UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-5567
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Colonial Intermediate High Income Fund
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(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
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(Address of principal executive offices) (Zip code)
Vincent Pietropaolo, Esq.
Columbia Management Group, Inc.
One Financial Center
Boston, MA 02111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-772-3698
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Date of fiscal year end: 11/30/2004
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Date of reporting period: 05/31/2004
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
COLONIAL INTERMEDIATE HIGH INCOME FUND SEMIANNUAL REPORT
MAY 31, 2004
[PHOTO OF NEWSPAPER AND CALCULATOR]
PRESIDENT'S MESSAGE
July 21, 2004
Dear Shareholder:
We are pleased to let you know that FleetBoston Financial Corporation and Bank
of America Corporation have merged, effective April 1, 2004. As a result of the
merger, Columbia Management Group and your Colonial Intermediate High Income
Fund became part of the Bank of America family of companies. Looking ahead, we
believe this merger will be a real benefit to our shareholders. Preserving and
leveraging our strengths, the combined organization intends to deliver
additional research and management capabilities, as well as new products. There
are no immediate changes planned for fund names, product lines, or customer
service contacts.
As you might know, on March 15, 2004, FleetBoston Financial announced an
agreement in principle with the staff of the Securities and Exchange Commission
("SEC") and the New York Attorney General ("NYAG") to settle charges involving
market timing in Columbia Management mutual funds. (You may also know that Bank
of America came to a similar settlement in principle at the same time.) The
agreement requires the final approval of the SEC and the NYAG. This settlement
in principle reflects our strong wish to put this regrettable situation behind
us. Columbia Management has taken and will continue to take steps to strengthen
policies, procedures and oversight to curb frequent trading of Columbia open-end
fund shares.
Both your fund's trustees and Columbia Management are committed to serving the
interests of our shareholders, and we will continue to work hard to help you
achieve your financial goals.
As always, thank you for choosing Colonial Intermediate High Income Fund, and
for giving us the opportunity to help you build a strong financial future.
Sincerely,
/s/ Thomas C. Theobald /s/ J. Kevin Connaughton
Thomas C. Theobald J. Kevin Connaughton
Chairman, Board of Trustees President
J. Kevin Connaughton was named president of Colonial Intermediate High Income
Fund on February 27, 2004.
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
Economic and market conditions change frequently. There is no assurance that
trends described in this report will continue or commence.
PORTFOLIO MANAGERS' REPORT
[SIDEBAR DATA]:
PRICE PER SHARE
AS OF 05/31/04 ($)
Net asset value 3.54
-----------------------------
Market price 3.22
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SIX-MONTH (CUMULATIVE) TOTAL RETURN AS OF 05/31/04 (%)
Net asset value 3.26
-----------------------------
Market price -3.81
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Lipper High Current
Yield Funds (Leveraged)
Category average 4.91
-----------------------------
All results shown assume reinvestment of distributions.
DISTRIBUTIONS DECLARED PER
SHARE 12/01/03-05/31/04 ($)
0.16
-----------------------------
TOP 5 SECTORS AS OF 05/31/04 (%)
Amusement & recreation 9.5
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Radiotelephone
communications 5.6
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Independent
power producers 5.4
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Cable 5.1
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Chemicals &
allied products 4.9
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Sector breakdowns are calculated as a percentage of total investments.
TOP 10 CORPORATE ISSUERS AS OF 05/31/04 (%)
Qwest 1.8
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El Paso 1.7
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Charter Communications
Holdings 1.5
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Dex Media 1.4
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Allied Waste
North America 1.1
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Calpine 1.1
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Pinnacle Entertainment 1.1
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D.R. Horton 1.0
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AES 1.0
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Premier International
Foods 1.0
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Corporate issuers are calculated as a percentage of total investments.
Because the fund is actively managed, there can be no guarantee that the fund
will continue to hold securities of these issuers in these sectors in the
future.
For the six-month period ended May 31, 2004, Colonial Intermediate High Income
Fund returned 3.26%, based on investment at net asset value. The fund
underperformed the Lipper High Current Yield Funds (Leveraged) Category average,
which was 4.91%.1 We believe the fund trailed its peers because, although we
increased our exposure to lower-rated issues during the period, we remained less
aggressively positioned at a time when lower-rated issues were strong
performers. Also, several peer funds maintain higher leverage, which helped
performance as high-yield bonds rallied.
Consumer products, chemical and metals companies all benefited from continued
economic expansion, and many of the fund's positions in these sectors
contributed to the fund's return. In consumer products, our position in Levi
Strauss (0.4% of total investments) appreciated as strong product sales through
Wal-Mart Stores (not in the portfolio) improved Levi's operating results. Levi's
is also expected to realize a substantial gain on the sale of its Dockers brand.
Within the chemical sector, profit margins improved despite increased costs for
natural gas. Our position in UAP Holdings (0.5% of total investments) benefited
from this trend. Its bonds appreciated as the company experienced improving
demand for fertilizer and agricultural chemicals. Huntsman ICI Holdings (1.0% of
total investments) benefited as demand drove up prices of commodity chemicals.
Finally, rising steel prices drove a sharp operating improvement at Oregon Steel
Mills (0.3% of total investments) during the period, and the bonds gained in
value.
In other industries, ongoing growth in the US cellular market aided bonds of US
Unwired (0.8% of total investments). Securities of LaBranche & Co. (0.5% of
total investments), a specialist member of the New York Stock Exchange, rose
after the company announced a settlement agreement with the Securities and
Exchange Commission on specialist trading charges and completed a successful
refinancing, during which the fund's holdings were called in at favorable
prices.
The fund's disappointments included Level 3 Communications (0.3% of total
investments), which provides Internet connectivity for broadband and DSL
communications. The bonds of Delta Air Lines (0.3% of total
-----------
1 Lipper Inc., a widely respected data provider, calculates an average total
return for mutual funds with similar investment objectives.
1
PORTFOLIO MANAGERS' REPORT (CONTINUED)
investments) declined in value as high labor costs and soaring jet fuel prices
ate into revenues. Electric utility Calpine (1.1% of total investments)
underperformed when the rising cost of natural gas undercut its competitive
position versus utility companies that burn less costly fuels.
COUNTERVAILING FORCES AT WORK GOING FORWARD
We believe that high-yield markets now face countervailing forces. On the
positive side, a stronger economy means that many issuers have the potential to
increase revenues and strengthen their financial conditions. During the
reporting period, defaults among high-yield issuers fell below two percent.
However, rising interest rates and a heavy volume of new issuance could hold
prices down.
To increase potential returns in this environment, we selectively increased the
fund's CCC- and lower-rated holdings. These lower-quality securities typically
benefit the most from an economic recovery, tend to be the least negatively
affected by higher interest rates and also tend to generate higher yields than
higher-rated securities. In addition, we trimmed exposure to sectors that are
more sensitive to rising interest rates and avoided lower-coupon, longer
maturity issues that might be vulnerable to rising rates.
Sincerely,
/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, a member of the High Yield Portfolio Management Team at
Columbia Management Advisors, Inc. (the "advisor"), has been a portfolio manager
of Colonial Intermediate High Income Fund since June 2000. Mr. Smalley joined an
affiliate of the advisor in August 1997 as a research analyst specializing in
the energy, cable, and telecom industries.
Kevin L. Cronk, CFA, a member of the advisor's High Yield Portfolio Management
Team, has co-managed the fund since February 2003. Mr. Cronk joined an affiliate
of the advisor in August 1999 as a research analyst specializing in the
chemicals, healthcare and telecom industries. Prior to joining the advisor, Mr.
Cronk was an investment associate in the High Yield Group at Putnam Investments
from May 1996 to July 1999.
Thomas A. LaPointe, CFA, a member of the advisor's High Yield Portfolio
Management Team, has co-managed the fund since February 2003. Mr. LaPointe
joined an affiliate of the advisor in February 1999 as a senior member of the
Fixed Income Department's research group and has provided high-yield analytical
support to mutual funds investing in the metals, gaming and European telecom
industries. Before joining the advisor, Mr. LaPointe was a convertible arbitrage
analyst at the Canadian Imperial Bank of Commerce from April 1998 to February
1999.
2
PORTFOLIO MANAGERS' REPORT (CONTINUED)
Past performance is no guarantee of future investment results. Current
performance may be higher or lower than the performance data quoted.
Investing in high-yield bonds involves greater credit risk and other risks not
associated with investing in higher-quality bonds. Bond investing also involves
interest rate risk, which means that bond prices may change as interest rates
increase or decrease.
3
INVESTMENT PORTFOLIO
May 31, 2004 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES - 126.9% PAR VALUE ($)
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AGRICULTURE - 0.6%
AGRICULTURE PRODUCTION - 0.6%
Seminis, Inc.,
10.250% 10/01/13 USD 438,000 473,040
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Agriculture Production Total 473,040
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AGRICULTURE TOTAL 473,040
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CONSTRUCTION - 5.6%
BUILDING CONSTRUCTION - 5.6%
Associated Materials, Inc.:
(b) 03/01/14
(11.250% 03/01/09) (a) 205,000 134,275
9.750% 04/15/12 325,000 355,875
Atrium Companies, Inc.:
10.500% 05/01/09 245,000 257,250
10.500% 05/01/09 (a) 200,000 210,000
D.R. Horton, Inc.,
9.750% 09/15/10 955,000 1,088,700
K. Hovnanian Enterprises, Inc.:
8.875% 04/01/12 170,000 177,225
10.500% 10/01/07 340,000 390,150
Norcraft Companies,
9.000% 11/01/11 (a) 140,000 147,700
Nortek Holdings, Inc.,
(b) 05/15/11
(10.000% 11/15/07) (a) 540,000 402,300
Standard Pacific Corp.,
9.250% 04/15/12 415,000 444,050
WII Components, Inc.,
10.000% 02/15/12 (a) 320,000 315,200
William Lyon Homes, Inc.,
10.750% 04/01/13 210,000 232,575
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Building Construction Total 4,155,300
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CONSTRUCTION TOTAL 4,155,300
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FINANCE, INSURANCE & REAL ESTATE - 4.3%
DEPOSITORY INSTITUTIONS - 0.3%
Western Financial Bank,
9.625% 05/15/12 210,000 227,850
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Depository Institutions Total 227,850
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FINANCIAL SERVICES - 3.8%
Dollar Financial Group, Inc.,
9.750% 11/15/11 405,000 413,100
FINOVA Group, Inc.,
7.500% 11/15/09 538,187 296,003
Global Cash Access LLC,
8.750% 03/15/12 (a) 340,000 351,900
LaBranche & Co., Inc.,
11.000% 05/15/12 (a) 505,000 515,100
Thornburg Mortgage, Inc.,
8.000% 05/15/13 250,000 246,250
TRAC-X North American High Yield,
8.000 03/25/09 (a) 1,000,000 955,000
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Financial Services Total 2,777,353
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PAR VALUE ($)
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REAL ESTATE - 0.2%
Forest City Enterprises, Inc.,
7.625% 06/01/15 USD 165,000 170,775
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Real Estate Total 170,775
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FINANCE, INSURANCE
& REAL ESTATE TOTAL 3,175,978
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INDUSTRIALS - 0.3%
INDUSTRIAL CONGLOMERATES - 0.3%
SPX Corp.,
7.500% 01/01/13 250,000 254,375
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Industrial Conglomerates Total 254,375
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INDUSTRIALS TOTAL 254,375
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MANUFACTURING - 41.5%
APPAREL - 1.4%
Broder Brothers Co.,
11.250% 10/15/10 225,000 217,125
Levi Strauss & Co.,
12.250% 12/15/12 425,000 386,750
Phillips-Van Heusen Corp.,
7.250% 02/15/11 (a) 300,000 300,000
Warnaco, Inc.,
8.875% 06/15/13 100,000 105,750
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Apparel Total 1,009,625
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AUTO PARTS & EQUIPMENT - 2.1%
Accuride Corp.,
9.250% 02/01/08 155,000 157,712
Dana Corp.,
9.000% 08/15/11 210,000 237,825
Delco Remy International, Inc.:
9.375% 04/15/12 (a) 65,000 62,888
11.000% 05/01/09 250,000 262,500
Dura Operating Corp.:
8.625% 04/15/12 345,000 348,450
9.000% 05/01/09 250,000 242,500
Navistar International Corp.,
7.500% 06/15/11 (e) 185,000 185,462
TRW Automotive, Inc.,
9.375% 02/15/13 76,000 84,170
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Auto Parts & Equipment Total 1,581,507
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CHEMICALS & ALLIED PRODUCTS - 6.9%
Avecia Group PLC,
11.000% 07/01/09 400,000 294,000
Equistar Chemicals LP:
10.125% 09/01/08 305,000 330,925
10.625% 05/01/11 200,000 219,000
Huntsman ICI Holdings LLC,
(c) 12/31/09 2,125,000 1,041,250
IMC Global, Inc.,
10.875% 08/01/13 310,000 372,000
INVISTA,
9.250% 05/01/12 (a) 210,000 208,425
Koppers Industries, Inc.,
9.875% 10/15/13 (a) 360,000 387,000
See notes to investment portfolio.
4
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2004 (unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
-----------------------------------------------------------
MANUFACTURING (CONTINUED)
CHEMICALS & ALLIED PRODUCTS (CONTINUED)
Lyondell Chemical Co.,
9.625% 05/01/07 USD 440,000 457,600
9.875% 05/01/07 180,000 187,200
NOVA Chemicals Corp.,
6.500% 01/15/12 170,000 166,983
Terra Capital, Inc.,
12.875% 10/15/08 475,000 565,250
UAP Holding Corp.:
(b) 07/15/12
(10.750% 01/15/08) (a) 295,000 230,100
8.250% 12/15/11 (a) 245,000 274,400
Westlake Chemical Corp.,
8.750% 07/15/11 395,000 426,600
-----------
Chemicals & Allied Products Total 5,160,733
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ELECTRONIC & ELECTRICAL EQUIPMENT - 1.2%
Amkor Technology, Inc.,
9.250% 02/15/08 285,000 300,675
Lucent Technologies, Inc.,
6.450% 03/15/29 335,000 252,925
Stratus Technologies, Inc.,
10.375% 12/01/08 (a) 200,000 195,000
Xerox Corp.,
7.125% 06/15/10 160,000 160,000
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Electronic & Electrical Equipment Total 908,600
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FABRICATED METAL - 0.6%
Earle M. Jorgensen Co.,
9.750% 06/01/12 425,000 463,250
-----------
Fabricated Metal Total 463,250
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FOOD & KINDRED PRODUCTS - 4.9%
Constellation Brands, Inc.,
8.125% 01/15/12 270,000 283,500
Del Monte Corp.,
9.250% 05/15/11 500,000 536,250
Dole Food Co., Inc.,
8.625% 05/01/09 415,000 419,150
Merisant Co.,
9.500% 07/15/13 (a) 205,000 219,350
Pinnacle Foods,
8.250% 12/01/13 (a) 385,000 380,188
Premier International Foods PLC,
12.000% 09/01/09 1,000,000 1,062,500
Roundy's, Inc.,
8.875% 06/15/12 410,000 438,700
Tabletop Holdings, Inc.,
(b) 05/15/14
(12.250% 11/15/08) (a) 525,000 294,000
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Food & Kindred Products Total 3,633,638
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PAR VALUE ($)
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FURNITURE & FIXTURES - 1.0%
Congoleum Corp.,
8.625% 08/01/08 (d) USD 225,000 164,250
Juno Lighting, Inc.,
11.875% 07/01/09 295,000 314,175
Tempur-Pedic, Inc.,
10.250% 08/15/10 222,000 250,860
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Furniture & Fixtures Total 729,285
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HOUSEHOLD PRODUCTS - 1.1%
Elizabeth Arden, Inc.,
7.750% 01/15/14 (a) 245,000 243,775
Playtex Products, Inc.,
9.375% 06/01/11 600,000 579,000
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Household Products Total 822,775
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LUMBER & WOOD - 0.5%
Georgia-Pacific Corp.,
8.000% 01/15/24 (a) 130,000 126,425
Millar Western Forest Products,
7.750% 11/15/13 (a) 225,000 226,125
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Lumber & Wood Total 352,550
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MISCELLANEOUS MANUFACTURING - 6.7%
Amscan Holdings, Inc.,
8.750% 05/01/14 (a) 360,000 358,200
FastenTech, Inc.,
11.500% 05/01/11 (a) 460,000 494,500
Flowserve Corp.,
12.250% 08/15/10 361,000 407,930
Hexcel Corp.,
9.750% 01/15/09 370,000 385,725
J.B. Poindexter & Co.,
8.750% 03/15/14 (a) 335,000 329,975
MAAX Corp.,
9.750% 06/15/12 (a)(e) 210,000 215,250
Mueller Group, Inc.,
(b) 04/15/14
(14.750% 04/15/09) 375,000 204,375
10.000% 05/01/12 (a) 165,000 169,125
Rexnord Corp.,
10.125% 12/15/12 195,000 210,600
Superior Essex Communications LLC,
9.000% 04/15/12 (a) 260,000 248,300
Tekni-Plex, Inc.,
12.750% 06/15/10 565,000 565,000
Terex Corp.,
10.375% 04/01/11 320,000 355,200
TriMas Corp.,
9.875% 06/15/12 725,000 772,125
Trinity Industries, Inc.,
6.500% 03/15/14 (a) 165,000 155,100
Valmont Industries, Inc.,
6.875% 05/01/14 (a) 105,000 102,900
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Miscellaneous Manufacturing Total 4,974,305
See notes to investment portfolio.
5
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2004 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
-----------------------------------------------------------
MANUFACTURING (CONTINUED)
PAPER PRODUCTS - 4.0%
Applied Extrusion Technologies, Inc.,
10.750% 07/01/11 USD 260,000 165,100
Buckeye Technologies, Inc.:
8.500% 10/01/13 60,000 61,200
9.250% 09/15/08 235,000 230,300
Caraustar Industries, Inc.,
9.875% 04/01/11 355,000 353,225
Consolidated Container Co. LLC,
(b) 06/15/09
(10.750% 06/15/07) (a) 280,000 208,600
MDP Acquisitions PLC,
9.625% 10/01/12 525,000 567,000
Newark Group, Inc.,
9.750% 03/15/14 (a) 205,000 193,725
Norske Skog Canada Ltd.:
7.375% 03/01/14 (a) 105,000 102,675
8.625% 06/15/11 150,000 158,250
Portola Packaging, Inc.,
8.250% 02/01/12 (a) 210,000 175,350
Smurfit-Stone Container Corp.,
8.250% 10/01/12 450,000 456,750
Solo Cup Co.,
8.500% 02/15/14 (a) 140,000 140,000
Tembec Industries, Inc.,
8.500% 02/01/11 125,000 123,750
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Paper Products Total 2,935,925
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PRIMARY METAL - 2.7%
Bayou Steel Corp.,
9.000% 03/31/11 250,000 226,250
Kaiser Aluminum & Chemical Corp.,
10.875% 10/15/06 (f) 505,000 499,950
Metallurg, Inc.,
11.000% 12/01/07 200,000 96,000
Oregon Steel Mills, Inc.,
10.000% 07/15/09 275,000 283,250
Steel Dynamics, Inc.:
9.500% 03/15/09 80,000 87,600
9.500% 03/15/09 (a) 80,000 87,600
UCAR Finance, Inc.,
10.250% 02/15/12 355,000 392,275
Wise Metals Group LLC,
10.250% 05/15/12 (a) 315,000 318,150
-----------
Primary Metal Total 1,991,075
-----------
PRINTING & PUBLISHING - 5.7%
Dex Media, Inc.:
(b) 11/15/13
(9.000% 11/15/08) (a) 250,000 161,250
8.000% 11/15/13 (a) 320,000 304,000
Dex Media East LLC,
12.125% 11/15/12 565,000 658,225
Dex Media West LLC,
9.875% 08/15/13 (a) 280,000 308,350
PAR VALUE ($)
-----------------------------------------------------------
Haights Cross Communications:
(b) 08/15/11
(12.500% 02/01/09) (a) USD 315,000 171,675
11.750% 08/15/11 165,000 177,375
Hollinger, Inc.,
11.875% 03/01/11 (a) 295,000 342,937
Quebecor Media, Inc.,
11.125% 07/15/11 725,000 821,063
Sheridan Group,
10.250% 08/15/11 (a) 250,000 264,375
Von Hoffmann Corp.,
10.250% 03/15/09 620,000 616,900
Yell Finance BV,
10.750% 08/01/11 388,000 450,080
-----------
Printing & Publishing Total 4,276,230
-----------
STONE, CLAY, GLASS & CONCRETE - 1.9%
Crown European Holdings SA,
10.875% 03/01/13 280,000 313,600
Owens-Brockway Glass Container,
8.250% 05/15/13 600,000 594,000
Owens-Illinois, Inc.:
7.350% 05/15/08 200,000 192,000
7.500% 05/15/10 75,000 70,500
U.S. Concrete, Inc.,
8.375% 04/01/14 (a) 275,000 272,937
-----------
Stone, Clay, Glass & Concrete Total 1,443,037
-----------
TEXTILE MILL PRODUCTS - 0.3%
Collins & Aikman Floorcovering, Inc.,
9.750% 02/15/10 225,000 228,375
-----------
Textile Mill Products Total 228,375
-----------
TOBACCO PRODUCTS - 0.3%
North Atlantic Trading Co., Inc.,
9.250% 03/01/12 (a) 225,000 224,437
-----------
Tobacco Products Total 224,437
-----------
TRANSPORTATION EQUIPMENT - 0.2%
Newcor, Inc., PIK,
6.000% 01/01/13 (g) 215,562 131,493
-----------
Transportation Equipment Total 131,493
-----------
MANUFACTURING TOTAL 30,866,840
-----------
-----------------------------------------------------------
MINING & ENERGY - 6.2%
OIL & GAS EXTRACTION - 4.2%
Benton Oil & Gas Co.,
9.375% 11/01/07 485,000 494,700
Chesapeake Energy Corp.,
7.500% 06/15/14 (a) 135,000 139,050
Compton Petroleum Corp.,
9.900% 05/15/09 475,000 515,375
Denbury Resources, Inc.,
7.500% 04/01/13 75,000 75,000
Encore Acquisition Co.,
8.375% 06/15/12 325,000 344,500
See notes to investment portfolio.
6
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2004 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
-----------------------------------------------------------
MINING & ENERGY (CONTINUED)
OIL & GAS EXTRACTION (CONTINUED)
Energy Partners Ltd.,
8.750% 08/01/10 USD 205,000 212,175
Forest Oil Corp.,
8.000% 06/15/08 400,000 421,000
Magnum Hunter Resources, Inc.,
9.600% 03/15/12 435,000 474,150
Whiting Petroleum Corp.,
7.250% 05/01/12 (a) 425,000 426,063
-----------
Oil & Gas Extraction Total 3,102,013
-----------
OIL & GAS FIELD SERVICES - 2.0%
CHC Helicopter Corp.,
7.375% 05/01/14 (a) 275,000 268,813
J. Ray McDermott SA,
11.000% 12/15/13 (a) 175,000 165,812
Newpark Resources, Inc.,
8.625% 12/15/07 270,000 276,750
Petroleum Helicopters, Inc.,
9.375% 05/01/09 530,000 551,200
Premcor Refining Group, Inc.,
7.500% 06/15/15 235,000 239,700
-----------
Oil & Gas Field Services Total 1,502,275
-----------
MINING & ENERGY TOTAL 4,604,288
-----------
-----------------------------------------------------------
RETAIL TRADE - 2.3%
APPAREL & ACCESSORY STORES - 0.5%
Finlay Fine Jewelry Corp.,
8.375% 06/01/12 (a)(e) 280,000 284,900
Saks, Inc.,
7.000% 12/01/13 83,000 81,755
-----------
Apparel & Accessory Stores Total 366,655
-----------
MISCELLANEOUS RETAIL - 1.8%
Asbury Automotive Group, Inc.,
8.000% 03/15/14 320,000 296,000
Leiner Health Products,
11.000% 06/01/12 (a) 80,000 82,800
Nebraska Book Co., Inc.,
8.625% 03/15/12 (a) 205,000 202,438
Rite Aid Corp.,
9.250% 06/01/13 470,000 481,750
Steinway Musical Instruments, Inc.,
8.750% 04/15/11 265,000 286,200
-----------
Miscellaneous Retail Total 1,349,188
-----------
RETAIL TRADE TOTAL 1,715,843
-----------
-----------------------------------------------------------
SERVICES - 22.4%
AMUSEMENT & RECREATION - 13.3%
American Casino & Entertainment
Properties LLC,
7.850% 02/01/12 (a) 395,000 395,988
Ameristar Casinos, Inc.,
10.750% 02/15/09 400,000 458,000
PAR VALUE ($)
-----------------------------------------------------------
AMF Bowling Worldwide, Inc.,
10.000% 03/01/10 (a) USD 245,000 248,675
Bombardier Recreational Products,
8.375% 12/15/13 (a) 520,000 488,800
Boyd Gaming Corp.,
8.750% 04/15/12 125,000 132,813
Cinemark, Inc.,
(b) 03/15/14
(9.750% 03/15/09) (a) 470,000 298,450
Circus-Circus & Eldorado/Silver Legacy,
10.125% 03/01/12 225,000 224,437
Equinox Holdings, Inc.,
9.000% 12/15/09 (a) 405,000 407,025
Hard Rock Hotel, Inc.,
8.875% 06/01/13 290,000 294,350
Hollywood Casino Shrevport,
13.000% 08/01/06 (h) 950,000 703,000
Inn of the Mountain Gods
Resort & Casino,
12.000% 11/15/10 (a) 240,000 260,400
Mohegan Tribal Gaming Authority,
8.000% 04/01/12 500,000 527,500
Park Place Entertainment Corp.,
9.375% 02/15/07 435,000 469,800
Pinnacle Entertainment, Inc.:
8.250% 03/15/12 (a) 200,000 189,500
8.750% 10/01/13 1,015,000 994,700
Premier Entertainment Biloxi LLC,
10.750% 02/01/12 (a) 200,000 210,500
River Rock Entertainment,
9.750% 11/01/11 (a) 370,000 392,200
Seneca Gaming Corp.,
7.250% 05/01/12 (a) 345,000 341,550
Six Flags, Inc.,
9.500% 02/01/09 845,000 860,844
Station Casinos, Inc.:
6.000% 04/01/12 170,000 161,925
6.875% 03/01/16 290,000 274,050
Town Sports International, Inc.,
(b) 02/01/14
(11.000% 02/01/14) (a) 410,000 202,950
Trump Casino Holdings LLC,
17.625% 09/15/10 PIK 365,000 368,650
Vail Resorts, Inc.,
6.750% 02/15/14 (a) 285,000 265,050
Warner Music Group,
7.375% 04/15/14 (a) 380,000 370,500
Wynn Las Vegas LLC,
12.000% 11/01/10 300,000 351,000
-----------
Amusement & Recreation Total 9,892,657
-----------
FUNERAL SERVICES - 0.6%
Service Corp. International,
7.700% 04/15/09 450,000 465,750
-----------
Funeral Services Total 465,750
-----------
See notes to investment portfolio.
7
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2004 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
-----------------------------------------------------------
SERVICES (CONTINUED) HEALTH SERVICES - 5.1%
Bio-Rad Laboratories, Inc.,
7.500% 08/15/13 USD 340,000 351,900
Coventry Health Care, Inc.,
8.125% 02/15/12 525,000 585,375
HCA, Inc.,
8.750% 09/01/10 275,000 309,254
InSight Health Services Corp.,
9.875% 11/01/11 490,000 498,575
MedQuest, Inc.,
11.875% 08/15/12 500,000 562,500
PacifiCare Health Systems, Inc.,
10.750% 06/01/09 125,000 142,812
Team Health, Inc.,
9.000% 04/01/12 (a) 295,000 278,775
Tenet Healthcare Corp.:
5.375% 11/15/06 125,000 117,813
6.375% 12/01/11 580,000 493,000
United Surgical Partners International, Inc.,
10.000% 12/15/11 400,000 451,000
-----------
Health Services Total 3,791,004
-----------
HOTELS, CAMPS & LODGING - 0.9%
Starwood Hotels & Resorts
Worldwide, Inc.,
7.875% 05/01/12 625,000 657,812
-----------
Hotels, Camps & Lodging Total 657,812
-----------
OTHER SERVICES - 2.5%
Advanstar Communications, Inc.,
12.000% 02/15/11 650,000 689,000
Corrections Corp. of America,
9.875% 05/01/09 350,000 386,750
GEO Group, Inc.,
8.250% 07/15/13 160,000 157,600
NationsRent, Inc.,
9.500% 10/15/10 (a) 425,000 450,500
Williams Scotsman, Inc.,
9.875% 06/01/07 200,000 197,000
-----------
Other Services Total 1,880,850
-----------
SERVICES TOTAL 16,688,073
-----------
-----------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES - 43.7%
AEROSPACE - 1.3%
BE Aerospace, Inc.,
8.875% 05/01/11 375,000 354,375
Sequa Corp.,
8.875% 04/01/08 200,000 212,000
TransDigm, Inc.,
8.375% 07/15/11 250,000 252,500
Vought Aircraft Industries, Inc.,
8.000% 07/15/11 (a) 160,000 153,200
-----------
Aerospace Total 972,075
PAR VALUE ($)
-----------------------------------------------------------
AIR TRANSPORTATION - 1.7%
Continental Airlines, Inc.,
7.568% 12/01/06 USD 400,000 338,000
Delta Air Lines, Inc.,
7.900% 12/15/09 535,000 267,500
Northwest Airlines, Inc.,
9.875% 03/15/07 475,000 351,500
United Air Lines, Inc.,
1.340% 03/02/49 (i) 354,149 331,129
-----------
Air Transportation Total 1,288,129
-----------
BROADCASTING - 3.1%
CanWest Media, Inc.,
10.625% 05/15/11 435,000 487,200
Granite Broadcasting Corp.,
9.750% 12/01/10 (a) 500,000 477,500
Sinclair Broadcast Group, Inc.,
8.750% 12/15/11 250,000 267,500
Spanish Broadcasting System, Inc.,
9.625% 11/01/09 80,000 84,400
TV Azteca SA de CV,
10.500% 02/15/07 745,000 743,137
XM Satellite Radio Holdings, Inc.,
6.650% 05/01/09 (a)(i) 250,000 250,000
-----------
Broadcasting Total 2,309,737
-----------
CABLE - 6.7%
Atlantic Broadband Finance LLC,
9.375% 01/15/14 (a) 360,000 334,800
Cablevision Systems Corp.,
5.670% 04/01/09 (a)(i) 290,000 295,800
Charter Communications Holdings LLC:
9.920% 04/01/11 1,715,000 1,402,013
10.250% 09/15/10 (a) 190,000 192,850
CSC Holdings, Inc.:
6.750% 04/15/12 (a) 265,000 254,400
7.625% 04/01/11 20,000 20,250
DirecTV Holdings LLC,
8.375% 03/15/13 300,000 333,000
EchoStar DBS Corp.,
6.375% 10/01/11 (a) 400,000 390,000
Insight Communications Co., Inc.,
(b) 02/15/11
(12.250% 02/15/06) 415,000 365,200
Insight Midwest LP,
9.750% 10/01/09 215,000 226,287
Northland Cable Television, Inc.,
10.250% 11/15/07 495,000 486,337
NTL Cable PLC,
8.750% 04/15/14 (a) 325,000 329,875
Pegasus Satellite Communications, Inc.,
11.250% 01/15/10 (a)(f) 200,000 110,000
Telenet Group Holdings NV,
(b) 06/15/14
(11.500% 12/15/08) (a) 400,000 246,000
-----------
Cable Total 4,986,812
-----------
See notes to investment portfolio.
8
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2004 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
-----------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES (CONTINUED)
ELECTRIC, GAS & SANITARY SERVICES - 1.9%
Allied Waste North America, Inc.:
6.500% 11/15/10 (a) USD 670,000 648,225
8.500% 12/01/08 505,000 545,400
Waste Services, Inc.,
9.500% 04/15/14 (a) 225,000 226,687
-----------
Electric, Gas & Sanitary Services Total 1,420,312
-----------
ELECTRIC SERVICES - 2.4%
Beaver Valley Funding Corp.,
9.000% 06/01/17 355,000 401,150
CMS Energy Corp.,
8.900% 07/15/08 420,000 439,950
Illinois Power Co.,
11.500% 12/15/10 275,000 323,812
Nevada Power Co.:
9.000% 08/15/13 (a) 185,000 200,031
10.875% 10/15/09 340,000 382,500
-----------
Electric Services Total 1,747,443
-----------
INDEPENDENT POWER PRODUCERS - 7.2%
AES Corp.:
9.000% 05/15/15 (a) 570,000 604,200
9.500% 06/01/09 455,000 473,200
Caithness Coso Funding Corp.,
9.050% 12/15/09 502,200 542,376
Calpine Canada Energy Finance ULC,
8.500% 05/01/08 200,000 119,000
Calpine Corp.,
8.500% 07/15/10 (a) 365,000 305,688
Calpine Generating Co. LLC:
10.250% 04/01/11 (a)(i) 375,000 330,000
11.500% 04/01/11 (a) 415,000 356,900
Dynegy Holdings, Inc.:
6.875% 04/01/11 300,000 246,000
9.875% 07/15/10 (a) 360,000 378,000
Edison Mission Energy,
9.875% 04/15/11 480,000 480,000
MSW Energy Holdings LLC:
7.375% 09/01/10 (a) 170,000 167,450
8.500% 09/01/10 375,000 388,125
NRG Energy, Inc.,
8.000% 12/15/13 (a) 140,000 140,000
Orion Power Holdings, Inc.,
12.000% 05/01/10 340,000 413,100
PSE&G Energy Holdings, Inc.,
8.625% 02/15/08 395,000 424,625
-----------
Independent Power Producers Total 5,368,664
-----------
MARINE TRANSPORTATION - 1.7%
Ship Finance International Ltd.,
8.500% 12/15/13 (a) 580,000 540,664
PAR VALUE ($)
-----------------------------------------------------------
Stena AB:
7.500% 11/01/13 USD 160,000 160,800
9.625% 12/01/12 355,000 401,150
Teekay Shipping Corp.,
8.875% 07/15/11 150,000 164,250
-----------
Marine Transportation Total 1,266,864
-----------
PIPELINES - 3.5%
Coastal Corp.,
7.750% 06/15/10 695,000 611,600
Northwest Pipeline Corp.,
8.125% 03/01/10 130,000 139,588
Sonat, Inc.:
6.875% 06/01/05 215,000 215,537
7.625% 07/15/11 795,000 693,638
Southern Natural Gas Co.,
8.875% 03/15/10 250,000 271,250
Williams Companies, Inc.,
8.125% 03/15/12 630,000 664,650
-----------
Pipelines Total 2,596,263
-----------
RADIOTELEPHONE COMMUNICATIONS - 7.6%
AirGate PCS, Inc.,
9.375% 09/01/09 68,700 67,326
American Cellular Corp.,
10.000% 08/01/11 325,000 285,188
American Towers, Inc.,
7.250% 12/01/11 230,000 228,850
Dobson Communications Corp.,
8.875% 10/01/13 440,000 344,300
Horizon PCS, Inc.,
13.750% 06/15/11 (f) 415,000 145,250
iPCS Escrow Co.,
11.500% 05/01/12 (a) 170,000 172,550
Nextel Communications, Inc.,
7.375% 08/01/15 500,000 505,000
Nextel Partners, Inc.,
8.125% 07/01/11 610,000 625,250
Rogers Cantel, Inc.,
9.750% 06/01/16 585,000 672,750
Rural Cellular Corp.,
8.250% 03/15/12 (a) 200,000 205,500
SBA Communications Corp.:
(b) 12/15/11
(9.750% 12/15/07) (a) 140,000 102,550
10.250% 02/01/09 625,000 620,312
SpectraSite, Inc.,
8.250% 05/15/10 280,000 289,800
US Unwired, Inc.,
(b) 11/01/09
(13.375% 11/01/04) 800,000 832,000
Western Wireless Corp.,
9.250% 07/15/13% 500,000 516,875
-----------
Radiotelephone Communications Total 5,613,501
-----------
See notes to investment portfolio.
9
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2004 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
-----------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES (CONTINUED)
RAILROAD - 0.8%
Kansas City Southern Railway Co.,
7.500% 06/15/09 USD 215,000 217,150
TFM SA de CV,
12.500% 06/15/12 380,000 402,800
-----------
Railroad Total 619,950
-----------
TELECOMMUNICATIONS - 4.9%
Axtel SA de CV,
11.000% 12/15/13 (a) 410,000 385,400
Carrier1 International SA,
13.250% 02/15/09 (f) 750,000 67,500
Cincinnati Bell, Inc.,
8.375% 01/15/14 320,000 288,000
FairPoint Communications, Inc.,
11.875% 03/01/10 175,000 198,625
Level 3 Communications, Inc.,
10.500% 12/01/08 355,000 273,350
Qwest Capital Funding, Inc.:
7.250% 02/15/11 860,000 711,650
7.750% 02/15/31 385,000 298,375
Qwest Corp.,
13.500% 12/15/10 (a) 795,000 915,244
Time Warner Telecom, Inc.:
9.750% 07/15/08 320,000 299,200
10.125% 02/01/11 230,000 208,150
-----------
Telecommunications Total 3,645,494
-----------
TRANSPORTATION SERVICES - 0.9%
Allied Holdings, Inc.,
8.625% 10/01/07 365,000 344,013
QDI LLC,
9.000% 11/15/10 (a) 370,000 347,800
-----------
Transportation Services Total 691,813
-----------
TRANSPORTATION,
COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES TOTAL 32,527,057
-----------
TOTAL CORPORATE FIXED-INCOME
BONDS & NOTES
(cost of $95,218,657) 94,460,794
-----------
COMMON STOCKS - 2.4% (j) SHARES
-----------------------------------------------------------
MANUFACTURING - 0.4%
ELECTRONIC & ELECTRICAL EQUIPMENT - 0.1%
Amkor Technology, Inc. 10,500 107,940
-----------
Electronic & Electrical Equipment Total 107,940
-----------
PRIMARY METAL - 0.3%
Bayou Steel Corp. 15,473 237,511
-----------
Primary Metal Total 237,511
-----------
MANUFACTURING TOTAL 345,451
-----------
SHARES VALUE ($)
-----------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES - 2.0%
CABLE - 0.5%
NTL, Inc. 5,942 351,172
Ono Finance PLC (g)(k) 750 --
-----------
Cable Total 351,172
-----------
ELECTRIC, GAS & SANITARY SERVICES - 0.1%
Allied Waste North America, Inc. 7,250 96,135
-----------
Electric, Gas & Sanitary Services Total 96,135
-----------
INDEPENDENT POWER PRODUCERS - 0.1%
Dynegy Holdings, Inc., Class A 23,000 100,970
-----------
Independent Power Producers Total 100,970
-----------
POLLUTION CONTROL - 0.9%
EnviroSource, Inc. (g) 8,000 640,000
Fairlane Management Corp. (g)(k) 8,000 --
-----------
Pollution Control Total 640,000
-----------
RADIOTELEPHONE COMMUNICATIONS - 0.4%
AirGate PCS, Inc. 2,841 52,530
Nextel Communications, Inc., Class A 6,196 143,314
SBA Communications Corp. 23,590 91,057
-----------
Radiotelephone Communications Total 286,901
-----------
TRANSPORTATION,
COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES TOTAL 1,475,178
-----------
TOTAL COMMON STOCKS
(cost of $2,082,718) 1,820,629
-----------
CONVERTIBLE BONDS - 2.2% PAR
-----------------------------------------------------------
MANUFACTURING - 1.3%
ELECTRONIC & ELECTRICAL EQUIPMENT - 1.3%
Nortel Networks Corp.,
4.250% 09/01/08 USD 1,040,000 952,931
-----------
Electronic & Electrical Equipment Total 952,931
-----------
MANUFACTURING TOTAL 952,931
-----------
-----------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES - 0.9%
COMMUNICATIONS SERVICES - 0.7%
COLT Telecom Group PLC:
2.000% 03/29/06 (a) EUR 265,000 351,083
2.000% 12/16/06 (a) 130,000 176,594
-----------
Communications Services Total 527,677
-----------
See notes to investment portfolio.
10
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2004 (Unaudited)
CONVERTIBLE BONDS (CONTINUED) PAR VALUE ($)
-----------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES (CONTINUED)
INDEPENDENT POWER PRODUCERS - 0.2%
Mirant Corp.,
2.500% 06/15/21 (f) USD 280,000 155,509
-----------
Independent Power Producers Total 155,509
-----------
TRANSPORTATION,
COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES TOTAL 683,186
-----------
TOTAL CONVERTIBLE BONDS
(cost of $1,432,427) 1,636,117
-----------
PREFERRED STOCKS - 2.1% SHARES
-----------------------------------------------------------
FINANCE, INSURANCE & REAL ESTATE - 0.8%
FINANCIAL SERVICES - 0.8%
iStar Financial, Inc.:
7.800% 13,000 320,125
7.875% 11,007 275,175
-----------
Financial Services Total 595,300
-----------
FINANCE, INSURANCE
& REAL ESTATE TOTAL 595,300
-----------
-----------------------------------------------------------
MANUFACTURING - 0.7%
PRINTING & PUBLISHING - 0.7%
Haights Cross Communications 2,734 133,966
PriMedia, Inc.,
8.625% 30 2,588
9.200% 1,715 150,063
10.000% 2,300 208,150
-----------
Printing & Publishing Total 494,767
-----------
MANUFACTURING TOTAL 494,767
-----------
-----------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES - 0.6%
BROADCASTING - 0.6%
Spanish Broadcasting System, Inc.,
10.750% 450 454,500
-----------
Broadcasting Total 454,500
-----------
TRANSPORTATION,
COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES TOTAL 454,500
-----------
TOTAL PREFERRED STOCKS
(cost of $1,567,475) 1,544,567
-----------
WARRANTS - 0.1% (j) UNITS
-----------------------------------------------------------
MANUFACTURING - 0.0%
PRINTING & PUBLISHING - 0.0%
Haights Cross Communications,
Expires 12/10/11 (l) 2 --
Expires 12/10/12 2,707 54
-----------
Printing & Publishing Total 54
-----------
MANUFACTURING TOTAL 54
-----------
UNITS VALUE ($)
-----------------------------------------------------------
TRANSPORTATION, COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES - 0.1%
BROADCASTING - 0.1%
XM Satellite Radio Holdings, Inc.,
Expires 03/15/10 (a) 600 30,000
-----------
Broadcasting Total 30,000
-----------
CABLE - 0.0%
Cable Satisfaction International, Inc.,
Expires 03/01/05 (a)(g)(k) 970 --
Ono Finance PLC,
Expires 05/31/09 (a)(g)(k) 175 --
-----------
Cable Total --
-----------
RADIOTELEPHONE COMMUNICATIONS - 0.0%
Horizon PCS, Inc.,
Expires 10/01/10 (a)(f)(g)(k) 665 --
UbiquiTel, Inc.,
Expires 04/15/10 (a)(g)(k) 525 --
-----------
Radiotelephone Communications Total --
-----------
TELECOMMUNICATIONS - 0.0%
AT&T Canada, Inc.,
Expires 08/15/07 (a)(g)(k) 250 --
Carrier1 International SA,
Expires 02/19/09 (a)(f)(g)(k) 347 --
Jazztel PLC,
Expires 07/15/10 (a)(g)(k) 350 --
-----------
Telecommunications Total --
-----------
TRANSPORTATION SERVICES - 0.0%
QDI LLC,
Expires 01/15/07 (a)(g) 2,041 8,572
-----------
Transportation Services Total 8,572
-----------
TRANSPORTATION,
COMMUNICATIONS, ELECTRIC,
GAS & SANITARY SERVICES TOTAL 38,572
-----------
TOTAL WARRANTS
(cost of $105,737) 38,626
-----------
SHORT-TERM OBLIGATION - 6.8% PAR
-----------------------------------------------------------
Federal Home Loan Discount Note,
0.880% 06/01/04 (m)
(cost of $5,032,000) USD 5,032,000 5,032,000
-----------
TOTAL INVESTMENTS - 140.5%
(cost of $105,439,014)(n) 104,532,733
-----------
OTHER ASSETS & LIABILITIES, NET - (40.5)% (30,114,162)
-----------------------------------------------------------
Net Assets - 100.0% $ 74,418,571
============
See notes to investment portfolio.
11
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2004 (Unaudited)
NOTES TO INVESTMENT PORTFOLIO:
--------------------------------------------------------------------------------
(a) Security exempt from registration pursuant to Rule 144A under the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At May 31, 2004,
these securities amounted to $27,526,864, which represents 37.0% of net
assets.
(b) Step bond. This security is currently accruing at zero. Shown
parenthetically is the interest rate to be paid and the date the Fund will
begin accruing at this rate.
(c) Zero coupon bond.
(d) The issuer has filed for bankruptcy protection under Chapter 11 and is in
default of certain debt covenants, however, under the issuer's plan of
reorganization, the issuer has guaranteed all interest due and therefore
income is still being accrued. As of May 31, 2004, the value of this
security represents 0.2% of net assets.
(e) Security purchased on a delayed delivery basis.
(f) The issuer has filed for bankruptcy protection under Chapter 11 and is in
default of certain debt covenants. Income is not being accrued. As of May
31, 2004, the value of these securities amounted to $978,209, which
represents 1.3% of net assets.
(g) Represents fair value as determined in good faith under procedures approved
by the Board of Trustees.
(h) This issuer is in default of certain debt covenants. Income is not being
accrued. As of May 31, 2004, the value of this security represents 0.9% of
net assets.
(i) Variable rate security. The interest rate shown reflects the rate as of May
31, 2004.
(j) Non-income producing security.
(k) Security has no value.
(l) Amount rounds to less than $1.
(m) The rate shown represents the annualized yield at the date of purchase.
(n) Cost for federal income tax purposes is $105,245,512.
As of May 31, 2004, the Fund had entered into the following forward currency
exchange contracts:
UNREALIZED
FORWARD CONTRACTS AGGREGATE SETTLEMENT APPRECIATION
TO BUY VALUE FACE VALUE DATE (DEPRECIATION)
-----------------------------------------------------------------
EUR $164,866 $162,878 06/10/04 $ 1,988
USD 673,955 682,178 06/10/04 (8,223)
-------
$(6,235)
-------
ACRONYM NAME
-----------------------------------------------------------------
EUR Euro Currency
PIK Payment-In-Kind
USD United States Dollar
See notes to financial statements.
12
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2004 (Unaudited)
ASSETS:
Investments, at cost $105,439,014
------------
Investments, at value $104,532,733
Receivable for:
Investments sold 529,499
Interest 2,182,394
Dividends 11,677
Deferred Trustees' compensation plan 7,616
Other assets 20,693
------------
Total Assets 107,284,612
------------
LIABILITIES:
Payable to custodian bank 878,839
Net unrealized depreciation on foreign
forward currency contracts 6,235
Payable for:
Interest 231,846
Investments purchased 966,158
Investments purchased on a delayed
delivery basis 681,060
Distributions 504,084
Investment advisory fee 54,746
Custody fee 689
Audit fee 20,114
Legal fee 14,654
Deferred Trustees' fees 7,616
Notes payable - short-term 15,800,000
Notes payable - long-term 13,700,000
------------
Total Liabilities 32,866,041
------------
NET ASSETS $ 74,418,571
============
COMPOSITION OF NET ASSETS:
Paid-in capital $141,303,722
Overdistributed net investment income (315,285)
Accumulated net realized loss (65,657,350)
Net unrealized depreciation on:
Investments (906,281)
Foreign currency translations (6,235)
------------
NET ASSETS $ 74,418,571
============
Shares outstanding 21,003,496
------------
Net asset value per share $ 3.54
============
STATEMENT OF OPERATIONS
For the Six Months Ended May 31, 2004 (Unaudited)
INVESTMENT INCOME:
Interest $ 4,421,334
Dividends 181,781
------------
Total Investment Income 4,603,115
------------
EXPENSES:
Investment advisory fee 401,454
Pricing and bookkeeping fees 30,617
Trustees' fees 3,508
Custody fee 7,732
Other expenses 101,090
------------
Total Operating Expenses 544,401
Custody earnings credit (374)
------------
Net Operating Expenses 544,027
Interest expense 490,179
------------
Net Expenses 1,034,206
------------
Net Investment Income 3,568,909
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain (loss) on:
Investments 154,870
Foreign currency transactions (11,072)
------------
Net realized gain 143,798
------------
Net change in unrealized appreciation/depreciation on:
Investments (986,452)
Foreign currency translations 16,285
------------
Net change in unrealized
appreciation/depreciation (970,167)
------------
Net Loss (826,369)
------------
Net Increase in Net Assets from Operations $ 2,742,540
------------
See notes to financial statements.
13
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ONE MONTH YEAR
ENDED ENDED ENDED
MAY 31, NOVEMBER 30, OCTOBER 31,
INCREASE (DECREASE) IN NET ASSETS: 2004 2003 (a) 2003
-------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,568,909 $ 480,693 $ 6,115,179
Net realized gain (loss) on investments and foreign currency transactions 143,798 275,539 (6,289,825)
Net change in unrealized appreciation/depreciation
on investments and foreign currency translations (970,167) 1,139,485 21,909,449
------------ ------------ ------------
Net Increase from Operations 2,742,540 1,895,717 21,734,803
------------ ------------ ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (3,338,194) (566,640) (6,335,103)
Return of capital -- -- (439,949)
------------ ------------ ------------
Total Distributions Declared to Shareholders (3,338,194) (566,640) (6,775,052)
------------ ------------ ------------
SHARE TRANSACTIONS:
Distributions reinvested 62,227 -- 528,920
------------ ------------ ------------
Total Increase (Decrease) in Net Assets (533,427) 1,329,077 15,488,671
NET ASSETS:
Beginning of period 74,951,998 73,622,921 58,134,250
------------ ------------ ------------
End of period $ 74,418,571 $ 74,951,998 $ 73,622,921
------------ ------------ ------------
Overdistributed net investment income, at end of period $ (315,285) $ (546,000) $ (544,368)
------------ ------------ ------------
CHANGES IN SHARES:
Issued for distributions reinvested 16,818 -- 164,258
------------ ------------ ------------
(a) The Fund changed its fiscal year end from October 31 to November 30.
See notes to financial statements.
14
STATEMENT OF CASH FLOWS
For the Six Months Ended May 31, 2004 (Unaudited)
INCREASE (DECREASE) IN CASH
-----------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net investment income $ 3,568,909
Adjustments to reconcile net investment income
to net cash provided by operating activities:
Purchase of investment securities (43,192,193)
Proceeds from disposition of investment securities 43,550,476
Purchase of short-term investments, net (2,970,148)
Net realized loss due to foreign currency transactions (11,072)
Increase in dividend and interest receivable (133,643)
Increase in other assets (16,505)
Decrease in receivable for investments sold 349,056
Increase in payable for investments purchased 55,666
Decrease in accrued expenses and other liabilities (12,576)
Net amortization/accretion of income (379,355)
------------
Net cash provided by operating activities 808,615
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 1,000,000
Decrease in interest payable (26,694)
Distributions paid in cash (3,338,523)
------------
Net cash used by financing activities (2,365,217)
------------
Net decrease in cash (1,556,602)
CASH:
Beginning of period 677,763
------------
End of period $ (878,839)
============
Supplemental disclosure of cash flow information:
Non-cash financing activities not included herein consist of reinvestment of
distributions of $62,227.
See notes to financial statements.
15
NOTES TO FINANCIAL STATEMENTS
May 31, 2004 (Unaudited)
NOTE 1. ORGANIZATION
Colonial Intermediate High Income Fund (the "Fund") is a Massachusetts business
trust registered under the Investment Company Act of 1940, as amended, as a
diversified, closed-end management investment company.
INVESTMENT GOAL
The Fund seeks high current income and total return by investing primarily in
high yield fixed income securities in lower-rated categories.
FUND SHARES
The Fund may issue an unlimited number of shares.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements.
SECURITY VALUATION
Debt securities generally are valued by a pricing service approved by the Fund's
Board of Trustees, based upon market transactions for normal, institutional-size
trading units of similar securities. The services may use various pricing
techniques which take into account appropriate factors such as yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other data, as
well as broker quotes. Debt securities for which quotations are readily
available are valued at an over-the-counter or exchange bid quotation. Certain
debt securities, which tend to be more thinly traded and of lesser quality, are
priced based on fundamental analysis of the financial condition of the issuer
and the estimated value of any collateral. Valuations developed through pricing
techniques may vary from the actual amounts realized upon sale of the
securities, and the potential variation may be greater for those securities
valued using fundamental analysis.
Equity securities are valued at the last sale price on the principal exchange on
which they trade, except for securities traded on the NASDAQ, which are valued
at the NASDAQ official close price. Unlisted securities or listed securities for
which there were no sales during the day are valued at the closing bid price on
such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value. Forward currency exchange contracts are
valued at the prevailing forward exchange rate of the underlying currencies.
Foreign securities are generally valued at the last sale price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Fund's
shares are determined as of such times. Foreign currency exchange rates are
generally determined at 2:00 p.m. Eastern (U.S.) time. Occasionally, events
affecting the values of such foreign securities and such exchange rates may
occur between the times at which they are determined and the close of the
customary trading session of the NYSE, which would not be reflected in the
computation of the Fund's net asset value. If events materially affecting the
values of such foreign securities occur and it is determined that market
quotations are not reliable, then these foreign securities will be valued at
their fair value using procedures approved by the Board of Trustees.
Investments for which market quotations are not readily available, or quotations
which management believes are not appropriate, are valued at fair value under
procedures approved by the Board of Trustees.
SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the specific identification method for both
financial statement and federal income tax purposes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign currency exchange contracts are agreements to exchange one
currency for another at a future date at a specified price. These contracts are
used to minimize the exposure to foreign exchange rate fluctuations during the
period between trade and settlement date of the contracts. The Fund may utilize
forward foreign currency exchange contracts in connection with the settlement of
purchases and sales of securities. The Fund may also enter into these contracts
to hedge certain other foreign currency denominated assets. Contracts to buy
generally are used to acquire exposure to foreign currencies, while contracts to
sell are used to hedge the Fund's investments against currency fluctuations.
Forward currency contracts are valued daily at the forward exchange rate of the
underlying currency, resulting in unrealized gains (losses) which become
realized at the time the foreign currency contracts are closed or mature.
Realized and unrealized gains (losses) arising from such transactions are
included in net realized and unrealized gains (losses) on foreign currency
16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2004 (Unaudited)
transactions. The use of forward currency contracts does not eliminate
fluctuations in the prices of the Fund's portfolio securities. While the maximum
potential loss from such contracts is the aggregate face value in U.S. dollars
at the time the contract was opened, exposure is typically limited to the change
in value of the contract (in U.S. dollars) over the period it remains open. The
Fund could also be exposed to risk if the counterparties of the contracts are
unable to fulfill the terms of the contracts.
DELAYED DELIVERY SECURITIES
The Fund may trade securities on other than normal settlement terms, including
securities purchased or sold on a "when-issued" basis. This may increase the
risk if the other party to the transaction fails to deliver and causes the Fund
to subsequently invest at less advantageous prices. The Fund identifies cash or
liquid portfolio securities 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 that have been settled through the receipt
or disbursement of cash is presented on the Statement of Cash Flows. The cash
amount shown on the Statement of Cash Flows is the amount included within the
Fund's Statement of Assets and Liabilities and includes cash on hand at its
custodian bank and does not include any short-term investments.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the one month ended November 30,
2003 and the year ended October 31, 2003 was as follows:
NOVEMBER 30, OCTOBER 31,
2003 2003
---------- -----------
Distributions paid from:
Ordinary Income* $566,640 $6,335,103
Tax Return of Capital -- 439,949
Long-Term Capital Gains -- --
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
Unrealized appreciation and depreciation at May 31, 2004, based on cost of
investments for federal income tax purposes, and excluding any unrealized
appreciation and depreciation from changes in the value of assets and
liabilities resulting from changes in exchange rates, was:
Unrealized appreciation $ 5,056,218
Unrealized depreciation (5,768,997)
------------
Net unrealized depreciation $ (712,779)
============
The following capital loss carryforwards, determined as of November 30, 2003,
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 $ 3,034,960
2007 10,437,671
2008 22,694,029
2009 23,203,433
2010 6,431,055
-----------
$65,801,148
===========
17
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2004 (Unaudited)
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
Columbia Management Advisors, Inc. ("Columbia") is the investment advisor to the
Fund. Prior to April 1, 2004, Columbia was an indirect, wholly owned subsidiary
of FleetBoston Financial Corporation ("FleetBoston"). Effective April 1, 2004,
FleetBoston, including the Fund's investment advisor, was acquired by Bank of
America Corporation ("BOA"). The acquisition did not change the way the Fund is
managed, the investment personnel assigned to manage the Fund or the fees paid
by the Fund.
INVESTMENT ADVISORY FEE
Columbia provides administrative and other services to the Fund in addition to
investment advisory services. Columbia receives a monthly investment advisory
fee at the annual rate of 0.65% of the Fund's average weekly net assets.
In addition, the Fund shall pay Columbia a monthly fee of 20% of the Fund's
monthly "leverage income" (as that term is defined in the management contract).
In the event that the Fund's monthly leverage income is less than zero, then
Columbia shall pay the Fund 20% of the Fund's monthly leverage income. For the
six months ended May 31, 2004, the Fund paid fees of $150,349 to Columbia under
this agreement, which represents 0.39% annually of the Fund's average daily net
assets.
PRICING AND BOOKKEEPING FEES
Columbia is responsible for providing pricing and bookkeeping services to the
Fund under a pricing and bookkeeping agreement. Under a separate agreement (the
"Outsourcing Agreement"), Columbia has delegated those functions to State Street
Corporation ("State Street"). As a result, Columbia pays the total fees received
to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average weekly net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average weekly net assets of the Fund for that month. The Fund also pays
additional fees for pricing services based on the number of securities held by
the Fund. For the six months ended May 31, 2004, the Fund's annualized effective
pricing and bookkeeping fee rate was 0.080%.
CUSTODY CREDITS
The Fund has an agreement with its custodian bank under which custody fees may
be reduced by balance credits. The Fund could have invested a portion of the
assets utilized in connection with the expense offset arrangement in an
income-producing asset if it had not entered into such an agreement.
FEES PAID TO OFFICERS AND TRUSTEES
The Fund pays no compensation to its officers, all of whom are employees of
Columbia or its affiliates.
The Fund's Trustees may participate in a deferred compensation plan which may be
terminated at any time. Obligations of the plan will be paid solely out of the
Fund's assets.
OTHER
Columbia provides certain services to the Fund related to Sarbanes-Oxley
compliance. For the six months ended May 31, 2004, the Fund paid $699 to
Columbia for such services. This amount is included in "Other expenses" on the
Statement of Operation.
NOTE 5. PORTFOLIO INFORMATION
For the six months ended May 31, 2004, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $43,192,193 and
$43,550,476, respectively.
NOTE 6. LOAN AGREEMENT
At May 31, 2004, the Fund had term loans and a revolving loan outstanding with
BOA, totaling $29,500,000. The term loans are comprised of a $13,700,000 loan
which bears interest at 3.12% per annum, due August 26, 2005 and a $9,700,000
loan which bears interest at 4.37% per annum, due June 13, 2004. The revolving
loan is a $6,100,000 floating rate loan which had a weighted average interest
rate of 1.94% at May 31, 2004. At May 31, 2004, the average daily loan balance
was $29,215,847 at a weighted average interest rate of 3.30%. The Fund is
subject to certain covenants including, but not limited to, requirements with
respect to asset coverage, portfolio diversification and liquidity.
NOTE 7. DISCLOSURE OF SIGNIFICANT RISKS
AND CONTINGENCIES
FOREIGN SECURITIES
There are certain additional risks involved when investing in foreign securities
that are not inherent with investments in domestic securities. These risks may
involve foreign currency exchange rate fluctuations, adverse political and
economic developments and the possible prevention of currency exchange or other
foreign governmental laws or restrictions. In addition, the liquidity of foreign
securities may be more limited than that of domestic securities.
HIGH-YIELD SECURITIES
Investing in high-yield securities may involve greater credit risk and
considerations not typically associated with investing in U.S. Government bonds
and other higher quality fixed income securities. These securities are
non-investment grade securities, often referred to as "junk bonds." Economic
downturns may disrupt the high yield market and impair the ability of issuers to
repay principal and interest. Also, an increase in interest
18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2004 (Unaudited)
rates would likely have an adverse impact on the value of such obligations.
Moreover, high-yield securities may be less liquid to the extent 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
Columbia and Columbia Funds Distributor, Inc. ("CFDI"), and certain of their
affiliates (collectively, "the Columbia Group") have received information
requests and subpoenas from various regulatory and law enforcement authorities
in connection with their investigations of late trading and market timing in
mutual funds, as well as other industry wide issues. The Columbia Group has not
uncovered any instances where Columbia or CFDI were knowingly involved in late
trading of mutual fund shares.
On February 24, 2004, the Securities and Exchange Commission ("SEC") filed a
civil complaint in the United States District Court for the District of
Massachusetts against Columbia and CFDI, alleging that they had violated certain
provisions of the federal securities laws in connection with trading activity in
mutual fund shares. Also on February 24, 2004, the New York Attorney General
("NYAG") filed a civil complaint in New York Supreme Court, County of New York
against Columbia and CFDI alleging that Columbia and CFDI had violated certain
New York anti-fraud statutes. If either Columbia or CFDI is unsuccessful in its
defense of these proceedings, it could be barred from serving as an investment
advisor or distributor for any investment company registered under the
Investment Company Act of 1940, as amended (a "registered investment company").
Such results could prevent Columbia, CFDI or any company that is an affiliated
person of Columbia and CFDI from serving as an investment advisor or distributor
for any registered investment company, including your fund. Your fund has been
informed by Columbia and CFDI that, if these results occur, they will seek
exemptive relief from the SEC to permit them to continue to serve as your fund's
investment advisor and distributor. There is no assurance that such exemptive
relief will be granted. On March 15, 2004, Columbia and CFDI entered into
agreements in principle with the SEC Division of Enforcement and NYAG in
settlement of the charges. Under the agreements, Columbia and CFDI agreed, among
other things, to the following conditions: payment of $70 million in
disgorgement; payment of $70 million in civil penalties; an order requiring
Columbia and CFDI to cease and desist from violations of the antifraud
provisions and other provisions of the federal securities laws; governance
changes designed to maintain the independence of the mutual fund boards of
trustees and ensure compliance with securities laws and their fiduciary duties;
and retention of an independent consultant to review Columbia's and CFDI's
compliance policies and procedures. The agreement requires the final approval of
the SEC. In a separate agreement with the NYAG, the Columbia Group has agreed to
reduce mutual fund fees by $80 million over a five-year period.
As a result of these matters or any adverse publicity or other developments
resulting from them, there may be increased redemptions or reduced sales of fund
shares, which could increase transaction costs or operating expenses, or have
other adverse consequences for the funds.
In connection with the events described in detail above, various parties have
filed suit against certain funds, their Boards and/or FleetBoston (and
affiliated entities). These suits and certain regulatory investigations are
ongoing. Accordingly, an estimate of the financial impact of this litigation on
any fund, if any, cannot currently be made.
NOTE 8. COMPARABILITY OF FINANCIAL STATEMENTS
The fiscal year end of the Fund was changed from October 31 to November 30.
Accordingly, the Fund's 2004 fiscal year end will be November 30, 2004.
19
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as follows:
(UNAUDITED)
SIX MONTHS ONE MONTH
ENDED ENDED YEAR ENDED OCTOBER 31,
MAY 31, NOVEMBER 30, -------------------------------------------------
2004 2003 (a) 2003 2002 2001 2000
---------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 3.57 $ 3.51 $ 2.79 $ 3.51 $ 4.83 $ 5.97
---------- ---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.17(b) 0.02(b) 0.29(b) 0.38(b)(c) 0.51(b) 0.67
Net realized and unrealized gain
(loss) on investments and
foreign currency (0.04) 0.07 0.75 (0.73)(c) (1.26) (1.10)
---------- ---------- ---------- ---------- ---------- ----------
Total from Investment
Operations 0.13 0.09 1.04 (0.35) (0.75) (0.43)
---------- ---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS DECLARED
TO SHAREHOLDERS:
From net investment income (0.16) (0.03) (0.30) (0.36) (0.55) (0.69)
In excess of net investment income -- -- -- -- -- (0.02)
Return of capital -- -- (0.02) (0.01) (0.02) --
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions Declared
to Shareholders (0.16) (0.03) (0.32) (0.37) (0.57) (0.71)
---------- ---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF PERIOD $ 3.54 $ 3.57 $ 3.51 $ 2.79 $ 3.51 $ 4.83
========== ========== ========== ========== ========== ==========
Market price per share $ 3.22 $ 3.50 $ 3.65 $ 2.79 $ 3.49 $ 4.63
========== ========== ========== ========== ========== ==========
Total return-- based on
market value (d) (3.81)%(e) (3.40)%(e) 44.56% (10.43)% (14.26)% (6.12)%
---------- ---------- ---------- ---------- ---------- ----------
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Operating expenses (f) 1.41%(g) 1.63%(g) 1.35% 1.25% 1.31% 0.92%
Interest and amortization of
deferred debt issuance expenses 1.27%(g) 1.38%(g) 2.00% 2.73% 2.98% 2.79%
Total expenses (f) 2.68%(g) 3.01%(g) 3.35% 3.98% 4.29% 3.71%
Net investment income (f) 9.27%(g) 7.82%(g) 9.18% 11.38%(c) 11.96% 11.88%
Portfolio turnover rate 42%(e) 7%(e) 64% 54% 52% 42%
Net assets, end of period (000's) $ 74,419 $ 74,952 $ 73,623 $ 58,134 $ 72,353 $ 98,333
(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 and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(g)Annualized.
20
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period is as follows:
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995 1994
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 6.20 $ 7.27 $ 6.89 $ 6.62 $ 6.28 $ 6.92
---------- ---------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.70 0.70 0.70 0.70 0.70 0.69
Net realized and unrealized gain (loss) on investments
and foreign currency (0.23) (1.08) 0.38 0.26 0.34 (0.58)
---------- ---------- --------- --------- --------- ---------
Total from Investment Operations 0.47 (0.38) 1.08 0.96 1.04 0.11
---------- ---------- --------- --------- --------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.70) (0.69) (0.70) (0.69) (0.70) (0.75)
---------- ---------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 5.97 $ 6.20 $ 7.27 $ 6.89 $ 6.62 $ 6.28
========== ========== ========= ========= ========= =========
Market price per share $ 5.63 $ 6.81 $ 7.56 $ 7.13 $ 6.88 $ 5.75
========== ========== ========= ========= ========= =========
Total return--based on market value (a) (7.89)% (0.74)% 16.97% 14.62% 33.00% (2.80)%
========== ========== ========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Operating expenses (b) 0.89% 0.88% 0.89% 0.98% 0.95% 0.97%
Interest and amortization of deferred
debt issuance expenses 2.48% 2.11% 1.96% 2.07% 1.94% 1.91%
Total expenses (b) 3.37% 2.99% 2.85% 3.05% 2.89% 2.88%
Net investment income (b) 10.82% 9.70% 9.63% 10.11% 10.76% 10.40%
Portfolio turnover rate 44% 69% 92% 92% 92% 160%
Net assets, end of period (000's) $ 121,018 $ 124,480 $107,774 $ 99,925 $ 93,984 $ 87,519
(a)Total return at market value assuming all distributions reinvested at prices
calculated in accordance with the Dividend Reinvestment Plan.
(b)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%, except for the
year ended October 31, 1997 which had a 0.01% impact.
21
FINANCIAL HIGHLIGHTS (CONTINUED)
LOAN AGREEMENT ASSET COVERAGE REQUIREMENTS
ASSET COVERAGE
TOTAL AMOUNT PER $1,000 OF
DATE OUTSTANDING INDEBTEDNESS
--------- ----------- ------------
05/31/04* $29,500,000 $3,523
11/30/03 28,500,000 3,631
10/31/03 28,500,000 3,583
10/31/02 24,500,000 3,373
10/31/01 30,500,000 3,372
10/31/00 47,300,000 3,079
10/31/99 47,300,000 3,558
10/31/98 47,300,000 3,632
10/31/97 27,400,000 4,933
10/31/96 27,400,000 4,647
10/31/95 27,400,000 4,430
10/31/94 27,400,000 4,194
* Unaudited.
22
SHAREHOLDER MEETING RESULTS
RESULTS OF THE ANNUAL MEETING OF SHAREHOLDERS
On May 26, 2004, the Annual Meeting of Shareholders of the Fund was held to
conduct a vote for or against the approval of the following Item listed on the
Fund's Proxy Statement for said Meeting. On March 10, 2004, the record date for
the Meeting, the Fund had 20,986,678 shares outstanding. The votes cast were as
follows:
PROPOSAL 1:
ELECTION OF TRUSTEES: FOR WITHHELD
------------------------- --------------- ------------
Patrick J. Simpson 18,828,324 458,126
Thomas E. Stitzel 18,821,324 465,126
Thomas C. Theobald 18,812,339 474,110
Anne-Lee Verville 18,822,044 464,405
Richard L. Woolworth 18,829,085 457,364
23
DIVIDEND REINVESTMENT PLAN
The Fund generally distributes net investment income monthly and capital gains
annually. Under the Fund's Dividend Reinvestment Plan (the "Plan") all
distributions will be reinvested automatically in additional shares of the Fund,
unless the shareholder elects to receive cash or the shares are held in broker
or nominee name and a reinvestment service is not provided by the broker or
nominee. All cash distributions will be mailed by check directly to the record
holder by the dividend paying agent.
If the market price of the shares on the distribution payment date is equal to
or greater than the net asset value, Plan participants will be issued shares at
the higher of net asset value or 95% of the market price. The aggregate market
value of the shares may constitute income to shareholders for federal income tax
purposes. However, if the market price of the shares is less than the net asset
value, shares will be bought as soon as practicable (but no more than 30 days
after the distribution, except as may be required to comply with federal
securities laws) in the open market for the accounts of Plan participants. If,
during this purchase period, the market price surpasses the net asset value, the
average per share price paid may exceed the asset value of the shares, resulting
in the acquisition of fewer shares than if the distribution had been in
newly-issued shares.
All Plan accounts receive written confirmations of all transactions. Shares
purchased under the Plan are held in uncertificated form. Each shareholder's
proxy includes shares purchased pursuant to the Plan. The automatic reinvestment
of distributions does not relieve participants of any income tax payable on the
distributions.
Fees and expenses of the Plan other than brokerage charges will be paid by the
Fund. No brokerage charges are incurred on shares issued directly by the Fund.
Participants will bear a pro-rata share of brokerage charges incurred on open
market purchases.
A Plan participant may terminate his or her participation by written notice to
the Plan agent. The Plan may be amended or terminated on 90 days written notice
to the Plan participants. All correspondence concerning the Plan should be
directed to PFPC, Inc., the Plan agent, by mail at P.O. Box 43027, Providence,
RI 02940-3027 or by phone at 1-800-730-6001.
24
TRANSFER AGENT
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IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Intermediate High Income Fund is:
PFPC, Inc.
P.O. Box 8030
Boston, MA 02266-8030
The fund mails one shareholder report to each shareholder address. Shareholders
can order additional reports by calling 800-730-6001. In addition,
representatives at that number can provide shareholders information about the
fund.
Financial advisors who want additional information about the fund may speak to a
representative at 800-426-3750.
A description of the policies and procedures that the fund uses to determine how
to vote proxies relating to its portfolio securities is available (i) without
charge, upon request, by calling 800-730-6001 and (ii) on the Securities and
Exchange Commissionwebsite at http://www.sec.gov.
This report has been prepared for shareholders of Colonial Intermediate High
Income Fund.
COLONIAL INTERMEDIATE HIGH INCOME FUND SEMIANNUAL REPORT
110-03/054S-0504 (07/04) 04/1522
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable at this time.
ITEM 6. SCHEDULE OF INVESTMENTS
Not applicable at this time.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable at this time.
ITEM 8. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable at this time.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have not been any material changes to the procedures by which shareholders
may recommend nominees to the registrant's Board of Trustees/Directors since
those procedures were last disclosed in response to Item 7(d)(2)(ii)(G) of
Schedule 14A.
ITEM 10. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officer, based on his 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 last fiscal
half-year (the registrant's second fiscal half-year in the case of an
annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial
reporting.
ITEM 11. EXHIBITS.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR: Not
applicable at this time.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable at this time.
(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/ J. Kevin Connaughton
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J. Kevin Connaughton, President and Treasurer
Date August 3, 2004
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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/ J. Kevin Connaughton
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J. Kevin Connaughton, President and Treasurer
Date August 3, 2004
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