-----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, C8zVwS3t8yt9K1CCNH747XXsiHSMmP8Oi7IMWT0yXFLZCflQuV2l096H8yhSRZyF 9csY8CDJy1by32+ithzBTg== 0001193125-07-022218.txt : 20070207 0001193125-07-022218.hdr.sgml : 20070207 20070207115256 ACCESSION NUMBER: 0001193125-07-022218 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20061130 FILED AS OF DATE: 20070207 DATE AS OF CHANGE: 20070207 EFFECTIVENESS DATE: 20070207 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLONIAL INTERMEDIATE HIGH INCOME FUND CENTRAL INDEX KEY: 0000833021 IRS NUMBER: 000000000 FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-05567 FILM NUMBER: 07586836 BUSINESS ADDRESS: STREET 1: ONE FINANCIAL CNTR CITY: BOSTON STATE: MA ZIP: 02111 BUSINESS PHONE: 6174263750 N-CSR 1 dncsr.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) James R. Bordewick, Jr., Esq. Columbia Management Advisors, LLC One Financial Center Boston, MA 02111 ---------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: 1-617-426-3750 -------------- Date of fiscal year end: November 30, 2006 ----------------- Date of reporting period: November 30, 2006 ----------------- 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. (S) 3507. Item 1. Reports to Stockholders. [GRAPHIC] [GRAPHIC] COLONIAL INTERMEDIATE HIGH INCOME FUND ANNUAL REPORT NOVEMBER 30, 2006 [LOGO] NOT FDIC INSURED May Lose Value No Bank Guarantee Economic Update - Colonial Intermediate High Income Fund The US economy grew at a solid but uneven pace during the 12-month period that began December 1, 2005 and ended November 30, 2006. Gross domestic product (GDP) growth was robust in the first quarter of 2006, as businesses created jobs at a brisk pace, industrial production rose and both personal spending and personal income moved higher. However, a weak housing market began to weigh on the economy, and the manufacturing sector contracted late in the period--registering its first downturn since the spring of 2003. Against this backdrop, economic growth averaged 3.0% for the 12-month period. Between December and June, the Federal Reserve Board (the Fed) raised a key short-term interest rate, the federal funds rate, five times--to 5.25%. But as economic growth slowed, the Fed turned cautious and declined to increase the federal funds rate after its June meeting. Inflation also retreated during the period, which lent further support to the Fed's decision. Investors reacted favorably to the prospect of stable or possibly even lower interest rates and both the stock and bond markets rallied in the second half of the period. Solid returns from fixed income markets Although yields moved higher early in the period, the US fixed income markets delivered respectable returns, as prices rose and yields declined in reaction to the Fed's mid-year decision to put further short-term rate increases on hold. The yield on the 10-year US Treasury note, a bellwether for the bond market, ended the period at 4.4%--slightly lower than where it started. High-yield bonds led the fixed income markets, reflecting investor confidence about the overall resilience of the economy despite its slower pace of growth. The views expressed in the Economic Update and Portfolio Managers' report reflect the current views of the respective parties. These views are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict so actual outcomes and results may differ significantly from the views expressed. These views are subject to change at any time based upon economic, market or other conditions and the respective parties disclaim any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for the fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any fund. References to specific company securities should not be construed as a recommendation or investment advice. Portfolio Managers' Report - Colonial Intermediate High Income Fund For the 12-month period ended November 30, 2006, Colonial Intermediate High Income Fund returned 21.22%, based on its market price. Changes in the market price of the fund's shares reflect investor demand and are not necessarily linked directly to changes in the fund's net asset value. The fund returned 11.20% based on investment at net asset value. The average return of the Lipper High Current Yield Funds (Leveraged) Classification was 12.48%./1/ We believe that the fund's lower return relative to its peer group occurred because the fund had more emphasis on higher quality high-yield bonds which underperformed lower quality bonds. Riskier assets were favored by investors Against a backdrop of steady economic growth, strong equity performance, historically low corporate default rates, large new issuance and relatively low Treasury yields, investors became increasingly comfortable with risk and favored the lowest quality high-yield securities. In this environment, we chose to reduce exposure to lower quality bonds and lock in profits because we felt the narrowing difference in yields between higher and lower quality securities did not justify the added risk posed by the latter. This shift in the fund's holdings proved to be premature, as lower quality securities set the pace in the high-yield market for the entire 12 months. Nevertheless, we believe that our prudence has the potential to be rewarded going forward. A focus on the wireless, energy and utilities sectors produced mixed results Wireless telecommunications was one of the largest positions in the fund. Investments in this sector were positive for performance, as strong growth and industry consolidation aided results. Robust merger and acquisition activity also drove up the valuations of the fund's investments in the aerospace industry, and strong operating and financial results contributed to the returns of cable holdings. Strong performance in the transportation sector was led by recoveries in Ford Motor Credit and General Motors bonds. While the fund was underweight in the sector, transportation holdings were positive for the fund's returns. The fund also held substantial positions in the energy and utility sectors, which detracted from performance because these higher quality industries did not keep pace with some lower quality sectors. Housing also did poorly for the fund as the sector slowed. Rising interest rates on the fund's term and revolving loans also had a negative impact on performance. The fund seeks to enhance its return by borrowing money to invest in high-yield securities at higher rates than its cost of funds. Rising interest rates during the first seven months of the fiscal year increased the fund's expense for interest payments on these loans, which was not fully offset by income from investments because the interest rates on the loans rose faster than the long-term yields on the fund's investments. When interest rates declined during the final five months of the fiscal period, some, but not all, of these losses were offset. /1/Lipper Inc., a widely respected data provider in the industry, calculates an average total return (assuming reinvestment of distributions) for mutual funds with investment objectives similar to those of the fund. Lipper makes no adjustment for the effect of sales loads. *See Page 28 for returns based on market price for the past five fiscal years.
Price per share as of 11/30/06 ($) Market price 3.46 Net asset value 3.64
1-year total return as of 11/30/06 (%)* Market price 21.22 Net asset value 11.20 Lipper High Current Yield Funds (Leveraged) Classification average 12.48
Performance is historical, assumes reinvestment of all dividends and capital gains, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when sold, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please call 800-730-6001 for the fund's most recent performance. Total return based on net asset value reflects changes in the fund's net asset value during each period. Total return based on market value reflects changes in market value. These figures will differ depending on the level of any discount from or premium to net asset value during the period.
Distributions declared per share 12/01/05 - 11/30/06 ($) 0.34
1 Portfolio Managers' Report (continued) - Colonial Intermediate High Income Fund
Quality breakdown as of 11/30/06 (%) BBB 1.7 BB 22.4 B 53.9 CCC 16.9 CC 0.6 Non-rated 0.3 Equity, Preferred Stocks 3.0 Cash and Equivalents 1.2
Top 10 corporate issuers as of 11/30/06 (%) General Motors** 2.1 El Paso** 1.8 Qwest** 1.5 Ford Motor Credit 1.5 Dow Jones CDX High Yield Index 1.5 Charter Communications 1.4 Freescale Semiconductor 1.4 Williams Companies 1.3 HCA 1.3 Allied Waste North America 1.1
Quality breakdown and corporate issuers are calculated as a percentage of total investments. Ratings shown in the quality breakdown represent the rating assigned to a particular bond by one of the following nationally recognized rating agencies: Standard & Poor's, a division of The McGraw-Hill Companies, Inc., Moody's Investors Service, Inc. or Fitch Ratings, Ltd. Ratings are relative and subjective and are not absolute standards of quality. The Credit quality does not remove market risk. The majority of the bonds that are non-rated are considered by the advisor to be of non-investment grade quality. Portfolio characteristics and holdings are subject to change periodically and may not be representative of current characteristics and holdings. Because the fund is actively managed, there is no guarantee that the fund will maintain these quality breakdowns or will continue to invest in these issuers in the future. **Includes affiliated companies. Maintaining flexibility in a potentially changing investment environment Valuations in the high-yield market have risen to levels that we believe are near fair value. However, we believe that the economic environment is strong enough to support yields that are not significantly higher than those offered by investment grade securities for the foreseeable future. That said, we are mindful of the potential risks of a greater-than-expected economic slowdown, disruption in the leveraged loan market or a rise in highly speculative private equity transactions. In this environment, we have taken a neutral stance toward the market and will make pronounced portfolio shifts if our outlook for the high-yield market changes. Portfolio Management Gregg R. Smalley, CFA, has managed Colonial Intermediate High Income Fund since June 2000 and has been with the advisor or its predecessors or affiliate organizations since August 1997. Kevin L. Cronk, CFA, has co-managed the fund since February 2003 and has been with the advisor or its predecessors or affiliate organizations since August 1999. Thomas A. LaPointe, CFA, has co-managed the fund since February 2003 and has been with the advisor or its predecessors or affiliate organizations since February 1999. Shares of closed-end funds frequently trade at a discount to net asset value. The price of the fund's shares is determined by a number of factors, several of which are beyond the control of the fund. Therefore, the fund cannot predict whether its shares will trade at, below or above net asset value. Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments and yield and share price fluctuations due to changes in interest rates. When interest rates go up, bond prices typically drop, and vice versa. Investing in high-yield or "junk" bonds offers the potential for higher income than investments in investment-grade bonds, but also has a higher degree of risk. Changes in economic conditions or other circumstances may adversely affect a high-yield bond issuer's ability to make timely principal and interest payments. 2 Investment Portfolio - Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes - 130.4%
Par ($) Value ($) Basic Materials - 10.9% Chemicals - 6.8% Agricultural Chemicals - 1.8% IMC Global, Inc. 10.875% 08/01/13 310,000 353,013 Mosaic Co. 7.375% 12/01/14 (a) (b) 120,000 121,950 7.625% 12/01/16 (a) (b) 445,000 455,012 Terra Capital, Inc. 12.875% 10/15/08 420,000 469,350 ----------------------------- ----------- --------- 1,399,325 Chemicals-Diversified - 3.9% BCP Crystal US Holdings Corp. 9.625% 06/15/14 215,000 235,963 EquiStar Chemicals LP 10.625% 05/01/11 345,000 368,287 Huntsman International LLC 6.875% 11/15/13 EUR 200,000 263,215 7.875% 11/15/14 (a) USD 285,000 286,425 Ineos Group Holdings PLC 7.875% 02/15/16 EUR 165,000 211,143 8.500% 02/15/16 (a) USD 265,000 255,725 Innophos Investments Holdings, Inc. PIK, 13.374% 02/15/15 (c) 266,601 278,598 Lyondell Chemical Co. 8.000% 09/15/14 250,000 257,812 8.250% 09/15/16 380,000 395,200 NOVA Chemicals Corp. 6.500% 01/15/12 425,000 401,625 ----------------------------- ----------- --------- 2,953,993 Chemicals-Specialty - 1.1% Chemtura Corp. 6.875% 06/01/16 365,000 358,613 Momentive Performance Materials, Inc. 9.750% 12/01/14 (a) 210,000 210,525 Rhodia SA 8.875% 06/01/11 271,000 283,195 ----------------------------- ----------- --------- 852,333 Chemicals Total 5,205,651 Forest Products & Paper - 2.8% Paper & Related Products - 2.8% Abitibi-Consolidated, Inc. 8.375% 04/01/15 380,000 330,600 Boise Cascade LLC 7.125% 10/15/14 190,000 182,400 Buckeye Technologies, Inc. 8.500% 10/01/13 60,000 62,100 Domtar, Inc. 7.125% 08/15/15 330,000 315,975 Georgia-Pacific Corp. 8.000% 01/15/24 530,000 543,250 Neenah Paper, Inc. 7.375% 11/15/14 130,000 123,175 NewPage Corp. 10.000% 05/01/12 250,000 263,125 12.000% 05/01/13 105,000 110,775 Norske Skog 8.625% 06/15/11 190,000 191,900 ----------------------------- ----------- --------- 2,123,300 Forest Products & Paper Total 2,123,300
See Accompanying Notes to Financial Statements. 3 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Basic Materials (continued) Iron/Steel - 0.5% Steel-Producers - 0.2% Steel Dynamics, Inc. 9.500% 03/15/09 160,000 165,000 ------------------------ ------- --------- 165,000 Steel-Specialty - 0.3% UCAR Finance, Inc. 10.250% 02/15/12 215,000 226,825 ------------------------ ------- --------- 226,825 Iron/Steel Total 391,825 Metals & Mining - 0.8% Diversified Minerals - 0.7% FMG Finance Ltd. 10.625% 09/01/16 (a) 505,000 508,787 ------------------------ ------- --------- 508,787 Mining Services - 0.1% Hudson Bay Mining & Smelting Co., Ltd. 9.625% 01/15/12 105,000 117,600 ------------------------ ------- --------- 117,600 Metals & Mining Total 626,387 Basic Materials Total 8,347,163 Communications - 27.9% Media - 11.6% Broadcast Services/Programs - 1.0% Clear Channel Communications, Inc. 4.900% 05/15/15 230,000 186,696 5.500% 12/15/16 365,000 301,548 XM Satellite Radio, Inc. 9.750% 05/01/14 290,000 287,100 ------------------------ ------- --------- 775,344 Cable TV - 5.0% Atlantic Broadband Finance LLC 9.375% 01/15/14 305,000 306,906 Charter Communications Holdings I LLC 11.000% 10/01/15 485,000 475,300 Charter Communications Holdings II LLC 10.250% 09/15/10 490,000 512,050 Charter Communications Holdings LLC 9.920% 04/01/14 580,000 477,050 CSC Holdings, Inc. 7.625% 04/01/11 585,000 595,969 DirecTV Holdings LLC 6.375% 06/15/15 435,000 419,775 EchoStar DBS Corp. 6.625% 10/01/14 605,000 586,850 Insight Midwest LP 9.750% 10/01/09 101,000 102,389 9.750% 10/01/09 42,000 42,577 Telenet Group Holding NV (d) 06/15/14 (11.500% 12/15/08) (a) 368,000 328,440 ------------------------ ------- --------- 3,847,306
See Accompanying Notes to Financial Statements. 4 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Communications (continued) Media (continued) Multimedia - 1.4% Advanstar Communications, Inc. 15.000% 10/15/11 310,000 321,625 Lamar Media Corp. 6.625% 08/15/15 360,000 349,650 Quebecor Media, Inc. 7.750% 03/15/16 390,000 394,875 -------------------- ------- --------- 1,066,150 Publishing-Periodicals - 3.3% Dex Media West LLC 9.875% 08/15/13 739,000 805,510 Dex Media, Inc. (d) 11/15/13 (9.000% 11/15/08) 250,000 221,250 Idearc, Inc. 8.000% 11/15/16 (a) 750,000 762,188 PriMedia, Inc. 8.000% 05/15/13 530,000 495,550 RH Donnelley Corp. 8.875% 01/15/16 290,000 304,500 -------------------- ------- --------- 2,588,998 Radio - 0.5% CMP Susquehanna Corp. 9.875% 05/15/14 (a) 355,000 348,788 -------------------- ------- --------- 348,788 Television - 0.4% Sinclair Broadcast Group, Inc. 8.750% 12/15/11 255,000 266,475 -------------------- ------- --------- 266,475 Media Total 8,893,061 Telecommunication Services - 16.3% Cellular Telecommunications - 6.1% Cricket Communications, Inc. 9.375% 11/01/14 (a) 270,000 276,075 Digicel Ltd. 9.250% 09/01/12 (a) 440,000 466,400 Dobson Cellular Systems, Inc. 8.375% 11/01/11 400,000 417,000 9.875% 11/01/12 510,000 553,350 Horizon PCS, Inc. 11.375% 07/15/12 190,000 210,900 iPCS Escrow Co. 11.500% 05/01/12 170,000 189,125 MetroPCS Wireless, Inc. 9.250% 11/01/14 (a) 440,000 447,150 Nextel Partners, Inc. 8.125% 07/01/11 390,000 405,600 Rogers Cantel, Inc. 9.750% 06/01/16 385,000 481,250 Rogers Wireless, Inc. 8.000% 12/15/12 255,000 270,300 Rural Cellular Corp. 9.750% 01/15/10 65,000 66,625 11.121% 11/01/12 (c) 320,000 332,800 US Unwired, Inc. 10.000% 06/15/12 500,000 550,000 -------------------- ------- --------- 4,666,575
See Accompanying Notes to Financial Statements. 5 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Communications (continued) Telecommunication Services (continued) Satellite Telecommunications - 2.3% Inmarsat Finance II PLC (d) 11/15/12 (10.375% 11/15/08) 460,000 420,325 Intelsat Bermuda, Ltd. 11.250% 06/15/16 (a) 815,000 893,444 Intelsat Intermediate Holdings (d) 02/01/15 Co., Ltd. (9.250% 02/01/10) 330,000 249,975 PanAmSat Corp. 9.000% 08/15/14 226,000 237,300 -------------------------------- ----------- ---------- 1,801,044 Telecommunication Equipment - 0.6% Lucent Technologies, Inc. 6.450% 03/15/29 475,000 427,500 -------------------------------- ----------- ---------- 427,500 Telecommunication Services - 2.4% Embarq Corp. 7.082% 06/01/16 160,000 165,715 7.995% 06/01/36 165,000 178,577 Nordic Telephone Co. Holdings ApS 8.250% 05/01/16 EUR 240,000 348,834 Syniverse Technologies, Inc. 7.750% 08/15/13 USD 260,000 252,850 Time Warner Telecom Holdings, Inc. 9.250% 02/15/14 380,000 404,700 West Corp. 11.000% 10/15/16 (a) 475,000 472,031 -------------------------------- ----------- ---------- 1,822,707 Telephone-Integrated - 4.9% Cincinnati Bell, Inc. 7.000% 02/15/15 360,000 355,500 Citizens Communications Co. 9.000% 08/15/31 600,000 654,000 NTL Cable PLC 8.750% 04/15/14 EUR 180,000 188,100 8.750% 04/15/14 USD 160,000 227,523 Qwest Communications International, Inc. 7.500% 02/15/14 250,000 257,500 Qwest Corp. 7.500% 10/01/14 (a) 145,000 154,063 7.500% 06/15/23 575,000 586,500 8.875% 03/15/12 515,000 573,581 US LEC Corp. 13.870% 10/01/09 (c) 225,000 238,781 Windstream Corp. 8.625% 08/01/16 (a) 470,000 511,713 -------------------------------- ----------- ---------- 3,747,261 Telecommunication Services Total 12,465,087 Communications Total 21,358,148
See Accompanying Notes to Financial Statements. 6 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Consumer Cyclical - 23.5% Airlines - 0.6% Continental Airlines, Inc. 7.568% 12/01/06 475,000 475,000 ---------------------------- ------- --------- 475,000 Airlines Total 475,000 Apparel - 1.7% Apparel Manufacturers - 1.7% Broder Brothers Co. 11.250% 10/15/10 260,000 252,200 Levi Strauss & Co. 9.750% 01/15/15 570,000 609,187 Phillips-Van Heusen Corp. 7.250% 02/15/11 400,000 408,500 8.125% 05/01/13 60,000 63,375 ---------------------------- ------- --------- 1,333,262 Apparel Total 1,333,262 Auto Manufacturers - 0.6% Auto-Cars/Light Trucks - 0.6% General Motors Corp. 8.375% 07/15/33 465,000 423,731 ---------------------------- ------- --------- 423,731 Auto Manufacturers Total 423,731 Auto Parts & Equipment - 1.8% Auto/Truck Parts & Equipment-Original - 0.5% TRW Automotive, Inc. 9.375% 02/15/13 340,000 364,650 ---------------------------- ------- --------- 364,650 Auto/Truck Parts & Equipment-Replacement - 0.3% Commercial Vehicle Group 8.000% 07/01/13 295,000 285,413 ---------------------------- ------- --------- 285,413 Rubber-Tires - 1.0% Goodyear Tire & Rubber Co. 8.625% 12/01/11 (a) 165,000 167,475 9.000% 07/01/15 575,000 587,937 ---------------------------- ------- --------- 755,412 Auto Parts & Equipment Total 1,405,475 Distribution/Wholesale - 0.3% Distribution/Wholesale - 0.3% Buhrmann US, Inc. 7.875% 03/01/15 230,000 221,950 ---------------------------- ------- --------- 221,950 Distribution/Wholesale Total 221,950 Entertainment - 2.1% Gambling (Non-Hotel) - 0.5% Global Cash Access LLC 8.750% 03/15/12 332,000 350,675 ---------------------------- ------- --------- 350,675 Music - 1.1% Steinway Musical Instruments, Inc. 7.000% 03/01/14 (a) 350,000 340,375
See Accompanying Notes to Financial Statements. 7 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Consumer Cyclical (continued) Entertainment (continued) Music (continued) Warner Music Group 7.375% 04/15/14 325,000 321,750 WMG Holdings Corp. (d) 12/15/14 (9.500% 12/15/09) 250,000 198,750 ----------------------- ------- --------- 860,875 Resorts/Theme Parks - 0.5% Six Flags, Inc. 9.625% 06/01/14 435,000 397,481 ----------------------- ------- --------- 397,481 Entertainment Total 1,609,031 Home Builders - 0.9% Building-Residential/Commercial - 0.9% K. Hovnanian Enterprises, Inc. 6.375% 12/15/14 235,000 223,250 8.875% 04/01/12 170,000 172,338 KB Home 5.875% 01/15/15 290,000 268,688 ----------------------- ------- --------- 664,276 Home Builders Total 664,276 Home Furnishings - 0.4% Home Furnishings - 0.4% Sealy Mattress Co. 8.250% 06/15/14 330,000 342,788 ----------------------- ------- --------- 342,788 Home Furnishings Total 342,788 Leisure Time - 1.4% Cruise Lines - 0.8% Royal Caribbean Cruises Ltd. 7.000% 06/15/13 535,000 550,433 ----------------------- ------- --------- 550,433 Leisure & Recreational Products - 0.3% K2, Inc. 7.375% 07/01/14 245,000 243,775 ----------------------- ------- --------- 243,775 Recreational Centers - 0.3% Town Sports International, Inc. (d) 02/01/14 (11.000% 02/01/09) 286,000 238,095 ----------------------- ------- --------- 238,095 Leisure Time Total 1,032,303 Lodging - 8.6% Casino Hotels - 8.1% Caesars Entertainment, Inc. 7.875% 03/15/10 300,000 308,250 CCM Merger, Inc. 8.000% 08/01/13 (a) 480,000 463,200 Chukchansi Economic Development Authority 8.877% 11/15/12 (a) (c) 275,000 282,219 Circus & Eldorado/Silver Legacy Capital Corp. 10.125% 03/01/12 300,000 315,375
See Accompanying Notes to Financial Statements. 8 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Consumer Cyclical (continued) Lodging (continued) Casino Hotels (continued) Galaxy Entertainment Finance Co., Ltd. 9.875% 12/15/12 (a) 350,000 373,625 Greektown Holdings LLC 10.750% 12/01/13 (a) 390,000 408,525 Hard Rock Hotel, Inc. 8.875% 06/01/13 520,000 557,700 Harrah's Operating Co., Inc. 5.625% 06/01/15 480,000 411,775 Jacobs Entertainment, Inc. 9.750% 06/15/14 440,000 440,000 Las Vegas Sands Corp. 6.375% 02/15/15 180,000 173,475 MGM Mirage 6.750% 09/01/12 480,000 474,000 8.500% 09/15/10 115,000 122,762 Pinnacle Entertainment, Inc. 8.250% 03/15/12 575,000 586,500 Pokagon Gaming Authority 10.375% 06/15/14 (a) 200,000 217,000 Station Casinos, Inc. 6.625% 03/15/18 650,000 591,500 Wynn Las Vegas LLC 6.625% 12/01/14 450,000 443,250 -------------------- ------- --------- 6,169,156 Hotels & Motels - 0.5% ITT Corp. 7.375% 11/15/15 370,000 383,310 -------------------- ------- --------- 383,310 Lodging Total 6,552,466 Retail - 4.7% Retail-Arts & Crafts - 0.5% Michaels Stores, Inc. 11.375% 11/01/16 (a) 365,000 374,125 -------------------- ------- --------- 374,125 Retail-Automobiles - 1.0% Asbury Automotive Group, Inc. 8.000% 03/15/14 360,000 362,700 Autonation, Inc. 7.000% 04/15/14 140,000 140,000 7.374% 04/15/13 (c) 85,000 85,000 United Auto Group, Inc. 7.750% 12/15/16 (a) 145,000 145,000 -------------------- ------- --------- 732,700 Retail-Drug Stores - 0.4% Rite Aid Corp. 7.500% 01/15/15 350,000 336,000 -------------------- ------- --------- 336,000 Retail-Home Furnishings - 0.5% Tempur-Pedic, Inc. 10.250% 08/15/10 382,000 412,560 -------------------- ------- --------- 412,560
See Accompanying Notes to Financial Statements. 9 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Consumer Cyclical (continued) Retail (continued) Retail-Propane Distributors - 1.1% AmeriGas Partners LP 7.125% 05/20/16 300,000 298,500 Ferrellgas Partners LP 8.750% 06/15/12 300,000 308,250 Inergy LP/Inergy Finance Corp. 8.250% 03/01/16 240,000 250,200 -------------------- ------- ---------- 856,950 Retail-Restaurants - 1.2% Buffets, Inc. 12.500% 11/01/14 (a) 370,000 370,925 Dave & Buster's, Inc. 11.250% 03/15/14 230,000 223,100 Landry's Restaurants, Inc. 7.500% 12/15/14 305,000 296,612 -------------------- ------- ---------- 890,637 Retail Total 3,602,972 Textiles - 0.4% Textile-Products - 0.4% INVISTA 9.250% 05/01/12 (a) 285,000 304,238 -------------------- ------- ---------- 304,238 Textiles Total 304,238 Consumer Cyclical Total 17,967,492 Consumer Non-Cyclical - 22.5% Agriculture - 0.8% Tobacco - 0.8% Alliance One International, Inc. 11.000% 05/15/12 240,000 254,400 Reynolds American, Inc. 7.625% 06/01/16 (a) 345,000 368,138 -------------------- ------- ---------- 622,538 Agriculture Total 622,538 Beverages - 1.0% Beverages-Non-Alcoholic - 0.3% Cott Beverages, Inc. 8.000% 12/15/11 270,000 275,400 -------------------- ------- ---------- 275,400 Beverages-Wine/Spirits - 0.7% Constellation Brands, Inc. 7.250% 09/01/16 295,000 302,006 8.125% 01/15/12 195,000 203,288 -------------------- ------- ---------- 505,294 Beverages Total 780,694 Biotechnology - 0.5% Medical-Biomedical/Gene - 0.5% Bio-Rad Laboratories, Inc. 7.500% 08/15/13 375,000 385,312 -------------------- ------- ---------- 385,312 Biotechnology Total 385,312
See Accompanying Notes to Financial Statements. 10 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Consumer Non-Cyclical (continued) Commercial Services - 5.9% Commercial Services - 0.5% Iron Mountain, Inc. 7.750% 01/15/15 350,000 357,000 ----------------------------- ------- --------- 357,000 Commercial Services-Finance - 0.3% ACE Cash Express, Inc. 10.250% 10/01/14 (a) 250,000 252,500 ----------------------------- ------- --------- 252,500 Funeral Services & Related Items - 0.3% Service Corp. International 6.750% 04/01/16 95,000 93,337 7.375% 10/01/14 50,000 52,000 7.625% 10/01/18 70,000 73,150 ----------------------------- ------- --------- 218,487 Printing-Commercial - 0.7% Quebecor World Capital Corp. 8.750% 03/15/16 (a) 510,000 494,700 ----------------------------- ------- --------- 494,700 Private Corrections - 1.0% Corrections Corp. of America 6.250% 03/15/13 360,000 354,600 GEO Group, Inc. 8.250% 07/15/13 415,000 423,300 ----------------------------- ------- --------- 777,900 Rental Auto/Equipment - 3.1% Ashtead Capital, Inc. 9.000% 08/15/16 (a) 150,000 160,500 Ashtead Holdings PLC 8.625% 08/01/15 (a) 350,000 362,250 Avis Budget Car Rental LLC 7.625% 05/15/14 (a) 235,000 227,069 7.750% 05/15/16 (a) 160,000 154,200 Hertz Corp. 8.875% 01/01/14 (a) 395,000 409,813 Rental Services Corp. 9.500% 12/01/14 (a) 585,000 592,312 United Rentals North America, Inc. 6.500% 02/15/12 295,000 289,100 7.750% 11/15/13 210,000 210,000 ----------------------------- ------- --------- 2,405,244 Commercial Services Total 4,505,831 Cosmetics/Personal Care - 1.4% Cosmetics & Toiletries - 1.4% DEL Laboratories, Inc. 8.000% 02/01/12 355,000 326,600 Elizabeth Arden, Inc. 7.750% 01/15/14 380,000 378,100 Sally Holdings LLC 10.500% 11/15/16 (a) 365,000 374,581 ----------------------------- ------- --------- 1,079,281 Cosmetics/Personal Care Total 1,079,281 Food - 2.0% Food-Confectionery - 0.2% Merisant Co. 9.500% 07/15/13 215,000 118,250 ----------------------------- ------- --------- 118,250
See Accompanying Notes to Financial Statements. 11 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Consumer Non-Cyclical (continued) Food-Dairy Products - 0.4% Dean Foods Co. 7.000% 06/01/16 320,000 326,800 ------------------------- ------- --------- 326,800 Food-Miscellaneous/Diversified - 1.4% Dole Food Co., Inc. 8.625% 05/01/09 352,000 346,720 Pinnacle Foods Holding Corp. 8.250% 12/01/13 470,000 479,400 Reddy Ice Holdings, Inc. (d) 11/01/12 (10.500% 11/01/08) 315,000 280,350 ------------------------- ------- --------- 1,106,470 Food Total 1,551,520 Healthcare Services - 4.6% Dialysis Centers - 0.4% DaVita, Inc. 7.250% 03/15/15 325,000 327,438 ------------------------- ------- --------- 327,438 Medical-HMO - 0.5% Coventry Health Care, Inc. 8.125% 02/15/12 340,000 353,175 ------------------------- ------- --------- 353,175 Medical-Hospitals - 2.6% HCA, Inc. 9.250% 11/15/16 (a) 775,000 808,906 9.625% 11/15/16 (a) 585,000 612,787 Tenet Healthcare Corp. 9.875% 07/01/14 565,000 566,413 ------------------------- ------- --------- 1,988,106 Medical-Outpatient/Home Medical - 0.2% Select Medical Corp. 7.625% 02/01/15 205,000 171,175 ------------------------- ------- --------- 171,175 MRI/Medical Diagnostic Imaging - 0.2% MedQuest, Inc. 11.875% 08/15/12 145,000 117,450 ------------------------- ------- --------- 117,450 Physician Practice Management - 0.7% US Oncology Holdings, Inc. 10.675% 03/15/15 (c) 145,000 148,988 US Oncology, Inc. 9.000% 08/15/12 395,000 413,762 ------------------------- ------- --------- 562,750 Healthcare Services Total 3,520,094 Household Products/Wares - 2.2% Consumer Products-Miscellaneous - 1.8% American Greetings Corp. 7.375% 06/01/16 320,000 327,200 Amscan Holdings, Inc. 8.750% 05/01/14 385,000 369,600 Jostens IH Corp. 7.625% 10/01/12 345,000 348,450
See Accompanying Notes to Financial Statements. 12 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Consumer Non-Cyclical (continued) Household Products/Wares (continued) Consumer Products-Miscellaneous (continued) Scotts Co. 6.625% 11/15/13 350,000 349,125 ------------------------------ ----------- ---------- 1,394,375 Office Supplies & Forms - 0.4% ACCO Brands Corp. 7.625% 08/15/15 270,000 264,937 ------------------------------ ----------- ---------- 264,937 Household Products/Wares Total 1,659,312 Pharmaceuticals - 4.1% Medical-Drugs - 2.1% Elan Finance PLC 8.875% 12/01/13 (a) 950,000 946,437 Rotavax LLC 10.620% 10/15/14 258,622 261,855 Warner Chilcott Corp. 8.750% 02/01/15 (b)(c) 401,000 411,025 ------------------------------ ----------- ---------- 1,619,317 Medical-Generic Drugs - 0.5% Mylan Laboratories, Inc. 6.375% 08/15/15 410,000 403,850 ------------------------------ ----------- ---------- 403,850 Medical-Wholesale Drug Distribution - 0.8% AmerisourceBergen Corp. 5.875% 09/15/15 225,000 224,900 Nycomed A/S PIK, 11.750% 09/15/13 (a) EUR 256,305 351,610 ------------------------------ ----------- ---------- 576,510 Pharmacy Services - 0.3% Omnicare, Inc. 6.750% 12/15/13 USD 220,000 215,600 ------------------------------ ----------- ---------- 215,600 Vitamins & Nutrition Products - 0.4% NBTY, Inc. 7.125% 10/01/15 265,000 258,375 ------------------------------ ----------- ---------- 258,375 Pharmaceuticals Total 3,073,652 Consumer Non-cyclical Total 17,178,234 Energy - 11.7% Coal - 1.3% Coal - 1.3% Arch Western Finance LLC 6.750% 07/01/13 395,000 387,100 Massey Energy Co. 6.875% 12/15/13 435,000 404,550 Peabody Energy Corp. 7.375% 11/01/16 180,000 189,225 ------------------------------ ----------- ---------- 980,875 Coal Total 980,875
See Accompanying Notes to Financial Statements. 13 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Energy (continued) Oil & Gas - 4.3% Oil & Gas Drilling - 0.3% Pride International, Inc. 7.375% 07/15/14 220,000 228,250 ------------------------ --------- --------- 228,250 Oil Companies-Exploration & Production - 3.6% Chesapeake Energy Corp. 6.375% 06/15/15 270,000 262,575 7.500% 06/15/14 370,000 382,025 Compton Petroleum Corp. 7.625% 12/01/13 355,000 337,250 Forest Oil Corp. 8.000% 12/15/11 220,000 228,800 Magnum Hunter Resources, Inc. 9.600% 03/15/12 283,000 298,211 Newfield Exploration Co. 6.625% 04/15/16 255,000 254,362 PetroHawk Energy Corp. 9.125% 07/15/13 375,000 390,469 Pogo Producing Co. 6.625% 03/15/15 295,000 283,200 Quicksilver Resources, Inc. 7.125% 04/01/16 325,000 312,000 ------------------------ --------- --------- 2,748,892 Oil Refining & Marketing - 0.4% Tesoro Corp. 6.625% 11/01/15 345,000 341,550 ------------------------ --------- --------- 341,550 Oil & Gas Total 3,318,692 Oil & Gas Services - 0.7% Oil Field Machinery & Equipment - 0.3% Complete Production Services, Inc. 8.000% 12/15/16 (a) 200,000 202,000 ------------------------ --------- --------- 202,000 Oil-Field Services - 0.4% Hornbeck Offshore Services, Inc. 6.125% 12/01/14 355,000 333,700 ------------------------ --------- --------- 333,700 Oil & Gas Services Total 535,700 Pipelines - 5.4% Atlas Pipeline Partners LP 8.125% 12/15/15 255,000 261,375 Colorado Interstate Gas Co. 6.800% 11/15/15 460,000 476,794 El Paso Performance-Linked Trust 7.750% 07/15/11 (a) 210,000 217,350 MarkWest Energy Partners LP 6.875% 11/01/14 315,000 296,100 8.500% 07/15/16 (a) 150,000 151,500 Northwest Pipeline Corp. 8.125% 03/01/10 130,000 134,388 Sonat, Inc. 7.625% 07/15/11 1,160,000 1,203,500 Southern Natural Gas Co. 8.875% 03/15/10 60,000 63,067
See Accompanying Notes to Financial Statements. 14 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Energy (continued) Pipelines (continued) Williams Companies, Inc. 6.375% 10/01/10 (a) 935,000 937,337 8.125% 03/15/12 140,000 150,500 8.750% 03/15/32 215,000 241,338 ------------------------------------------- --------- --------- 4,133,249 Pipelines Total 4,133,249 Energy Total 8,968,516 Financials - 8.6% Diversified Financial Services - 7.4% Finance-Auto Loans - 4.4% Ford Motor Credit Co. 7.375% 02/01/11 975,000 963,439 9.875% 08/10/11 560,000 599,119 General Motors Acceptance Corp. 6.875% 09/15/11 770,000 792,767 8.000% 11/01/31 895,000 1,003,157 ------------------------------------------- --------- --------- 3,358,482 Finance-Investment Banker/Broker - 1.0% E*Trade Financial Corp. 8.000% 06/15/11 410,000 425,375 LaBranche & Co., Inc. 11.000% 05/15/12 345,000 372,600 ------------------------------------------- --------- --------- 797,975 Special Purpose Entity - 2.0% Dow Jones CDX High Yield Index 8.375% 12/29/11 (a) 1,500,000 1,537,500 ------------------------------------------- --------- --------- 1,537,500 Diversified Financial Services Total 5,693,957 Real Estate Investment Trusts (REITs) - 1.2% REITS-Hotels - 0.7% Host Marriott LP 6.750% 06/01/16 510,000 511,912 ------------------------------------------- --------- --------- 511,912 REITS-Regional Malls - 0.5% Rouse Co. LP/TRC Co-Issuer, Inc. 6.750% 05/01/13 (a) 350,000 356,291 ------------------------------------------- --------- --------- 356,291 Real Estate Investment Trusts (REITs) Total 868,203 Financials Total 6,562,160
See Accompanying Notes to Financial Statements. 15 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Industrials - 16.7% Aerospace & Defense - 1.4% Aerospace/Defense-Equipment - 0.8% DRS Technologies, Inc. 6.875% 11/01/13 355,000 357,663 Sequa Corp. 9.000% 08/01/09 255,000 271,256 ------------------------------------- ------- --------- 628,919 Electronics-Military - 0.6% L-3 Communications Corp. 5.875% 01/15/15 105,000 101,850 6.375% 10/15/15 340,000 337,450 ------------------------------------- ------- --------- 439,300 Total Aerospace & Defense 1,068,219 Building Materials - 1.5% Building & Construction Products-Miscellaneous - 0.8% Nortek, Inc. 8.500% 09/01/14 290,000 279,850 NTK Holdings, Inc. (d) 03/01/14 (10.750% 09/01/09) 235,000 162,150 Ply Gem Industries, Inc. 9.000% 02/15/12 220,000 180,950 ------------------------------------- ------- --------- 622,950 Building Products-Air & Heating - 0.3% Goodman Global Holding Co., Inc. 7.875% 12/15/12 290,000 279,850 ------------------------------------- ------- --------- 279,850 Building Products-Cement/Aggregation - 0.4% RMCC Acquisition Co. 9.500% 11/01/12 (a) 265,000 288,850 ------------------------------------- ------- --------- 288,850 Building Materials Total 1,191,650 Electronics - 0.9% Electronic Components-Miscellaneous - 0.9% Flextronics International Ltd. 6.250% 11/15/14 420,000 407,400 NXP BV/NXP Funding LLC 9.500% 10/15/15 (a) 285,000 292,481 ------------------------------------- ------- --------- 699,881 Electronics Total 699,881 Environmental Control - 1.6% Non-Hazardous Waste Disposal - 1.6% Allied Waste North America, Inc. 7.125% 05/15/16 585,000 581,344 7.875% 04/15/13 590,000 610,650 ------------------------------------- ------- --------- 1,191,994 Environmental Control Total 1,191,994 Machinery-Construction & Mining - 0.5% Terex Corp. 7.375% 01/15/14 355,000 360,325 ------------------------------------- ------- --------- 360,325 Machinery-Construction & Mining Total 360,325
See Accompanying Notes to Financial Statements. 16 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Industrials (continued) Machinery-Diversified - 0.9% Machinery-General Industry - 0.5% Douglas Dynamics LLC 7.750% 01/15/12 (a) 240,000 225,600 Manitowoc Co., Inc. 7.125% 11/01/13 165,000 165,825 --------------------------------- ------- --------- 391,425 Machinery-Material Handling - 0.4% Columbus McKinnon Corp. 8.875% 11/01/13 255,000 265,200 --------------------------------- ------- --------- 265,200 Machinery-Diversified Total 656,625 Metal Fabricate/Hardware - 0.7% Metal Processors & Fabrication - 0.7% Mueller Group, Inc. 10.000% 05/01/12 146,000 158,775 Mueller Holdings, Inc. (d) 04/15/14 (14.750% 04/15/09) 175,000 154,000 TriMas Corp. 9.875% 06/15/12 205,000 196,800 --------------------------------- ------- --------- 509,575 Metal Fabricate/Hardware Total 509,575 Miscellaneous Manufacturing - 2.4% Diversified Manufacturing Operators - 2.0% Bombardier, Inc. 6.300% 05/01/14 (a) 640,000 590,400 J.B. Poindexter & Co. 8.750% 03/15/14 270,000 230,175 Koppers Holdings, Inc. (d) 11/15/14 (9.875% 11/15/09) 340,000 266,900 Trinity Industries, Inc. 6.500% 03/15/14 445,000 432,763 --------------------------------- ------- --------- 1,520,238 Miscellaneous Manufacturing - 0.4% Nutro Products, Inc. 10.750% 04/15/14 (a) 305,000 330,925 --------------------------------- ------- --------- 330,925 Miscellaneous Manufacturing Total 1,851,163 Packaging & Containers - 3.7% Containers-Metal/Glass - 2.1% Crown Americas LLC & Crown Americas Capital Corp. 7.750% 11/15/15 530,000 544,575 Owens-Brockway Glass Container, Inc. 8.250% 05/15/13 900,000 927,000 Owens-Illinois, Inc. 7.500% 05/15/10 145,000 146,450 --------------------------------- ------- --------- 1,618,025 Containers-Paper/Plastic - 1.6% Consolidated Container Co., LLC (d) 06/15/09 (10.750% 06/15/07) 275,000 275,000 Jefferson Smurfit Corp. 8.250% 10/01/12 450,000 433,125
See Accompanying Notes to Financial Statements. 17 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Industrials (continued) Packaging & Containers (continued) Containers-Paper/Plastic (continued) MDP Acquisitions PLC 9.625% 10/01/12 365,000 385,987 Solo Cup Co. 8.500% 02/15/14 165,000 138,600 ---------------------------- ------- ---------- 1,232,712 Packaging & Containers Total 2,850,737 Transportation - 3.1% Transportation-Marine - 1.3% Ship Finance International Ltd. 8.500% 12/15/13 440,000 434,500 Stena AB 7.500% 11/01/13 555,000 550,837 ---------------------------- ------- ---------- 985,337 Transportation-Railroad - 0.6% TFM SA de CV 9.375% 05/01/12 410,000 438,700 ---------------------------- ------- ---------- 438,700 Transportation-Services - 0.9% CHC Helicopter Corp. 7.375% 05/01/14 450,000 435,375 PHI, Inc. 7.125% 04/15/13 (a) 260,000 249,600 ---------------------------- ------- ---------- 684,975 Transportation-Trucks - 0.3% QDI LLC 9.000% 11/15/10 265,000 257,713 ---------------------------- ------- ---------- 257,713 Transportation Total 2,366,725 Industrials Total 12,746,894 Technology - 2.9% Computers - 0.4% Computer Services - 0.4% Sungard Data Systems, Inc. 9.125% 08/15/13 300,000 314,625 ---------------------------- ------- ---------- 314,625 Computers Total 314,625 Semiconductors - 2.5% Electronic Components-Semiconductors - 2.5% Advanced Micro Devices, Inc. 7.750% 11/01/12 205,000 210,125 Amkor Technology, Inc. 9.250% 06/01/16 240,000 236,400 Freescale Semiconductor, Inc. 6.875% 07/15/11 200,000 210,938 10.125% 12/15/16 (a) (b) 715,000 723,044 PIK, 9.125% 12/15/14 (a) (b) 520,000 520,000 ---------------------------- ------- ---------- 1,900,507 Semiconductors Total 1,900,507 Technology Total 2,215,132
See Accompanying Notes to Financial Statements. 18 Colonial Intermediate High Income Fund November 30, 2006 Corporate Fixed-Income Bonds & Notes (continued)
Par ($) Value ($) Utilities - 5.7% Electric - 5.7% Electric-Generation - 1.4% AES Corp. 7.750% 03/01/14 495,000 524,700 Edison Mission Energy 7.730% 06/15/09 475,000 492,813 ------------------------------------------ ------- ---------- 1,017,513 Electric-Integrated - 1.5% CMS Energy Corp. 6.875% 12/15/15 240,000 246,600 8.500% 04/15/11 125,000 136,562 Nevada Power Co. 9.000% 08/15/13 120,000 130,242 Sierra Pacific Resources 6.750% 08/15/17 355,000 357,370 TECO Energy, Inc. 7.000% 05/01/12 255,000 267,112 ------------------------------------------ ------- ---------- 1,137,886 Independent Power Producer - 2.8% Dynegy Holdings, Inc. 6.875% 04/01/11 300,000 297,375 7.125% 05/15/18 240,000 226,800 Mirant North America LLC 7.375% 12/31/13 435,000 440,437 MSW Energy Holdings II LLC 7.375% 09/01/10 150,000 153,000 MSW Energy Holdings LLC 8.500% 09/01/10 305,000 317,200 NRG Energy, Inc. 7.250% 02/01/14 225,000 225,000 7.375% 02/01/16 265,000 265,000 7.375% 01/15/17 225,000 224,438 ------------------------------------------ ------- ---------- 2,149,250 Electric Total 4,304,649 Utilities Total 4,304,649 Total Corporate Fixed-Income Bonds & Notes (Cost of $98,245,353) 99,648,388 Preferred Stocks - 2.7% Shares Communications - 1.0% Media - 1.0% Radio - 1.0% Spanish Broadcasting System, Inc. PIK, 10.750% 692 761,200 ------------------------------------------ ------- ---------- 761,200 Media Total 761,200 Communications Total 761,200
See Accompanying Notes to Financial Statements. 19 Colonial Intermediate High Income Fund November 30, 2006 Preferred Stocks (continued)
Shares Value ($) Financials - 1.7% Real Estate Investment Trusts (REITs) - 1.7% REITS-Diversified - 1.7% iStar Financial, Inc., Series E, 7.875% 13,000 335,969 iStar Financial, Inc., Series F, 7.800% 15,007 382,679 Sovereign Real Estate 12.000% (a) 365,000 547,500 -------------------------------------------------- ------- --------- Investment Corp.(e) 1,266,148 Real Estate Investment Trusts (REITs) Total 1,266,148 Financials Total 1,266,148 Total Preferred Stocks (Cost of $1,966,480) 2,027,348 Common Stocks - 1.4% Consumer Discretionary - 0.4% Media - 0.4% Idearc, Inc. (e) 7,000 192,780 Sinclair Broadcast Group, Inc., Class A 15,000 149,250 -------------------------------------------------- ------- --------- Media Total 342,030 Consumer Discretionary Total 342,030 Industrials - 0.0% Commercial Services & Fairlane Management Corp. (e) (f) (g) 8,000 -- -------------------------------------------------- ------- --------- Supplies - 0.0% Commercial Services & Supplies Total -- Industrials Total -- Materials - 0.2% Chemicals - 0.2% Lyondell Chemical Co. 5,000 123,500 -------------------------------------------------- ------- --------- Chemicals Total 123,500 Materials Total 123,500 Telecommunication Services - 0.6% Diversified Telecommunication Embarq Corp. (e) 2,692 138,503 Services - 0.4% NTL, Inc. 7,355 177,182 -------------------------------------------------- ------- --------- Diversified Telecommunication Services Total 315,685 Wireless Telecommunication Sprint Nextel Corp. 7,853 153,212 -------------------------------------------------- ------- --------- Services - 0.2% Wireless Telecommunication Services Total 153,212 Telecommunication Services Total 468,897 Utilities - 0.2% Independent Power Producers & Mirant Corp. (e) 4,780 145,408 -------------------------------------------------- ------- --------- Energy Traders - 0.2% Independent Power Producers & Energy Traders Total 145,408 Utilities Total 145,408 Total Common Stocks (Cost of $1,143,714) 1,079,835
See Accompanying Notes to Financial Statements. 20 Colonial Intermediate High Income Fund November 30, 2006 Municipal Bond (Taxable) - 0.8%
Par ($) Value ($) California - 0.8% CA Cabazon Band Mission Indians 13.000% 10/01/11 575,000 610,575 California Total 610,575 Total Municipal Bond (Taxable) (Cost of $575,000) 610,575 Convertible Bonds - 0.3% Communications - 0.3% Telecommunication Services - 0.3% Telecommunication Equipment - 0.3% Nortel Networks Corp. 4.250% 09/01/08 275,000 264,344 ------------------------------------------------- ------- --------- 264,344 Telecommunication Services Total 264,344 Communications Total 264,344 Total Convertible Bonds (Cost of $277,554) 264,344 Warrants - 0.0% Units Communications - 0.0% Media - 0.0% Broadcast Services/Programs - 0.0% XM Satellite Radio Holdings, Inc. Expires 03/15/10 (a) (e) 600 2,100 ------------------------------------------------- ------- --------- 2,100 Media Total 2,100 Telecommunication Services - 0.0% Cellular Telecommunications - 0.0% UbiquiTel, Inc. Expires 04/15/10 (a) (e) (f) (g) 525 -- ------------------------------------------------- ------- --------- -- Telecommunication Services - 0.0% Jazztel PLC Expires 07/15/10 (e) (f) (g) 350 -- ------------------------------------------------- ------- --------- -- Telecommunication Services Total -- Communications Total 2,100
See Accompanying Notes to Financial Statements. 21 Colonial Intermediate High Income Fund November 30, 2006 Warrants (continued)
Units Value ($) Industrials - 0.0% Transportation - 0.0% Transportation-Trucks - 0.0% QDI LLC Expires 01/15/07 (a) (e) (g) 2,041 36,050 --------------------------------------------------- --------- ----------- 36,050 Transportation Total 36,050 Industrials Total 36,050 Total Warrants (Cost of $97,125) 38,150 Par ($) Value ($) Short-Term Obligation - 3.4% Repurchase agreement with State Street Bank & Trust Co., dated 11/30/06, due 12/01/06 at 5.220%, collateralized by a U.S. Treasury Bond maturing 08/15/28, market value of $2,629,547 (repurchase proceeds $2,574,373) 2,574,000 2,574,000 --------------------------------------------------- --------- ----------- Total Short-Term Obligation (Cost of $2,574,000) 2,574,000 --------------------------------------------------- --------- ----------- Total Investments - 139.0% (Cost of $104,879,226) (h) 106,242,640 --------------------------------------------------- --------- ----------- Other Assets & Liabilities, Net - (39.0)% (29,809,279) --------------------------------------------------- --------- ----------- Net Assets - 100.0% 76,433,361
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 November 30, 2006, these securities, which do not include any illiquid securities, except for the following, amounted to $23,269,754, which represents 30.4% of net assets.
Acquisition Security Date Units Cost Value -------- ----------- ----- ---- ----- QDI LLC 06/01/02 2,041 $ -- $36,050 UbiquiTel, Inc. 04/11/00 525 26,600 -- ------- $36,050 =======
(b)Security purchased on a delayed delivery basis. (c)The interest rate shown on floating rate or variable rate securities reflects the rate at November 30, 2006. (d)Step bond. This security is currently not paying a coupon. Shown parenthetically is the next interest rate to be paid and the date the Fund will begin accruing at this rate. (e)Non-income producing security. (f)Security has no value. (g)Represents fair value as determined in good faith under procedures approved by the Board of Trustees. (h)Cost for federal income tax purposes is $104,964,403. At November 30, 2006, the asset allocation of the Fund is as follows:
% of Asset Allocation (unaudited) Net Assets ---------------------------- ---------- Corporate Fixed-Income Bonds & Notes 130.4% Preferred Stocks 2.7 Common Stocks 1.4 Municipal Bond (Taxable) 0.8 Convertible Bonds 0.3 Warrants 0.0* ----- 135.6 Short-Term Obligation 3.4 Other Assets & Liabilities, Net (39.0) ----- 100.0% =====
* Rounds to less than 0.1%. See Accompanying Notes to Financial Statements. 22 Colonial Intermediate High Income Fund November 30, 2006 At November 30, 2006, the Fund had entered into the following forward currency exchange contracts:
Aggregate Settlement Unrealized Forward Currency Contracts to Buy Value Face Value Date Appreciation --------------------------------- ----- ---------- ---------- ------------ EUR $ 72,867 $ 70,564 12/8/2006 $ 2,303 Aggregate Settlement Unrealized Forward Currency Contracts to Sell Value Face Value Date Depreciation ---------------------------------- ----- ---------- ---------- ------------ EUR $351,088 $333,290 12/8/2006 $(17,798) EUR 265,036 255,594 12/13/2006 (9,442) EUR 848,320 821,210 12/18/2006 (27,110) ------- $(54,350) ========
Acronym Name ------- ---- EUR Euro PIK Payment-In-Kind USD U.S. Dollar
See Accompanying Notes to Financial Statements. 23 Statement of Assets and Liabilities - Colonial Intermediate High Income Fund November 30, 2006
Assets Investments, at cost $104,879,226 ------------ Investments, at value 106,242,640 Cash 953 Foreign currency (cost of $209) 212 Unrealized appreciation on foreign forward currency contracts 2,303 Receivable for: Investments sold 588,700 Investments sold on a delayed delivery basis 9,984 Interest 1,966,666 Dividends 14,849 Foreign tax reclaims 1,729 Deferred Trustees' compensation plan 14,893 Other assets 6,000 ------------------------------------------------------------- - ------------ Total Assets 108,848,929 Liabilities Unrealized depreciation on foreign forward currency contracts 54,350 Payable for: Investments purchased 833,971 Investments purchased on a delayed delivery basis 1,967,150 Distributions 504,084 Investment advisory fee 40,751 Transfer agent fee 2,580 Pricing and bookkeeping fees 8,040 Trustees' fees 372 Custody fee 525 Interest 372,272 Chief compliance officer expenses 630 Deferred Trustees' fees 14,893 Notes payable -- short-term 21,500,000 Notes payable -- long term 7,000,000 Other liabilities 115,950 ------------------------------------------------------------- - ------------ Total Liabilities 32,415,568 ------------------------------------------------------------- - ------------ Net Assets 76,433,361 Composition of Net Assets Paid-in capital 140,891,820 Overdistributed net investment income (132,339) Accumulated net realized loss (65,638,167) Net unrealized appreciation (depreciation) on: Investments 1,363,414 Foreign currency translations (51,367) ------------------------------------------------------------- - ------------ Net Assets $ 76,433,361 Shares outstanding 21,003,496 Net asset value per share $3.64
See Accompanying Notes to Financial Statements. 24 Statement of Operations - Colonial Intermediate High Income Fund For the Year Ended November 30, 2006
($) Investment Income Interest 8,379,096 Dividends 137,320 ------------------------------------------------------------ ---------- Total Investment Income 8,516,416 Expenses Investment advisory fee 643,520 Transfer agent fee 32,702 Pricing and bookkeeping fees 93,120 Trustees' fees 13,596 Custody fee 11,646 Audit fee 49,255 Reports to shareholders 47,175 Chief compliance officer expenses 3,959 Other expenses 47,886 ------------------------------------------------------------ ---------- Total Operating Expenses 942,859 Interest expense 1,559,076 ------------------------------------------------------------ ---------- Total Expenses 2,501,935 Fees and expenses waived or reimbursed by Investment Advisor (155,998) Custody earnings credit (6,300) ------------------------------------------------------------ ---------- Net Expenses 2,339,637 ------------------------------------------------------------ ---------- Net Investment Income 6,176,779 Net Realized and Unrealized Gain Net realized loss on: (Loss) on Investments and Foreign Investments (1,548,418) Currency Foreign currency transactions (66,687) ------------------------------------------------------------ ---------- Net realized loss (1,615,105) Net change in unrealized appreciation (depreciation) on: Investments 3,436,065 Foreign currency translations (84,846) ------------------------------------------------------------ ---------- Net change in unrealized appreciation (depreciation) 3,351,219 ------------------------------------------------------------ ---------- Net Gain 1,736,114 ------------------------------------------------------------ ---------- Net Increase in Net Assets from Operations 7,912,893
See Accompanying Notes to Financial Statements. 25 Statement of Changes in Net Assets - Colonial Intermediate High Income Fund
Increase (Decrease) in Net Assets Year Ended November 30, 2006 ($) 2005 ($) Operations Net investment income 6,176,779 6,919,330 Net realized loss on investments and foreign currency transactions (1,615,105) (941,970) Net change in unrealized appreciation (depreciation) on investments and foreign currency translations 3,351,219 (4,781,563) ------------------------------------------------------- ---------- ---------- Net Increase from Operations 7,912,893 1,195,797 Distributions Declared to From net investment income (7,141,189) (6,763,126) Shareholders ------------------------------------------------------- ---------- ---------- Net Increase (Decrease) in Net Assets 771,704 (5,567,329) Net Assets Beginning of period 75,661,657 81,228,986 End of period 76,433,361 75,661,657 Undistributed (overdistributed) net investment income at end of period (132,339) 731,545 ------------------------------------------------------- ---------- ---------- Number of Fund Shares Outstanding End of period 21,003,496 21,003,496 ------------------------------------------------------- ---------- ----------
See Accompanying Notes to Financial Statements. 26 Statement of Cash Flows - Colonial Intermediate High Income Fund Year Ended November 30, 2006
Increase (Decrease) in Cash ($) Cash Flows From Operating Activities Net investment income 6,176,779 Adjustments to reconcile net investment income to net cash provided by operating activities: Purchase of investment securities (58,661,034) Proceeds from disposition of investment securities 51,094,193 Proceeds from disposition of short-term investments, net 5,630,000 Net realized loss due to foreign currency transactions (66,687) Increase in dividend and interest receivable (28,574) Increase in other assets (8,878) Decrease in receivable for investments sold 393,456 Increase in payable for investments purchased 2,167,068 Decrease in accrued expenses and other liabilities (378) Net amortization/accretion of income 276,829 ---------------------------------------------------------------------- ----------- Net cash provided by operating activities 6,972,774 Cash Flows From Financing Increase in interest payable 141,589 Activities Distributions paid in cash (7,183,196) ---------------------------------------------------------------------- ----------- Net cash used by financing activities (7,041,607) ---------------------------------------------------------------------- ----------- Net decrease in cash (68,833) Cash Beginning of period 69,786 ---------------------------------------------------------------------- ----------- End of period 953 ---------------------------------------------------------------------- -----------
See Accompanying Notes to Financial Statements. 27 Financial Highlights - Colonial Intermediate High Income Fund Selected data for a share outstanding throughout each period is as follows:
One Month Year Ended Year Ended November 30, Ended October 31, -------------------------- November 30, ---------------- 2006 2005 2004 2003 (a) 2003 2002 - -------------------------------------------------------------------------------------------------------- Net Asset Value, Beginning of Period $ 3.60 $ 3.87 $ 3.57 $ 3.51 $ 2.79 $ 3.51 Income from Investment Operations: Net investment income (b) 0.29 0.33 0.34 0.02 0.29 0.38 Net realized and unrealized gain (loss) on investments and foreign currency 0.09 (0.28) 0.26 0.07 0.75 (0.73) ------- ------- ------- ------- ------- ------- Total from Investment Operations 0.38 0.05 0.60 0.09 1.04 (0.35) Less Distributions Declared to Shareholders: From net investment income (0.34) (0.32) (0.30) (0.03) (0.30) (0.36) Return of capital -- -- -- -- (0.02) (0.01) ------- ------- ------- ------- ------- ------- Total Distributions Declared to Shareholders (0.34) (0.32) (0.30) (0.03) (0.32) (0.37) Net Asset Value, End of Period $ 3.64 $ 3.60 $ 3.87 $ 3.57 $ 3.51 $ 2.79 ------- ------- ------- ------- ------- ------- Market price per share $ 3.46 $ 3.15 $ 3.51 $ 3.50 $ 3.65 $ 2.79 ------- ------- ------- ------- ------- ------- Total return-based on market value (c) 21.22% (1.63)% 9.24% (3.40)%(d) 44.56% (10.43)% Ratios to Average Net Assets/Supplemental Data: Operating expenses (e) 1.04% 1.37% 1.48% 1.63%(f) 1.35% 1.25% Interest 2.08% 1.42% 1.18% 1.38%(f) 2.00% 2.73% Total expenses (e) 3.12% 2.79% 2.66% 3.01%(f) 3.35% 3.98% Net investment income (e) 8.24% 8.79% 9.25% 7.82%(f) 9.18% 11.38% Waiver/reimbursement 0.21% 0.02% -- -- -- -- Portfolio turnover rate 54% 66% 80% 7%(d) 64% 54% Net assets, end of period (000's) $76,433 $75,662 $81,229 $74,952 $73,623 $58,134
(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)Total return at market value assuming all distributions reinvested at prices calculated in accordance with the Dividend Reinvestment Plan. (d)Not annualized. (e)The benefits derived from custody credits had an impact of less than 0.01%, except for the year ended November 30, 2006, which had a 0.01% impact. (f)Annualized. See Accompanying Notes to Financial Statements. 28 Loan Agreement Asset Coverage Requirements - Colonial Intermediate High Income Fund
Asset Total Coverage Amount Per $1,000 of Date Outstanding Indebtedness* ---------------------------------- 11/30/06 $28,500,000 $3,682 11/30/05 28,500,000 3,655 11/30/04 29,500,000 3,754 11/30/03 28,500,000 3,630 10/31/03 28,500,000 3,583 10/31/02 24,500,000 3,373 10/31/01 30,500,000 3,372 10/31/00 47,300,000 3,079 10/31/99 47,300,000 3,558 10/31/98 47,300,000 3,632 10/31/97 27,400,000 4,933
* Calculated by subtracting the Fund's total liabilities plus loans outstanding from the Fund's total assets and dividing the amount by the amount of loans outstanding. See Accompanying Notes to Financial Statements. 29 Notes to Financial Statements - Colonial Intermediate High Income Fund November 30, 2006 Note 1. Organization Colonial Intermediate High Income Fund (the "Fund") is a Massachusetts business trust registered under the Investment Company Act of 1940, as amended, as a diversified, closed-end management investment company. Investment Goal The Fund seeks high current income and total return by investing primarily in high yield fixed income securities in lower-rated categories. Fund Shares The Fund may issue an unlimited number of shares. Note 2. Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. Security Valuation Debt securities generally are valued by pricing services approved by the Fund's Board of Trustees, based upon market transactions for normal, institutional-size trading units of similar securities. The services may use various pricing techniques which take into account appropriate factors such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as broker quotes. Debt securities for which quotations are readily available are valued at an over-the-counter or exchange bid quotation. Certain debt securities, which tend to be more thinly traded and of lesser quality, are priced based on fundamental analysis of the financial condition of the issuer and the estimated value of any collateral. Valuations developed through pricing techniques may vary from the actual amounts realized upon sale of the securities, and the potential variation may be greater for those securities valued using fundamental analysis. Short-term debt obligations maturing within 60 days are valued at amortized cost, which approximates market value. 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. Forward currency exchange contracts are valued at the prevailing forward exchange rate of the underlying currencies. Foreign securities are generally valued at the last sale price on the foreign exchange or market on which they trade. If any foreign share prices are not readily available as a result of limited share activity, the securities are valued at the last sale price of the local shares in the principal market in which such securities are normally traded. Generally, trading in foreign securities is substantially completed each day at various times prior to the close of the New York Stock Exchange ("NYSE"). The values of such securities used in computing the net asset value of the Fund's shares are determined as of such times. Foreign currency exchange rates are generally determined at 4:00 p.m. Eastern (U.S.) time. Events affecting the values of such foreign securities and such exchange rates may occur between the times at which they are determined and the close of the customary trading session of the NYSE, which would not be reflected in the computation of the Fund's net asset value. If events materially affecting the values of such foreign securities occur and it is determined that market quotations are not reliable, then these foreign securities will be valued at fair value using procedures approved by the Board of Trustees. The Fund may use a systematic fair valuation model provided by an independent third party to value securities principally traded in foreign markets in order to adjust for possible stale pricing that may occur between the close of the foreign exchanges and the time for valuation. If a security is valued at "fair value", such value is likely to be different from the last quoted market price for the security. Investments for which market quotations are not readily available, or that have quotations which management believes are not reliable, are valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. 30 Colonial Intermediate High Income Fund November 30, 2006 In September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements ("SFAS 157"), was issued. SFAS 157 is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management has recently begun to evaluate the impact the application of SFAS 157 will have on the Fund's financial statement disclosures. 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. The Fund may utilize forward foreign currency exchange contracts in connection with the settlement of purchases and sales of securities. These contracts are used to minimize the exposure to foreign exchange rate fluctuations during the period between trade and settlement date. The Fund may also enter into these contracts to hedge certain other foreign currency denominated assets. Contracts to buy generally are used to acquire exposure to foreign currencies, while contracts to sell are used to hedge the Fund's investments against currency fluctuations. Forward currency contracts are valued daily at the current exchange rate of the underlying currency, resulting in unrealized gains (losses) which become realized at the time the foreign currency contracts are closed or mature. Realized and unrealized gains (losses) arising from such transactions are included in net realized and unrealized gains (losses) on foreign currency transactions. The use of forward currency contracts does not eliminate fluctuations in the prices of the Fund's portfolio securities. Although the maximum potential loss from such contracts is the aggregate face value in U.S. dollars at the time the contract was opened, exposure is typically limited to the change in value of the contract (in U.S. dollars) over the period it remains open. The Fund could also be exposed to risk if the counterparties of the contracts are unable to fulfill the terms of the contracts. Repurchase Agreements The Fund may engage in repurchase agreement transactions with institutions that the Fund's investment advisor has determined are creditworthy. The Fund, through its custodian, receives delivery of underlying securities collateralizing a repurchase agreement. Collateral is required to be at least equal, at all times, to the value of the repurchase obligation including interest. A repurchase agreement transaction involves certain risks in the event of default or insolvency of the counterparty. These risks include possible delays or restrictions upon the Fund's ability to dispose of the underlying securities and a possible decline in the value of the underlying securities during the period while the Fund seeks to assert its rights. Delayed Delivery Securities The Fund may trade securities on other than normal settlement terms, including securities purchased or sold on a "when-issued" basis. This may increase the risk if the other party to the transaction fails to deliver and causes the Fund to subsequently invest at less advantageous prices. The Fund identifies cash or liquid portfolio securities as segregated with the custodian in an amount equal to the delayed delivery commitment. Income Recognition Interest income is recorded on the accrual basis. Premium and discount are amortized and accreted, respectively, on all debt securities. Corporate actions and dividend income are recorded on the ex-date, except for certain foreign securities which are recorded as soon after ex-date as the Fund becomes aware of such, net of non-reclaimable tax withholdings. The value of additional securities received as an income payment is recorded as income and as the cost basis of such securities. Foreign Currency Transactions The values of all assets and liabilities quoted in foreign currencies are translated into U.S. dollars at that day's exchange rates. Net realized and unrealized gains (losses) on foreign currency transactions include gains (losses) arising from the fluctuation in exchange rates between trade and settlement dates on securities transactions, gains (losses) arising from the disposition of foreign currency and currency 31 Colonial Intermediate High Income Fund November 30, 2006 gains (losses) between the accrual and payment dates on dividends, interest income and foreign withholding taxes. For financial statement purposes, the Fund does not distinguish that portion of gains (losses) on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized gains (losses) on investments. Federal Income Tax Status The Fund intends to qualify each year as a "regulated investment company" under Subchapter M of the Internal Revenue Code, as amended, and will distribute substantially all of its taxable income, if any, for its tax year, and as such will not be subject to federal income taxes. In addition, the Fund intends to distribute in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded. Distributions to Shareholders Distributions to shareholders are recorded on ex-date. Net realized capital gains, if any, are distributed at least annually. Statement of Cash Flows Information on financial transactions which have been settled through the receipt or disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows is the amount included within the Fund's Statement of Assets and Liabilities and includes cash on hand at its custodian bank and does not include any short-term investments. Indemnification In the normal course of business, the Fund enters into contracts that contain a variety of representations and warranties and which provide general indemnities. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims against the Fund. Also, under the Fund's organizational documents and by contract, the Trustees and Officers of the Trust are indemnified against certain liabilities that may arise out of their duties to the Trust. However, based on experience, the Fund expects the risk of loss due to these warranties and indemnities to be minimal. Note 3. Federal Tax Information The timing and character of income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Reclassifications are made to the Fund's capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations. For the year ended November 30, 2006, permanent book and tax basis differences resulting primarily from differing treatments for expired capital loss carryforwards, discount accretion/premium amortization on debt securities, foreign currency transactions and market discount reclassification adjustments were identified and reclassified among the components of the Fund's net assets as follows:
Accumulated Overdistributed Net Realized Net Investment Income Gain Paid-In Capital $100,526 $309,689 $(410,215)
Net investment income and net realized gains (losses), as disclosed on the Statement of Operations, and net assets were not affected by this reclassification. The tax character of distributions paid during the years ended November 30, 2006 and November 30, 2005 was as follows:
November 30, November 30, 2006 2005 Distributions paid from: Ordinary Income $7,141,189 $6,763,126
As of November 30, 2006, the components of distributable earnings on a tax basis were as follows:
Undistributed Undistributed Net Ordinary Long-term Unrealized Income Capital Gains Appreciation* $420,732 $-- $1,278,237
*The differences between book-basis and tax-basis net unrealized appreciation/depreciation are primarily due to deferral of losses from wash sales. Unrealized appreciation and depreciation at November 30, 2006, based on cost of investments for federal income tax purposes, was:
Unrealized appreciation $ 2,965,231 Unrealized depreciation (1,686,994) Net unrealized appreciation $ 1,278,237
32 Colonial Intermediate High Income Fund November 30, 2006 The following capital loss carryforwards, determined as of November 30, 2006, 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 Expiration Capital Loss Carryforward 2007 $10,437,671 2008 22,694,029 2009 23,203,433 2010 6,431,055 2013 796,437 2014 2,075,017 ----------- Total $65,637,642 -----------
Capital loss carryforwards of $410,216 expired during the year ended November 30, 2006. In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109 (the "Interpretation"). This Interpretation is effective for fiscal years beginning after December 15, 2006 and is to be applied to open tax positions upon initial adoption. This Interpretation prescribes a minimum recognition threshold and measurement method for the financial statement recognition of tax positions taken or expected to be taken in a tax return and also requires certain expanded disclosures. Management has recently begun to evaluate the application of this Interpretation to the Trust and has not at this time quantified the impact, if any, resulting from the adoption of this Interpretation on the Fund's financial statements. Note 4. Fees and Compensation Paid to Affiliates Investment Advisory Fee Columbia Management Advisors, LLC ("Columbia"), an indirect, wholly-owned subsidiary of Bank of America Corporation ("BOA"), is the investment advisor to the Fund and provides administrative and other services. 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). Columbia has voluntarily agreed to waive this fee. In the event that the Fund's monthly net leverage income is less than zero, then Columbia shall pay the Fund 20% of the deficit. 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 certain functions to State Street Bank & Trust Company ("State Street"). As a result, the total fees payable under the pricing and bookkeeping agreement (other than certain reimbursements paid to Columbia and discussed below) are paid to State Street. Under its pricing and bookkeeping agreement with the Fund, Columbia receives an annual fee of $38,000 paid monthly plus an additional monthly fee based on the level of average daily net assets for the month; provided that during any 12-month period, the aggregate fee (exclusive of out-of-pocket expenses and charges) shall not exceed $140,000. The Fund also reimburses Columbia and State Street for out-of-pocket expenses and charges, including fees payable to third parties for pricing the Fund's portfolio securities and direct internal costs incurred by Columbia in connection with providing fund accounting oversight and monitoring and certain other services. For the year ended November 30, 2006, the Fund's effective pricing and bookkeeping fee rate inclusive of out-of-pocket expenses, was 0.124% of the Fund's average daily net assets. Custody Credits The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. These credits are recorded as a reduction of total expenses on the Statement of Operations. The Fund could have invested a portion of the assets utilized in connection with the expense offset arrangement in an income-producing asset if it had not entered into such an agreement. Fees Paid to Officers and Trustees All officers of the Fund, with the exception of the Fund's Chief Compliance Officer, are employees of Columbia or its affiliates and receive no compensation from the Fund. The Board of Trustees has appointed a Chief Compliance Officer to the Fund in accordance with federal securities regulations. The Fund, along with other affiliated funds, pays its pro-rata share of the expenses associated with the Chief Compliance Officer. The Fund's expenses for the Office of the Chief Compliance Officer will not exceed $15,000 per year. 33 S Colonial Intermediate High Income Fund November 30, 2006 The Fund's Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund's assets. Other Columbia provides certain services to the Fund related to Sarbanes-Oxley compliance. For the year ended November 30, 2006, the Fund paid $2,509 to Columbia for such services. This amount is included in "Other expenses" on the Statement of Operations. Note 5. Portfolio Information For the year ended November 30, 2006, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $58,661,034 and $51,094,193, respectively. Note 6. Loan Agreement At November 30, 2006, the Fund had term loans and a revolving loan outstanding with State Street, totaling $28,500,000. The term loans are comprised of an $8,000,000 loan which bears interest at 6.14% per annum, due August 24, 2007, a $7,000,000 loan which bears interest at 5.20% per annum, due August 24, 2007, and a $7,000,000 loan which bears interest at 5.98% per annum, due August 22, 2008. The revolving loan is a $6,500,000 floating rate loan, maturing on February 22, 2007. Interest is charged at a rate per annum equal to the London Interbank Offered Rate plus 0.65%. The interest rate at November 30, 2006 was 5.42%. For the year ended November 30, 2006, the average daily loan balance was $28,500,000 at a weighted average interest rate of 5.47%. 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 rates would likely have an adverse impact on the value of such obligations. Moreover, high-yield securities may be less liquid to the extent that there is no established secondary market. Industry Focus The Fund may focus its investments in certain industries, subjecting it to greater risk than a Fund that is more diversified. Legal Proceedings On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged into Banc of America Capital Management, LLC (now named Columbia Management Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has been renamed Columbia Management Distributors, Inc.) (the "Distributor") (collectively, the "Columbia Group") entered into an Assurance of Discontinuance with the New York Attorney General ("NYAG") (the "NYAG Settlement") and consented to the entry of a cease-and-desist order by the Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG Settlement are referred to collectively as the "Settlements". The Settlements contain substantially the same terms and conditions as outlined in the agreements in principle which Columbia Group entered into with the SEC and NYAG in March 2004. Under the terms of the SEC Order, the Columbia Group agreed, among other things, to: pay $70 million in disgorgement and $70 million in civil money penalties; cease and desist from violations of the antifraud provisions and certain other provisions of the federal securities laws; maintain certain compliance and ethics oversight structures; retain an independent consultant to review the Columbia Group's applicable supervisory, compliance, control and other policies and procedures; and retain an independent distribution consultant (see below). The Columbia Funds have also voluntarily undertaken to implement certain governance measures designed to maintain the independence of their boards of trustees. The NYAG Settlement also, among other things, requires Columbia and its affiliates to reduce management fees for certain Columbia 34 Colonial Intermediate High Income Fund November 30, 2006 Funds (including the former Nations Funds) and other mutual funds collectively by $32 million per year for five years, for a projected total of $160 million in management fee reductions. Pursuant to the procedures set forth in the SEC order, the $140 million in settlement amounts described above will be distributed in accordance with a distribution plan developed by an independent distribution consultant and approved by the SEC. The independent distribution consultant has been in consultation with the staff of the SEC and has submitted a proposed plan of distribution. The SEC has released the proposed plan of distribution for public notice and comment but has not yet approved a final plan of distribution. As a result of these matters or any adverse publicity or other developments resulting from them, the market price of fund shares could decline. A copy of the SEC Order is available on the SEC website at http://www.sec.gov. A copy of the NYAG Settlement is available as part of the Bank of America Corporation Form 8-K filing on February 10, 2005. In connection with the events described in detail above, various parties have filed suit against certain funds, the Trustees of the Columbia Funds, FleetBoston Financial Corporation and its affiliated entities and/or Bank of America and its affiliated entities. On February 20, 2004, the Judicial Panel on Multidistrict Litigation transferred these cases and cases against other mutual fund companies based on similar allegations to the United States District Court in Maryland for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently, additional related cases were transferred to the MDL. On September 29, 2004, the plaintiffs in the MDL filed amended and consolidated complaints. One of these amended complaints is a putative class action that includes claims under the federal securities laws and state common law, and that names Columbia, the Distributor, the Trustees of the Columbia Funds, Bank of America Corporation and others as defendants. Another of the amended complaints is a derivative action purportedly on behalf of the Columbia Funds that asserts claims under federal securities laws and state common law. On February 25, 2005, Columbia and other defendants filed motions to dismiss the claims in the pending cases. On March 1, 2006, for reasons stated in the court's memoranda dated November 3, 2005, the U.S. District Court for the District of Maryland granted in part and denied in part the defendants' motions to dismiss. The court dismissed all of the class action claims pending against the Columbia Funds Trusts. As to Columbia and the Distributor, the claims under the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the Investment Company Act of 1940 ("ICA") and the state law claims were dismissed. The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA were not dismissed. On March 21, 2005, a purported class action was filed in Massachusetts state court alleging that the conduct, including market timing, entitles Class B shareholders in certain Columbia funds to an exemption from contingent deferred sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has been removed to federal court in Massachusetts and the federal Judicial Panel has transferred the CDSC Lawsuit to the MDL. On April 4, 2006, the plaintiffs and the Columbia defendants named in the MDL, including the Columbia Funds, entered into a term sheet containing the principal terms of a stipulation of settlement that would settle all Columbia-related claims in the MDL described above, including the CDSC Lawsuit. On April 6, 2006, the U.S. District Court for the District of Maryland stayed all actions with respect to these Columbia-related claims. In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers and affiliated entities were named as defendants in certain purported shareholder class and derivative actions making claims, including claims under the Investment Company and the Investment Advisers Acts of 1940 and state law. The suits allege, inter alia, that the fees and expenses paid by the funds are excessive and that the advisers and their affiliates inappropriately used fund assets to distribute the funds and for other improper purposes. On March 2, 2005, the actions were consolidated in the Massachusetts federal court as In re Columbia Entities Litigation. The plaintiffs filed a consolidated amended complaint on June 9, 2005 naming the Columbia Funds as nominal defendants. On November 30, 2005, the judge dismissed all claims by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice of appeal to the United States Court of Appeals for the First Circuit on December 30, 2005; this appeal is currently pending. The parties have advised the appellate court that they are engaged in settlement discussions and the court has, accordingly, deferred the briefing schedule for the appeal. The settlement has not yet been finalized. Any settlement ultimately agreed by the parties will be subject to court approval. This matter is ongoing. Accordingly, no estimate can be made of the financial impact, if any, of this litigation on any fund. 35 Report of Independent Registered Public Accounting Firm To the Trustees and the Shareholders of Colonial Intermediate High Income Fund In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations, cash flows and changes in net assets, and the financial highlights present fairly, in all material respects, the financial position of Colonial Intermediate High Income Fund (the "Fund") at November 30, 2006, and the results of its operations, its cash flows, the changes in its net assets, and its financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at November 30, 2006 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts January 25, 2007 36 Dividend Reinvestment Plan Colonial Intermediate High Income Fund 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. Contact the Plan Agent for additional information regarding the Plan. All correspondence concerning the Plan should be directed to Computershare, the Plan agent, by mail at P.O. Box 43010, Providence, RI 02940-3010 or by phone at 1-800-730-6001. 37 Fund Governance - Colonial Intermediate High Income Fund The Trustees serve terms of indefinite duration. The names, addresses and ages of the Trustees and officers of the Funds in the Columbia Funds Complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee and other directorships they hold are shown below. Each officer listed below serves as an officer of each Fund in the Columbia Funds Complex. Independent Trustees
Name, address and year of birth, Principal occupation(s) during past five years, number position with funds, year first of portfolios in Columbia Funds Complex overseen by elected or appointed to office/(1)/ trustee, other directorships held Douglas A. Hacker (Born 1955) - ------------------------------------------------------------------------------------------- c/o Columbia Management Independent business executive since May, 2006; Advisors, LLC Executive Vice President-Strategy of United Airlines One Financial Center (airline) from December, 2002 to May, 2006; President Boston, MA 02111 of UAL Loyalty Services (airline marketing company) Trustee (since 1996) from September, 2001 to December, 2002; Executive Vice President and Chief Financial Officer of United Airlines from July, 1999 to September, 2001. Oversees 81, Nash Finch Company (food distributor); Aircastle Limited (aircraft leasing) Janet Langford Kelly (Born 1957) - ------------------------------------------------------------------------------------------- c/o Columbia Management Deputy General Counsel-Corporate Legal Services, Advisors, LLC ConocoPhillips (integrated petroleum company) since One Financial Center August, 2006; Partner, Zelle, Hofmann, Voelbel, Mason& Boston, MA 02111 Gette LLP (law firm) from March, 2005 to July, Trustee (since 1996) 2006;Adjunct Professor of Law, Northwestern University, from September, 2004 to June, 2006, Director, UAL Corporation (airline) from February, 2006 to July, 2006; Chief Administrative Officer and Senior Vice President, Kmart Holding Corporation (consumer goods), from September, 2003 to March, 2004; Executive Vice President-Corporate Development and Administration, General Counsel and Secretary, Kellogg Company (food manufacturer), from September, 1999 to August, 2003. Oversees 81, None Richard W. Lowry (Born 1936) - ------------------------------------------------------------------------------------------- c/o Columbia Management Private Investor since August, 1987 (formerly Chairman Advisors, LLC and Chief Executive Officer, U.S. Plywood Corporation One Financial Center (building products manufacturer) until 1987). Oversees Boston, MA 02111 81, None Trustee (since 1995) Charles R. Nelson (Born 1943) - ------------------------------------------------------------------------------------------- c/o Columbia Management Professor of Economics, University of Washington, Advisors, LLC since January, 1976; Ford and Louisa Van Voorhis One Financial Center Professor of Political Economy, University of Boston, MA 02111 Washington, since September, 1993; Director, Institute Trustee (since 1981) for Economic Research, University of Washington from September, 2001 to June, 2003; Adjunct Professor of Statistics, University of Washington, since September, 1980; Associate Editor, Journal of Money Credit and Banking, since September, 1993; Consultant on econometric and statistical matters. Oversees 81, None
/(1)/In December 2000, the boards of each of the former Liberty Funds and former Stein Roe Funds were combined into one board of trustees responsible for the oversight of both fund groups (collectively, the "Liberty Board"). In October 2003, the trustees on the Liberty Board were elected to the boards of the Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the "CMG Funds Board"); simultaneous with that election, Patrick J. Simpson who had been a director on the Columbia Board and trustee on the CMG Funds Board, was appointed to serve as trustee of the Liberty Board. The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Columbia Funds Complex. 38 Fund Governance (continued) - Colonial Intermediate High Income Fund
Name, address and year of birth, Principal occupation(s) during past five years, number position with funds, year first of portfolios in columbia funds complex overseen by elected or appointed to office/(1)/ trustee, other directorships held John J. Neuhauser (Born 1942) - ------------------------------------------------------------------------------------------- c/o Columbia Management University Professor, Boston College since November, Advisors, LLC 2005; Academic Vice President and Dean of Faculties, One Financial Center Boston College from August, 1999 to October, 2005. Boston, MA 02111 Oversees 81, None Trustee (since 1985) Patrick J. Simpson (Born 1944) - ------------------------------------------------------------------------------------------- c/o Columbia Management Partner, Perkins Coie LLP (law firm). Oversees 81, None Advisors, LLC One Financial Center Boston, MA 02111 Trustee (since 2000) Thomas E. Stitzel (Born 1936) - ------------------------------------------------------------------------------------------- c/o Columbia Management Business Consultant since 1999; Chartered Financial Advisors, LLC Analyst. Oversees 81, None One Financial Center Boston, MA 02111 Trustee (since 1998) Thomas C. Theobald (Born 1937) - ------------------------------------------------------------------------------------------- c/o Columbia Management Partner and Senior Advisor, Chicago Growth Partners Advisors, LLC (private equity investing) since September, 2004; One Financial Center Managing Director, William Blair Capital Partners Boston, MA 02111 (private equity investing) from September, 1994 to Trustee and Chairman of the September, 2004. Oversees 81, Anixter International Board/(2)/ (since 1996) (network support equipment distributor); Ventas, Inc. (real estate investment trust); Jones Lang LaSalle (real estate management services); Ambac Financial Group (financial guaranty insurance) Anne-Lee Verville (Born 1945) - ------------------------------------------------------------------------------------------- c/o Columbia Management Retired since 1997 (formerly General Manager, Global Advisors, LLC Education Industry, IBM Corporation (computer and One Financial Center technology) from 1994 to 1997). Oversees 81, None Boston, MA 02111 Trustee (since 1998)
Interested Trustee William E. Mayer (Born 1940) - ------------------------------------------------------------------------------------ c/o Columbia Management Partner, Park Avenue Equity Partners (private equity) Advisors, LLC since February, 1999; Dean and Professor, College of One Financial Center Business, University of Maryland, 1992 to 1997. Boston, MA 02111 Oversees 81, Lee Enterprises (print media), WR Trustee/(3)/ (since 1994) Hambrecht + Co. (financial service provider); Reader's Digest (publishing)
/(2)/Mr. Theobald/ /was appointed as Chairman of the Board effective December 10, 2003. /(3)/Mr. Mayer/ /is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co. The Statement of Additional Information includes additional information about the Trustees of the Funds and is available, without charge, upon request by calling 800-426-3750. 39 Fund Governance (continued) - Colonial Intermediate High Income Fund Officers
Name, address and year of birth, Principal occupation(s) during past five years position with columbia funds, year first elected or appointed to office Christopher L. Wilson (Born 1957) - -------------------------------------------------------------------------------------------- One Financial Center Head of Mutual Funds since August, 2004 and Managing Boston, MA 02111 Director of Columbia Management Advisors, LLC ("the President (since 2004) Advisor") since September, 2005; President and Chief Executive Officer, CDC IXIS Asset Management Services, Inc. (investment management) from September, 1998 to August, 2004. James R. Bordewick, Jr. (Born 1959) - -------------------------------------------------------------------------------------------- One Financial Center Associate General Counsel, Bank of America since Boston, MA 02111 April, 2005; Senior Vice President and Associate Senior Vice President, Secretary and General Counsel, MFS Investment Management (investment Chief Legal Officer (since 2006) management) prior to April, 2005. J. Kevin Connaughton (Born 1964) - -------------------------------------------------------------------------------------------- One Financial Center Managing Director of the Advisor since February, 1998. Boston, MA 02111 Senior Vice President, Chief Financial Officer and Treasurer (since 2000) Linda J. Wondrack (Born 1964) - -------------------------------------------------------------------------------------------- One Financial Center Director (Columbia Management Group LLC and Investment Boston, MA 02111 Product Group Compliance), Bank of America since June Senior Vice President, Chief 2005; Director of Corporate Compliance and Conflicts Compliance Officer Officer, MFS Investment Management (investment (since 2007) management), August 2004 to May 2005; Managing Director, Deutsche Asset Management (investment management) prior to August 2004. Michael G. Clarke (Born 1969) - -------------------------------------------------------------------------------------------- One Financial Center Director of Fund Administration of the Advisor since Boston, MA 02111 January, 2006; Managing Director of the Advisor Chief Accounting Officer and September, 2004 to December, 2005; Vice President Fund Assistant Treasurer (since 2004) Administration of the Advisor June, 2002 to September, 2004. Vice President Product Strategy and Development of the Advisor from February, 2001 to June, 2002. Jeffrey R. Coleman (Born 1969) - -------------------------------------------------------------------------------------------- One Financial Center Director of Fund Administration of the Advisor since Boston, MA 02111 January, 2006; Fund Controller of the Advisor from Deputy Treasurer (since 2006) October 2004 to January 2006; Vice President of CDC IXIS Asset Management Services, Inc. (investment management) from August, 2000 to September, 2004. Joseph F. DiMaria (Born 1968) - -------------------------------------------------------------------------------------------- One Financial Center Director of Fund Administration of the Advisor since Boston, MA 02111 January, 2006; Head of Tax/Compliance and Assistant Deputy Treasurer (since 2006) Treasurer of the Advisor from November, 2004 to December, 2005; Director of Trustee Administration (Sarbanes-Oxley) of the Advisor from May, 2003 to October, 2004; Senior Audit Manager, PricewaterhouseCoopers (independent registered public accounting firm) from July, 2000 to April, 2003.
40 Fund Governance (continued) - Colonial Intermediate High Income Fund
Name, address and year of birth, Principal occupation(s) during past five years position with columbia funds, year first elected or appointed to office Ty S. Edwards (Born 1966) - ---------------------------------------------------------------------------------------- One Financial Center Director of Fund Administration of the Advisor since Boston, MA 02111 January, 2006; Vice President of the Advisor from Deputy Treasurer (since 2006) July, 2002 to December, 2005; Assistant Vice president and Director, State Street Corporation (financial services) prior to 2002. Barry S. Vallan (Born 1969) - ---------------------------------------------------------------------------------------- One Financial Center Vice President-Fund Treasury of the Advisor since Boston, MA 02111 October, 2004; Vice President- Trustee Reporting of Controller (since 2006) the Advisor from April, 2002 to October, 2004; Management Consultant, PricewaterhouseCoopers (independent registered public accounting firm) prior to October, 2002.
41 Board Consideration and Approval of Investment Advisory Agreements The Advisory Fees and Expenses Committee of the Board of Trustees meets one or more times annually to review the advisory agreements (collectively, the "Agreements") of the funds for which the Trustees serve as trustees (each a "fund") and determine whether to recommend that the full Board approve the continuation of the Agreements for an additional one-year period. After the Committee has made its recommendation, the full Board, including the Independent Trustees, determines whether to approve the continuation of the Agreements. In addition, the Board, including the Independent Trustees, considers matters bearing on the Agreements at most of its other meetings throughout the year and meets regularly with the heads of each investment area within Columbia. Through the Board's Investment Oversight Committees, Trustees also meet with selected fund portfolio managers at various times throughout the year. The Trustees receive and review all materials that they, their legal counsel or Columbia, the funds' investment adviser, believe to be reasonably necessary for the Trustees to evaluate the Agreements and determine whether to approve the continuation of the Agreements. Those materials generally include, among other items, (i) information on the investment performance of each fund relative to the performance of peer groups of mutual funds and the fund's performance benchmarks, (ii) information on each fund's advisory fees and other expenses, including information comparing the fund's expenses to those of peer groups of mutual funds and information about any applicable expense caps and fee "breakpoints," (iii) information about the profitability of the Agreements to Columbia, including potential "fall-out" or ancillary benefits that Columbia and its affiliates may receive as a result of their relationships with the funds and (iv) information obtained through Columbia's response to a questionnaire prepared at the request of the Trustees by counsel to the funds and independent legal counsel to the Independent Trustees. The Trustees also consider other information such as (v) Columbia's financial results and financial condition, (vi) each fund's investment objective and strategies and the size, education and experience of Columbia's investment staffs and their use of technology, external research and trading cost measurement tools, (vii) the allocation of the funds' brokerage, if any, and the use of "soft" commission dollars to pay for research products and services, (viii) Columbia's resources devoted to, and its record of compliance with, the funds' investment policies and restrictions, policies on personal securities transactions and other compliance policies, (ix) Columbia's response to various legal and regulatory proceedings since 2003 and (x) the economic outlook generally and for the mutual fund industry in particular. In addition, the Advisory Fees and Expenses Committee confers with the funds' independent fee consultant and reviews materials relating to the funds' relationships with Columbia provided by the independent fee consultant. Throughout the process, the Trustees have the opportunity to ask questions of and request additional materials from Columbia and to consult with independent legal counsel to the Independent Trustees and the independent fee consultant. The Board of Trustees most recently approved the continuation of the Agreements at its October, 2006 meeting, following meetings of the Advisory Fees and Expenses Committee held in August, September and October, 2006. In considering whether to approve the continuation of the Agreements, the Trustees, including the Independent Trustees, did not identify any single factor as determinative, and each weighed various factors as he or she deemed appropriate. The Trustees considered the following matters in connection with their approval of the continuation of the Agreements: The nature, extent and quality of the services provided to the funds under the Agreements. The Trustees considered the nature, extent and quality of the services provided by Columbia and its affiliates to the funds and the resources dedicated to the funds by Columbia and its affiliates. Among other things, the Trustees considered (i) Columbia's ability (including its personnel and other resources, compensation programs for personnel involved in fund management, reputation and other attributes) to attract and retain highly qualified research, advisory and supervisory investment professionals; (ii) the portfolio management services provided by those investment professionals; and (iii) the trade execution services provided on behalf of the funds. For each fund, the Trustees also considered the benefits to shareholders of investing in a mutual fund that is part of a family of funds offering exposure to a variety of asset classes and investment disciplines and providing a variety of fund and shareholder services. After reviewing those and related factors, the Trustees concluded, within the context of their overall conclusions regarding each of the Agreements, that the nature, extent and quality of services provided supported the continuation of the Agreements. 42 Investment performance of the funds and Columbia. The Trustees reviewed information about the performance of each fund over various time periods, including information prepared by an independent third party that compared the performance of each fund to the performance of peer groups of mutual funds and performance benchmarks. The Trustees also reviewed a description of the third party's methodology for identifying each fund's peer group for purposes of performance and expense comparisons. The Trustees also considered additional information that the Advisory Fees and Expenses Committee requested from Columbia relating to funds that presented relatively weaker performance and/or relatively higher expenses. In the case of each fund whose performance lagged that of a relevant peer group for certain (although not necessarily all) periods, the Trustees concluded that other factors relevant to performance were sufficient, in light of other considerations, to warrant continuation of the fund's Agreements. Those factors varied from fund to fund, but included one or more of the following: (i) that the fund's performance, although lagging in certain recent periods, was stronger over the longer term; (ii) that the underperformance was attributable, to a significant extent, to investment decisions that were reasonable and consistent with the fund's investment strategy and policies and that the fund was performing as expected, given these investment decisions, market conditions and the fund's investment strategy; (iii) that the fund's performance was competitive when compared to other relevant performance benchmarks or peer groups; (iv) that Columbia had taken or was taking steps designed to help improve the fund's investment performance, including, but not limited to, replacing portfolio managers or modifying investment strategies; and (v) that the fund was proposed to be reorganized into another fund, and that such reorganization would result in a reduction in fund expenses. The Trustees also considered Columbia's performance and reputation generally, the funds' performance as a fund family generally, and Columbia's historical responsiveness to Trustee concerns about performance and Columbia's willingness to take steps intended to improve performance. After reviewing those and related factors, the Trustees concluded, within the context of their overall conclusions regarding each of the Agreements, that the performance of each fund and Columbia was sufficient, in light of other considerations, to warrant the continuation of the Agreement(s) pertaining to that fund. The costs of the services provided and profits realized by Columbia and its affiliates from their relationships with the funds. The Trustees considered the fees charged to the funds for advisory services as well as the total expense levels of the funds. That information included comparisons (provided by management and by an independent third party) of each fund's advisory fees and total expense levels to those of the fund's peer groups and information about the advisory fees charged by Columbia to comparable institutional accounts. In considering the fees charged to those accounts, the Trustees took into account, among other things, management's representations about the differences between managing mutual funds as compared to other types of accounts, including differences in the services provided, differences in the risk profile of such business for Columbia, and the additional resources required to manage mutual funds effectively. In evaluating each fund's advisory fees, the Trustees also took into account the demands, complexity and quality of the investment management of the fund. The Trustees considered existing advisory fee breakpoints, and Columbia's use of advisory fee waivers and expense caps, which benefited a number of the funds. The Trustees also noted management's stated justification for the fees charged to the funds, which included information about the investment performance of the funds and the services provided to the funds. The Trustees also considered the compensation directly or indirectly received by Columbia and its affiliates from their relationships with the funds. The Trustees reviewed information provided by management as to the profitability to Columbia and its affiliates of their relationships with each fund, and information about the allocation of expenses used to calculate profitability. When reviewing profitability, the Trustees also considered court cases in which adviser profitability was an issue in whole or in part, the performance of the relevant funds, the expense level of each fund, and whether Columbia had implemented breakpoints and/or expense caps with respect to the fund. After reviewing those and related factors, the Trustees concluded, within the context of their overall conclusions regarding each of the Agreements, that the advisory fees charged to each fund, and the related profitability to Columbia 43 and its affiliates of their relationships with the fund, supported the continuation of the Agreement(s) pertaining to that fund. Economies of Scale. The Trustees considered the existence of any economies of scale in the provision by Columbia of services to each fund, to groups of related funds, and to Columbia's investment advisory clients as a whole and whether those economies were shared with the funds through breakpoints in the investment advisory fees or other means, such as expense waivers/reductions and additional investments by Columbia in investment, trading and compliance resources. The Trustees noted that many of the funds benefited from breakpoints, expense caps, or both. In considering those issues, the Trustees also took note of the costs of the services provided (both on an absolute and a relative basis) and the profitability to Columbia and its affiliates of their relationships with the funds, as discussed above. After reviewing those and related factors, the Trustees concluded, within the context of their overall conclusions regarding each of the Agreements, that the extent to which economies of scale were shared with the funds supported the continuation of the Agreements. Other Factors. The Trustees also considered other factors, which included but were not limited to the following: .. the extent to which each fund had operated in accordance with its investment objective and investment restrictions, the nature and scope of the compliance programs of the funds and Columbia and the compliance-related resources that Columbia and its affiliates were providing to the funds; .. the nature, quality, cost and extent of administrative and shareholder services performed by Columbia and its affiliates, both under the Agreements and under separate agreements for the provision of transfer agency and administrative services; .. so-called "fall-out benefits" to Columbia and its affiliates, such as the engagement of its affiliates to provide distribution, brokerage and transfer agency services to the funds, and the benefits of research made available to Columbia by reason of brokerage commissions generated by the funds' securities transactions, as well as possible conflicts of interest associated with those fall-out and other benefits, and the reporting, disclosure and other processes in place to disclose and monitor those possible conflicts of interest; and .. the draft report provided by the funds' independent fee consultant, which included information about and analysis of the funds' fees, expenses and performance. Based on their evaluation of all factors that they deemed to be material, including those factors described above, and assisted by the advice of independent counsel and the independent fee consultant, the Trustees, including the Independent Trustees, approved the continuance of each of the Agreements through October 31, 2007. 44 Summary of Management Fee Evaluation by Independent Fee Consultant INDEPENDENT FEE CONSULTANT'S EVALUATION OF THE PROCESS BY WHICH MANAGEMENT FEES ARE NEGOTIATED FOR THE COLUMBIA MUTUAL FUNDS OVERSEEN BY THE COLUMBIA ATLANTIC BOARD Prepared Pursuant to the February 9, 2005 Assurance of Discontinuance between the Office of Attorney General of New York State and Columbia Management Advisors, Inc. and Columbia Funds Distributor, Inc. October 11, 2006 I. Overview Columbia Management Advisors, LLC ("CMA") and Columbia Funds Distributors, Inc./1/ ("CFD") agreed on February 9, 2005 to the New York Attorney General's Assurance of Discontinuance ("AOD"). Among other things, the AOD stipulates that CMA may manage or advise a Columbia Fund ("Fund" and together with all such funds or a group of such funds as the "Funds") only if the Independent Members of the Fund's Board of Trustees (such Independent Members of the Fund's Board together with the other members of the Fund's Board, referred to as the "Trustees") appoint a Senior Officer or retain an Independent Fee Consultant ("IFC") who is to manage the process by which proposed management fees are negotiated. The AOD further stipulates that the Senior Officer or IFC is to prepare a written annual evaluation of the fee negotiation process. On September 14, 2006, the Independent Members of the Funds' Boards retained me as IFC for the Funds. In this capacity, I have prepared the second annual written evaluation of the fee negotiation process. I am successor to the first IFC, Erik Sirri, who prepared the annual evaluation in 2005 and who contributed to the second annual written evaluation until his resignation as IFC in August 2006 to become Director of the Division of Market Regulation at the U.S. Securities and Exchange Commission./2/ A. Role of the Independent Fee Consultant The AOD charges the IFC with "managing the process by which proposed management fees...to be charged the Columbia Fund are negotiated so that they are negotiated in a manner which is at arms' length and reasonable and consistent with this Assurance of Discontinuance." In this role, the IFC does not replace the Trustees in negotiating management fees with CMA, and the IFC does not substitute his or her judgment for that of the Trustees about the reasonableness of proposed fees. As the AOD states, CMA "may manage or advise a Columbia Fund only if the reasonableness of the proposed management fees is determined by the Board of Trustees...using...an annual independent written evaluation prepared by or under the direction of...the Independent Fee Consultant." B. Elements Involved in Managing the Fee Negotiation Process Managing the fee negotiation process has three elements. One involves reviewing the information provided by CMG to the Trustees for evaluating the proposed management fees and augmenting that information, as necessary, with additional information from CMG or other sources and with further analyses of the information and data. The second element involves reviewing the information and analysis relative to at least the following six factors set forth in the AOD: 1.The nature and quality of CMA's services, including the Fund's performance; 2.Management fees (including any components thereof) charged by other mutual fund companies for like services; 3.Possible economies of scale as the Fund grows larger; /1/ CMA and CFD are subsidiaries of Columbia Management Group, Inc. ("CMG"), which also is the parent of Columbia Management Services, Inc. ("CFS"), the Funds' transfer agent. Before the date of this report, CMA merged into an affiliated entity, Banc of America Capital Management, LLC, which was renamed Columbia Management Advisors, LLC and which carries on the business of CMA. CFD also has been renamed Columbia Management Distributors, Inc. /2/ I am an independent economic consultant. From August 2005 until August 2006, I provided support to Mr. Sirri as an independent consultant. From 1994 to 2004, I was Chief Economist at the Investment Company Institute. Earlier, I was Section Chief and Assistant Director at the Federal Reserve Board and Professor of Economics at Oklahoma State University. I have no material relationship with Bank of America or CMG, aside from serving as IFC, and I am aware of no material relationship with any of their affiliates. To assist me with the report, I engaged NERA Economic Consulting, an independent consulting firm that has had extensive experience in the mutual fund industry. I also have retained Willkie Farr & Gallagher LLP as counsel to advise me in connection with the report. 45 4.Management fees (including any components thereof) charged to institutional and other clients of CMA for like services; 5.Costs to CMA and its affiliates of supplying services pursuant to the management fee agreements, excluding any intra-corporate profit; and 6.Profit margins of CMA and its affiliates from supplying such services. The final element involves providing the Trustees with a written evaluation of the above factors as they relate to the fee negotiation process. C. Organization of the Annual Evaluation The 2006 annual evaluation focuses on the six factors and contains a section for each factor except that CMA's costs and profits from managing the Funds have been combined into a single section. In each section, the discussion of the factor considers and analyzes the available data and other information as they bear upon the fee negotiation process. If appropriate, the discussion in the section may point out certain aspects of the proposed fees that may warrant particular attention from the Trustees. The discussion also may suggest other data, information, and approaches that the Trustees might consider incorporating into the fee negotiation process in future years. In addition to a discussion of the six factors, the report reviews the status of recommendations made in the 2005 IFC evaluation. The 2006 report also summarizes the findings with regard to the six factors and contains a summary of recommendations for possible enhancements to the process. II. Status of 2005 Recommendations The 2005 IFC evaluation contains recommendations aimed at enhancing the evaluation of proposed management fees by Trustees. The section summarizes those recommendations and includes my assessment of the response to the recommendations. 1.Recommendation: Trustees should consider requesting more analytical work from CMG in the preparation of future 15(c) materials. Status: CMG has provided additional analyses to the Trustees on economies of scale, a comparative analysis of institutional and retail management fees, management fee breakpoints, risk-adjusted performance, fee waivers and expense reimbursements, and CMG's costs and profitability. 2.Recommendation: Trustees may wish to consider whether CMG should continue expanding the use of Morningstar or other third party data to supplement CMG's fee and performance analysis that is now based primarily on Lipper reports. Status: CMG has used data from Morningstar Inc. to compare with data from Lipper Inc. ("Lipper") in performing the Trustees' screening procedures. 3.Recommendation: Trustees should consider whether...the fund-by-fund screen...should place comparable emphasis on both basis point and quintile information in their evaluation of the funds...Also, the Trustees should consider incorporating sequences of one-year performance into a fund-by-fund screen. Status: CMG has not provided Trustees with results of the screening process using percentiles. CMG has provided Trustees with information on the changes in performance and expenses between 2005 and 2006 and data on one year returns. 4.Recommendation: Given the volatility of fund performance, the Trustees may want to consider whether a better method exists than th[e] fee waiver process to deal with fund underperformance. Status: It is my understanding that the Trustees have determined to address fund underperformance not only through fee waivers and expense caps but also through discussions with CMG regarding the sources of underperformance. CMG has provided Trustees with an analysis of the relationship between breakpoints, expense reimbursements, and fee waivers. 5.Recommendation: [Seventy-one] percent of funds [have] yet to reach their first management fee break point...Trustees may wish to consider whether the results of my ongoing economies-of-scale work affects the underlying economic assumptions reflected in the existing breakpoint schedules. Status: CMG has prepared a memo for the Trustees discussing its views on the nature and sharing of potential 46 economies of scale. The memo discuses CMG's view that economies of scale arise at the complex level rather than the fund level. The memo also describes steps, including the introduction of breakpoints, taken to share economies of scale with shareholders. CMG's analysis, however, does not discuss specific sources of economies of scale and does not link breakpoints to economies of scale that might be realized as the Funds' assets increase. 6.Recommendation: Trustees should continue working with management to address issues of funds that demonstrate consistent or significant underperformance even if the fee levels for the funds are low. Status: Trustees monitor performance on an ongoing basis. III. Findings A. General 1.Based upon my examination of the available information and the six factors, I conclude that the Trustees have the relevant information necessary to evaluate the reasonableness of the proposed management fees for the Funds. CMG has provided the Trustees with relevant materials on the six factors through the 15(c) contract renewal process and in materials prepared for review at Board and Committee meetings. 2.In my view, the process by which the proposed management fees of the Funds have been negotiated in 2006 thus far has been, to the extent practicable, at arms' length and reasonable and consistent with the AOD. B. Nature and Quality of Services, Including Performance 3.The performance of the Funds has been relatively strong, especially that of fixed-income Funds. For each of the 1-, 3-, 5- and 10-year performance periods, over 60 percent of the funds have ranked in the top three performance quintiles. 4.The performance of the equity Funds overall, though less concentrated in the top two quintiles than the fixed-income Funds, improved in 2006 relative to that in 2005. The fixed income funds maintained the relatively high performance level of 2005 in 2006. 5.The Funds' overall performance adjusted for risk was significantly stronger than performance unadjusted for risk. Domestic and international equity funds, in particular, moved to higher relative performance rankings after adjusting for risk. 6.The procedure used to construct the performance universe in which each Fund's performance is ranked relative to comparable funds may bias a Fund's ranking upward within that universe. The bias occurs because the performance ranking procedure includes all share classes of multi-class funds in the universe and because the procedure ranks either no-load or A share classes of the Funds. No-load and A share classes generally have lower total expenses than B and C shares (owing to B and C shares having higher distribution/service fees) and thus, given all else, would outperform many of B and C share classes included in the universe. A preliminary analysis that adjusts for the bias results in a downward movement in the relative performance for the Funds but does not change the general finding that the Funds' performance has been strong relative to comparable funds. C. Management Fees Charged by Other Mutual Fund Companies 7.The Funds' management fees and total expenses are generally low relative to those of their peers. At least 56 percent of the Funds are in the first or second quintiles with the lowest fees and expenses and nearly three-fourths or more in the first three quintiles. Equity Funds are more highly concentrated in the first three quintiles than fixed income Funds. 8.The fee and expense rankings as whole are similar to those in 2005 in that the majority of funds are ranked in the top quintiles. Nonetheless, a number of individual funds experienced a change in ranking between 2005 and 2006. This fund-level instability may reflect sensitivity of rankings to the composition of the comparison groups, as the membership of the peer groups typically changed substantially between the two years. 9.The Liberty Money Market Fund VS appears to have a higher management fee structure than that of other Columbia money market funds of comparable asset size. 47 D. Trustees' Fee and Performance Evaluation Process 10.The Trustees' evaluation process identified 21 funds in 2006 for further review based upon their relative performance or expenses. Seventeen of these funds had been subject to review in 2004 or 2005. E. Potential Economies of Scale 11.CMG has prepared a memo for the Trustees containing its views on the sources and sharing of potential economies of scale. CMG views economies of scale as arising at the complex level and would regard estimates of scale economies for individual funds as unreliable. CMG has not, however, identified specific sources of economies of scale nor has it provided any estimates of the magnitude of any economies of scale. In the memo, CMG also describes measures taken by the Trustees and CMG that seek to share any potential economies of scale through breakpoints in management fee schedules, expense reimbursements, fee waivers, enhanced shareholder services, fund mergers, and operational consolidation. These measures, although of significant benefit to shareholders, have not been directly linked in the memo to the existence, sources, and magnitude of economies of scale. F. Management Fees Charged to Institutional Clients 12.CMG has provided Trustees with comparisons of mutual fund management fees and institutional fees based upon standardized fee schedules and upon actual fees. Based upon the information, institutional fees are generally lower than the Funds' management fees. This pattern is consistent with the economics of the two financial products. Data are not available, however, on actual institutional fees at other money managers. Thus, it is not possible to determine the extent to which differences between the Funds' management fees and institutional fees are consistent with those seen generally in the marketplace. G. Revenues, Expenses, and Profits 13.The financial statements and the methodology underlying their construction generally form a sufficient basis for Trustees to evaluate the expenses and profitability of the Funds. IV. Recommendations A. Performance 1.Trustees may wish to consider incorporating risk-adjusted measures in their evaluation of performance. CMG has begun to prepare reports for the Trustees with risk adjustments, which could form the basis for formally including the measures in the 15(c) materials. To this end, Trustees may wish to have CMG prepare documents explaining risk adjustments and describing their advantages and disadvantages. 2.Trustees may wish to consider having CMG evaluate the sensitivity of performance rankings to the design of the universe. The preliminary analysis contained in the evaluation suggests that the method employed by Lipper, the source of performance rankings used by the Trustees, may bias performance rankings upward. B. Economies of Scale 3.Trustees may wish to consider having CMG extend its analysis of economies of scale by examining the sources of such economies, if any. Identification of the sources may enable the Trustees and CMG to gauge their magnitude. It also may enable the Trustees and CMG to build upon past work on standardized fee schedules so that the schedules themselves are consistent with any economies of scale and their sources. Finally, an extension of the analysis may enable the Trustees and CMG to develop a framework that coordinates the use of fee waivers and expense caps with the standard fee schedules and with any economies of scale and their sources. C. Institutional Fees 4.Trustees may wish to consider encouraging CMG to build further upon its expanded analysis of institutional fees by 48 refining the matching of institutional accounts with mutual funds, by dating the establishment of each institutional account, and by incorporating other accounts, such as subadvisory relationships, trusts, offshore funds, and separately managed accounts into the analysis. D. Profitability 5.Trustees may wish to consider requesting that CMG expand the reporting of revenues and expenses to include more line-item detail for management and administration, transfer agency, fund accounting, and distribution. 6.Trustees may wish to consider requesting that CMG provide a statement of its operations in the 15(c) materials. 7.Trustees may wish to consider the treatment of the revenue sharing with the Private Bank of Bank of America in their review of CMG's profitability. Respectfully submitted, John D. Rea 49 APPENDIX SOURCES OF INFORMATION USED IN THE EVALUATION The following list generally describes the sources and types of information that were used in preparing this report. 1.Performance, management fees, and expense ratios for the Funds and comparable funds from other fund complexes from Lipper and CMG. The sources of this information were CMG and Lipper; 2.CMG's expenses and profitability obtained directly from CMG; 3.Information on CMG's organizational structure; 4.Profitability of publicly traded asset managers from Lipper; 5.Interviews with CMG staff, including members of senior management, legal staff, heads of affiliates, portfolio managers, and financial personnel; 6.Documents prepared by CMG for Section 15(c) contract renewals in 2005 and 2006; 7.Academic research papers, industry publications, professional materials on mutual fund operations and profitability, and SEC releases and studies of mutual fund expenses 8.Interviews with and documents prepared by Ernst & Young LLP in its review of the Private Bank Revenue Sharing Agreement; 9.Discussions with Trustees and attendance at Board and committee meetings during which matters pertaining to the evaluation were considered. In addition, I engaged NERA Economic Consulting ("NERA") to assist me in data management and analysis. NERA has extensive experience in the mutual fund industry that provides unique insights and special knowledge pertaining to my independent analysis of fees, performance, and profitability. I have also retained attorneys in the Washington, D.C. office of Willkie Farr & Gallagher LLP as outside counsel to advise me in connection with my evaluation. Finally, meetings and discussions with CMG staff were informative. My participation in Board and committee meetings in which Trustees and CMG management discussed issues relating to management contracts were of great benefit to the preparation of the evaluation. 50 Important Information About This Report Colonial Intermediate High Income Fund Transfer Agent Computershare P.O. Box 43010 Providence, RI 02940-3010 The fund mails one shareholder report to each shareholder address. Shareholders can order additional reports by calling 800-730-6001. In addition, representatives at that number can provide shareholders information about the fund. Financial advisors who want additional information about the fund may speak to a representative at 800-426-3750. A description of the fund's proxy voting policies and procedures is available (i) at www.columbiamanagement.com; (ii) on the Securities and Exchange Commission's website at www.sec.gov, and (iii) without charge, upon request, by calling 800-730-6001. Information regarding how the fund voted proxies relating to portfolio securities during the 12-month period ended June 30 is available from the SEC's website. Information regarding how the fund voted proxies relating to portfolio securities is also available at www.columbiamanagement.com. The fund files a complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q is available on the SEC's website at www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. Annual Certifications -- As required, on June 21, 2006, the fund submitted to the New York Stock Exchange ("NYSE") the annual certification of the fund's Chief Executive Officer certifying that he is not aware of any violation of the NYSE's Corporate Governance listing standards. The fund also has included the certifications of the fund's Chief Executive Officer and Chief Financial Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to the fund's Form N-CSR filed with the Securities and Exchange Commission for the annual period. This report has been prepared for shareholders of Colonial Intermediate High Income Fund. 51 [GRAPHIC] COLONIAL INTERMEDIATE HIGH INCOME FUND ANNUAL REPORT SHC-42/115614-1106 (01/07) 07/33121 Item 2. Code of Ethics. (a) The registrant has, as of the end of the period covered by this report, adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. (b) The registrant's Board adopted, effective January 3, 2006, a revised code of ethics described in 2(a) above. This revised code of ethics, which is attached as an exhibit hereto, does not differ materially from the code of ethics in effect for the year ended November 30, 2005. (c) During the period covered by this report, there were no waivers, including any implicit waivers, from a provision of the code of ethics described in 2(a) above that relates to one or more of the items set forth in paragraph (b) of this item's instructions. Item 3. Audit Committee Financial Expert. The registrant's Board of Trustees has determined that Douglas A. Hacker, Thomas E. Stitzel and Anne-Lee Verville, each of whom are members of the registrant's Board of Trustees and Audit Committee, each qualify as an audit committee financial expert. Mr. Hacker, Mr. Stitzel and Ms. Verville are each independent trustees, as defined in paragraph (a)(2) of this item's instructions and collectively constitute the entire Audit Committee. Item 4. Principal Accountant Fees and Services. (a) Audit Fees. Aggregate Audit Fees billed by the principal accountant for professional services rendered during the fiscal years ended November 30, 2006 and November 30, 2005 are approximately as follows: 2006 2005 ---- ---- $39,000 $35,500 Audit Fees include amounts related to the audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. (b) Audit-Related Fees. Aggregate Audit-Related Fees billed to the registrant by the principal accountant for professional services rendered during the fiscal years ended November 30, 2006 and November 30, 2005 are approximately as follows: 2006 2005 ---- ---- $4,100 $3,900 Audit-Related Fees include amounts for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant's financial statements and are not reported in Audit Fees above. In both fiscal years 2006 and 2005, Audit-Related Fees include agreed-upon procedures performed for semi-annual shareholder reports. During the fiscal years ended November 30, 2006 and November 30, 2005, there were no Audit-Related Fees billed by the registrant's principal accountant to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for an engagement that related directly to the operations and financial reporting of the registrant. (c) Tax Fees. Aggregate Tax Fees billed by the principal accountant to the registrant for professional services rendered during the fiscal years ended November 30, 2006 and November 30, 2005 are approximately as follows: 2006 2005 ---- ---- $2,800 $2,500 Tax Fees consist primarily of the review of annual tax returns and include amounts for professional services by the principal accountant for tax compliance, tax advice and tax planning. During the fiscal years ended November 30, 2006 and November 30, 2005, there were no Tax Fees billed by the registrant's principal accountant to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for an engagement that related directly to the operations and financial reporting of the registrant. (d) All Other Fees. Aggregate All Other Fees billed by the principal accountant to the registrant for professional services rendered during the fiscal years ended November 30, 2006 and November 30, 2005 are approximately as follows: 2006 2005 ---- ---- $0 $0 All Other Fees include amounts for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) above. Aggregate All Other Fees billed by the registrant's principal accountant to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for an engagement that related directly to the operations and financial reporting of the registrant during the fiscal years ended November 30, 2006 and November 30, 2005 are approximately as follows: 2006 2005 ---- ---- $505,500 $255,500 In both fiscal years 2006 and 2005, All Other Fees include internal control reviews of the registrant's investment advisor. (e)(1) Audit Committee Pre-Approval Policies and Procedures The registrant's Audit Committee is required to pre-approve the engagement of the registrant's independent accountants to provide audit and non-audit services to the registrant and non-audit services to its investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) or any entity controlling, controlled by or under common control with such investment adviser that provides ongoing services to the registrant ("Adviser Affiliates"), if the engagement relates directly to the operations and financial reporting of the registrant. The Audit Committee has adopted a Policy for Engagement of Independent Accountants for Audit and Non-Audit Services ("Policy"). The Policy sets forth the understanding of the Audit Committee regarding the engagement of the registrant's independent accountants to provide (i) audit and permissible audit-related, tax and other services to the registrant (collectively "Fund Services"); (ii) non-audit services to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and Adviser Affiliates, if the engagement relates directly to the operations or financial reporting of a Fund (collectively "Fund-related Adviser Services"); and (iii) certain other audit and non-audit services to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and Adviser Affiliates. Unless a type of service receives general pre-approval under the Policy, it requires specific pre-approval by the Audit Committee if it is to be provided by the independent accountants. Pre-approval of non-audit services to the registrant, the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and Adviser Affiliates may be waived provided that the "de minimis" requirements set forth under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X are met. Under the Policy, the Audit Committee may delegate pre-approval authority to any pre-designated member or members who are Independent Trustees/Directors. The member(s) to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next regular meeting. The Audit Committee's responsibilities with respect to the pre-approval of services performed by the independent accountants may not be delegated to management. The Policy requires the Fund Treasurer and/or Director of Board Administration to submit to the Audit Committee, on an annual basis, a schedule of the types of services that are subject to general pre-approval. The schedule(s) provide a description of each type of service that is subject to general pre-approval and, where possible, will provide estimated fee caps for each instance of providing each service. The Audit Committees will review and approve the types of services and review the projected fees for the next fiscal year and may add to, or subtract from, the list of general pre-approved services from time to time based on subsequent determinations. That approval acknowledges that the Audit Committee is in agreement with the specific types of services that the independent accountants will be permitted to perform. The Fund Treasurer and/or Director of Board Administration shall report to the Audit Committee at each of its regular meetings regarding all Fund Services or Fund-related Adviser Services initiated since the last such report was rendered, including a general description of the services, actual billed and projected fees, and the means by which such Fund Services or Fund-related Adviser Services were pre-approved by the Audit Committee. ***** (e)(2) The percentage of services described in paragraphs (b) through (d) of this Item approved pursuant to the "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X during both fiscal years ended November 30, 2006 and November 30, 2005 was zero. (f) Not applicable. (g) The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for the fiscal years ended November 30, 2006 and November 30, 2005 are approximately as follows: 2006 2005 ---- ---- $512,400 $261,900 (h) The registrant's Audit Committee of the Board of Directors has considered whether the provision of non-audit services that were rendered to the registrant's adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, is compatible with maintaining the principal accountant's independence. Item 5. Audit Committee of Listed Registrants. The registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)). Douglas A. Hacker, Thomas E. Stitzel and Anne-Lee Verville are each independent trustees and collectively constitute the entire Audit Committee. Item 6. Schedule of Investments The registrant's "Schedule I - Investments in securities of unaffiliated issuers" (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. The Fund has delegated to Columbia Management Advisors, LLC (the "Advisor") the responsibility to vote proxies relating to portfolio securities held by the Fund. In deciding to delegate this responsibility to the Advisor, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by the Advisor. These included the procedures that the Advisor follows when a vote presents a conflict between the interests of the Fund and its shareholders and the Advisor, its affiliates, its other clients or other persons. The Advisor's policy is to vote all proxies for Fund securities in a manner considered by the Advisor to be in the best interest of the Fund and its shareholders without regard to any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment. The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor may also address potential material conflicts of interest by delegating the proxy to an independent third party voting agent. The Advisor's Proxy Committee is composed of representatives of the Advisor's investment management team, compliance, legal and fund administration functions. In addition to the responsibilities described above, the Proxy Committee has the responsibility to review, at least annually, the Advisor's proxy voting policies to ensure consistency with internal and regulatory agency policies and to develop additional predetermined voting guidelines to assist in the review of proxy proposals. The Proxy Committee may vary from a predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted. A member of the Proxy Committee is prohibited from voting on any proposal for which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest. The Advisor has retained a third party vendor to implement its proxy voting process. The vendor provides proxy analysis, record keeping services and vote disclosure services. Item 8. Portfolio Managers of Closed-End Management Investment Companies. (a)(1) PORTFOLIO MANAGER GREGG R. SMALLEY, a senior vice president of Columbia Management Advisors, LLC, is the manager for the Fund and has managed the Fund since June 2000. Mr. Smalley has been associated with Columbia Management Advisors, LLC or its predecessors since August 1997. KEVIN L. CRONK, a senior vice president of Columbia Management Advisors, LLC, is the manager for the Fund and has co-managed the Fund since February 2003. Mr. Cronk has been associated with Columbia Management Advisors, LLC or its predecessors since August 1999. THOMAS A. LAPOINTE, a senior vice president of Columbia Management Advisors, LLC, is the manager for the Fund and has co-managed the Fund since February 2003. Mr. LaPointe has been associated with Columbia Management Advisors, LLC or its predecessors since February 1999. (2) OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGER The following table shows the number and assets of other investment accounts (or portions of investment accounts) that the Fund's portfolio manager managed as of the Fund's fiscal year-end.
Other SEC- registered open- end and closed-end Other pooled funds investment vehicles Other accounts ---------------------- ---------------------- ---------------------- Number of Number of Number of Portfolio Manager accounts Assets accounts Assets accounts Assets - ----------------- --------- ------------ --------- ------------ --------- ------------ Gregg R. Smalley 0 $0 0 0 4 $600 million Kevin L. Cronk 12 $8.6 billion 10 $267 million 5 $386 million Thomas A. LaPointe 12 $8.6 billion 10 $267 million 6 $386 million
None of these accounts are subject to an advisory fee that is based on the performance of the account. POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS Like other investment professionals with multiple clients, a portfolio manager for the Fund may face certain potential conflicts of interest in connection with managing both the Fund and other accounts at the same time. The paragraphs below describe some of these potential conflicts, which Columbia Management Advisors, LLC believes are faced by investment professionals at most major financial firms. Columbia Management Advisors, LLC and the Trustees of the Fund have adopted compliance policies and procedures that attempt to address certain of these potential conflicts. The management of accounts with different advisory fee rates and/or fee structures, including accounts that pay advisory fees based on account performance ("performance fee accounts"), may raise potential conflicts of interest by creating an incentive to favor higher-fee accounts. These potential conflicts may include, among others: . The most attractive investments could be allocated to higher-fee accounts or performance fee accounts. . The trading of higher-fee accounts could be favored as to timing and/or execution price. For example, higher-fee accounts could be permitted to sell securities earlier than other accounts when a prompt sale is desirable or to buy securities at an earlier and more opportune time. . The trading of other accounts could be used to benefit higher-fee accounts (front- running). . The investment management team could focus their time and efforts primarily on higher-fee accounts due to a personal stake in compensation. Potential conflicts of interest may also arise when the portfolio managers have personal investments in other accounts that may create an incentive to favor those accounts. As a general matter and subject to limited exceptions, Columbia Management Advisors, LLC's investment professionals do not have the opportunity to invest in client accounts, other than the Columbia Funds. A potential conflict of interest may arise when the Fund and other accounts purchase or sell the same securities. On occasions when a portfolio manager considers the purchase or sale of a security to be in the best interests of the Fund as well as other accounts, Columbia Management Advisors, LLC 's trading desk may, to the extent permitted by applicable laws and regulations, aggregate the securities to be sold or purchased in order to obtain the best execution and lower brokerage commissions, if any. Aggregation of trades may create the potential for unfairness to the Fund or another account if one account is favored over another in allocating the securities purchased or sold -- for example, by allocating a disproportionate amount of a security that is likely to increase in value to a favored account. "Cross trades," in which one Columbia account sells a particular security to another account (potentially saving transaction costs for both accounts), may also pose a potential conflict of interest. Cross trades may be seen to involve a potential conflict of interest if, for example, one account is permitted to sell a security to another account at a higher price than an independent third party would pay. Columbia Management Advisors, LLC and the Funds' Trustees have adopted compliance procedures that provide that any transactions between the Fund and another Columbia-advised account are to be made at an independent current market price, as required by law. Another potential conflict of interest may arise based on the different investment objectives and strategies of the Fund and other accounts. For example, another account may have a shorter-term investment horizon or different investment objectives, policies or restrictions than the Fund. Depending on another account's objectives or other factors, a portfolio manager may give advice and make decisions that may differ from advice given, or the timing or nature of decisions made, with respect to the Fund. In addition, investment decisions are the product of many factors in addition to basic suitability for the particular account involved. Thus, a particular security may be bought or sold for certain accounts even though it could have been bought or sold for other accounts at the same time. More rarely, a particular security may be bought for one or more accounts managed by a portfolio manager when one or more other accounts are selling the security (including short sales). There may be circumstances when purchases or sales of portfolio securities for one or more accounts may have an adverse effect on other accounts. The Fund's portfolio manager who is responsible for managing multiple funds and/or accounts may devote unequal time and attention to the management of those funds and/or accounts. As a result, the portfolio manager may not be able to formulate as complete a strategy or identify equally attractive investment opportunities for each of those accounts as might be the case if he or she were to devote substantially more attention to the management of a single fund. The effects of this potential conflict may be more pronounced where funds and/or accounts overseen by a particular portfolio manager have different investment strategies. The Fund's portfolio managers may be able to select or influence the selection of the brokers and dealers that are used to execute securities transactions for the Fund. In addition to executing trades, some brokers and dealers provide portfolio managers with brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), which may result in the payment of higher brokerage fees than might have otherwise be available. These services may be more beneficial to certain funds or accounts than to others. Although the payment of brokerage commissions is subject to the requirement that the portfolio manager determine in good faith that the commissions are reasonable in relation to the value of the brokerage and research services provided to the fund, a portfolio manager's decision as to the selection of brokers and dealers could yield disproportionate costs and benefits among the funds and/or accounts that he or she manages. Columbia Management Advisors, LLC or an affiliate may provide more services (such as distribution or recordkeeping) for some types of funds or accounts than for others. In such cases, a portfolio manager may benefit, either directly or indirectly, by devoting disproportionate attention to the management of fund and/or accounts that provide greater overall returns to the investment manager and its affiliates. The Fund's portfolio manager(s) may also face other potential conflicts of interest in managing the Fund, and the description above is not a complete description of every conflict that could be deemed to exist in managing both the Fund and other accounts. In addition, the Fund's portfolio manager may also manage other accounts (including their personal assets or the assets of family members) in their personal capacity. The management of these accounts may also involve certain of the potential conflicts described above. Investment personnel at Columbia Management Advisors, LLC, including the Fund's portfolio manager, are subject to restrictions on engaging in personal securities transactions pursuant to Codes of Ethics adopted by the Columbia Management Advisors, LLC and the Fund, which contain provisions and requirements designed to identify and address certain conflicts of interest between personal investment activities and the interests of the Fund. (3) COMPENSATION As of the Fund's most recent fiscal year end, the portfolio manager received all of his or her compensation from Columbia Management Advisors, LLC and its parent company, Columbia Management Group, in the form of salary, bonus, stock options and restricted stock. A portfolio manager's bonus is variable and is generally based on (1) an evaluation of the manager's investment performance and (2) the results of a peer and/or management review of such individual, which takes into account skills and attributes such as team participation, investment process, communication and professionalism. In evaluating investment performance, Columbia Management Advisors, LLC generally considers the one-, three- and five-year performance of mutual funds and other accounts under the portfolio manager's oversight relative to the benchmarks and peer groups noted below, emphasizing the manager's three- and five-year performance. Columbia Management Advisors, LLC may also consider the portfolio manager's performance in managing client assets in sectors and industries assigned to the manager as part of his or her investment team responsibilities, where applicable. For portfolio managers who also have group management responsibilities, another factor in their evaluation is an assessment of the group's overall investment performance. Portfolio Manager Performance Benchmark Peer Group ----------------- ------------------------ ------------------------- Gregg R. Smalley Lehman Brothers Lipper High Current Yield Government/Credit Bond Funds (Leveraged) Index Kevin L. Cronk Lehman Brothers Lipper High Current Yield Government/Credit Bond Funds (Leveraged) Index Thomas A. LaPointe Lehman Brothers Lipper High Current Yield Government/Credit Bond Funds (Leveraged) Index The size of the overall bonus pool each year is determined by Columbia Management Group and depends in part on levels of compensation generally in the investment management industry (based on market compensation data) and Columbia Management Advisors, LLC 's profitability for the year, which is influenced by assets under management. (4) OWNERSHIP OF SECURITIES The table below shows the dollar ranges of shares of the Fund beneficially owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended) by the portfolio manager listed above at the end of the Fund's most recent fiscal year: Dollar Range of Equity Securities in the Fund Portfolio Manager Beneficially Owned - ----------------- --------------------------------------------- Gregg R. Smalley None Kevin L. Cronk None Thomas A. LaPointe None Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Registrant Purchases of Equity Securities* (c) Total Number of (d) (a) (b) Shares Purchased as Maximum Number of Total Number Average Part of Publicly Shares that May Yet of Shares Price Paid Announced Plans Be Purchased Under Period Purchased Per Share or Programs the Plans or Programs - ------ ------------ ---------- ------------------- --------------------- 06/01/06 through 06/30/06 16,109 $3.35 16,109 N/A 07/01/06 through 07/31/06 15,938 $3.39 15,938 N/A 08/01/06 through 08/31/06 15,520 $3.46 15,520 N/A 09/01/06 through 09/30/06 15,305 $3.55 15,305 N/A 10/01/06 through 10/31/06 13,224 $3.50 13,224 N/A 11/01/06 through 11/30/06 12,756 $3.54 12,756 N/A ------ ----- ------ --- Total 88,852 $3.46 88,852 N/A ------ ----- ------ ---
* Includes shares purchased by the Dividend Reinvestment Agent pursuant to the Registrant's Dividend Reinvestment Plan. Item 10. Submission of Matters to a Vote of Security Holders. There have not been any material changes to the procedures by which shareholders may recommend nominees to the registrant's board of directors, since those procedures were last disclosed in response to requirements of Item 7(d)(2)(ii)(G) of Schedule 14A or this Item. Item 11. Controls and Procedures. (a) The registrant's principal executive officer and principal financial officers, based on their evaluation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing of this report, have concluded that such controls and procedures are adequately designed to ensure that information required to be disclosed by the registrant in Form N-CSR is accumulated and communicated to the registrant's management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. (b) There was no change in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits. (a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR attached hereto as Exhibit 99.CODE ETH. (a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT. (a)(3) Not applicable. (b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (registrant) Colonial Intermediate High Income Fund -------------------------------------- By (Signature and Title) /s/ Christopher L. Wilson -------------------------------------- Christopher L. Wilson, President Date January 25, 2007 -------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title) /s/ Christopher L. Wilson -------------------------------------- Christopher L. Wilson, President Date January 25, 2007 -------------------------------------- By (Signature and Title) /s/ J. Kevin Connaughton -------------------------------------- J. Kevin Connaughton, Treasurer Date January 25, 2007 -------------------------------------- EX-99.CODE 2 dex99code.txt CODE OF ETHICS EXCHANGE-LISTED CLOSED-END FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS Board Approval Received December 2005 Version Effective Date January 3, 2006 Date Last Reviewed January 3, 2006 Applicable Authority Section 406 of the Sarbanes-Oxley Act of 2002; Item 2 of Form N-CSR Overview and Statement Item 2 of Form N-CSR, the form used by registered management investment companies to file certified shareholder reports, requires a registered management investment company to disclose (1) whether it has adopted a code of ethics that applies to the investment company's principal executive officer and senior financial officers and, if it has not adopted such a code of ethics, why it has not done so, and (2) any amendments to, or waivers from, the code of ethics relating to such officers. The Board of each Fund has adopted the following Code of Ethics, which sets forth the ethical standards to which the Fund holds its principal executive officer and each of its senior financial officers. Fund Level Policies and Procedures I. Covered Officers/Purpose of the Code This Code of Ethics (the "Code") applies to the Fund's Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer or Controller (the "Covered Officers") for the purpose of promoting: . honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; . full, fair, accurate, timely and understandable disclosure in reports and documents that the Fund files with, or submits to, the SEC, and in other public communications made by the Fund; . compliance with applicable laws and governmental rules and regulations; . the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and . accountability for adherence to the Code. Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual or apparent conflicts of interest. II. Administration of the Code The Board has designated an individual to be primarily responsible for the administration of the Code (the "Code Officer"). In the absence of the Code Officer, his or her designee shall serve as the Code Officer, but only on a temporary basis. The Board has designated a person who meets the definition of a chief legal officer (the "CLO") for purposes of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder as the Fund's CLO. The CLO of the Fund shall assist the Fund's Code Officer in administration of this Code. The Code Officer, in consultation with the CLO, shall be responsible for applying this Code to specific situations (in consultation with Fund counsel, where appropriate) and has the authority to interpret this Code in any particular situation. III. Managing Conflicts of Interest Overview. A "conflict of interest" occurs when a Covered Officer's personal interest interferes with the interests of, or his or her service to, the Fund. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper personal benefits as a result of the Covered Officer's position with the Fund. Certain provisions in the 1940 Act and the rules and regulations thereunder and the Advisers Act and the rules and regulations thereunder govern certain conflicts of interest that arise out of the relationships between Covered Officers and the Fund. If such conflicts are addressed in conformity with applicable provisions of the 1940 Act and the Advisers Act, they will be deemed to have been handled ethically. For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Fund because of their status as "affiliated persons" of the Fund. The Fund's and its Adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of those provisions. This Code does not, and is not intended to, repeat or replace those programs and procedures, and conduct that is consistent with such programs and procedures falls outside of the parameters of this Code. Although they do not typically present an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationships between the Fund and, as applicable, its Adviser, administrator, principal underwriter, pricing and bookkeeping agent and/or transfer agent (each, a "Primary Service Provider") of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for 2 the Fund or for a Primary Service Provider, or for both), be involved in establishing policies and implementing decisions that will have different effects on the Primary Service Providers and the Fund. The participation of the Covered Officers in such activities is inherent in the contractual relationships between the Fund and the Primary Service Providers and is consistent with the performance by the Covered Officers of their duties as officers of the Fund. If such conflicts are addressed in conformity with applicable provisions of the 1940 Act and the Advisers Act, they will be deemed to have been handled ethically. In addition, it is recognized by the Board of the Fund that the Covered Officers also may be officers or employees of one or more other investment companies or organizations affiliated with the sponsor of the Fund covered by other similar codes and that the codes of ethics of those other investment companies or organizations will apply to the Covered Officers acting in such capacities for such other investment companies. This Code covers conflicts of interest that are not subject to provisions in the 1940 Act and Advisers Act. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interests of the Fund. Certain examples of such conflicts of interest follow. Each Covered Officer must: . not knowingly use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Fund whereby the Covered Officer, or a member of his or her family, would benefit personally to the detriment of the Fund; . not knowingly cause the Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer, or a member of his or her family, rather than the benefit of the Fund; . not use material non-public knowledge of portfolio transactions made or contemplated for the Fund to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; and . report at least annually (or more frequently, as appropriate) known affiliations or other relationships that may give rise to conflicts of interest with respect to the Fund. If a Covered Officer believes that he or she has a potential conflict of interest that is likely to materially compromise his or her objectivity or his or her ability to perform the duties of his or her role as a Covered Officer, including a potential conflict of interest that arises out of his or her responsibilities as an officer or employee of one or more Primary Service Providers or other funds, he or she should consult with the Code Officer, the CLO, the Fund's outside counsel, or counsel to the Independent Board Members, as appropriate. 3 Examples of potential conflicts of interest that may materially compromise objectivity or ability to perform the duties of a Covered Officer and which the Covered Officer should consider discussing with the Code Officer or other appropriate person include: . service as a director on the board of a public or private company or service as a public official; . the receipt of a non-de minimis gift when the gift is in relation to doing business directly or indirectly with the Fund; . the receipt of entertainment from any company with which the Fund has current or prospective business dealings, unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; . an ownership interest in, or any consulting or employment relationship with, any of the Fund's service providers, other than the Primary Service Providers or any affiliated person thereof; and . a direct or indirect material financial interest in commissions, transaction charges or spreads paid by the Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. IV. Disclosure and Compliance It is the responsibility of each Covered Officer: . to familiarize himself or herself with the disclosure requirements generally applicable to the Fund, as well as the business and financial operations of the Fund; . to not knowingly misrepresent, and to not knowingly cause others to misrepresent, facts about the Fund to others, whether within or outside the Fund, including to the Fund's Board, legal counsel, legal counsel to the Independent Board Members and auditors, and to governmental regulators and self-regulatory organizations; . to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Fund and the Primary Service Providers with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Fund files with, or submits to, the SEC and in other public communications made by the Fund; and 4 . to adhere to and, within his or her area of responsibility, promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. V. Reporting and Accountability Each Covered Officer must: . upon adoption of the Code or becoming a Covered Officer, acknowledge in writing to the Fund's Board that he or she has received, read and understands the Code, using the form attached as Appendix I hereto; . annually thereafter acknowledge in writing to the Fund's Board that he or she has received and read the Code and believes that he or she has complied with the requirements of the Code, using the form attached as Appendix II hereto; . not retaliate against any employee or Covered Officer for reports of potential violations that are made in good faith; and . notify the Code Officer promptly if he or she knows of any violation, or of conduct that reasonably could be expected to be or result in a violation, of this Code. Failure to do so is a violation of this Code. The Fund will follow the procedures set forth below in investigating and enforcing this Code: . The Code Officer will endeavor to take all appropriate action to investigate any potential violation reported to him or her; . If, after such investigation, the Code Officer believes that no violation has occurred, the Code Officer will so notify the person(s) reporting the potential violation, and no further action is required; . Any matter that the Code Officer, upon consultation with the CLO, believes is a violation will be reported by the Code Officer or the CLO to the Fund's Audit Committee; . If the Audit Committee concurs that a violation has occurred, it will inform and make a recommendation to the Fund's Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to the appropriate personnel of the Fund's Primary Service Providers or their boards; a recommendation to censure, suspend or dismiss the Covered Officer; or referral of the matter to the appropriate authorities for civil action or criminal prosecution; 5 . The Fund's Audit Committee will be responsible for granting waivers, as appropriate; and . This Code and any changes to or waivers of the Code will, to the extent required, be disclosed as provided by SEC rules. The Code Officer shall report to the Fund's Audit Committee quarterly any violations of, or material issues arising under, this Code. VI. Other Policies and Procedures This Code shall be the sole code of ethics adopted by the Fund for the purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered management investment companies thereunder. Insofar as other polices or procedures of the Fund or the Fund's Primary Service Providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they conflict with the provisions of this Code. The Fund's and its Adviser's and principal underwriter's codes of ethics under Rule 17j-1 under the 1940 Act and the more detailed policies and procedures of the Primary Service Providers as set forth in their respect Compliance Manuals are separate requirements applicable to the Covered Officers and are not part of this Code. VII. Amendments All material amendments to this Code must be in writing and approved or ratified by the Fund's Board, including a majority of the Independent Board Members. VIII. Confidentiality All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code or upon advice of counsel, such reports and records shall not be disclosed to anyone other than the Fund's Board, the Covered Officers, the Code Officer, the CLO, the Fund's Primary Service Providers and their affiliates, and outside audit firms, legal counsel to the Fund and legal counsel to the Independent Board Members and to the Primary Service Providers and their affiliates. IX. Recordkeeping The Fund will maintain and preserve for a period of not less than six (6) years from the date such action is taken, the first two (2) years in an easily accessible place, a copy of the information or materials supplied to the Audit Committee or the Board: (i) that provided the basis for any amendment or waiver to this Code; and (ii) relating to any violation of the Code and sanctions imposed for such violation, together with a written record of the approval or action taken by the Audit Committee and/or Board. The CLO is responsible for maintaining (i) a current list of the Fund's Covered 6 Officers and (ii) records of all activities related to this Policy, including those records required to be maintained by the Fund pursuant to the preceding paragraph. X. Internal Use The Code is intended solely for the internal use by the Fund and does not constitute an admission, by or on behalf of the Fund, as to any fact, circumstance, or legal conclusion. XI. Implementation and Responsible Parties The Code Officer, in conjunction with the CLO and BAC, shall be responsible for administration of this Policy and for adopting specific procedures to ensure compliance with the Fund Level Policies and Procedures set forth herein. XII. Oversight The Code Officer, in conjunction with BAC, shall be responsible for oversight of compliance with this Policy by the Covered Officers. Coordination With Overview and Implementation Statement This policy and procedures statement should be read and interpreted in conjunction with the Overview and Implementation of Policies and Procedures statement at the beginning of this compliance manual. This policy is the property of the Funds and, except as set forth in Section V. hereof, must not be provided to any external party without express prior consent from the CCO or the appropriate BAC legal or compliance unit. 7 Appendix I INITIAL ACKNOWLEDGEMENT I acknowledge that I have received and read a copy of the Code of Ethics for Principal Executive and Senior Financial Officers (the "Code") and that I understand it. I further acknowledge that I am responsible for understanding and complying with the policies set forth in the Code during my tenure as a Covered Officer, as defined in the Code. I have set forth below (and on attached sheets of paper, if necessary) all known affiliations or other relationships that may give rise to conflicts of interest for me with respect to the Fund. -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- I also acknowledge my responsibility to report any known violation of the Code to the Code Officer, the CLO, the Fund's outside counsel, or counsel to the Independent Board Members, all as defined in this Code. I further acknowledge that the policies contained in the Code are not intended to create any contractual rights or obligations, express or implied. I also understand that, consistent with applicable law, the Fund has the right to amend, interpret, modify or withdraw any of the provisions of the Code at any time in its sole discretion, with or without notice. Covered Officer Name and Title: ----------------------------------------------- (please print) - ------------------------------------------------------------------------------- Signature Date Please return this completed form to the CLO (______) within one week from the date of your review of these documents. Thank you! Appendix II ANNUAL ACKNOWLEDGEMENT I acknowledge that I have received and read a copy of the Code of Ethics for Principal Executive and Senior Financial Officers (the "Code") and that I understand it. I further acknowledge that I am responsible for understanding and complying with the policies set forth in the Code during my tenure as a Covered Officer, as defined in the Code. I also acknowledge that I believe that I have fully complied with the terms and provisions of the Code during the period of time since the most recent Initial or Annual Acknowledgement provided by me except as described below. -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- I have set forth below (and on attached sheets of paper, if necessary) all known affiliations or other relationships that may give rise to conflicts of interest for me with respect to the Fund./1/ -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- -------------------------------------------------------- I further acknowledge that the policies contained in the Code are not intended to create any contractual rights or obligations, express or implied. I also understand that, consistent with applicable law, the Fund has the right to amend, interpret, modify or withdraw any of the provisions of the Code at any time in its sole discretion, with or without notice. Covered Officer Name and Title: ----------------------------------------------- (please print) - ------------------------------------------------------------------------------- Signature Date Please return this completed form to the CLO (______) within one week from the date of your receipt of a request to complete and return it. Thank you! - -------- /1/ It is acceptable to refer to affiliations and other relationships previously disclosed in prior Initial or Annual Acknowledgements without setting forth such affiliations and relationships again. EX-99.CERT 3 dex99cert.txt CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT I, Christopher L. Wilson, 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 officers 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) and internal control over financial reporting (as defined in Rule 30a-3(d) 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)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c)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 (d)disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers 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: January 25, 2007 /s/ Christopher L. Wilson -------------------------------- Christopher L. Wilson, President 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 officers 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) and internal control over financial reporting (as defined in Rule 30a-3(d) 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)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c)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 (d)disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers 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: January 25, 2007 /s/ J. Kevin Connaughton ------------------------------- J. Kevin Connaughton, Treasurer EX-99.906CT 4 dex99906ct.txt CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT 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 November 30, 2006, 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: January 25, 2007 /s/ Christopher L. Wilson -------------------------------- Christopher L. Wilson, President Date: January 25, 2007 /s/ J. Kevin Connaughton -------------------------------- J. Kevin Connaughton, 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. (S)1350 and is not being filed as part of the Form N-CSR with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----