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: 811-5851
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Colonial InterMarket Income Trust I
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(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
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(Address of principal executive offices) (Zip code)
Vincent Pietropaolo, Esq.
Columbia Management Group, Inc.
One Financial Center
Boston, MA 02111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-772-3698
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Date of fiscal year end: 11/30/05
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Date of reporting period: 05/31/05
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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. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
COLONIAL INTERMARKET INCOME TRUST I SEMIANNUAL REPORT
May 31, 2005
[cover photo of newspaper and calculator]
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
PRESIDENT'S MESSAGE
Dear Shareholder:
In 2004,Colonial Funds became part of Columbia Management, the asset management
division of Bank of America, one of the largest, most respected financial
institutions in the United States. As a direct result of this merger, a number
of changes are in the works that we believe offer significant potential benefits
for our shareholders. First, some funds may be merged in order to eliminate
redundancies, others may be liquidated and fund management teams will be aligned
to maximize performance potential. You will receive more detailed information
about these changes if your fund is affected and you may be asked to vote on
certain fund changes. In this matter, your timely response will enable us to
implement the changes in 2005.
As a result of these changes, we believe we will offer shareholders an even
stronger lineup of investment options. What will not change as we enter this
next phase of consolidation is our commitment to the highest standards of
performance and our dedication to superior service. Change for the good has
another name: it's called improvement. It helps move us forward, and we believe
that it represents progress for all our shareholders in their quest for
long-term financial success.
In the pages that follow, you'll find a detailed report from the fund's managers
on key factors that influenced your fund's performance. We hope that you will
read the manager reports carefully and discuss any questions you might have with
your financial advisor.
As always, we thank you for choosing Colonial Funds. We appreciate your
continued confidence. And, we look forward to helping you keep your long-term
financial goals on target in the years to come.
Sincerely,
/s/ Christopher L. Wilson
Christopher L. Wilson
President, Columbia Funds
Christopher L. Wilson is Head of Mutual Funds for Columbia Management, President
of Columbia Funds, President & CEO of Nations Funds and President of Galaxy
Funds, responsible for the day-to-day delivery of mutual fund services to the
firm's investors. With the exception of distribution, Chris oversees all aspects
of the mutual fund services operation, including treasury, investment accounting
and shareholder and broker services. Chris joined Bank of America in August
2004.
The views expressed in the President's Message and Portfolio Managers' Report
reflect the current views of the respective parties. These views are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions that are difficult to predict so actual outcomes and results may
differ significantly from the views expressed. These views are subject to change
at any time based upon economic, market or other conditions and the respective
parties disclaim any responsibility to update such views. These views may not be
relied on as investment advice and, because investment decisions for a Colonial
trust are based on numerous factors, may not be relied on as an indication of
trading intent on behalf of any particular Colonial trust. References to
specific company securities should not be construed as a recommendation or
investment advice.
PORTFOLIO MANAGERS' REPORT
For the six-month period ended May 31, 2005, Colonial InterMarket Income Trust I
generated a total return of 5.70%, based on its market price. The trust returned
0.80%, based on investment at net asset value. That was below the average return
of the Lipper General Bond Funds Category, which was 1.93%.1 The trust's
emphasis on lower quality credits, which aided results during the prior fiscal
year, had a negative impact on performance during this reporting period.
THE GIVE AND TAKE OF HIGH-YIELD
High-yield corporate bonds accounted for approximately 39% of the trust's assets
over the past six months. This sector has enjoyed a sustained period of relative
outperformance, to the point where the yield advantage of lower quality credits
versus Treasury securities had declined to historically low levels by the
beginning of the period. In March, the catalyst for change came in the form of
deteriorating finances in the automotive sector. Both Ford (which was not in the
portfolio) and General Motors bonds (0.1% of total investments) were
subsequently downgraded to high-yield status, which had a negative impact on the
sector, in general, and the trust, in particular, with its above-average
commitment to high-yield bonds.2
As investors became more cautious about risk, the Treasury market benefited,
even though the Federal Reserve (the Fed) continued to raise short-term interest
rates. Treasury bonds typically fare poorly when the Fed is engaged in a cycle
of rate increases because rates within other maturity ranges also tend to rise.
However, longer-term bonds generally held steady or declined and most of the
weakness in the market was borne by securities with two to five-year maturities.
OVERSEAS INVESTMENTS FARED BETTER
The trust received a slight boost from its foreign investments during the
period. Positions in emerging markets, which account for approximately 14% of
the portfolio, benefited from favorable economic trends in countries such as
Brazil and Russia. Overall, higher commodity prices led to stronger exports from
emerging market nations, and a quiet political backdrop added to investor
confidence.
By contrast, the trust's investments in the bonds of developed nations were flat
to slightly negative for the period. Currency translations, which aided results
throughout most of 2004, turned slightly negative in 2005. In particular, the
euro backtracked amid uncertainty created when voters from France and the
Netherlands rejected the proposed European constitution in May. Bonds of
developed nations accounted for approximately 19% of the portfolio.
- -------------------
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 trust. Lipper
makes no adjustment for the effect of sales loads.
2 Holdings are disclosed as of May 31, 2005, and are subject to change.
[sidebar data]
PRICE PER SHARE
AS OF 05/31/05 ($)
Net asset value 9.45
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Market price 8.76
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6-MONTH (CUMULATIVE) TOTAL
RETURN AS OF 05/31/05 (%)
Net asset value 0.80
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Market price 5.70
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Lipper General Bond
Funds Category average 1.93
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All results shown assume
reinvestment of distributions.
DISTRIBUTIONS DECLARED
PER SHARE
12/01/04 - 05/31/05 ($)
0.42
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SECURITIES BREAKDOWN
AS OF 05/31/05 (%)
Corporate fixed-income
bonds & notes 38.7
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Foreign government
bonds 32.9
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US government agencies
& obligations 21.5
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Cash equivalents 3.4
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Mortgage-backed
securities 2.2
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Asset-backed securities 0.8
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Convertible bonds 0.3
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Municipal bond (taxable) 0.2
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Warrants 0.0
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Common Stock 0.0
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TOP 5 FOREIGN COUNTRIES
AS OF 05/31/05 (%)
Canada 3.8
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Germany 3.6
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Sweden 3.2
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United Kingdom 3.2
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Mexico 2.9
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Securities and country breakdown are calculated as a percentage of total
investments.
Because the trust is actively managed, there is no guarantee that the trust will
continue to invest in these sectors or maintain these country weightings in the
future.
1
PORTFOLIO MANAGERS' REPORT (CONTINUED)
LOOKING AHEAD
With widespread expectations of slightly slower economic growth in the United
States and the potential for increased political uncertainty in emerging
markets, we have reduced our commitment to some of the riskier areas of the
fixed-income market. In the United States, we expect the Fed to continue to
raise short-term interest rates, but we do not envision the federal funds rate
above 4.0%. Overseas, we expect the dollar to continue to move lower over time,
despite recent dollar strength. Finally, we will continue to pay attention to
political developments in emerging markets, where elections slated in a number
of countries, including Mexico and Brazil, have the potential to affect their
respective bond markets in the year ahead.
/s/ Laura A. Ostrander /s/ Kevin L. Cronk /s/ Thomas A. LaPointe
Laura A. Ostrander has managed Colonial InterMarket Income Trust I since
November 1999 and has been with the advisor or its predecessors or affiliate
organizations since December 1996.
Kevin L. Cronk, CFA, has co-managed Colonial InterMarket Income Trust I since
May 2005 and has been with the advisor or its predecessors or affiliate
organizations since August 1999.
Thomas A. LaPointe, CFA, has co-managed Colonial InterMarket Income Trust I
since May 2005 and has been with the advisor or its predecessors or affiliate
organizations since February 1999.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND CURRENT PERFORMANCE
MAY BE LOWER OR HIGHER. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
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. Investing in high yield securities (commonly known as "junk bonds")
offers the potential for high current income and attractive total returns, but
involves certain risks. Changes in economic conditions or other circumstances
may adversely affect a junk bond issuer's ability to make principal and
interest payments. Rising interest rates tend to lower the value of all bonds.
International investing involves special risks, including foreign taxation,
currency fluctuation, risks associated with possible differences in financial
standards and other monetary and political risks. Emerging markets may be more
subject to these risks than developed markets. In addition, concentration of
investments in a single region may result in greater volatility.
2
INVESTMENT PORTFOLIO
May 31, 2005 (Unaudited)
GOVERNMENT AGENCIES
& OBLIGATIONS - 54.5% PAR VALUE ($)
- -----------------------------------------------------------
FOREIGN GOVERNMENT BONDS - 32.9%
Aries Vermoegensverwaltungs GmbH
7.750% 10/25/09(a) EUR 250,000 356,206
Corp. Andina de Fomento
6.375% 06/18/09 340,000 471,308
European Investment Bank
7.625% 12/07/07 GBP 295,000 576,653
Federal Republic of Brazil
4.250% 04/15/24(b) USD 875,000 809,375
8.750% 02/04/25 210,000 211,575
11.500% 04/02/09 EUR 325,000 481,831
14.500% 10/15/09 USD 810,000 1,053,000
Federal Republic of Germany
4.250% 07/04/14 EUR 970,000 1,293,650
5.000% 07/04/12 375,000 521,283
6.000% 07/04/07 800,000 1,060,520
Government of Canada
5.250% 06/01/13 CAD 530,000 463,213
10.000% 06/01/08 1,800,000 1,718,407
Government of New Zealand
6.000% 11/15/11 NZD 1,940,000 1,387,326
6.500% 04/15/13 985,000 728,564
Kingdom of Norway
5.500% 05/15/09 NOK 3,360,000 568,739
6.000% 05/16/11 2,300,000 407,991
Kingdom of Spain
5.500% 07/30/17 EUR 820,000 1,214,330
Kingdom of Sweden
5.000% 01/28/09 SEK 13,595,000 1,987,096
6.750% 05/05/14 6,210,000 1,066,942
Republic of Bulgaria
8.250% 01/15/15 USD 575,000 719,497
Republic of Colombia
9.750% 04/09/11 393,317 443,465
11.500% 05/31/11 EUR 225,000 348,282
11.750% 02/25/20 USD 370,000 474,525
Republic of France
4.000% 04/25/14 EUR 630,000 823,426
Republic of Italy
5.000% 02/01/12 1,240,000 1,709,361
Republic of Panama
8.875% 09/30/27 USD 500,000 582,250
Republic of Peru
7.500% 10/14/14 EUR 210,000 286,288
9.875% 02/06/15 USD 450,000 547,200
Republic of Philippines
10.625% 03/16/25 240,000 268,800
Republic of Poland
8.500% 05/12/07 PLN 1,115,000 350,813
Republic of South Africa
5.250% 05/16/13 EUR 855,000 1,147,183
Republic of Venezuela
9.250% 09/15/27 USD 577,000 580,174
PAR VALUE ($)
- -----------------------------------------------------------
Russian Federation
5.000% 03/31/30 525,000 576,293
8.750% 07/24/05 400,000 402,800
11.000% 07/24/18 500,000 734,200
12.750% 06/24/28 595,000 1,058,029
United Kingdom Treasury
5.000% 03/07/12 GBP 215,000 407,522
7.500% 12/07/06 655,000 1,247,238
9.000% 07/12/11 415,000 944,958
United Mexican States
7.500% 03/08/10 EUR 385,000 555,334
7.500% 04/08/33 USD 780,000 892,320
11.375% 09/15/16 625,000 933,750
Victoria Treasury Corp.
7.500% 08/15/08 AUD 1,245,000 1,001,042
Western Australia Treasury Corp.
8.000% 10/15/07 1,085,000 868,348
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FOREIGN GOVERNMENT BONDS TOTAL 34,281,107
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- -----------------------------------------------------------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS - 21.6%
Federal Farm Credit Bank
5.000% 08/25/10 USD 900,000 903,289
U.S. Treasury Bond
7.500% 11/15/24 865,000 1,214,683
8.875% 02/15/19 872,000 1,287,835
10.375% 11/15/12 1,520,000 1,756,728
10.625% 08/15/15 2,780,000 4,293,471
12.500% 08/15/14 6,354,000 8,497,731
U.S. Treasury Note
5.000% 02/15/11 1,245,000 1,322,326
7.000% 07/15/06 3,050,000 3,167,355
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U.S. GOVERNMENT AGENCIES
& OBLIGATIONS TOTAL 22,443,418
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TOTAL GOVERNMENT AGENCIES & OBLIGATIONS
(cost of $52,959,104) 56,724,525
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CORPORATE FIXED-INCOME
BONDS & NOTES - 38.7%
- -----------------------------------------------------------
BASIC MATERIALS - 4.0%
CHEMICALS - 1.6%
AGRICULTURAL CHEMICALS - 0.6%
IMC Global, Inc.
10.875% 08/01/13 140,000 163,800
Terra Capital, Inc.
12.875% 10/15/08 215,000 254,238
UAP Holding Corp.
(c) 07/15/12
(10.750% 01/15/08) 125,000 100,000
United Agri Products
8.250% 12/15/11 123,000 124,845
-----------
642,883
-----------
See Accompanying Notes to Financial Statements.
3
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
- -----------------------------------------------------------
BASIC MATERIALS (CONTINUED)
CHEMICALS (CONTINUED)
CHEMICALS-DIVERSIFIED - 0.8%
BCP Crystal US Holdings Corp.
9.625% 06/15/14 62,000 69,440
EquiStar Chemicals LP
10.625% 05/01/11 220,000 243,650
Huntsman International LLC
7.375% 01/01/15 (a) 95,000 93,337
Huntsman LLC
12.000% 07/15/12 (a) 145,000 166,750
Innophos Investments Holdings, Inc., PIK
10.771% 02/15/15 (a)(b) 77,154 68,667
Lyondell Chemical Co.
9.625% 05/01/07 95,000 100,700
NOVA Chemicals Corp.
6.500% 01/15/12 70,000 68,250
Westlake Chemical Corp.
8.750% 07/15/11 55,000 59,675
-----------
870,469
-----------
CHEMICALS-SPECIALTY - 0.2%
Rhodia SA
8.875% 06/01/11 200,000 190,500
-----------
190,500
-----------
Chemicals Total 1,703,852
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FOREST PRODUCTS & PAPER - 1.2%
FORESTRY - 0.2%
Millar Western Forest Products Ltd.
7.750% 11/15/13 95,000 86,925
Tembec Industries, Inc.
8.500% 02/01/11 120,000 93,000
-----------
179,925
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PAPER & RELATED PRODUCTS - 1.0%
Abitibi-Consolidated, Inc.
8.375% 04/01/15 105,000 103,162
Boise Cascade LLC
6.016% 10/15/12 (a)(b) 70,000 68,600
7.125% 10/15/14 (a) 80,000 75,800
Buckeye Technologies, Inc.
8.500% 10/01/13 95,000 97,850
Caraustar Industries, Inc.
9.875% 04/01/11 105,000 102,112
Fraser Papers, Inc.
8.750% 03/15/15 (a) 115,000 104,219
Georgia-Pacific Corp.
8.000% 01/15/24 80,000 91,600
Neenah Paper, Inc.
7.375% 11/15/14 (a) 60,000 56,700
Newark Group, Inc.
9.750% 03/15/14 190,000 165,300
PAR VALUE ($)
- -----------------------------------------------------------
NewPage Corp.
10.000% 05/01/12 (a) 70,000 68,600
12.000% 05/01/13 (a) 85,000 83,088
Norske Skog Canada Ltd.
8.625% 06/15/11 60,000 60,600
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1,077,631
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Forest Products & Paper Total 1,257,556
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IRON/STEEL - 0.4%
METAL-IRON - 0.1%
Wise Metals Group LLC
10.250% 05/15/12 175,000 145,250
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145,250
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STEEL-PRODUCERS - 0.1%
Steel Dynamics, Inc.
9.500% 03/15/09 70,000 74,550
-----------
74,550
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STEEL-SPECIALTY - 0.2%
UCAR Finance, Inc.
10.250% 02/15/12 155,000 161,588
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161,588
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Iron/Steel Total 381,388
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METALS & MINING - 0.8%
METAL-ALUMINUM - 0.2%
Kaiser Aluminum & Chemical Corp.
9.875% 02/15/02 (d) 250,000 220,000
10.875% 10/15/06 (d) 25,000 21,875
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241,875
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MINING SERVICES- 0.1%
HudBay Mining & Smelting Co., Ltd.
9.625% 01/15/12 (a) 45,000 43,650
-----------
43,650
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NON-FERROUS METALS - 0.5%
Codelco, Inc.
5.500% 10/15/13 500,000 516,700
-----------
516,700
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Metals & Mining Total 802,225
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BASIC MATERIALS TOTAL 4,145,021
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- -----------------------------------------------------------
COMMUNICATIONS - 8.8%
MEDIA - 4.3%
BROADCAST SERVICES/PROGRAMS - 0.2%
Fisher Communications, Inc.
8.625% 09/15/14 75,000 79,688
XM Satellite Radio Holdings, Inc.
8.710% 05/01/09 (b) 110,000 111,100
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190,788
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See Accompanying Notes to Financial Statements.
4
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
- -----------------------------------------------------------
COMMUNICATIONS (CONTINUED)
MEDIA (CONTINUED)
CABLE TV - 1.8%
Atlantic Broadband Finance LLC
9.375% 01/15/14 (a) 155,000 145,700
Cablevision Systems Corp.
7.880% 04/01/09 (a)(b) 125,000 130,625
8.000% 04/15/12 (a) 50,000 52,188
Charter Communications Holdings LLC
9.920% 04/01/11 615,000 448,950
10.250% 09/15/10 175,000 177,187
CSC Holdings, Inc.
6.750% 04/15/12 (a) 85,000 86,062
7.625% 04/01/11 95,000 100,700
DirecTV Holdings LLC
8.375% 03/15/13 46,000 50,945
EchoStar DBS Corp.
6.375% 10/01/11 190,000 190,950
Insight Midwest LP
9.750% 10/01/09 70,000 73,150
Northland Cable Television, Inc.
10.250% 11/15/07 165,000 162,525
Pegasus Satellite Communications, Inc.
11.250% 01/15/10 (a)(d) 180,000 103,500
Telenet Group Holding NV
(c) 06/15/14
(11.500% 06/15/08) (a) 170,000 124,950
-----------
1,847,432
-----------
MULTIMEDIA - 0.7%
Advanstar Communications, Inc.
(c) 10/15/11
(15.000% 10/15/05) 125,000 121,250
12.000% 02/15/11 155,000 163,137
Haights Cross Communications, Inc.
(c) 08/15/11
(12.500% 02/15/09) 135,000 82,350
Haights Cross Operating Co.
11.750% 08/15/11 130,000 141,050
11.750% 08/15/11 (a) 55,000 59,675
Quebecor Media, Inc.
11.125% 07/15/11 135,000 149,513
-----------
716,975
-----------
PUBLISHING-NEWSPAPERS - 0.1%
Hollinger, Inc.
11.875% 03/01/11 (a)(e) 54,000 55,620
12.875% 03/01/11 (a) 80,000 88,000
-----------
143,620
-----------
PAR VALUE ($)
- -----------------------------------------------------------
PUBLISHING-PERIODICALS - 0.8%
CBD Media Holdings LLC & Finance, Inc.
9.250% 07/15/12 95,000 92,625
Dex Media East LLC
12.125% 11/15/12 169,000 202,378
Dex Media West LLC
9.875% 08/15/13 117,000 133,965
Dex Media, Inc.
(c) 11/15/13
(9.000% 11/15/08) 105,000 83,738
PriMedia, Inc.
8.875% 05/15/11 215,000 225,212
WDAC Subsidiary Corp.
8.375% 12/01/14 (a) 125,000 116,875
-----------
854,793
-----------
RADIO - 0.2%
Spanish Broadcasting System, Inc.
9.625% 11/01/09 200,000 210,250
-----------
210,250
-----------
TELEVISION - 0.5%
Paxson Communications Corp.
(c) 01/15/09
(12.250% 01/15/06) 150,000 138,750
10.750% 07/15/08 190,000 185,250
Sinclair Broadcast Group, Inc.
8.750% 12/15/11 170,000 180,200
-----------
504,200
-----------
Media Total 4,468,058
-----------
TELECOMMUNICATION SERVICES - 4.5%
CELLULAR TELECOMMUNICATIONS - 2.0%
American Cellular Corp.
10.000% 08/01/11 105,000 102,375
Dobson Cellular Systems, Inc.
8.375% 11/01/11 (a) 40,000 40,600
Dobson Communications Corp.
8.875% 10/01/13 230,000 186,875
Horizon PCS, Inc.
11.375% 07/15/12 (a) 80,000 87,800
iPCS Escrow Co.
11.500% 05/01/12 70,000 77,350
Nextel Communications, Inc.
7.375% 08/01/15 255,000 276,037
Nextel Partners, Inc.
8.125% 07/01/11 205,000 222,937
Rogers Cantel, Inc.
9.750% 06/01/16 155,000 186,000
Rogers Wireless, Inc.
8.000% 12/15/12 95,000 101,650
Rural Cellular Corp.
8.250% 03/15/12 90,000 91,463
See Accompanying Notes to Financial Statements.
5
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
- -----------------------------------------------------------
COMMUNICATIONS (CONTINUED)
TELECOMMUNICATION SERVICES (CONTINUED)
CELLULAR TELECOMMUNICATIONS (CONTINUED)
UbiquiTel Operating Co.
9.875% 03/01/11 180,000 194,400
US Unwired, Inc.
10.000% 06/15/12 215,000 235,425
Western Wireless Corp.
9.250% 07/15/13 185,000 210,900
-----------
2,013,812
-----------
SATELLITE TELECOMMUNICATIONS - 0.5%
Inmarsat Finance II PLC
(c) 11/15/12
(10.375% 11/15/08) 175,000 128,625
Intelsat Bermuda Ltd.
8.250% 01/15/13 (a) 190,000 192,850
New Skies Satellites NV
9.125% 11/01/12 (a) 85,000 84,150
PanAmSat Corp.
9.000% 08/15/14 52,000 56,550
Zeus Special Subsidiary Ltd.
(c) 02/01/15
(9.250% 02/01/10) (a) 135,000 85,050
-----------
547,225
-----------
TELECOMMUNICATION EQUIPMENT - 0.1%
Lucent Technologies, Inc.
6.450% 03/15/29 125,000 108,125
-----------
108,125
-----------
TELECOMMUNICATION SERVICES - 0.4%
Axtel SA de CV
11.000% 12/15/13 180,000 192,150
Time Warner Telecom, Inc.
9.750% 07/15/08 102,000 102,000
10.125% 02/01/11 145,000 140,650
-----------
434,800
-----------
TELEPHONE-INTEGRATED - 1.2%
Cincinnati Bell, Inc.
8.375% 01/15/14 225,000 221,062
Qwest Capital Funding, Inc.
7.250% 02/15/11 340,000 314,500
7.750% 02/15/31 175,000 143,062
Qwest Services Corp.
13.500% 12/15/10 (a) 450,000 510,750
US LEC Corp.
11.890% 10/01/09 (b) 85,000 87,763
-----------
1,277,137
-----------
PAR VALUE ($)
- -----------------------------------------------------------
WIRELESS EQUIPMENT - 0.3%
American Towers, Inc.
7.250% 12/01/11 120,000 125,700
SBA Telecommunications, Inc.
(c) 12/15/11
(9.750% 12/15/07) 140,000 122,500
SpectraSite, Inc.
8.250% 05/15/10 65,000 68,738
-----------
316,938
-----------
Telecommunication Services Total 4,698,037
-----------
COMMUNICATIONS TOTAL 9,166,095
-----------
- -----------------------------------------------------------
CONSUMER CYCLICAL - 7.8%
AIRLINES - 0.3%
AIRLINES - 0.3%
Continental Airlines, Inc.
7.568% 12/01/06 220,000 182,600
Northwest Airlines, Inc.
9.875% 03/15/07 295,000 184,375
-----------
366,975
-----------
Airlines Total 366,975
-----------
APPAREL - 0.6%
APPAREL MANUFACTURERS - 0.6%
Broder Brothers Co.
11.250% 10/15/10 70,000 72,450
11.250% 10/15/10 (a) 55,000 56,925
Levi Strauss & Co.
9.750% 01/15/15 (a) 320,000 311,200
Phillips-Van Heusen Corp.
7.250% 02/15/11 65,000 66,463
8.125% 05/01/13 75,000 78,750
-----------
585,788
-----------
Apparel Total 585,788
-----------
AUTO MANUFACTURERS - 0.2%
AUTO-CARS/LIGHT TRUCKS - 0.1%
General Motors Corp.
8.375% 07/15/33 100,000 77,000
-----------
77,000
-----------
AUTO-MEDIUM & HEAVY DUTY TRUCKS - 0.1%
Navistar International Corp.
7.500% 06/15/11 120,000 120,900
-----------
120,900
-----------
Auto Manufacturers Total 197,900
-----------
AUTO PARTS & EQUIPMENT - 0.7%
AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL - 0.4%
Cooper-Standard Automotive, Inc.
8.375% 12/15/14 250,000 207,500
Delco Remy International, Inc.
9.375% 04/15/12 135,000 102,600
See Accompanying Notes to Financial Statements.
6
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
- -----------------------------------------------------------
CONSUMER CYCLICAL (CONTINUED)
AUTO PARTS & EQUIPMENT (CONTINUED)
AUTO/TRUCK PARTS & EQUIPMENT-ORIGINAL (CONTINUED)
Dura Operating Corp.
8.625% 04/15/12 110,000 99,550
-----------
409,650
-----------
AUTO/TRUCK PARTS & EQUIPMENT-REPLACEMENT - 0.1%
Rexnord Corp.
10.125% 12/15/12 90,000 94,725
-----------
94,725
-----------
RUBBER-TIRES - 0.2%
Goodyear Tire & Rubber Co.
7.857% 08/15/11 205,000 196,288
12.250% 03/01/11 55,000 61,050
-----------
257,338
-----------
Auto Parts & Equipment Total 761,713
-----------
DISTRIBUTION/WHOLESALE - 0.1%
DISTRIBUTION/WHOLESALE - 0.1%
Buhrmann US, Inc.
7.875% 03/01/15 (a) 65,000 62,400
-----------
62,400
-----------
Distribution/Wholesale Total 62,400
-----------
ENTERTAINMENT - 1.2%
GAMBLING (NON-HOTEL) - 0.2%
Global Cash Access LLC
8.750% 03/15/12 160,000 172,000
-----------
172,000
-----------
MUSIC - 0.4%
Steinway Musical Instruments, Inc.
8.750% 04/15/11 115,000 119,600
Warner Music Group
7.375% 04/15/14 160,000 159,200
WMG Holdings Corp, PIK
9.760% 12/15/14 (a) 120,000 118,695
-----------
397,495
-----------
RESORTS/THEME PARKS - 0.2%
Six Flags, Inc.
9.625% 06/01/14 280,000 242,200
-----------
242,200
-----------
THEATERS - 0.4%
AMC Entertainment, Inc.
9.875% 02/01/12 245,000 243,782
LCE Acquisition Corp.
9.000% 08/01/14 (a) 150,000 145,500
-----------
389,282
-----------
Entertainment Total 1,200,977
-----------
PAR VALUE ($)
- -----------------------------------------------------------
HOME BUILDERS - 0.7%
BUILDING-RESIDENTIAL/COMMERCIAL - 0.7%
D.R. Horton, Inc.
9.750% 09/15/10 400,000 470,000
K. Hovnanian Enterprises, Inc.
8.875% 04/01/12 25,000 26,625
10.500% 10/01/07 125,000 137,500
Standard Pacific Corp.
9.250% 04/15/12 125,000 137,500
-----------
771,625
-----------
Home Builders Total 771,625
-----------
HOME FURNISHINGS - 0.2%
APPLIANCES - 0.1%
ALH Finance LLC
8.500% 01/15/13 140,000 126,700
-----------
126,700
-----------
HOME FURNISHINGS - 0.1%
WII Components, Inc.
10.000% 02/15/12 135,000 131,625
-----------
131,625
-----------
Home Furnishings Total 258,325
-----------
LEISURE TIME - 0.5%
LEISURE & RECREATIONAL PRODUCTS - 0.1%
K2, Inc.
7.375% 07/01/14 80,000 82,800
-----------
82,800
-----------
RECREATIONAL CENTERS - 0.4%
AMF Bowling Worldwide, Inc.
10.000% 03/01/10 150,000 150,000
Equinox Holdings, Inc.
9.000% 12/15/09 170,000 174,250
Town Sports International, Inc.
(c) 02/01/14
(11.000% 02/01/09) 185,000 106,375
-----------
430,625
-----------
Leisure Time Total 513,425
-----------
LODGING - 2.0%
CASINO HOTELS - 2.0%
Circus & Eldorado/Silver Legacy Capital Corp.
10.125% 03/01/12 145,000 151,887
Hard Rock Hotel, Inc.
8.875% 06/01/13 175,000 186,375
Hollywood Casino Shreveport
13.000% 08/01/06 (f) 410,000 334,150
Inn of the Mountain Gods Resort & Casino
12.000% 11/15/10 140,000 161,700
MGM Mirage
6.750% 09/01/12 170,000 174,250
Mohegan Tribal Gaming Authority
6.125% 02/15/13 (a) 85,000 85,425
See Accompanying Notes to Financial Statements.
7
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
- -----------------------------------------------------------
CONSUMER CYCLICAL (CONTINUED)
LODGING (CONTINUED)
CASINO HOTELS (CONTINUED)
Penn National Gaming, Inc.
6.750% 03/01/15 (a) 160,000 160,800
Pinnacle Entertainment, Inc.
8.250% 03/15/12 70,000 70,350
8.750% 10/01/13 210,000 217,350
River Rock Entertainment
9.750% 11/01/11 95,000 102,600
Seneca Gaming Corp.
7.250% 05/01/12 120,000 121,350
Station Casinos, Inc.
6.875% 03/01/16 40,000 41,000
Virgin River Casino Corp.
(c) 01/15/13
(12.750% 01/15/09) (a) 100,000 64,000
9.000% 01/15/12 (a) 54,000 55,620
Wynn Las Vegas LLC
6.625% 12/01/14 (a) 180,000 172,800
-----------
2,099,657
-----------
Lodging Total 2,099,657
-----------
RETAIL - 1.1%
RETAIL-AUTOMOBILES - 0.1%
Asbury Automotive Group, Inc.
8.000% 03/15/14 130,000 124,150
-----------
124,150
-----------
RETAIL-DRUG STORES - 0.2%
Jean Coutu Group, Inc. (PJC)
8.500% 08/01/14 95,000 92,387
Rite Aid Corp.
7.500% 01/15/15 (a) 45,000 41,738
9.250% 06/01/13 110,000 104,225
-----------
238,350
-----------
RETAIL-HOME FURNISHINGS - 0.1%
Tempur-Pedic, Inc.
10.250% 08/15/10 120,000 132,000
-----------
132,000
-----------
RETAIL-JEWELRY - 0.1%
Finlay Fine Jewelry Corp.
8.375% 06/01/12 120,000 102,600
-----------
102,600
-----------
RETAIL-MAJOR DEPARTMENT STORES - 0.2%
Saks, Inc.
7.000% 12/01/13 154,000 140,332
-----------
140,332
-----------
PAR VALUE ($)
- -----------------------------------------------------------
RETAIL-PROPANE DISTRIBUTORS - 0.2%
Ferrellgas Partners LP
8.750% 06/15/12 110,000 108,350
Suburban Propane Partners LP
6.875% 12/15/13 (a) 70,000 65,800
-----------
174,150
-----------
RETAIL-RESTAURANTS - 0.1%
Landry's Restaurants, Inc.
7.500% 12/15/14 (a) 120,000 111,900
-----------
111,900
-----------
RETAIL-VIDEO RENTAL - 0.1%
Movie Gallery, Inc.
11.000% 05/01/12 (a) 95,000 97,850
-----------
97,850
-----------
Retail Total 1,121,332
-----------
TEXTILES - 0.2%
TEXTILE-PRODUCTS - 0.2%
Collins & Aikman Floorcoverings, Inc.
9.750% 02/15/10 110,000 115,775
INVISTA
9.250% 05/01/12 (a) 90,000 97,875
-----------
213,650
-----------
Textiles Total 213,650
-----------
CONSUMER CYCLICAL TOTAL 8,153,767
-----------
- -----------------------------------------------------------
CONSUMER NON-CYCLICAL - 5.3%
AGRICULTURE - 0.1%
TOBACCO - 0.1%
Alliance One International, Inc.
11.000% 05/15/12 (a) 95,000 96,663
-----------
96,663
-----------
Agriculture Total 96,663
-----------
BEVERAGES - 0.1%
BEVERAGES-WINE/SPIRITS - 0.1%
Constellation Brands, Inc.
8.125% 01/15/12 100,000 104,500
-----------
104,500
-----------
Beverages Total 104,500
-----------
BIOTECHNOLOGY - 0.1%
MEDICAL-BIOMEDICAL/GENE - 0.1%
Bio-Rad Laboratories, Inc.
7.500% 08/15/13 150,000 157,500
-----------
157,500
-----------
Biotechnology Total 157,500
-----------
See Accompanying Notes to Financial Statements.
8
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
- -----------------------------------------------------------
CONSUMER NON-CYCLICAL (CONTINUED)
COMMERCIAL SERVICES - 1.5%
COMMERCIAL SERVICES - 0.3%
Iron Mountain, Inc.
7.750% 01/15/15 85,000 83,725
Language Line Holdings, Inc.
11.125% 06/15/12 195,000 193,050
-----------
276,775
-----------
COMMERCIAL SERVICES-FINANCE - 0.2%
Dollar Financial Group, Inc.
9.750% 11/15/11 195,000 203,288
-----------
203,288
-----------
FUNERAL SERVICES & RELATED ITEMS - 0.2%
Service Corp. International
7.700% 04/15/09 180,000 190,800
-----------
190,800
-----------
PRINTING-COMMERCIAL - 0.2%
Sheridan Group
10.250% 08/15/11 105,000 108,150
Vertis, Inc.
13.500% 12/07/09 (a) 195,000 146,250
-----------
254,400
-----------
PRIVATE CORRECTIONS - 0.3%
Corrections Corp. of America
6.250% 03/15/13 (a) 130,000 125,775
GEO Group, Inc.
8.250% 07/15/13 165,000 158,812
-----------
284,587
-----------
RENTAL AUTO/EQUIPMENT - 0.3%
NationsRent, Inc.
9.500% 10/15/10 115,000 121,900
9.500% 05/01/15 (a) 100,000 98,500
Williams Scotsman, Inc.
9.875% 06/01/07 110,000 107,800
-----------
328,200
-----------
Commercial Services Total 1,538,050
-----------
COSMETICS/PERSONAL CARE - 0.4%
COSMETICS & TOILETRIES - 0.4%
DEL Laboratories, Inc.
8.000% 02/01/12 (a) 145,000 123,250
Elizabeth Arden, Inc.
7.750% 01/15/14 110,000 111,650
Revlon Consumer Products Corp.
8.625% 02/01/08 95,000 87,875
9.500% 04/01/11 (a) 115,000 105,800
-----------
428,575
-----------
Cosmetics/Personal Care Total 428,575
-----------
PAR VALUE ($)
- -----------------------------------------------------------
FOOD - 0.8%
FOOD-CONFECTIONERY - 0.2%
Merisant Co.
9.500% 07/15/13 (a) 110,000 80,850
Tabletop Holdings, Inc.
(c) 05/15/14
(12.250% 11/15/08) (a) 325,000 117,000
-----------
197,850
-----------
FOOD-MISCELLANEOUS/DIVERSIFIED - 0.4%
Dole Food Co., Inc.
8.625% 05/01/09 141,000 148,755
Pinnacle Foods Holding Corp.
8.250% 12/01/13 180,000 153,000
Reddy Ice Holdings, Inc.
(c) 11/01/12
(10.500% 11/01/08) (a) 95,000 65,075
-----------
366,830
-----------
FOOD-RETAIL - 0.2%
Stater Brothers Holdings, Inc.
8.125% 06/15/12 225,000 218,250
-----------
218,250
-----------
Food Total 782,930
-----------
HEALTHCARE SERVICES - 1.4%
DIALYSIS CENTERS - 0.1%
DaVita, Inc.
7.250% 03/15/15 (a) 145,000 145,725
-----------
145,725
-----------
MEDICAL-HMO - 0.2%
Coventry Health Care, Inc.
8.125% 02/15/12 145,000 155,512
-----------
155,512
-----------
MEDICAL-HOSPITALS - 0.3%
Tenet Healthcare Corp.
9.875% 07/01/14 320,000 342,400
-----------
342,400
-----------
MEDICAL-OUTPATIENT/HOME MEDICAL - 0.1%
Select Medical Corp.
7.625% 02/01/15 (a) 85,000 83,513
-----------
83,513
-----------
MRI/MEDICAL DIAGNOSTIC IMAGING - 0.5%
InSight Health Services Corp.
9.875% 11/01/11 200,000 171,000
MedQuest, Inc.
11.875% 08/15/12 180,000 180,000
MQ Associates, Inc.
(c) 08/15/12
(12.250% 08/15/08) 325,000 185,250
-----------
536,250
-----------
See Accompanying Notes to Financial Statements.
9
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
- -----------------------------------------------------------
CONSUMER NON-CYCLICAL (CONTINUED)
HEALTHCARE SERVICES (CONTINUED)
PHYSICIAN PRACTICE MANAGEMENT - 0.2%
US Oncology Holdings, Inc.
8.620% 03/15/15 (a)(b) 70,000 66,500
US Oncology, Inc.
9.000% 08/15/12 160,000 169,600
-----------
236,100
-----------
Healthcare Services Total 1,499,500
-----------
HOUSEHOLD PRODUCTS/WARES - 0.5%
CONSUMER PRODUCTS-MISCELLANEOUS - 0.5%
Amscan Holdings, Inc.
8.750% 05/01/14 205,000 190,650
Jostens IH Corp.
7.625% 10/01/12 95,000 91,675
Playtex Products, Inc.
9.375% 06/01/11 220,000 231,000
-----------
513,325
-----------
Household Products/Wares Total 513,325
-----------
PHARMACEUTICALS - 0.4%
MEDICAL-DRUGS - 0.3%
Elan Finance PLC
7.750% 11/15/11 (a) 215,000 184,900
Warner Chilcott Corp.
8.750% 02/01/15 (a) 85,000 79,900
-----------
264,800
-----------
MEDICAL-WHOLESALE DRUG DISTRIBUTION - 0.1%
Nycomed A/S, PIK
11.750% 09/15/13 (a) EUR 115,000 127,283
-----------
127,283
-----------
Pharmaceuticals Total 392,083
-----------
CONSUMER NON-CYCLICAL TOTAL 5,513,126
-----------
- -----------------------------------------------------------
ENERGY - 3.4%
OIL & GAS - 1.6%
OIL & GAS DRILLING - 0.2%
Ocean Rig Norway AS
10.250% 06/01/08 USD 130,000 131,300
Pride International, Inc.
7.375% 07/15/14 75,000 81,188
-----------
212,488
-----------
OIL COMPANIES-EXPLORATION & PRODUCTION - 1.3%
Chesapeake Energy Corp.
6.375% 06/15/15 (a) 35,000 35,175
7.500% 06/15/14 125,000 134,375
Compton Petroleum Corp.
9.900% 05/15/09 185,000 197,487
Delta Petroleum Corp.
7.000% 04/01/15 (a) 75,000 69,563
PAR VALUE ($)
- -----------------------------------------------------------
Energy Partners Ltd.
8.750% 08/01/10 90,000 93,150
Magnum Hunter Resources, Inc.
9.600% 03/15/12 72,000 79,920
PEMEX Finance Ltd.
9.150% 11/15/18 205,000 259,727
10.610% 08/15/17 135,000 183,352
Petroquest Energy, Inc.
10.375% 05/15/12 (a) 85,000 83,300
Whiting Petroleum Corp.
7.250% 05/01/12 185,000 184,537
-----------
1,320,586
-----------
OIL REFINING & MARKETING - 0.1%
Premcor Refining Group, Inc.
7.500% 06/15/15 105,000 113,925
-----------
113,925
-----------
Oil & Gas Total 1,646,999
-----------
OIL & GAS SERVICES - 0.6%
OIL-FIELD SERVICES - 0.6%
Gazprom
9.625% 03/01/13 400,000 480,240
Newpark Resources, Inc.
8.625% 12/15/07 120,000 119,400
-----------
599,640
-----------
Oil & Gas Services Total 599,640
-----------
PIPELINES - 1.2%
PIPELINES - 1.2%
Coastal Corp.
7.625% 09/01/08 100,000 98,750
7.750% 06/15/10 250,000 248,750
Dynegy Holdings, Inc.
6.875% 04/01/11 205,000 194,750
9.875% 07/15/10 (a) 70,000 75,775
Northwest Pipeline Corp.
8.125% 03/01/10 55,000 59,675
Sonat, Inc.
7.625% 07/15/11 335,000 329,975
Southern Natural Gas Co.
8.875% 03/15/10 95,000 103,194
Williams Companies, Inc.
8.125% 03/15/12 135,000 152,887
-----------
1,263,756
-----------
Pipelines Total 1,263,756
-----------
ENERGY TOTAL 3,510,395
-----------
- -----------------------------------------------------------
FINANCIALS - 0.7%
DIVERSIFIED FINANCIAL SERVICES - 0.5%
FINANCE-AUTO LOANS - 0.0%
General Motors Acceptance Corp.
6.875% 09/15/11 35,000 30,723
-----------
30,723
-----------
See Accompanying Notes to Financial Statements.
10
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
- -----------------------------------------------------------
FINANCIALS (CONTINUED)
DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
FINANCE-INVESTMENT BANKER/BROKER - 0.5%
E*Trade Financial Corp.
8.000% 06/15/11 110,000 114,950
LaBranche & Co., Inc.
11.000% 05/15/12 315,000 340,200
-----------
455,150
-----------
Diversified Financial Services Total 485,873
-----------
REAL ESTATE INVESTMENT TRUSTS - 0.1%
REITS-HOTELS - 0.0%
La Quinta Properties, Inc.
7.000% 08/15/12 40,000 41,300
-----------
41,300
-----------
REITS-MORTGAGE - 0.1%
Thornburg Mortgage, Inc.
8.000% 05/15/13 100,000 100,000
-----------
100,000
-----------
Real Estate Investment Trusts Total 141,300
-----------
SAVINGS & LOANS - 0.1%
SAVINGS & LOANS/THRIFTS-WESTERN US - 0.1%
Western Financial Bank
9.625% 05/15/12 100,000 107,500
-----------
107,500
-----------
Savings & Loans Total 107,500
-----------
FINANCIALS TOTAL 734,673
-----------
- -----------------------------------------------------------
INDUSTRIALS - 6.4%
AEROSPACE & DEFENSE - 0.6%
AEROSPACE/DEFENSE-EQUIPMENT - 0.6%
Argo-Tech Corp.
9.250% 06/01/11 110,000 117,975
BE Aerospace, Inc.
8.875% 05/01/11 155,000 158,100
Sequa Corp.
8.875% 04/01/08 70,000 74,200
9.000% 08/01/09 60,000 64,200
Standard Aero Holdings, Inc.
8.250% 09/01/14 (a) 110,000 113,300
TransDigm, Inc.
8.375% 07/15/11 110,000 114,400
-----------
642,175
-----------
Aerospace & Defense Total 642,175
-----------
PAR VALUE ($)
- -----------------------------------------------------------
BUILDING MATERIALS - 0.5%
BUILDING & CONSTRUCTION PRODUCTS-MISCELLANEOUS - 0.1%
Associated Materials, Inc.
(c) 03/01/14
(11.250% 03/01/09) 115,000 68,425
Nortek, Inc.
8.500% 09/01/14 80,000 71,600
-----------
140,025
-----------
BUILDING PRODUCTS-CEMENT/AGGREGATION - 0.3%
RMCC Acquisition Co.
9.500% 11/01/12 (a) 155,000 150,350
U.S. Concrete, Inc.
8.375% 04/01/14 130,000 120,250
-----------
270,600
-----------
BUILDING PRODUCTS-DOORS & WINDOWS - 0.1%
ACIH, Inc.
(c) 12/15/12
(11.500 12/15/07) (a) 170,000 107,100
-----------
107,100
-----------
Building Materials Total 517,725
-----------
ELECTRICAL COMPONENTS & EQUIPMENT - 0.2%
WIRE & CABLE PRODUCTS - 0.2%
Coleman Cable, Inc.
9.875% 10/01/12 (a) 175,000 161,875
-----------
161,875
-----------
Electrical Components & Equipment Total 161,875
-----------
ELECTRONICS - 0.2%
ELECTRONIC COMPONENTS-MISCELLANEOUS - 0.2%
Flextronics International Ltd.
6.250% 11/15/14 55,000 55,000
Sanmina-SCI Corp.
6.750% 03/01/13 (a) 140,000 132,300
-----------
187,300
-----------
Electronics Total 187,300
-----------
ENGINEERING & CONSTRUCTION - 0.2%
BUILDING & CONSTRUCTION-MISCELLANEOUS - 0.2%
J. Ray McDermott SA
11.000% 12/15/13 (a) 185,000 203,500
-----------
203,500
-----------
Engineering & Construction Total 203,500
-----------
ENVIRONMENTAL CONTROL - 0.6%
NON-HAZARDOUS WASTE DISPOSAL - 0.6%
Allied Waste North America, Inc.
7.250% 03/15/15 (a) 55,000 51,975
7.875% 04/15/13 90,000 90,450
8.500% 12/01/08 235,000 243,225
Waste Services, Inc.
9.500% 04/15/14 (a) 220,000 216,700
-----------
602,350
-----------
See Accompanying Notes to Financial Statements.
11
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
- -----------------------------------------------------------
INDUSTRIALS (CONTINUED)
ENVIRONMENTAL CONTROL (CONTINUED)
RECYCLING - 0.0%
IMCO Recycling Escrow, Inc.
9.000% 11/15/14 (a) 50,000 51,625
-----------
51,625
-----------
Environmental Control Total 653,975
-----------
HAND/MACHINE TOOLS - 0.1%
MACHINE TOOLS & RELATED PRODUCTS - 0.1%
Newcor, Inc.
6.000% 01/31/13
(7.500% 01/31/08) (g)(h) 165,817 101,148
-----------
101,148
-----------
Hand/Machine Tools Total 101,148
-----------
MACHINERY-DIVERSIFIED - 0.1%
MACHINERY-GENERAL INDUSTRY - 0.1%
Douglas Dynamics LLC
7.750% 01/15/12 (a) 150,000 144,750
-----------
144,750
-----------
Machinery-Diversified Total 144,750
-----------
METAL FABRICATE/HARDWARE - 0.6%
METAL PROCESSORS & FABRICATION - 0.4%
Altra Industrial Motion, Inc.
9.000% 12/01/11 (a) 100,000 96,000
Mueller Holdings, Inc.
(c) 04/15/14
(14.750% 04/15/09) 115,000 82,225
10.000% 05/01/12 135,000 141,750
TriMas Corp.
9.875% 06/15/12 180,000 144,900
-----------
464,875
-----------
METAL PRODUCTS-FASTENERS - 0.2%
FastenTech, Inc.
11.500% 05/01/11 190,000 200,450
-----------
200,450
-----------
Metal Fabricate/Hardware Total 665,325
-----------
MISCELLANEOUS MANUFACTURING - 0.8%
DIVERSIFIED MANUFACTURING OPERATORS - 0.6%
Bombardier, Inc.
6.300% 05/01/14 (a) 230,000 202,400
J.B. Poindexter & Co.
8.750% 03/15/14 140,000 132,300
Koppers Industries, Inc.
9.875% 10/15/13 140,000 149,100
Trinity Industries, Inc.
6.500% 03/15/14 70,000 67,550
-----------
551,350
-----------
PAR VALUE ($)
- -----------------------------------------------------------
FILTRATION/SEPARATE PRODUCTS - 0.1%
Polypore International, Inc.
(c) 10/01/12
(10.500% 10/01/08) (a) 195,000 97,988
-----------
97,988
-----------
MISCELLANEOUS MANUFACTURING - 0.1%
Samsonite Corp.
8.875% 06/01/11 120,000 125,400
-----------
125,400
-----------
Miscellaneous Manufacturing Total 774,738
-----------
PACKAGING & CONTAINERS - 1.2%
CONTAINERS-METAL/GLASS - 0.6%
Crown European Holdings SA
10.875% 03/01/13 135,000 155,588
Owens-Brockway Glass Container
6.750% 12/01/14 160,000 161,600
8.250% 05/15/13 245,000 264,600
Owens-Illinois, Inc.
7.500% 05/15/10 35,000 36,925
-----------
618,713
-----------
CONTAINERS-PAPER/PLASTIC - 0.6%
Consolidated Container Co. LLC
(c) 06/15/09
(10.750% 06/15/07) 120,000 92,400
Jefferson Smurfit Corp.
8.250% 10/01/12 110,000 108,900
PIK,
11.500% 10/01/15 (a) EUR 173,312 164,283
MDP Acquisitions PLC
9.625% 10/01/12 USD 150,000 149,250
Portola Packaging, Inc.
8.250% 02/01/12 120,000 75,000
Tekni-Plex, Inc.
8.750% 11/15/13 (a) 20,000 17,400
-----------
607,233
-----------
Packaging & Containers Total 1,225,946
-----------
TRANSPORTATION - 1.3%
TRANSPORTATION-MARINE - 0.5%
Ship Finance International Ltd.
8.500% 12/15/13 295,000 282,462
Stena AB
7.500% 11/01/13 155,000 149,187
9.625% 12/01/12 115,000 123,338
-----------
554,987
-----------
TRANSPORTATION-RAILROAD - 0.2%
TFM SA de CV
9.375% 05/01/12 (a) 150,000 155,250
12.500% 06/15/12 40,000 46,400
-----------
201,650
-----------
See Accompanying Notes to Financial Statements.
12
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR VALUE ($)
- -----------------------------------------------------------
INDUSTRIALS (CONTINUED)
TRANSPORTATION (CONTINUED)
TRANSPORTATION-SERVICES - 0.4%
CHC Helicopter Corp.
7.375% 05/01/14 120,000 115,800
7.375% 05/01/14 (a) 90,000 86,850
Petroleum Helicopters, Inc.
9.375% 05/01/09 225,000 232,875
-----------
435,525
-----------
TRANSPORTATION-TRUCKS - 0.2%
Allied Holdings, Inc.
8.625% 10/01/07 40,000 14,800
QDI LLC
9.000% 11/15/10 160,000 145,600
-----------
160,400
-----------
Transportation Total 1,352,562
-----------
INDUSTRIALS TOTAL 6,631,019
-----------
- -----------------------------------------------------------
TECHNOLOGY - 0.1%
SEMICONDUCTORS - 0.1%
ELECTRONIC COMPONENTS-SEMICONDUCTORS - 0.1%
Amkor Technology, Inc.
9.250% 02/15/08 150,000 132,000
-----------
132,000
-----------
Semiconductors Total 132,000
-----------
TECHNOLOGY TOTAL 132,000
-----------
- -----------------------------------------------------------
UTILITIES - 2.2%
ELECTRIC - 2.2%
ELECTRIC-GENERATION - 0.5%
AES Corp.
9.000% 05/15/15 (a) 45,000 50,288
9.500% 06/01/09 182,000 202,020
Edison Mission Energy
9.875% 04/15/11 170,000 197,200
Texas Genco LLC
6.875% 12/15/14 (a) 100,000 102,875
-----------
552,383
-----------
ELECTRIC-INTEGRATED - 0.7%
CMS Energy Corp.
8.900% 07/15/08 150,000 160,500
Nevada Power Co.
9.000% 08/15/13 75,000 84,000
10.875% 10/15/09 150,000 167,250
PSE&G Energy Holdings LLC
8.625% 02/15/08 190,000 200,450
TNP Enterprises, Inc.
10.250% 04/01/10 130,000 136,825
-----------
749,025
-----------
PAR VALUE ($)
- -----------------------------------------------------------
INDEPENDENT POWER PRODUCER - 1.0%
Caithness Coso Funding Corp.
9.050% 12/15/09 165,059 176,613
Calpine Corp.
8.500% 07/15/10 (a) 150,000 109,500
Calpine Generating Co. LLC
11.500% 04/01/11 110,000 94,600
12.390% 04/01/11 (b) 240,000 211,200
MSW Energy Holdings LLC
7.375% 09/01/10 50,000 50,375
8.500% 09/01/10 190,000 196,650
Orion Power Holdings, Inc.
12.000% 05/01/10 145,000 173,637
-----------
1,012,575
-----------
Electric Total 2,313,983
-----------
UTILITIES TOTAL 2,313,983
-----------
TOTAL CORPORATE FIXED-INCOME BONDS & NOTES
(cost of $41,202,297) 40,300,079
-----------
MORTGAGE-BACKED SECURITIES - 2.2%
- -----------------------------------------------------------
MORTGAGE-BACKED SECURITIES - 2.2%
Federal National Mortgage Association
TBA
6.500% 12/13/35 (i) 1,895,000 1,968,431
Government National Mortgage Association
9.000% 04/15/16-12/15/16 150,299 163,912
10.500% 07/15/19-07/15/20 25,336 28,964
11.000% 01/15/18-05/15/19 109,357 122,219
-----------
MORTGAGE-BACKED SECURITIES
TOTAL 2,283,526
-----------
TOTAL MORTGAGE-BACKED SECURITIES
(cost of $2,266,681) 2,283,526
-----------
ASSET-BACKED SECURITIES - 0.8%
- -----------------------------------------------------------
Equity One ABS, Inc.
4.205% 04/25/34 425,000 422,339
GMAC Mortgage Corp.
4.865% 09/25/34 350,000 350,805
-----------
TOTAL ASSET-BACKED SECURITIES
(cost of $771,945) 773,144
-----------
CONVERTIBLE BONDS - 0.3%
- -----------------------------------------------------------
COMMUNICATIONS - 0.2%
TELECOMMUNICATION SERVICES - 0.2%
TELECOMMUNICATION EQUIPMENT - 0.2%
Nortel Networks Corp.
4.250% 09/01/08 265,000 243,402
-----------
243,402
-----------
Telecommunication Services Total 243,402
-----------
COMMUNICATIONS TOTAL 243,402
-----------
See Accompanying Notes to Financial Statements.
13
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
CONVERTIBLE BONDS (CONTINUED) PAR VALUE ($)
- -----------------------------------------------------------
UTILITIES - 0.1%
ELECTRIC - 0.1%
INDEPENDENT POWER PRODUCER - 0.1%
Mirant Corp.
2.500% 06/15/21 (d) 125,000 98,749
-----------
98,749
-----------
Electric Total 98,749
-----------
UTILITIES TOTAL 98,749
-----------
TOTAL CONVERTIBLE BONDS
(cost of $323,468) 342,151
-----------
MUNICIPAL BOND (TAXABLE) - 0.2%
- -----------------------------------------------------------
CALIFORNIA - 0.2%
CA Cabazon Band Mission Indians
13.000% 10/01/11 (e) 230,000 239,078
-----------
CALIFORNIA TOTAL 239,078
-----------
TOTAL MUNICIPAL BOND (TAXABLE)
(cost of $230,000) 239,078
-----------
WARRANTS - 0.0% UNITS
- -----------------------------------------------------------
COMMUNICATIONS - 0.0%
TELECOMMUNICATION SERVICES - 0.0%
CELLULAR TELECOMMUNICATIONS - 0.0%
UbiquiTel, Inc.
Expires 04/15/10 (a)(j) 150 2
-----------
2
-----------
TELECOMMUNICATION SERVICES - 0.0%
Jazztel PLC
Expires 07/15/10 (a)(g)(j)(k) 40 --
-----------
--
-----------
Telecommunication Services Total 2
-----------
COMMUNICATIONS TOTAL 2
-----------
UNITS VALUE ($)
- -----------------------------------------------------------
INDUSTRIALS - 0.0%
TRANSPORTATION - 0.0%
TRANSPORTATION-TRUCKS - 0.0%
QDI LLC
Expires 01/15/07 (a)(g)(j) 510 1,499
-----------
1,499
-----------
Transportation Total 1,499
-----------
INDUSTRIALS TOTAL 1,499
-----------
TOTAL WARRANTS
(cost of $7,679) 1,501
-----------
COMMON STOCK - 0.0% SHARES
- -----------------------------------------------------------
INDUSTRIALS - 0.0%
COMMERCIAL SERVICES & SUPPLIES - 0.0%
Fairlane Management Corp. (g)(j)(k) 1,800 --
-----------
Commercial Services & Supplies Total --
-----------
INDUSTRIALS TOTAL --
-----------
TOTAL COMMON STOCK
(cost of $0) --
-----------
SHORT-TERM OBLIGATION - 3.4% PAR ($)
- -----------------------------------------------------------
Repurchase agreement with State Street
Bank & Trust Co., dated 05/31/05,
due 06/01/05 at 2.900%, collateralized
by a U.S. Treasury Note maturing
05/15/08, market value of $3,608,481
(repurchase proceeds $3,533,285) 3,533,000 3,533,000
-----------
TOTAL SHORT-TERM OBLIGATION
(cost of $3,533,000) 3,533,000
-----------
TOTAL INVESTMENTS - 100.1%
(cost of $101,294,174)(l) 104,197,004
-----------
OTHER ASSETS & LIABILITIES, NET - (0.1)% (143,084)
-----------
NET ASSETS - 100.0% 104,053,920
-----------
See Accompanying Notes to Financial Statements.
14
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Security exempt from registration pursuant to Rule 144A under the Securities
Act of 1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At May 31, 2005,
these securities amounted to $9,140,297, which represents 8.8% of net
assets.
(b) The interest rate shown on floating rate or variable rate securities
reflects the rate at May 31, 2005.
(c) Step bond. This security is currently not paying coupon. Shown
parenthetically is the next interest rate to be paid and the date the Trust
will begin accruing at this rate.
(d) The issuer has filed for bankruptcy protection under Chapter 11, and is in
default of certain debt covenants. Income is not being accrued. At May 31,
2005, the value of these securities amounted to $444,124, which represents
0.4% of net assets.
(e) Illiquid security.
(f) The issuer is in default of certain debt covenants. Income is not being
accrued. At May 31, 2005, the value of this security represents 0.3% of net
assets.
(g) Represents fair value as determined in good faith under procedures approved
by the Board of Trustees.
(h) Step bond. Shown parenthetically is the next interest rate to be paid.
(i) Security purchased on a delayed delivery basis.
(j) Non-income producing security.
(k) Security has no value.
(l) Cost for federal income tax purposes is $102,587,853.
At May 31, 2005, the Trust had entered into the following forward currency
exchange contracts:
FORWARD CURRENCY AGGREGATE SETTLEMENT UNREALIZED
CONTRACTS TO SELL VALUE FACE VALUE DATE APPRECIATION
- -------------------------------------------------------------
EUR $ 450,665 $ 473,684 06/10/2005 $ 23,019
EUR 211,788 222,780 06/10/2005 10,992
EUR 862,059 909,524 06/15/2005 47,465
EUR 554,181 584,685 06/15/2005 30,504
EUR 2,013,586 2,078,281 06/16/2005 64,695
EUR 1,884,906 1,927,035 06/27/2005 42,129
GBP 481,715 495,020 06/10/2005 13,305
GBP 1,068,541 1,093,680 06/16/2005 25,139
NOK 501,015 510,204 06/10/2005 9,189
SEK 773,278 813,296 06/15/2005 40,018
SEK 773,278 811,803 06/15/2005 38,525
----------
$344,980
----------
THE TRUST WAS INVESTED IN THE FOLLOWING COUNTRIES AT MAY 31, 2005:
% OF TOTAL
COUNTRY VALUE INVESTMENTS
- ---------------------------------------------------------------
United States* $ 64,491,071 61.9%
Canada 4,017,133 3.8
Germany 3,711,899 3.6
Sweden 3,326,563 3.2
United Kingdom 3,304,996 3.2
Mexico 3,016,633 2.9
Russia Federation 2,771,322 2.7
Brazil 2,555,781 2.4
New Zealand 2,115,890 2.0
Australia 1,869,390 1.8
Italy 1,709,361 1.6
Colombia 1,266,272 1.2
Spain 1,214,330 1.2
France 1,169,514 1.1
South Africa 1,147,183 1.1
Norway 1,108,030 1.1
Venezuela 1,051,482 1.0
Peru 833,488 0.8
Panama 785,750 0.7
Bulgaria 719,497 0.7
Chile 516,700 0.5
Ireland 498,433 0.5
Poland 350,813 0.3
Philippines 268,800 0.3
Denmark 127,283 0.1
Belgium 124,950 0.1
Luxembourg 69,440 0.1
Singapore 55,000 0.1
------------ ------
$104,197,004 100.0%
------------ ------
* Includes Short-Term Obligation.
Certain securities are listed by country of underlying exposure but may trade
predominately on other exchanges.
At May 31, 2005, the composition of the Trust by revenue source is as follows:
% OF
HOLDINGS BY REVENUE SOURCE NET ASSETS
- ----------------------------------------------------------------
Government Agencies & Obligations 54.5%
Corporate Fixed-Income Bonds & Notes 38.7
Mortgage-Backed Securities 2.2
Asset-Backed Securities 0.8
Convertible Bonds 0.3
Municipal Bond (Taxable) 0.2
Warrants 0.0
Common Stock 0.0
Short-Term Obligation 3.4
Other Assets & Liabilities (0.1)
------
100.0%
------
ACRONYM NAME
- -----------------------------------------------------------------
AUD Australian Dollar
CAD Canadian Dollar
EUR Euro
GBP British Pound
NOK Norwegian Krona
NZD New Zealand Dollar
PIK Payment-In-Kind
PLN Polish Zloty
REIT Real Estate Investment Trust
SEK Swedish Krona
TBA To Be Announced
USD United States Dollar
See Accompanying Notes to Financial Statements.
15
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2005 (Unaudited)
ASSETS:
Investments, at cost $101,294,174
------------
Investments, at value $104,197,004
Foreign currency (cost of $60,686) 60,505
Net unrealized appreciation on
foreign forward currency contracts 344,980
Receivable for:
Investments sold 316,894
Interest 2,121,612
Foreign tax reclaims 21,902
Dollar roll fee income 1,880
Deferred Trustees' compensation plan 9,622
Other assets 10,724
------------
Total Assets 107,085,123
------------
LIABILITIES:
Payable to custodian bank 98,177
Payable for:
Investments purchased 253,490
Investments purchased on a
delayed delivery basis 1,978,311
Distributions 594,486
Investment advisory fee 65,000
Transfer agent fee 4,028
Pricing and bookkeeping fees 4,742
Audit fee 18,508
Custody fee 4,839
Deferred Trustees' fees 9,622
------------
Total Liabilities 3,031,203
------------
NET ASSETS $104,053,920
============
COMPOSITION OF NET ASSETS:
Paid-in capital $120,444,512
Overdistributed net investment income (1,388,849)
Accumulated net realized loss (18,235,607)
Net unrealized appreciation on:
Investments 2,902,830
Foreign currency translations 331,034
------------
NET ASSETS $104,053,920
============
Shares outstanding 11,009,000
------------
Net asset value per share $ 9.45
============
STATEMENT OF OPERATIONS
For the Six Months Ended May 31, 2005 (Unaudited)
INVESTMENT INCOME:
Interest $ 3,571,855
Dollar roll fee income 17,185
------------
Total Investment Income (net of foreign
taxes withheld of $26) 3,589,040
------------
EXPENSES:
Investment advisory fee 396,109
Transfer agent fee 22,856
Pricing and bookkeeping fees 39,667
Trustees' fees 4,709
Custody fee 18,320
Other expenses 54,312
------------
Total Expenses 535,973
Custody earnings credit (288)
------------
Net Expenses 535,685
------------
Net Investment Income 3,053,355
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain (loss) on:
Investments 728,640
Foreign currency transactions 96,912
------------
Net realized gain 825,552
------------
Net change in unrealized appreciation (depreciation) on:
Investments (3,381,221)
Foreign currency translations 374,191
------------
Net change in unrealized
appreciation (depreciation) (3,007,030)
------------
Net Loss (2,181,478)
------------
Net Increase in Net Assets from Operations $ 871,877
------------
See Accompanying Notes to Financial Statements.
16
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS YEAR ENDED
ENDED MAY 31, NOVEMBER 30,
INCREASE (DECREASE) IN NET ASSETS: 2005 2004
- ---------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 3,053,355 $ 6,197,645
Net realized gain on investments and foreign currency transactions 825,552 3,652,989
Net change in unrealized appreciation (depreciation)
on investments and foreign currency translations (3,007,030) 1,402,665
------------ ------------
Net Increase from Operations 871,877 11,253,299
------------ ------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (4,614,974) (7,694,190)
------------ ------------
Total Increase (Decrease) in Net Assets (3,743,097) 3,559,109
------------ ------------
NET ASSETS:
Beginning of period 107,797,017 104,237,908
------------ ------------
End of period $104,053,920 $107,797,017
============ ============
Undistributed (overdistributed) net investment income at end of period $ (1,388,849) $ 172,770
============ ============
NUMBER OF TRUST SHARES OUTSTANDING:
End of period 11,009,000 11,009,000
------------ ------------
See Accompanying Notes to Financial Statements.
17
NOTES TO FINANCIAL STATEMENTS
May 31, 2005 (Unaudited)
NOTE 1. ORGANIZATION
Colonial InterMarket Income Trust I (the "Trust") is a Massachusetts business
trust registered under the Investment Company Act of 1940, as amended, as a
non-diversified, closed-end management investment company.
INVESTMENT GOAL
The Trust seeks to maximize current income by diversifying investments primarily
in U.S. and foreign government and lower-rated corporate debt securities.
TRUST SHARES
The Trust 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 Trust in the preparation of its financial statements.
SECURITY VALUATION
Debt securities generally are valued by pricing services approved by the Trust's
Board of Trustees, based upon market transactions for normal, institutional-size
trading units of similar securities. The services may use various pricing
techniques which take into account appropriate factors such as yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other data, as
well as broker quotes. Debt securities for which quotations are readily
available are valued at an over-the-counter or exchange bid quotation. Certain
debt securities, which tend to be more thinly traded and of lesser quality, are
priced based on fundamental analysis of the financial condition of the issuer
and the estimated value of any collateral. Valuations developed through pricing
techniques may vary from the actual amounts realized upon sale of the
securities, and the potential variation may be greater for those securities
valued using fundamental analysis.
Equity securities are valued at the last sale price on the principal exchange on
which they trade, except for securities traded on the NASDAQ, which are valued
at the NASDAQ official close price. Unlisted securities or listed securities for
which there were no sales during the day are valued at the closing bid price on
such exchanges or over-the-counter markets.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Forward currency exchange contracts are valued at the prevailing forward
exchange rate of the underlying currencies.
Foreign securities are generally valued at the last sale price on the foreign
exchange or market on which they trade. If any foreign share prices are not
readily available as a result of limited share activity, the securities are
valued at the last sale price of the local shares in the principal market in
which such securities are normally traded.
Generally, trading in foreign securities is substantially completed each day at
various times prior to the close of the New York Stock Exchange ("NYSE"). The
values of such securities used in computing the net asset value of the Trust's
shares are determined as of such times. Foreign currency exchange rates are
generally determined at 2:00 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
Trust's net asset value. If events materially affecting the values of such
foreign securities occur and it is determined that market quotations are not
reliable, then these foreign securities will be valued at their fair value using
procedures approved by the Board of Trustees.
Investments for which market quotations are not readily available, or have
quotations which management believes are not appropriate, are valued at fair
value under procedures approved by the Board of Trustees.
SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the specific identification method for both
financial statement and federal income tax purposes.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
Forward foreign currency exchange contracts are agreements to exchange one
currency for another at a future date at a specified price. These contracts are
used to minimize the exposure to foreign exchange rate fluctuations during the
period between trade and settlement date of the contracts. The Trust may utilize
forward foreign currency exchange contracts in connection with the settlement of
purchases and sales of securities. The Trust 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 Trust'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
18
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2005 (Unaudited)
transactions. The use of forward currency contracts does not eliminate
fluctuations in the prices of the Trust's portfolio securities. While the
maximum potential loss from such contracts is the aggregate face value in U.S.
dollars at the time the contract was opened, exposure is typically limited to
the change in value of the contract (in U.S. dollars) over the period it remains
open. The Trust could also be exposed to risk if the counterparties of the
contracts are unable to fulfill the terms of the contracts.
REPURCHASE AGREEMENTS
The Trust may engage in repurchase agreement transactions with institutions that
the Trust's investment advisor has determined are creditworthy. The Trust,
through its custodian, receives delivery of underlying securities
collateralizing a repurchase agreement. Collateral is at least equal, at all
times, to the value of the repurchase obligation including interest. A
repurchase agreement transaction involves certain risks in the event of default
or insolvency of the counterparty. These risks include possible delays or
restrictions upon the Trust's ability to dispose of the underlying securities
and a possible decline in the value of the underlying securities during the
period while the Trust seeks to assert its rights.
MORTGAGE DOLLAR ROLL TRANSACTIONS
The Trust may enter into mortgage dollar roll transactions. A mortgage dollar
roll transaction involves a sale by the Trust of investments from its portfolio
with an agreement by the Trust to repurchase similar, but not identical,
securities at an agreed upon price and date. During the period between the sale
and repurchase, the Trust will not be entitled to accrue interest and receive
principal payment on the securities sold. Mortgage dollar roll transactions
involve the risk that the market value of the securities sold by the Trust may
decline below the repurchase price of those securities. In the event the buyer
of the securities under a mortgage dollar roll transaction files for bankruptcy
or becomes insolvent, the Trust's use of proceeds of the transaction may be
restricted pending a determination by or with respect to the other party. The
Trust identifies U.S. Government securities or other liquid high grade debt
obligations in an amount equal to the mortgage dollar roll transactions.
DELAYED DELIVERY SECURITIES
The Trust 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 Trust
to subsequently invest at less advantageous prices. The Trust identifies cash or
liquid portfolio securities in an amount equal to the delayed delivery
commitment.
INCOME RECOGNITION
Interest income is recorded on the accrual basis and includes accretion of
discounts, amortization of premiums and paydown gains and losses. Fee income
attributable to mortgage dollar roll transactions is recorded on the accrual
basis over the term of the transaction. 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 Trust becomes aware of such, net of
non-reclaimable tax withholdings. The value of additional securities received as
an income payment is recorded as income and as the cost basis of such
securities.
FOREIGN CURRENCY TRANSACTIONS
The values of all assets and liabilities quoted in foreign currencies are
translated into U.S. dollars at that day's exchange rates. Net realized and
unrealized gains (losses) on foreign currency transactions include gains
(losses) arising from the fluctuation in exchange rates between trade and
settlement dates on securities transactions, gains (losses) arising from the
disposition of foreign currency and currency gains (losses) between the accrual
and payment dates on dividends, interest income and foreign withholding taxes.
For financial statement purposes, the Trust 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 Trust 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 Trust 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 Trust 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 the ex-date. Net realized capital
gains, if any, are distributed at least annually.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended November 30, 2004
was as follows:
NOVEMBER 30, 2004
----------------
Distributions paid from:
Ordinary Income $7,694,190
Long-Term Capital Gains --
Unrealized appreciation and depreciation at May 31, 2005, based on cost of
investments for federal income tax purposes, and excluding any unrealized
appreciation and depreciation
19
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2005 (Unaudited)
from changes in the value of other assets and liabilities resulting from changes
in exchange rates, was:
Unrealized appreciation $ 5,321,490
Unrealized depreciation (3,712,339)
-----------
Net unrealized appreciation $ 1,609,151
===========
The following capital loss carryforwards, determined as of November 30, 2004,
may be available to reduce taxable income arising from future net realized gains
on investments, if any, to the extent permitted by the Internal Revenue Code:
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
--------------- ---------------
2007 $ 49,924
2008 5,857,135
2009 5,692,253
2010 7,020,484
-------------
$18,619,796
=============
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISORY FEE
Columbia Management Advisors, Inc. ("Columbia"), an indirect wholly owned
subsidiary of Bank of America Corporation ("BOA"), is the investment advisor to
the Trust and provides administrative and other services to the Trust. Columbia
receives a monthly investment advisory fee at the annual rate of 0.75% of the
Trust's average weekly net assets.
PRICING AND BOOKKEEPING FEES
Columbia is responsible for providing pricing and bookkeeping services to the
Trust under a pricing and bookkeeping agreement. Under a separate agreement (the
"Outsourcing Agreement"), Columbia has delegated those functions to State Street
Corporation ("State Street"). As a result, Columbia pays the total fees received
to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Trust, Columbia receives
from the Trust an annual flat fee of $10,000 paid monthly, and in any month that
the Trust's average weekly net assets exceed $50 million, an additional monthly
fee. The additional fee rate is calculated by taking into account the fees
payable to State Street under the Outsourcing Agreement. This rate is applied to
the average weekly net assets of the Trust for that month. The Trust also pays
additional fees for pricing services based on the number of securities held by
the Trust. For the six months ended May 31, 2005, the Trust's annualized
effective pricing and bookkeeping fee rate, inclusive of out-of-pocket expenses,
was 0.075%.
CUSTODY CREDITS
The Trust 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 Trust 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
With the exception of one officer, all officers of the Trust are employees of
Columbia or its affiliates and receive no compensation from the Trust. The Board
of Trustees appointed a Chief Compliance Officer to the Trust in accordance with
federal securities regulations. The Trust, along with other affiliated funds,
will pay its pro-rata share of the expenses associated with the Office of the
Chief Compliance Officer. The Trust's fee for the Office of the Chief Compliance
Officer will not exceed $15,000 per year.
The Trust'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 Trust's assets. OTHER Columbia provides certain services to the Trust
related to Sarbanes-Oxley compliance. For the six months ended May 31, 2005, the
Trust paid $803 to Columbia for such services. This amount is included in "Other
expenses" on the Statement of Operations.
NOTE 5. PORTFOLIO INFORMATION
For the six months ended May 31, 2005, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $23,311,569 and
$24,809,827, respectively of which $5,003,903 and $3,338,715, respectively, were
U.S. Government securities.
NOTE 6. 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.
Investments in emerging market countries are subject to additional risk. The
risk of foreign investments is typically increased in less developed countries.
These countries are also more likely to experience high levels of inflation,
deflation or currency devaluation which could hurt their economies and
securities markets.
20
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2005 (Unaudited)
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 Trust may focus its investments in certain industries, subjecting it to
greater risk than a trust that is more diversified.
ISSUER FOCUS
As a non-diversified trust, the Trust may invest a greater percentage of its
total assets in the securities of fewer issuers than a diversified trust. The
Trust may, therefore, have a greater risk of loss from a few issuers than a
similar trust that invests more broadly.
LEGAL PROCEEDINGS
On February 9, 2005, Columbia and Columbia Funds Distributor, Inc.
(collectively, the "Columbia Group") entered into an Assurance of Discontinuance
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the Securities and
Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG
Settlement are referred to collectively as the "Settlements". The Settlements
contain substantially the same terms and conditions as outlined in the
agreements in principle which Columbia Group entered into with the SEC and NYAG
in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other
things, to: pay $70 million in disgorgement 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 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, Banc of America Capital Management, LLC and BACAP Distributors,
LLC to reduce certain Columbia Funds, Nations Funds and other mutual funds
management fees collectively by $32 million per year for five years, for a
projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the
$140 million in settlement amounts described above will be distributed in
accordance with a distribution plan to be developed by an independent
distribution consultant, who is acceptable to the SEC staff and the Columbia
Funds' independent trustees. The distribution plan must be based on a
methodology developed in consultation with the Columbia Group and the Trust's
independent trustees and not unacceptable to the staff of the SEC. At this time,
the distribution plan is still under development. As such, any gain to the Trust
or its shareholders can not currently be determined.
As a result of these matters or any adverse publicity or other developments
resulting from them, the market price of fund shares could decline. A copy of
the SEC Order is available on the SEC website at http://www.sec.gov. A copy of
the NYAG Settlement is available as part of the Bank of America Corporation Form
8-K filing on February 10, 2005.
In connection with 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
Corporation and its affiliated entities. More than 300 cases including those
filed against entities unaffiliated with the funds, their Boards, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities have been transferred to the Federal
District Court in Maryland and consolidated in a multi-district proceeding (the
"MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the
MDL have been consolidated under the lead case. The fund derivative plaintiffs
allege that the funds were harmed by market timing and late trading activity and
seek, among other things, removal of the trustees of the Columbia Funds, removal
of the Columbia Group, disgorgement of all management fees and monetary damages.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts
state court alleging that the conduct, including market timing, entitles Class B
shareholders in certain Columbia funds to an exemption from contingent deferred
sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC Lawsuit has
been removed to federal court in Massachusetts and the federal Judicial Panel
has conditionally ordered its transfer to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this
litigation on any fund, if any, can not currently be made.
On January 11, 2005, a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the
Columbia Funds and Columbia. The lawsuit alleges that defendants violated common
law duties to fund
21
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2005 (Unaudited)
shareholders as well as sections of the Investment Company Act of 1940, by
failing to ensure that the Trust and other affiliated funds participated in
securities class action settlements for which the funds were eligible.
Specifically, plaintiffs allege that defendants failed to submit proof of claims
in connection with settlements of securities class action lawsuits filed against
companies in which the funds held positions.
In 2004, certain 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 purpose. 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.
The Trust and the other defendants to these actions, including Columbia and
various of its affiliates, certain other mutual funds advised by Columbia and
its affiliates, and various directors of such funds, have denied these
allegations and are contesting the plaintiffs' claims. These proceedings are
ongoing, however, based on currently available information, Columbia believes
that these lawsuits are without merit, that the likelihood they will have a
material adverse impact on any fund is remote, and that the lawsuits are not
likely to materially affect its ability to provide investment management
services to its clients, including the Trust.
22
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as follows:
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, ---------------------------------------------------------------
2005 2004 2003 2002 2001 2000
- -------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.79 $ 9.47 $ 8.60 $ 8.91 $ 9.14 $ 10.26
----------- ----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.28(a) 0.56(a) 0.59(a) 0.63(a)(b) 0.78(a) 0.90(c)
Net realized and unrealized gain (loss) on
investments and foreign currency (0.20) 0.46 0.93 (0.23)(b) (0.17) (1.13)
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment Operations 0.08 1.02 1.52 0.40 0.61 (0.23)
----------- ----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.42) (0.70) (0.65) (0.64) (0.75) (0.87)
Return of capital -- -- -- (0.07) (0.09) (0.02)
----------- ----------- ----------- ----------- ----------- -----------
Total Distributions Declared to Shareholders (0.42) (0.70) (0.65) (0.71) (0.84) (0.89)
----------- ----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.45 $ 9.79 $ 9.47 $ 8.60 $ 8.91 $ 9.14
----------- ----------- ----------- ----------- ----------- -----------
Market price per share $ 8.76 $ 8.68 $ 8.96 $ 7.98 $ 8.19 $ 7.94
----------- ----------- ----------- ----------- ----------- -----------
Total return - based on market value (d) 5.70%(e) 4.91% 20.93% 6.00% 13.47% 6.08%
----------- ----------- ----------- ----------- ----------- -----------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (f) 1.01%(g) 1.01% 1.04% 1.00% 1.04% 0.94%
Net investment income (f) 5.79%(g) 5.91% 6.44% 7.24%(b) 8.52% 9.08%
Portfolio turnover rate 23%(e) 73% 64% 83% 65% 53%
Net assets, end of period (000's) $ 104,054 $ 107,797 $ 104,238 $ 94,665 $ 98,088 $ 100,649
(a)Per share data was calculated using average shares outstanding during the
period.
(b)Effective December 1, 2001, the Trust adopted the provision of the AICPA
Audit and Accounting Guide for Investment Companies and began amortizing
premium and accreting market discount on all debt securities. The effect of
this change for the year ended November 30, 2002 was to decrease the net
investment income per share by $0.04, decrease the net realized and
unrealized loss per share by $0.04 and decrease the ratio of net investment
income to average net assets from 7.79% to 7.24%. Per share data and ratios
for periods prior to November 30, 2002 have not been restated to reflect this
change in presentation.
(c)The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(d)Total return at market value assuming all distributions reinvested at prices
calculated in accordance with the Dividend Reinvestment Plan.
(e)Not annualized.
(f)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(g)Annualized.
23
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period is as follows:
YEAR ENDED NOVEMBER 30,
--------------------------------------------------------
1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.13 $ 11.45 $ 11.52 $ 11.27 $ 10.41
----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.91 0.94 0.91 1.00 0.99
Net realized and unrealized gain (loss) on
investments and foreign currency (0.88) (0.25) --(a) 0.24 0.82
----------- ----------- ----------- ----------- -----------
Total from Investment Operations 0.03 0.69 0.91 1.24 1.81
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.90) (0.93) (0.98) (0.99) (0.95)
In excess of net investment income -- --(a) -- -- --
From net realized gains -- (0.03) -- -- --
In excess of net realized gains -- (0.05) -- -- --
----------- ----------- ----------- ----------- -----------
Total Distributions Declared to Shareholders (0.90) (1.01) (0.98) (0.99) (0.95)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.26 $ 11.13 $ 11.45 $ 11.52 $ 11.27
----------- ----------- ----------- ----------- -----------
Market price per share $ 8.31 $ 10.56 $ 10.94 $ 10.63 $ 10.75
----------- ----------- ----------- ----------- -----------
Total return - based on market value (b) (13.51)% 6.26% 12.62% 8.30% 17.67%
----------- ----------- ----------- ----------- -----------
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (c) 1.00% 0.93% 0.96% 0.95% 0.97%
Net investment income (c) 8.51% 8.22% 8.06% 8.33% 8.73%
Portfolio turnover rate 52% 99% 156% 117% 77%
Net assets, end of period (000's) $ 113,005 $ 122,490 $ 126,011 $ 126,835 $ 124,097
(a)Rounds to less than $0.01 per share.
(b)Total return at market value assuming all distributions reinvested at prices
calculated in accordance with the Dividend Reinvestment Plan.
(c)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
24
SHAREHOLDER MEETING RESULTS
RESULTS OF THE ANNUAL MEETING OF SHAREHOLDERS
On May 25, 2005, the Annual Meeting of Shareholders of the Trust was held to
conduct a vote for or against the approval of the following Item listed on the
Trust's Proxy Statement for said Meeting. On March 10, 2005, the record date for
the Meeting, the Trust had 11,009,000 shares outstanding. The votes cast were as
follows:
PROPOSAL 1.
ELECTION FOR TRUSTEES: FOR WITHHELD
- -------------------------------------------------------------------------------
Richard W. Lowry 9,857,127 117,399
William E. Mayer 9,817,930 156,596
Thomas E. Stitzel 9,858,527 115,999
Anne-Lee Verville 9,857,527 116,999
25
DIVIDEND REINVESTMENT PLAN
COLONIAL INTERMARKET INCOME TRUST I
Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"), all
shareholders whose shares are registered in their own names will have all
distributions reinvested automatically in additional shares of the Trust by
Computershare (the "Plan Agent") unless a shareholder elects to receive cash.
Shareholders whose shares are held in the name of a broker or nominee will have
distributions reinvested automatically by the broker or nominee in additional
shares under the Plan, unless the service is not provided by the broker or the
nominee or the shareholder elects to receive distributions in cash. If the
service is not available, such distributions will be paid in cash. Shareholders
whose shares are held in the name of a broker or nominee should contact the
broker or nominee for details. All distributions to shareholders who elect not
to participate in the Plan will be paid by check mailed directly to the
shareholder of record on the record date therefore by the Plan Agent as the
dividend disbursing agent.
Non-participants in the Plan will receive distributions in cash. Distributions
payable to participants in the Plan will be applied by the Plan Agent, acting as
agent for Plan participants, to the purchase of shares of the Trust. Such shares
will be purchased by the Plan Agent at the then current market price of such
shares in the open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts.
Participants in the Plan may withdraw from the Plan upon written notice to the
Plan Agent. When a participant withdraws from the Plan or upon termination of
the Plan as provided below, certificates for whole shares credited to the
participant's account under the Plan will be issued and a cash payment will be
made for any fraction of a share credited to such account. A shareholder's
notice of election to withdraw from the Plan must be received by the Plan Agent
before the record date for a dividend in order to be given effect with respect
to that dividend.
In the case of shareholders such as banks, brokers or nominees holding shares
for others who are the beneficial owners of those shares, the Plan Agent will
administer the Plan on the basis of the number of shares certified from time to
time by the shareholder of record as representing the total amount registered in
such shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There is no charge to Plan participants for reinvesting distributions. The Plan
Agent's fees for the handling of the reinvestment of distributions will be paid
by the Trust. Each participant in the Plan will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open market
purchases in connection with the reinvestment of distributions. Purchase orders
from the participants in the Plan may be combined with those of other
participants and the price paid by any particular participant may be the average
of the price paid on various orders executed on behalf of groups of participants
in the Plan.
The automatic reinvestment of distributions will not relieve participants of any
income tax that may be payable on such dividends or distributions.
The Plan may be amended or terminated on 30 days' written notice to the Plan
participants. All correspondence concerning the Plan should be directed to
Computershare by mail at P.O. Box 403011, Providence, RI 02940-3011, or by phone
at 1-800-426-5523.
26
BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENT
Section 15(c) of the Investment Company Act of 1940 (the "1940 Act") requires
that the Board of Trustees/Directors (the "Board") of the Columbia Funds (the
"Funds"), including a majority of the Trustees and Directors (collectively, the
"Trustees") who are not "interested persons" of the Trusts, as defined in the
1940 Act (the "Independent Trustees"), annually review and approve the terms of
the Funds' investment advisory agreements. At a meeting held on October 13,
2004, the Board reviewed and approved the management contracts ("Advisory
Agreement") with Columbia Management Advisors, Inc. ("CMA") for the Fund.
At meetings held on September 23, 2004 and October 12, 2004, the Advisory Fees
and Expenses Committee (the "Committee") of the Board considered the factors
described below relating to the selection of CMA and the approval of the
Advisory Agreement. At a meeting held on October 13, 2004, the Board, including
the Independent Trustees (who were advised by their independent legal counsel),
considered these factors and reached the conclusions described below.
NATURE, EXTENT AND QUALITY OF SERVICES
The Board considered information regarding the nature, extent and quality of
services that CMA provides to the Fund under the Advisory Agreement. CMA
provided the most recent investment adviser registration form ("Form ADV") and
code of ethics for CMA to the Board. The Board reviewed information on the
status of Securities and Exchange Commission ("SEC") and New York Attorney
General ("NYAG") proceedings against CMA and certain of its affiliates,
including the agreement in principle entered into with the SEC and the NYAG on
March 15, 2004 to settle civil complaints filed by the SEC and the NYAG relating
to trading activity in mutual fund shares.1
The Board evaluated the ability of CMA, including its resources, reputation and
other attributes, to attract and retain highly qualified research, advisory and
supervisory investment professionals. The Board considered information regarding
CMA's compensation program for its personnel involved in the management of the
Fund.
Based on these considerations and other factors, including those referenced
below, the Board concluded that they were generally satisfied with the nature,
extent and quality of the investment advisory services provided to the Fund by
CMA.
FUND PERFORMANCE AND EXPENSES
CMA provided the Board with relative performance and expense information for the
Fund in a report prepared by Lipper Inc. ("Lipper") an independent provider of
investment company data. The Board considered the total return performance
information, which included the ranking of the Fund within a performance
universe made up of funds with the same Lipper investment classification and
objective (the "Performance Universe") by total return for one-year, three-year,
five-year, ten-year or life of fund periods, as applicable. They also considered
the Fund's performance in comparison to the performance results of a group (the
"Performance Peer Group") of funds selected by Lipper based on similarities in
fund type (e.g. open-end), investment classification and objective, asset size,
load type and 12b-1/service fees and other expense features, and to the
performance results of the Fund's benchmark index. The Board reviewed a
description of Lipper's methodology for selecting the mutual funds in the Fund's
Performance Peer Group and Performance Universe.
The Board considered statistical information regarding the Fund's total expenses
and certain components thereof, including management fees (both actual
management fees based on expenses for advisory and administrative fees including
any reductions for fee waivers and expense reimbursements as well as contractual
management fees that are computed for a hypothetical level of assets), actual
non-management expenses, and fee waivers/caps and expense reimbursements. They
also considered comparisons of these expenses to the expense information for
funds within a group (the "Expense Peer Group") selected by Lipper based on
similarities in fund type (e.g. open-end), investment classification and
objective, asset size, load type and 12b-1/service fees and other expense
features (but which, unlike the Performance Peer Group,may include funds with
several different investment classifications and objectives) and an expense
universe ("Expense Universe") selected by Lipper based on the criteria for
determining the Expense Peer Group other than asset size. The expense
information in the Lipper report took into account all existing fee waivers and
expense reimbursements as well as all voluntary advisory fee reductions
applicable to certain Funds that were being proposed by management in order to
reduce the aggregate advisory fees received from mutual funds advised by CMA and
Banc of America Capital Management, LLC ("BACAP") by $32 million per year for
five years as contemplated by the agreement in principle with the NYAG.
The Committee also considered the projected impact on expenses of these Funds
resulting from the overall cost reductions that management anticipated would
result from the proposed shift to a common group of service providers for
transfer agency, fund accounting and custody services for mutual funds advised
by Bank of America affiliates.
The Board also considered information in the Lipper report that ranked each Fund
based on (i) each Fund's one-year performance and actual management fees, (ii)
each Fund's one-year performance and total expenses and (iii) each Fund's 3-year
performance and total expenses. Based on these comparisons and expense and
performance rankings of the Fund in the Lipper Report, CMA determined an overall
score for the Fund. The Committee and the Board also considered projected
savings to the Fund that would result from certain modifications in soft dollar
arrangements.
The Committee also considered more detailed information relating to certain
Funds, including the Fund, that were
- -----------------
1 On February 9, 2005, CMA and its affiliate, Columbia Funds Distributor,
Inc., entered into settlement agreements with the SEC and the NYAG that
contain substantially the terms outlined in the agreements in principle.
27
BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENT (CONTINUED)
highlighted for additional review based upon the fact that they ranked poorly in
terms of overall expense or management fees, maintained poor performance or
demonstrated a combination of below average to poor performance while
maintaining below average or poor expense rankings. At its September 23, 2004
meeting, the Committee discussed these Funds with management and in executive
session. The Committee requested additional information from management
regarding the cause(s) of the below-average relative performance of these Funds,
any remedial actions management recommended to improve performance and the
general standards for review of portfolio manager performance. At its October
12, 2004 meeting, the Committee considered additional information provided by
management regarding these Funds. The Fund was identified for further review
based on poor relative rankings for total expenses and actual management fees.
Management noted that the Fund's second quintile yield ranking as of August 31,
2004 within its Lipper performance group. Management also noted the Fund's other
expenses included in the total expense ratio were expected to improve due to
projected lower fund accounting expenses. The Board also considered management's
proposal to merge or liquidate some of these Funds. Based on these
considerations and other factors, the Board concluded that the overall
performance and expense results supported by the approval of the Advisory
Agreements for each Fund.
INVESTMENT ADVISORY FEE RATES
The Board reviewed and considered the proposed contractual investment advisory
fee rates (the "Advisory Agreement Rates") payable by the Funds to CMA for
investment advisory services. In addition, the Board reviewed and considered the
existing and proposed fee waiver and reimbursement arrangements applicable to
the Advisory Agreement Rates and considered the Advisory Agreement Rates after
taking the fee waivers and reimbursements into account (the "Net Advisory
Rates"). At previous meetings, the Committee had separately considered
management's proposal to reduce annual investment advisory fees for certain
Funds under the NYAG agreement in principle and the impact of these reductions
on each affected Fund. Additionally, the Board considered information comparing
the Advisory Agreement Rates and Net Advisory Rates (both on a stand-alone basis
and on a combined basis with the Funds' administration fee rates) with those of
the other funds in the Expense Peer Group. The Board concluded that the Advisory
Agreement Rates and Net Advisory Rates represented reasonable compensation to
CMA, in light of the nature, extent and quality of the services provided to the
Funds, the fees paid and expenses borne by comparable funds and the costs that
CMA incurs in providing these services to the Funds.
PROFITABILITY
The Board considered a detailed profitability analysis of CMA based on 2003
financial statements, adjusted to take into account advisory fee reductions
implemented in November 2003 and proposed reductions under the NYAG proposed
settlement. The Board concluded that, in light of the costs of providing
investment management and other services to the Funds, the profits and other
ancillary benefits that CMA and its affiliates received for providing these
services to the Funds were not unreasonable.
ECONOMIES OF SCALE
In evaluating potential economies of scale, the Board considered CMA's proposal
to implement a standardized breakpoint schedule for combined advisory and
administrative fees for the majority of the funds of the same general asset type
within the Columbia Funds complex (other than index and closed-end funds). The
Board noted that the standardization of the breakpoints would not result in a
fee increase for any Fund. The Board concluded that any actual or potential
economies of scale are, or will be, shared fairly with Fund shareholders,
including most particularly through Advisory Agreement Rate breakpoints at
current and reasonably foreseeable asset levels.
INFORMATION ABOUT SERVICES TO OTHER CLIENTS
In evaluating the proposed fee reductions under the NYAG agreement in principle,
the Board considered information regarding the advisory fee rates charged by
BACAP for the Nations Funds. Members of the Committee and the Board had also
separately reviewed advisory fee rates for variable insurance product funds
advised by CMA. This information assisted the Board in assessing the
reasonableness of fees paid under the Advisory Agreements in light of the
nature, extent and quality of services provided under those agreements.
OTHER BENEFITS TO CMA
The Board considered information regarding potential "fall-out"
or ancillary benefits received by CMA and its affiliates as a result of their
relationship with the Funds. These benefits could include benefits directly
attributable to the relationship of CMA with the Funds (such as soft dollar
credits) and benefits potentially derived from an increase in the business of
CMA as a result of their relationship with the Funds (such as the ability to
market to shareholders other financial products offered by CMA and its
affiliates).
OTHER FACTORS AND BROADER REVIEW
The Board reviews detailed materials provided by CMA annually as part of the
approval process under Section 15(c) of the 1940 Act. The Board also regularly
reviews and assesses the quality of the services that the Funds receive
throughout the year. In this regard, the Board reviews information provided by
CMA at their regular meetings, including, among other things, a detailed
portfolio review, and detailed fund performance reports. In addition, the Board
interviews the heads of each investment area at each regular meeting of the
Board and selected portfolio managers of the Funds at various times throughout
the year. After considering the above-described factors and based on the
deliberations and their evaluation of the information provided to them, the
Board concluded that re-approval of the Advisory Agreements for each of the
Funds was in the best interest of the Funds and their shareholders. Accordingly,
the Board unanimously approved the Advisory Agreements.
28
TRANSFER AGENT
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IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial InterMarket Income Trust I is:
Computershare
P.O. Box 43010
Providence, RI 02940-3010
The trust 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
trust.
Financial advisors who want additional information about the trust may speak to
a representative at 800-426-3750.
A description of the trust'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 trust voted proxies relating
to portfolio securities during the 12-month period ended June 30, 2004 is
available from the SEC's website. Information regarding how the trust voted
proxies relating to portfolio securities is also available at
www.columbiamanagement.com .
The trust 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 trust's Form N-Q
is available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
Annual Certifications - As required, on June 13, 2005, the trust submitted to
the New York Stock Exchange ("NYSE") the annual certification of the trust's
Chief Executive Officer certifying that he is not aware of any violation of the
NYSE's Corporate Governance listing standards. The trust also has included the
certifications of the trust's Chief Executive Officer and Chief Financial
Officer required by Section 302 of the Sarbanes-Oxley Act of 2002 as exhibits to
the trust's Form N-CSR filed with the Securities and Exchange Commission for the
annual period.
This report has been prepared for shareholders of Colonial InterMarket Income
Trust I.
COLONIAL INTERMARKET INCOME TRUST I SEMIANNUAL REPORT
SHC-44/87166-0605 (07/05) 05/6516
ITEM 2. CODE OF ETHICS.
Not applicable at this time.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable at this time.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable at this time.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
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.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Registrant Purchases of Equity Securities*
(a) (b) (c) (d)
Total Number of Maximum Number of
Shares Purchased as Shares that May Yet
Period Total Number Average Price Part of Publicly Be Purchased Under
of Shares Purchased Paid Per Share Announced Plans or Programs the Plans or Programs
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12/01/04 through 12/31/04 6,013 $8.94 6,013 N/A
01/01/05 through 01/31/05 15,954 $9.26 15,954 N/A
02/01/05 through 02/28/05 5,935 $9.04 5,935 N/A
03/01/05 through 03/31/05 5,950 $8.99 5,950 N/A
04/01/05 through 04/30/05 6,011 $8.74 6,011 N/A
05/01/05 through 05/31/05 6,002 $8.75 6,002 N/A
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Total 45,865 $9.02 45,865 N/A
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* 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 the 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 were no changes in the registrant's internal control over
financial reporting that occurred during the registrant's second
fiscal quarter of the period covered by
this report that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial
reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR: Not
applicable at this time.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(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 InterMarket Income Trust I
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By (Signature and Title) /S/ Christopher L. Wilson
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Christopher L. Wilson, President
Date July 28, 2005
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Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title) /S/ Christopher L. Wilson
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Christopher L. Wilson, President
Date July 28, 2005
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By (Signature and Title) /S/ J. Kevin Connaughton
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J. Kevin Connaughton, Treasurer
Date July 28, 2005
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