-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HT81g6zUyIUSdEo4eml+w/kaORDG6BsZlVE9waoDUN3c7hexeq3FmEq8D6UlvE9I Pp2JxBc9NG6wB5ns15Mz3A== 0000891804-04-001690.txt : 20040805 0000891804-04-001690.hdr.sgml : 20040805 20040805105238 ACCESSION NUMBER: 0000891804-04-001690 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20040531 FILED AS OF DATE: 20040805 EFFECTIVENESS DATE: 20040805 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLONIAL INTERMEDIATE HIGH INCOME FUND CENTRAL INDEX KEY: 0000833021 FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-05567 FILM NUMBER: 04953623 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CNTR CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6174263750 N-CSRS 1 file001.txt COLONIAL INTERMEDIATE HIGH INCOME FUND 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 -------- Colonial Intermediate High Income Fund ------------------------------------------------------------------------------ (Exact name of registrant as specified in charter) One Financial Center, Boston, Massachusetts 02111 - ------------------------------------------------------------------------------ (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 ------------------- Date of fiscal year end: 11/30/2004 ------------------ Date of reporting period: 05/31/2004 ----------------- 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 ($) Net asset value 3.54 - ----------------------------- Market price 3.22 - ----------------------------- SIX-MONTH (CUMULATIVE) TOTAL RETURN AS OF 05/31/04 (%) Net asset value 3.26 - ----------------------------- Market price -3.81 - ----------------------------- Lipper High Current Yield Funds (Leveraged) Category average 4.91 - ----------------------------- All results shown assume reinvestment of distributions. DISTRIBUTIONS DECLARED PER SHARE 12/01/03-05/31/04 ($) 0.16 - ----------------------------- TOP 5 SECTORS AS OF 05/31/04 (%) Amusement & recreation 9.5 - ----------------------------- Radiotelephone communications 5.6 - ----------------------------- Independent power producers 5.4 - ----------------------------- Cable 5.1 - ----------------------------- Chemicals & allied products 4.9 - ----------------------------- Sector breakdowns are calculated as a percentage of total investments. TOP 10 CORPORATE ISSUERS AS OF 05/31/04 (%) Qwest 1.8 - ----------------------------- El Paso 1.7 - ----------------------------- Charter Communications Holdings 1.5 - ----------------------------- Dex Media 1.4 - ----------------------------- Allied Waste North America 1.1 - ----------------------------- Calpine 1.1 - ----------------------------- Pinnacle Entertainment 1.1 - ----------------------------- D.R. Horton 1.0 - ----------------------------- AES 1.0 - ----------------------------- Premier International Foods 1.0 - ----------------------------- 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 ($) - ----------------------------------------------------------- AGRICULTURE - 0.6% AGRICULTURE PRODUCTION - 0.6% Seminis, Inc., 10.250% 10/01/13 USD 438,000 473,040 ----------- Agriculture Production Total 473,040 ----------- AGRICULTURE TOTAL 473,040 ----------- - ----------------------------------------------------------- CONSTRUCTION - 5.6% BUILDING CONSTRUCTION - 5.6% Associated Materials, Inc.: (b) 03/01/14 (11.250% 03/01/09) (a) 205,000 134,275 9.750% 04/15/12 325,000 355,875 Atrium Companies, Inc.: 10.500% 05/01/09 245,000 257,250 10.500% 05/01/09 (a) 200,000 210,000 D.R. Horton, Inc., 9.750% 09/15/10 955,000 1,088,700 K. Hovnanian Enterprises, Inc.: 8.875% 04/01/12 170,000 177,225 10.500% 10/01/07 340,000 390,150 Norcraft Companies, 9.000% 11/01/11 (a) 140,000 147,700 Nortek Holdings, Inc., (b) 05/15/11 (10.000% 11/15/07) (a) 540,000 402,300 Standard Pacific Corp., 9.250% 04/15/12 415,000 444,050 WII Components, Inc., 10.000% 02/15/12 (a) 320,000 315,200 William Lyon Homes, Inc., 10.750% 04/01/13 210,000 232,575 ----------- Building Construction Total 4,155,300 ----------- CONSTRUCTION TOTAL 4,155,300 ----------- - ----------------------------------------------------------- FINANCE, INSURANCE & REAL ESTATE - 4.3% DEPOSITORY INSTITUTIONS - 0.3% Western Financial Bank, 9.625% 05/15/12 210,000 227,850 ----------- Depository Institutions Total 227,850 ----------- FINANCIAL SERVICES - 3.8% Dollar Financial Group, Inc., 9.750% 11/15/11 405,000 413,100 FINOVA Group, Inc., 7.500% 11/15/09 538,187 296,003 Global Cash Access LLC, 8.750% 03/15/12 (a) 340,000 351,900 LaBranche & Co., Inc., 11.000% 05/15/12 (a) 505,000 515,100 Thornburg Mortgage, Inc., 8.000% 05/15/13 250,000 246,250 TRAC-X North American High Yield, 8.000 03/25/09 (a) 1,000,000 955,000 ----------- Financial Services Total 2,777,353 ----------- PAR VALUE ($) - ----------------------------------------------------------- REAL ESTATE - 0.2% Forest City Enterprises, Inc., 7.625% 06/01/15 USD 165,000 170,775 ----------- Real Estate Total 170,775 ----------- FINANCE, INSURANCE & REAL ESTATE TOTAL 3,175,978 ----------- - ----------------------------------------------------------- INDUSTRIALS - 0.3% INDUSTRIAL CONGLOMERATES - 0.3% SPX Corp., 7.500% 01/01/13 250,000 254,375 ----------- Industrial Conglomerates Total 254,375 ----------- INDUSTRIALS TOTAL 254,375 ----------- - ----------------------------------------------------------- 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 ----------- Apparel Total 1,009,625 ----------- 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 ----------- Auto Parts & Equipment Total 1,581,507 ----------- 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 ($) - ----------------------------------------------------------- MANUFACTURING (CONTINUED) CHEMICALS & ALLIED PRODUCTS (CONTINUED) Lyondell Chemical Co., 9.625% 05/01/07 USD 440,000 457,600 9.875% 05/01/07 180,000 187,200 NOVA Chemicals Corp., 6.500% 01/15/12 170,000 166,983 Terra Capital, Inc., 12.875% 10/15/08 475,000 565,250 UAP Holding Corp.: (b) 07/15/12 (10.750% 01/15/08) (a) 295,000 230,100 8.250% 12/15/11 (a) 245,000 274,400 Westlake Chemical Corp., 8.750% 07/15/11 395,000 426,600 ----------- Chemicals & Allied Products Total 5,160,733 ----------- ELECTRONIC & ELECTRICAL EQUIPMENT - 1.2% Amkor Technology, Inc., 9.250% 02/15/08 285,000 300,675 Lucent Technologies, Inc., 6.450% 03/15/29 335,000 252,925 Stratus Technologies, Inc., 10.375% 12/01/08 (a) 200,000 195,000 Xerox Corp., 7.125% 06/15/10 160,000 160,000 ----------- Electronic & Electrical Equipment Total 908,600 ----------- FABRICATED METAL - 0.6% Earle M. Jorgensen Co., 9.750% 06/01/12 425,000 463,250 ----------- Fabricated Metal Total 463,250 ----------- FOOD & KINDRED PRODUCTS - 4.9% Constellation Brands, Inc., 8.125% 01/15/12 270,000 283,500 Del Monte Corp., 9.250% 05/15/11 500,000 536,250 Dole Food Co., Inc., 8.625% 05/01/09 415,000 419,150 Merisant Co., 9.500% 07/15/13 (a) 205,000 219,350 Pinnacle Foods, 8.250% 12/01/13 (a) 385,000 380,188 Premier International Foods PLC, 12.000% 09/01/09 1,000,000 1,062,500 Roundy's, Inc., 8.875% 06/15/12 410,000 438,700 Tabletop Holdings, Inc., (b) 05/15/14 (12.250% 11/15/08) (a) 525,000 294,000 ----------- Food & Kindred Products Total 3,633,638 ----------- PAR VALUE ($) - ----------------------------------------------------------- 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 ----------- Furniture & Fixtures Total 729,285 ----------- 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 ----------- Household Products Total 822,775 ----------- 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 ----------- Lumber & Wood Total 352,550 ----------- 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 ----------- 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 ($) - ----------------------------------------------------------- MANUFACTURING (CONTINUED) PAPER PRODUCTS - 4.0% Applied Extrusion Technologies, Inc., 10.750% 07/01/11 USD 260,000 165,100 Buckeye Technologies, Inc.: 8.500% 10/01/13 60,000 61,200 9.250% 09/15/08 235,000 230,300 Caraustar Industries, Inc., 9.875% 04/01/11 355,000 353,225 Consolidated Container Co. LLC, (b) 06/15/09 (10.750% 06/15/07) (a) 280,000 208,600 MDP Acquisitions PLC, 9.625% 10/01/12 525,000 567,000 Newark Group, Inc., 9.750% 03/15/14 (a) 205,000 193,725 Norske Skog Canada Ltd.: 7.375% 03/01/14 (a) 105,000 102,675 8.625% 06/15/11 150,000 158,250 Portola Packaging, Inc., 8.250% 02/01/12 (a) 210,000 175,350 Smurfit-Stone Container Corp., 8.250% 10/01/12 450,000 456,750 Solo Cup Co., 8.500% 02/15/14 (a) 140,000 140,000 Tembec Industries, Inc., 8.500% 02/01/11 125,000 123,750 ----------- Paper Products Total 2,935,925 ----------- PRIMARY METAL - 2.7% Bayou Steel Corp., 9.000% 03/31/11 250,000 226,250 Kaiser Aluminum & Chemical Corp., 10.875% 10/15/06 (f) 505,000 499,950 Metallurg, Inc., 11.000% 12/01/07 200,000 96,000 Oregon Steel Mills, Inc., 10.000% 07/15/09 275,000 283,250 Steel Dynamics, Inc.: 9.500% 03/15/09 80,000 87,600 9.500% 03/15/09 (a) 80,000 87,600 UCAR Finance, Inc., 10.250% 02/15/12 355,000 392,275 Wise Metals Group LLC, 10.250% 05/15/12 (a) 315,000 318,150 ----------- Primary Metal Total 1,991,075 ----------- PRINTING & PUBLISHING - 5.7% Dex Media, Inc.: (b) 11/15/13 (9.000% 11/15/08) (a) 250,000 161,250 8.000% 11/15/13 (a) 320,000 304,000 Dex Media East LLC, 12.125% 11/15/12 565,000 658,225 Dex Media West LLC, 9.875% 08/15/13 (a) 280,000 308,350 PAR VALUE ($) - ----------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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 ------------------------------------------------------------------ By (Signature and Title) /s/ J. Kevin Connaughton ------------------------------------------------------ J. Kevin Connaughton, President and Treasurer Date August 3, 2004 -------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title) /s/ J. Kevin Connaughton ------------------------------------------------------ J. Kevin Connaughton, President and Treasurer Date August 3, 2004 -------------------------------------------------------------------------- EX-99.CERT 2 file002.txt CERTIFICATIONS I, J. Kevin Connaughton, certify that: 1. I have reviewed this report on Form N-CSR of Colonial Intermediate High Income Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent 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; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 3, 2004 /s/ J. Kevin Connaughton --------------------------------------------- J. Kevin Connaughton, President and Treasurer EX-99.906CERT 3 file003.txt CERTIFICATIONS CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Certified Shareholder Report of Colonial Intermediate High Income Fund; (the "Trust") on Form N-CSR for the period ending May 31, 2004, as filed with the Securities and Exchange Commission on the date hereof ("the Report"), the undersigned hereby certifies that, to his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Trust. Date: August 3, 2004 /s/ J. Kevin Connaughton --------------------------------------------- J. Kevin Connaughton, President and Treasurer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission (the "Commission") or its staff upon request. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. ss.1350 and is not being filed as part of the Form N-CSR with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----