UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-5567
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Colonial Intermediate High Income Fund
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(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
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(Address of principal executive offices) (Zip code)
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
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Date of fiscal year end: November 30, 2006
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Date of reporting period: November 30, 2006
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Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. (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
--------------------------------------