected fees for
the next one-year period and may add to, or subtract from, the list of general
pre-approved services from time to time, based on subsequent determinations.
This approval acknowledges that the Audit Committee is in agreement with the
specific types of services that the independent auditor will be permitted to
perform. The fee amounts will be updated to the extent necessary at other
regularly scheduled meetings of the Audit Committee.
In addition to the fees for each individual service, the Audit Committee has the
authority to implement a fee cap on the aggregate amount of non-audit services
provided to an individual fund.
If, subsequent to general pre-approval, a fund, its investment adviser or a
control affiliate determines that it would like to engage the independent
auditor to perform a service that requires pre-approval and that is not included
in the general pre-approval list, the specific pre-approval procedure shall be
as follows:
o A brief written request shall be prepared by management detailing the
proposed engagement with explanation as to why the work is proposed to
be performed by the independent auditor;
o The request should be addressed to the Audit Committee with copies to
the Fund Treasurer and/or Director of Trustee Administration;
o The Fund Treasurer and/or Director of Trustee Administration will
arrange for a discussion of the service to be included on the agenda
for the next regularly scheduled Audit Committee meeting, when the
Committee will discuss the proposed engagement and approve or deny the
request.
o If the timing of the project is critical and the project needs to
commence before the next regularly scheduled meeting, the Chairperson
of the Audit Committee may approve or deny the request on behalf of
the Audit Committee, or, in the Chairperson's discretion, determine to
call a special meeting of the Audit Committee for the purpose of
considering the proposal. Should the Chairperson of the Audit
Committee be unavailable, any other member of the Audit Committee may
serve as an alternate for the purpose of approving or denying the
request. Discussion with the Chairperson (or alternate, if necessary)
will be arranged by the Fund Treasurer and/or Director of Trustee
Administration. The independent auditor will not commence any such
project unless and until specific approval has been given.
III. CERTAIN OTHER SERVICES PROVIDED TO ADVISER ENTITIES
The Audit Committee recognizes that there are cases where services proposed to
be provided by the independent auditor to the adviser or control affiliates are
not Fund-related Adviser Services within the meaning of the Policy, but
nonetheless may be relevant to the Audit Committee's ongoing evaluation of the
auditor's independence and objectivity with respect to its audit services to the
funds. As a result, in all cases where an Adviser Entity engages the independent
auditor to provide audit or non-audit services that are not Fund Services or
Fund-related Adviser Services, were not subject to pre-approval by the Audit
Committee, and the projected fees for any such engagement (or the aggregate of
all such engagements during the period covered by the Policy) exceeds a
pre-determined threshold established by the Audit Committee; the independent
auditor, Fund Treasurer and/or Director of Trustee Administration will notify
the Audit Committee not later than its next meeting. Such notification shall
include a general description of the services provided, the entity that is to be
the recipient of such services, the timing of the engagement, the entity's
reasons for selecting the independent auditor, and the projected fees. Such
information will allow the Audit Committee to consider whether non-audit
services provided to the adviser and Adviser Entities, which were not subject to
Audit Committee pre-approval, are compatible with maintaining the auditor's
independence with respect to the Funds.
IV. REPORTING TO THE AUDIT COMMITTEE
The Fund Treasurer or Director of Trustee Administration shall report to the
Audit Committee at each of its regular meetings regarding all Fund Services or
Fund-related Adviser Services initiated since the last such report was rendered,
including:
o A general description of the services, and
o Actual billed and projected fees, and
o The means by which such Fund Services or Fund-related Adviser Services
were pre-approved by the Audit Committee.
In addition, the independent auditor shall report to the Audit Committee
annually, and no more than 90 days prior to the filing of audit reports with the
SEC, all non-audit services provided to entities in the funds' "investment
company complex," as defined by SEC rules, that did not require pre-approval
under the Policy.
V. AMENDMENTS; ANNUAL APPROVAL BY AUDIT COMMITTEE
The Policy may be amended from time to time by the Audit Committee. Prompt
notice of any amendments will be provided to the independent auditor, Fund
Treasurer and Director of Trustee Administration. The Policy shall be reviewed
and approved at least annually by the Audit Committee.
*****
(e)(2) The percentage of services described in paragraphs (b) through (d) of
this Item approved pursuant to the "de minimis" exception under paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X during both fiscal years ended
November 30, 2005 and November 30, 2004 was zero.
(f) Not applicable.
(g) All non-audit fees billed by the registrant's accountant for services
rendered to the registrant for the fiscal years ended November 30, 2005 and
November 30, 2004 are disclosed in (b) through (d) of this Item.
During the fiscal years ended November 30, 2005 and November 30, 2004, there
were no Audit-Related Fees, Tax Fees or All Other Fees that were approved for
services to the investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser) and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant under
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
The percentage of Audit-Related Fees, Tax Fees and All Other Fees required to be
approved under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X that were
approved under the "de minimis" exception during both fiscal years ended
November 30, 2005 and November 30, 2004 was zero.
(h) The registrant's Audit Committee of the Board of Directors has considered
whether the provision of non-audit services that were rendered to the
registrant's adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X, is compatible with maintaining the principal accountant's
independence. The Audit Committee determined that the provision of such services
is compatible with maintaining the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C.
78c(a)(58)(A)). Douglas A. Hacker, Thomas E. Stitzel, Anne-Lee Verville and
Richard L. Woolworth are each independent trustees and collectively constitute
the entire Audit Committee.
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.
The Fund has delegated to Columbia Management Advisors, LLC (the "Advisor") the
responsibility to vote proxies relating to portfolio securities held by the
Fund. In deciding to delegate this responsibility to the Advisor, the Board of
Trustees of the Trust reviewed and approved the policies and procedures adopted
by the Advisor. These included the procedures that the Advisor follows when a
vote presents a conflict between the interests of the Fund and its shareholders
and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner
considered by the Advisor to be in the best interest of the Fund and its
shareholders without regard to any benefit to the Advisor, its affiliates, its
other clients or other persons. The Advisor examines each proposal and votes
against the proposal, if, in its judgment, approval or adoption of the proposal
would be expected to impact adversely the current or potential market value of
the issuer's securities. The Advisor also examines each proposal and votes the
proxies against the proposal, if, in its judgment, the proposal would be
expected to affect adversely the best interest of the Fund. The Advisor
determines the best interest of the Fund in light of the potential economic
return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having
predetermined voting guidelines. For those proposals that require special
consideration or in instances where special circumstances may require varying
from the predetermined guideline, the Advisor's Proxy Committee determines the
vote in the best interest of the Fund, without consideration of any benefit to
the Advisor, its affiliates, its other clients or other persons. The Advisor's
Proxy Committee is composed of representatives of the Advisor's equity
investments, equity research, compliance, legal and fund administration
functions. In addition to the responsibilities described above, the Proxy
Committee has the responsibility to review, on a semi-annual basis, the
Advisor's proxy voting policies to ensure consistency with internal and
regulatory agency policies and to develop additional predetermined voting
guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines
that voting on the proposal according to the predetermined guideline would be
expected to impact adversely the current or potential market value of the
issuer's securities or to affect adversely the best interest of the client.
References to the best interest of a client refer to the interest of the client
in terms of the potential economic return on the client's investment. In
determining the vote on any proposal, the Proxy Committee does not consider any
benefit other than benefits to the owner of the securities to be voted. A member
of the Proxy Committee is prohibited from voting on any proposal for which he or
she has a conflict of interest by reason of a direct relationship with the
issuer or other party affected by a given proposal. Persons making
recommendations to the Proxy Committee or its members are required to disclose
to the Committee any relationship with a party making a proposal or other matter
known to the person that would create a potential conflict of interest.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third
party vendor, to implement its proxy voting process. ISS provides proxy
analysis, record keeping services and vote disclosure services.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not yet 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 Publically Be Purchased Under
of Shares Paid Per Share Announced Plans the Plans or Programs
--------------------------------------------------------------------------------------------------------------------------
06/01/05 through 06/30/05 15,399 $3.59 15,399 N/A
07/01/05 through 07/31/05 15,416 $3.59 15,416 N/A
08/01/05 through 08/31/05 15,493 $3.54 15,493 N/A
09/01/05 through 09/30/05 16,600 $3.30 16,600 N/A
10/01/05 through 10/31/05 16,707 $3.28 16,707 N/A
11/01/05 through 11/30/05 17,089 $3.20 17,089 N/A
--------------------------------------------------------------------------------------------------------------------------
Total 96,704 $3.41 96,704 N/A
--------------------------------------------------------------------------------------------------------------------------
* 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 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, has 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
attached hereto as Exhibit 99.CODE ETH.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of
1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Colonial Intermediate High Income Fund
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By (Signature and Title) /S/ Christopher L. Wilson
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Christopher L. Wilson, President
Date January 25, 2006
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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 January 25, 2006
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By (Signature and Title) /S/ J. Kevin Connaughton
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J. Kevin Connaughton, Treasurer
Date January 25, 2006
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