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: November 30, 2005
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Date of reporting period: November 30, 2005
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Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss. 3507.
ITEM 1. REPORTS TO STOCKHOLDERS.
[GRAPHIC OMMITED]
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COLONIAL INTERMARKET INCOME TRUST I ANNUAL REPORT
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NOVEMBER 30, 2005
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Not FDIC | May Lose Value
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Insured | No Bank Guarantee
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PRESIDENT'S MESSAGE
The views expressed in the President's Letter and Portfolio Managers' Report
reflect 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 Fund
are based on numerous factors, may not be relied on as an indication of trading
intent on behalf of any particular Colonial Fund. References to specific company
securities should not be construed as a recommendation or investment advice.
Dear Shareholder:
The US financial markets withstood a host of unfavorable factors to deliver a
year of positive investment returns. Record energy prices took a significant
bite out of household budgets and raised operating costs for industry. Higher
short-term interest rates made borrowing more expensive. Two catastrophic
hurricanes exacted an enormous personal toll from Americans living in the Gulf
Coast: the storms claimed lives, disrupted energy flows and dealt a sharp blow
to local job markets. Yet, the US economy moved ahead at a healthy pace during
the 12-month period that began December 1, 2004 and ended November 30, 2005.
FIXED INCOME MARKETS DELIVERED MODEST GAINS
In this environment, the US fixed income markets delivered positive but modest
returns. Short-term interest rates rose steadily as the Federal Reserve Board
raised a key intrabank lending rate. Longer-term rates remained low during most
of the year. However, the yield on the 10-year US Treasury note, a bellwether
for the bond market edged up to 4.5% by the end of this reporting period. In
this environment, most domestic bond market sectors delivered low single-digit
returns. Generally, high-yield certain bonds continued to perform well despite a
setback in the spring, when bonds of certain high profile companies were
downgraded. However, municipal bonds generally performed better than high yield
bonds--even before accounting for their tax-exempt status--as state revenues
increased and budgets stabilized.
In the pages that follow, your trust's manager discusses key factors that
influenced performance. We urge you to read this report carefully and discuss
any questions you might have with your financial advisor.
As always, we thank you for choosing Colonial Funds.
Sincerely,
/s/ Christopher L. Wilson
Christopher L. Wilson
President, Columbia Funds
Christopher L. Wilson is Head of Mutual Funds for Columbia Management and
President of Columbia 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 service operation, including treasury,
investment accounting and shareholder and broker services.
Chris joined Bank of America in August 2004.
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PORTFOLIO MANAGERS' REPORT
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For the 12-month period ended November 30, 2005, Colonial InterMarket Income
Trust I generated a total return of 1.30%, based on its market price. The trust
returned 2.13%, based on investment at net asset value. That was below the
average return of the Lipper General Bond Funds Category, which was 3.01% 1.
This shortfall in performance relative to the Lipper Category was chiefly caused
by the trust's exposure to foreign currencies and lower quality high-yield
securities.
THE HIGH-YIELD MARKET FACED UNEXPECTED PRESSURE
The economy performed well over the past year and corporate default rates
remained low, factors that are generally favorable for high-yield bonds.
However, a steady rise in short-term interest rates, coupled with the
well-publicized financial difficulties at Ford (which was not in the portfolio)
and General Motors (0.1% of total investments) 2, caused investors to pull back
from the lowest quality segment of the high-yield sector. We believe that the
trust had more exposure than its peer group to these securities, which detracted
from relative performance.
Many segments of the high-yield market, such as wireless, energy and other
utility sectors, delivered solid results. The trust did well from its exposure
to the wireless telecom industry as it experienced continued growth and
consolidation. Also, energy and utility companies prospered amid the prevailing
high prices for oil and gas, and the trust added to its positions in Chesapeake
Energy, El Paso and Williams Companies (0.2%, 1.0% and 0.4% of total
investments, respectively). Separately, although the trust had almost no
exposure to the automotive sector at the outset of the period, we initiated
positions in both Ford Motor Credit and GM when these companies were downgraded
from investment-grade status. Although both companies will likely face
significant operational challenges in the coming years, they also have
considerable liquidity and potentially freestanding finance subsidiaries that
provide credit support. Altogether, the trust's exposure to high-yield bonds
declined from 40% of total assets at the beginning of the period to 36.5% at
period end.
By contrast, the trust's high-yield holdings in paper and packaging issues were
hurt by the competitive implications of a strong Canadian dollar together with
the industry's inability to pass on higher costs. Cable television bonds were
weak performers because of intensifying competition and lower subscriber
valuations, while the airline sector suffered from a combination of labor
difficulties and high fuel prices. The trust sold its positions in Delta Air
Lines and Northwest Airlines during the period, but sustained losses in the
process.
MIXED PERFORMANCE FROM OVERSEAS MARKETS
Emerging market debt was the trust's best performing sector for the period.
Emerging market bonds gained ground, as steady global growth and high commodity
prices improved the capacity of lesser-developed countries to reduce their debt
levels. Brazil, Colombia, Mexico and Russia were profitable areas of investment
for the trust. The trust's emerging market position averaged between 14% and 16%
of assets throughout the year.
(Sidebar)
PRICE PER SHARE
AS OF 11/30/05 ($)
Market price 8.09
- ----------------------------------------
Net asset value 9.25
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1-YEAR TOTAL RETURN AS
OF 11/30/05 (%)*
Market price 1.30
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Net asset value 2.13
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Lipper General Bond Funds
Category average 3.01
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All results shown assume reinvestment
of distributions.
DISTRIBUTIONS
DECLARED PER SHARE
12/01/04 - 11/30/05 ($)
0.74
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SECURITIES BREAKDOWN
AS OF 11/30/05 (%)
Corporate fixed-income
bonds & notes 38.7
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Foreign government
obligations 30.5
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U.S. government agencies &
obligations 20.9
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Cash & equivalents 6.4
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Mortgage-backed
securities 2.2
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Asset-backed securities 0.7
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Convertible bonds 0.4
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Municipal bond (taxable) 0.2
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Common stock 0.0
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Warrants 0.0
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TOP 5 COUNTRIES
AS OF 11/30/05 (%)
USA 36.5
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Russia 3.2
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Germany 3.0
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Mexico 2.9
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Canada 2.8
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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 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 November 30, 2005, and are subject to change.
* See page 23 for the long term returns based on market price.
| 1
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PORTFOLIO MANAGERS' REPORT (CONTINUED)
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Within developed foreign markets, the trust's investments in non-US
dollar-denominated bonds were hurt by the strength of the US dollar. While some
of the trust's currency exposure is hedged, we maintained exposure to the euro,
the British pound, the Swedish krona and the Norwegian krone, each of which lost
value relative to the dollar during the period. In the first part of the period
we reduced the trust's currency exposure to between 14% and 15% of the trust and
maintained this level through the end of the period, down from 20% a year ago.
LOOKING AHEAD
Although the US dollar strengthened against most currencies in 2005, we believe
that it has the potential to resume its downtrend in 2006. We also believe that
the Federal Reserve Board's cycle of short-term interest rate increases is
likely to end in the first half of 2006, and the economic focus could shift from
rising interest rates and economic growth to a moderation in economic growth
combined with America's large fiscal, current and trade deficits. Mindful of
these factors as well as a maturing global economic cycle, we have become more
defensive within the credit-sensitive sectors of the trust and have positioned
the trust more cautiously heading into the new year. We expect to maintain a
neutral view on high-yield bonds, despite the historically low level of default
rates. While the credit fundamentals and the supply/demand factors remain
favorable in many emerging market countries, political uncertainty caused by the
coming year's heavy election cycle could lead to volatility.
/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 the trust 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 the trust 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. When interest rates go up, bond prices typically drop, and vice versa.
Investing in high-yield or "junk" bonds offers the potential for higher income
than investments in investment-grade bonds, but also has a higher degree of
risk. Changes in economic conditions or other circumstances may adversely affect
a high-yield bond issuer's ability to make timely principal and interest
payments. Rising interest rates tend to lower the value of all bonds.
International investing involves special risks, including foreign taxation,
currency fluctuations, 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.
2 |
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INVESTMENT PORTFOLIO
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November 30, 2005
GOVERNMENT AGENCIES
& OBLIGATIONS - 51.9% PAR ($) VALUE ($)
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FOREIGN GOVERNMENT OBLIGATIONS - 30.8%
Aries Vermoegensverwaltungs GmbH
7.750% 10/25/09(a) EUR 250,000 338,963
Australian Government Bond
7.500% 09/15/09 AUD 630,000 499,678
Corp. Andina de Fomento
6.375% 06/18/09 EUR 340,000 440,199
European Investment Bank
7.625% 12/07/07 GBP 295,000 540,377
Federal Republic of Brazil
5.188% 04/15/24(b) USD 665,000 630,088
11.500% 04/02/09 EUR 325,000 460,653
14.500% 10/15/09 USD 810,000 1,032,750
Federal Republic of Germany
4.250% 07/04/14 EUR 970,000 1,216,343
5.000% 07/04/12 375,000 487,441
6.000% 07/04/07 800,000 989,864
Government of Canada
5.250% 06/01/13 CAD 530,000 491,176
10.000% 06/01/08 1,800,000 1,769,451
Government of New Zealand
6.000% 11/15/11 NZD 1,340,000 943,187
6.500% 04/15/13 985,000 717,630
Kingdom of Norway
5.500% 05/15/09 NOK 7,180,000 1,134,325
6.000% 05/16/11 2,300,000 379,234
Kingdom of Spain
5.500% 07/30/17 EUR 820,000 1,145,273
Kingdom of Sweden
5.000% 01/28/09 SEK 9,065,000 1,195,225
6.750% 05/05/14 6,210,000 960,372
Province of Quebec
6.000% 10/01/12 CAD 380,000 359,783
6.000% 10/01/29 260,000 259,191
Republic of Bulgaria
8.250% 01/15/15 USD 575,000 689,137
Republic of Colombia
8.125% 05/21/24 240,000 252,840
9.750% 04/09/11 368,427 411,902
11.375% 01/31/08 EUR 245,000 332,617
Republic of France
4.000% 04/25/14 630,000 776,461
4.750% 10/25/12 1,230,000 1,581,350
Republic of Panama
8.875% 09/30/27 USD 560,000 655,200
Republic of Peru
7.500% 10/14/14 EUR 210,000 285,967
9.875% 02/06/15 USD 450,000 555,750
Republic of Poland
5.750% 03/24/10 PLN 1,575,000 483,403
8.500% 05/12/07 1,115,000 352,941
Republic of South Africa
5.250% 05/16/13 EUR 425,000 540,309
6.500% 06/02/14 USD 520,000 562,250
PAR ($) VALUE ($)
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Republic of Venezuela
9.250% 09/15/27 577,000 664,416
Russian Federation
5.000% 03/31/30
(7.500% 03/31/07)(c) 525,000 588,105
11.000% 07/24/18 500,000 737,500
12.750% 06/24/28 595,000 1,083,495
United Kingdom Treasury
8.000% 06/07/21 GBP 190,000 468,705
9.000% 07/12/11 415,000 885,744
United Mexican States
7.500% 03/08/10 EUR 385,000 521,776
7.500% 04/08/33 USD 870,000 1,019,205
8.125% 12/30/19 100,000 122,900
11.375% 09/15/16 625,000 923,437
Victoria Treasury Corp.
7.500% 08/15/08 AUD 1,105,000 857,517
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FOREIGN GOVERNMENT
OBLIGATIONS TOTAL 31,344,130
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U.S. GOVERNMENT AGENCIES & OBLIGATIONS - 21.1%
Federal Farm Credit Bank
5.000% 08/25/10 USD 900,000 891,855
U.S. Treasury Bonds
7.500% 11/15/24 865,000 1,152,376
8.875% 02/15/19 872,000 1,223,355
10.375% 11/15/12 1,520,000 1,687,556
10.625% 08/15/15 2,780,000 4,084,646
12.500% 08/15/14 6,354,000 8,080,750
U.S. Treasury Notes
5.000% 02/15/11 1,245,000 1,277,973
7.000% 07/15/06 3,050,000 3,097,299
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U.S. GOVERNMENT AGENCIES
& OBLIGATIONS TOTAL 21,495,810
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TOTAL GOVERNMENT AGENCIES & OBLIGATIONS
(cost of $52,574,187) 52,839,940
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CORPORATE FIXED-INCOME
BONDS & NOTES - 39.0%
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BASIC MATERIALS - 4.0%
CHEMICALS - 1.9%
AGRICULTURAL CHEMICALS - 0.6%
IMC Global, Inc.
10.875% 08/01/13 140,000 162,750
Terra Capital, Inc.
12.875% 10/15/08 165,000 192,225
UAP Holding Corp.
(d) 07/15/12
(10.750% 01/15/08) 125,000 107,500
United Agri Products
8.250% 12/15/11 123,000 128,535
--------------
591,010
--------------
See Accompanying Notes to Financial Statements. | 3
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INVESTMENT PORTFOLIO (CONTINUED)
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November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
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BASIC MATERIALS (CONTINUED)
CHEMICALS (CONTINUED)
CHEMICALS - DIVERSIFIED - 1.1%
BCP Crystal US Holdings Corp.
9.625% 06/15/14 82,000 91,020
EquiStar Chemicals LP
10.625% 05/01/11 120,000 132,900
Huntsman International LLC
7.375% 01/01/15(a) 95,000 91,675
Huntsman LLC
11.500% 07/15/12 145,000 163,850
Innophos Investments Holdings, Inc.
PIK,
12.340% 02/15/15(a)(b) 81,809 77,477
Lyondell Chemical Co.
9.625% 05/01/07 145,000 152,250
Nell AF SARL
8.375% 08/15/15(a) 75,000 73,500
8.375% 08/15/15(a) EUR 50,000 58,950
NOVA Chemicals Corp.
6.500% 01/15/12 USD 175,000 171,062
7.561% 11/15/13(a)(b) 105,000 107,100
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1,119,784
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CHEMICALS - SPECIALTY - 0.2%
Rhodia SA
8.875% 06/01/11 185,000 187,775
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187,775
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Chemicals Total 1,898,569
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FOREST PRODUCTS & PAPER - 1.4%
FORESTRY - 0.1%
Millar Western Forest Products Ltd.
7.750% 11/15/13 60,000 46,200
Tembec Industries, Inc.
8.500% 02/01/11 130,000 78,650
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124,850
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PAPER & RELATED PRODUCTS - 1.3%
Abitibi-Consolidated, Inc.
8.375% 04/01/15 105,000 101,850
Boise Cascade LLC
7.025% 10/15/12(b) 145,000 142,100
7.125% 10/15/14 80,000 73,600
Buckeye Technologies, Inc.
8.500% 10/01/13 95,000 95,000
Caraustar Industries, Inc.
9.875% 04/01/11 105,000 105,263
Georgia-Pacific Corp.
8.000% 01/15/24 280,000 270,900
Neenah Paper, Inc.
7.375% 11/15/14 60,000 53,400
Newark Group, Inc.
9.750% 03/15/14 190,000 167,200
PAR ($) VALUE ($)
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NewPage Corp.
10.000% 05/01/12 85,000 83,088
Norske Skog
7.375% 03/01/14 125,000 113,437
8.625% 06/15/11 60,000 58,650
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1,264,488
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Forest Products & Paper Total 1,389,338
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IRON / STEEL - 0.2%
STEEL - PRODUCERS - 0.1%
Steel Dynamics, Inc.
9.500% 03/15/09 70,000 73,763
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73,763
--------------
STEEL - SPECIALTY - 0.1%
UCAR Finance, Inc.
10.250% 02/15/12 165,000 174,487
--------------
174,487
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Iron / Steel Total 248,250
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METALS & MINING - 0.5%
MINING SERVICES - 0.0%
Hudson Bay Mining & Smelting Co., Ltd.
9.625% 01/15/12 45,000 47,813
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47,813
--------------
NON - FERROUS METALS - 0.5%
Codelco, Inc.
5.500% 10/15/13 500,000 503,700
--------------
503,700
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Metals & Mining Total 551,513
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BASIC MATERIALS TOTAL 4,087,670
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COMMUNICATIONS - 7.6%
MEDIA - 3.0%
BROADCAST SERVICES / PROGRAMS - 0.1%
Fisher Communications, Inc.
8.625% 09/15/14 75,000 79,125
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79,125
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CABLE TV - 1.4%
Atlantic Broadband Finance LLC
9.375% 01/15/14 155,000 139,887
Charter Communications
Holdings II LLC
10.250% 09/15/10 175,000 175,000
Charter Communications
Holdings LLC
9.920% 04/01/14(a) 480,000 300,000
CSC Holdings, Inc.
7.000% 04/15/12(a) 85,000 80,963
7.625% 04/01/11 270,000 269,325
EchoStar DBS Corp.
6.625% 10/01/14 230,000 221,950
4 | See Accompanying Notes to Financial Statements.
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INVESTMENT PORTFOLIO (CONTINUED)
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November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
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COMMUNICATIONS (CONTINUED)
MEDIA (CONTINUED)
CABLE TV - (CONTINUED)
Insight Midwest LP
9.750% 10/01/09 70,000 72,275
Pegasus Satellite Communications, Inc.
11.250% 01/15/10(a)(e) 180,000 18,000
Telenet Group Holding NV
(d) 06/15/14
(11.500% 12/15/08)(a) 137,000 109,429
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1,386,829
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MULTIMEDIA - 0.5%
Advanstar Communications, Inc.
15.000% 10/15/11 125,000 130,938
Haights Cross Operating Co.
11.750% 08/15/11 70,000 75,950
Lamar Media Corp.
6.625% 08/15/15(a) 125,000 125,625
Quebecor Media, Inc.
11.125% 07/15/11 135,000 146,137
--------------
478,650
--------------
PUBLISHING - NEWSPAPERS - 0.1%
Hollinger, Inc.
11.875% 03/01/11(a) 54,000 54,000
12.875% 03/01/11(a) 80,000 84,400
--------------
138,400
--------------
PUBLISHING - PERIODICALS - 0.5%
Dex Media West LLC
9.875% 08/15/13 117,000 130,309
Dex Media, Inc.
(d) 11/15/13
(9.000% 11/15/08) 105,000 82,950
PriMedia, Inc.
8.875% 05/15/11 215,000 206,937
WDAC Subsidiary Corp.
8.375% 12/01/14(a) 125,000 120,000
--------------
540,196
--------------
TELEVISION - 0.4%
LIN Television Corp.
6.500% 05/15/13(a) 35,000 33,688
Paxson Communications Corp.
(d) 01/15/09
(12.250% 01/15/06) 150,000 154,687
10.750% 07/15/08 40,000 41,100
Sinclair Broadcast Group, Inc.
8.750% 12/15/11 180,000 190,350
--------------
419,825
--------------
Media Total 3,043,025
--------------
PAR ($) VALUE ($)
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TELECOMMUNICATION SERVICES - 4.6%
CELLULAR TELECOMMUNICATIONS - 1.8%
American Cellular Corp.
10.000% 08/01/11 125,000 135,625
Digicel Ltd.
9.250% 09/01/12(a) 100,000 103,000
Dobson Cellular Systems, Inc.
8.375% 11/01/11 155,000 164,300
Horizon PCS, Inc.
11.375% 07/15/12 80,000 92,200
iPCS Escrow Co.
11.500% 05/01/12 70,000 80,675
Nextel Communications, Inc.
7.375% 08/01/15 255,000 267,990
Nextel Partners, Inc.
8.125% 07/01/11 205,000 219,863
Rogers Cantel, Inc.
9.750% 06/01/16 155,000 185,225
Rogers Wireless, Inc.
8.000% 12/15/12 95,000 100,700
Rural Cellular Corp.
8.250% 03/15/12 90,000 94,275
9.750% 01/15/10 30,000 30,075
10.041% 11/01/12(a)(b) 115,000 114,425
US Unwired, Inc.
10.000% 06/15/12 215,000 244,562
--------------
1,832,915
--------------
SATELLITE TELECOMMUNICATIONS - 0.6%
Inmarsat Finance II PLC
(d) 11/15/12
(10.375% 11/15/08) 175,000 142,406
Intelsat Bermuda Ltd.
8.250% 01/15/13(a) 245,000 244,387
PanAmSat Corp.
9.000% 08/15/14 92,000 96,715
Zeus Special Subsidiary Ltd.
(d) 02/01/15
(9.250% 02/01/10)(a) 135,000 88,088
--------------
571,596
--------------
TELECOMMUNICATION EQUIPMENT - 0.1%
Lucent Technologies, Inc.
6.450% 03/15/29 135,000 116,100
--------------
116,100
--------------
TELECOMMUNICATION SERVICES - 0.3%
Syniverse Technologies, Inc.
7.750% 08/15/13(a) 100,000 101,625
Time Warner Telecom Holdings, Inc.
9.250% 02/15/14 60,000 61,650
Time Warner Telecom, Inc.
10.125% 02/01/11 145,000 151,887
--------------
315,162
--------------
See Accompanying Notes to Financial Statements. | 5
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INVESTMENT PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
COMMUNICATIONS (CONTINUED)
TELECOMMUNICATION SERVICES (CONTINUED)
TELEPHONE - INTEGRATED - 1.5%
Axtel SA de CV
11.000% 12/15/13 105,000 117,338
Cincinnati Bell, Inc.
7.000% 02/15/15 240,000 231,000
Citizens Communications Co.
9.000% 08/15/31 205,000 203,463
Qwest Capital Funding, Inc.
6.875% 07/15/28 275,000 248,187
Qwest Communications
International, Inc.
7.500% 02/15/14(a) 175,000 177,625
Qwest Corp.
7.500% 06/15/23 195,000 192,563
8.875% 03/15/12 255,000 287,512
US LEC Corp.
12.716% 10/01/09(b) 85,000 90,950
--------------
1,548,638
--------------
WIRELESS EQUIPMENT - 0.3%
American Towers, Inc.
7.250% 12/01/11 120,000 125,100
SBA Telecommunications, Inc.
(d) 12/15/11
(9.750% 12/15/07) 183,000 167,445
--------------
292,545
--------------
Telecommunication Services Total 4,676,956
--------------
COMMUNICATIONS TOTAL 7,719,981
--------------
- -------------------------------------------------------------------------------
CONSUMER CYCLICAL - 6.7%
AIRLINES - 0.2%
AIRLINES - 0.2%
Continental Airlines, Inc.
7.568% 12/01/06 180,000 171,000
--------------
171,000
--------------
Airlines Total 171,000
--------------
APPAREL - 0.6%
APPAREL MANUFACTURERS - 0.6%
Broder Brothers Co.
11.250% 10/15/10 125,000 115,000
Levi Strauss & Co.
9.750% 01/15/15 335,000 346,725
Phillips-Van Heusen Corp.
7.250% 02/15/11 65,000 65,975
8.125% 05/01/13 75,000 78,187
--------------
605,887
--------------
Apparel Total 605,887
--------------
PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
AUTO MANUFACTURERS - 0.2%
AUTO - CARS / LIGHT TRUCKS - 0.1%
General Motors Corp.
8.375% 07/15/33 105,000 71,663
--------------
71,663
--------------
AUTO - MEDIUM & HEAVY DUTY TRUCKS - 0.1%
Navistar International Corp.
7.500% 06/15/11 120,000 115,800
--------------
115,800
--------------
Auto Manufacturers Total 187,463
--------------
AUTO PARTS & EQUIPMENT - 0.6%
AUTO / TRUCK PARTS & EQUIPMENT - ORIGINAL - 0.1%
Cooper-Standard Automotive, Inc.
7.000% 12/15/12 35,000 31,675
8.375% 12/15/14 85,000 64,175
--------------
95,850
--------------
AUTO / TRUCK PARTS & EQUIPMENT - REPLACEMENT - 0.2%
Commercial Vehicle Group, Inc.
8.000% 07/01/13(a) 125,000 123,750
Rexnord Corp.
10.125% 12/15/12 90,000 97,313
--------------
221,063
--------------
RUBBER - TIRES - 0.3%
Goodyear Tire & Rubber Co.
9.000% 07/01/15(a) 285,000 278,587
--------------
278,587
--------------
Auto Parts & Equipment Total 595,500
--------------
DISTRIBUTION / WHOLESALE - 0.1%
DISTRIBUTION / WHOLESALE - 0.1%
Buhrmann US, Inc.
7.875% 03/01/15 65,000 64,513
--------------
64,513
--------------
Distribution / Wholesale Total 64,513
--------------
ENTERTAINMENT - 0.6%
CASINO SERVICES - 0.1%
Tunica-Biloxi Gaming Authority
9.000% 11/15/15(a) 95,000 94,762
--------------
94,762
--------------
GAMBLING (NON - HOTEL) - 0.1%
Global Cash Access LLC
8.750% 03/15/12 104,000 110,500
--------------
110,500
--------------
6 | See Accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
CONSUMER CYCLICAL (CONTINUED)
ENTERTAINMENT (CONTINUED)
MUSIC - 0.3%
Steinway Musical Instruments, Inc.
8.750% 04/15/11 115,000 120,175
Warner Music Group
7.375% 04/15/14 160,000 156,000
--------------
276,175
--------------
RESORTS / THEME PARKS - 0.1%
Six Flags, Inc.
9.625% 06/01/14 175,000 173,250
--------------
173,250
--------------
Entertainment Total 654,687
--------------
HOME BUILDERS - 0.7%
BUILDING - RESIDENTIAL / COMMERCIAL - 0.7%
D.R. Horton, Inc.
9.750% 09/15/10 400,000 450,000
K. Hovnanian Enterprises, Inc.
8.875% 04/01/12 25,000 25,875
10.500% 10/01/07 125,000 134,375
Standard Pacific Corp.
7.000% 08/15/15 5,000 4,550
9.250% 04/15/12 125,000 127,500
--------------
742,300
--------------
Home Builders Total 742,300
--------------
HOME FURNISHINGS - 0.1%
HOME FURNISHINGS - 0.1%
WII Components, Inc.
10.000% 02/15/12 95,000 91,675
--------------
91,675
--------------
Home Furnishings Total 91,675
--------------
LEISURE TIME - 0.3%
LEISURE & RECREATIONAL PRODUCTS - 0.1%
Bombardier Recreational Products, Inc.
8.375% 12/15/13 15,000 14,963
K2, Inc.
7.375% 07/01/14 80,000 78,800
--------------
93,763
--------------
RECREATIONAL CENTERS - 0.2%
Equinox Holdings, Inc.
9.000% 12/15/09 100,000 102,500
Town Sports International, Inc.
(d) 02/01/14
(11.000% 02/01/09) 185,000 123,025
--------------
225,525
--------------
Leisure Time Total 319,288
--------------
PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
LODGING - 2.5%
CASINO HOTELS - 2.5%
CCM Merger, Inc.
8.000% 08/01/13(a) 40,000 38,700
Chukchansi Economic Development
Authority
8.000% 11/15/13(a) 125,000 125,625
Circus & Eldorado/Silver Legacy
Capital Corp.
10.125% 03/01/12 145,000 153,338
Eldorado Casino Shreveport
10.000% 08/01/12 310,628 291,990
Greektown Holdings LLC
10.750% 12/01/13(a)(f) 120,000 120,750
Hard Rock Hotel, Inc.
8.875% 06/01/13 205,000 218,837
Inn of the Mountain Gods
Resort & Casino
12.000% 11/15/10 140,000 146,300
Kerzner International Ltd.
6.750% 10/01/15(a) 190,000 183,825
MGM Mirage
6.750% 09/01/12 195,000 195,975
8.500% 09/15/10 45,000 48,938
Mohegan Tribal Gaming Authority
6.125% 02/15/13 85,000 83,725
Penn National Gaming, Inc.
6.750% 03/01/15 225,000 219,375
Pinnacle Entertainment, Inc.
8.750% 10/01/13 210,000 220,500
San Pasqual Casino
8.000% 09/15/13(a) 105,000 104,475
Seneca Gaming Corp.
7.250% 05/01/12 120,000 121,500
Station Casinos, Inc.
6.000% 04/01/12 155,000 154,612
Wynn Las Vegas LLC
6.625% 12/01/14 180,000 173,250
--------------
2,601,715
--------------
Lodging Total 2,601,715
--------------
RETAIL - 0.7%
RETAIL - AUTOMOBILES - 0.1%
Asbury Automotive Group, Inc.
8.000% 03/15/14 130,000 122,200
--------------
122,200
--------------
RETAIL - DRUG STORES - 0.1%
Rite Aid Corp.
7.500% 01/15/15 45,000 41,625
9.250% 06/01/13 30,000 27,300
--------------
68,925
--------------
RETAIL - HOME FURNISHINGS - 0.1%
Tempur-Pedic, Inc.
10.250% 08/15/10 155,000 166,625
--------------
166,625
--------------
See Accompanying Notes to Financial Statements. | 7
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
CONSUMER CYCLICAL (CONTINUED)
RETAIL (CONTINUED)
RETAIL - PROPANE DISTRIBUTORS - 0.2%
Ferrellgas Partners LP
8.750% 06/15/12 120,000 117,300
Suburban Propane Partners LP
6.875% 12/15/13 70,000 64,575
--------------
181,875
--------------
RETAIL - RESTAURANTS - 0.1%
Landry's Restaurants, Inc.
7.500% 12/15/14 120,000 112,200
--------------
112,200
--------------
RETAIL - VIDEO RENTAL - 0.1%
Movie Gallery, Inc.
11.000% 05/01/12 100,000 75,000
--------------
75,000
--------------
Retail Total 726,825
--------------
TEXTILES - 0.1%
TEXTILE - PRODUCTS - 0.1%
INVISTA
9.250% 05/01/12(a) 90,000 96,525
--------------
96,525
--------------
Textiles Total 96,525
--------------
CONSUMER CYCLICAL TOTAL 6,857,378
--------------
- -------------------------------------------------------------------------------
CONSUMER NON-CYCLICAL - 5.4%
AGRICULTURE - 0.1%
TOBACCO - 0.1%
Alliance One International, Inc.
11.000% 05/15/12(a) 95,000 82,413
--------------
82,413
--------------
Agriculture Total 82,413
--------------
BEVERAGES - 0.1%
BEVERAGES - WINE / SPIRITS - 0.1%
Constellation Brands, Inc.
8.125% 01/15/12 100,000 104,000
--------------
104,000
--------------
Beverages Total 104,000
--------------
BIOTECHNOLOGY - 0.2%
MEDICAL - BIOMEDICAL / GENE - 0.2%
Bio-Rad Laboratories, Inc.
7.500% 08/15/13 150,000 157,875
--------------
157,875
--------------
Biotechnology Total 157,875
--------------
PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
COMMERCIAL SERVICES - 1.5%
COMMERCIAL SERVICES - 0.2%
Iron Mountain, Inc.
7.750% 01/15/15 150,000 150,750
Mac-Gray Corp.
7.625% 08/15/15(a) 35,000 35,263
--------------
186,013
--------------
COMMERCIAL SERVICES - FINANCE - 0.2%
Dollar Financial Group, Inc.
9.750% 11/15/11 195,000 200,362
--------------
200,362
--------------
CONSULTING SERVICES - 0.1%
FTI Consulting, Inc.
7.625% 06/15/13(a) 80,000 82,200
--------------
82,200
--------------
FUNERAL SERVICES & RELATED ITEMS - 0.2%
Service Corp. International
7.700% 04/15/09 180,000 189,900
--------------
189,900
--------------
PRINTING - COMMERCIAL - 0.2%
Sheridan Group
10.250% 08/15/11 105,000 109,200
Vertis, Inc.
13.500% 12/07/09(a) 130,000 102,700
--------------
211,900
--------------
PRIVATE CORRECTIONS - 0.3%
Corrections Corp. of America
6.250% 03/15/13 180,000 180,000
GEO Group, Inc.
8.250% 07/15/13 165,000 161,700
--------------
341,700
--------------
RENTAL AUTO / EQUIPMENT - 0.3%
Ashtead Holdings PLC
8.625% 08/01/15(a) 165,000 169,950
NationsRent, Inc.
9.500% 10/15/10 120,000 131,100
--------------
301,050
--------------
Commercial Services Total 1,513,125
--------------
COSMETICS / PERSONAL CARE - 0.2%
COSMETICS & TOILETRIES - 0.2%
DEL Laboratories, Inc.
8.000% 02/01/12 145,000 116,725
Elizabeth Arden, Inc.
7.750% 01/15/14 130,000 130,000
--------------
246,725
--------------
Cosmetics / Personal Care Total 246,725
--------------
8 | See Accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
CONSUMER NON-CYCLICAL (CONTINUED)
FOOD - 0.7%
FOOD - CONFECTIONERY - 0.1%
Merisant Co.
9.500% 07/15/13 95,000 61,750
Merisant Worldwide, Inc.
(d) 05/15/14
(12.250% 11/15/08) 305,000 44,225
--------------
105,975
--------------
FOOD - MISCELLANEOUS / DIVERSIFIED - 0.4%
Dole Food Co., Inc.
8.625% 05/01/09 141,000 145,230
Pinnacle Foods Holding Corp.
8.250% 12/01/13 180,000 174,375
Reddy Ice Holdings, Inc.
(d) 11/01/12
(10.500% 11/01/08) 95,000 74,100
--------------
393,705
--------------
FOOD - RETAIL - 0.2%
Stater Brothers Holdings, Inc.
8.125% 06/15/12 165,000 163,762
--------------
163,762
--------------
Food Total 663,442
--------------
HEALTHCARE SERVICES - 1.4%
DIALYSIS CENTERS - 0.1%
DaVita, Inc.
7.250% 03/15/15 145,000 147,538
--------------
147,538
--------------
MEDICAL - HMO - 0.2%
Coventry Health Care, Inc.
8.125% 02/15/12 145,000 155,512
--------------
155,512
--------------
MEDICAL - HOSPITALS - 0.3%
HCA, Inc.
7.875% 02/01/11 90,000 96,248
Tenet Healthcare Corp.
9.875% 07/01/14 260,000 261,950
--------------
358,198
--------------
MEDICAL - OUTPATIENT / HOME MEDICAL - 0.1%
Select Medical Corp.
7.625% 02/01/15 85,000 80,750
--------------
80,750
--------------
MRI / MEDICAL DIAGNOSTIC IMAGING - 0.5%
InSight Health Services Corp.
9.875% 11/01/11 125,000 99,688
MedQuest, Inc.
11.875% 08/15/12 180,000 180,450
PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
MQ Associates, Inc.
(d) 08/15/12
(12.250% 08/15/08) 325,000 186,062
--------------
466,200
--------------
PHYSICIAN PRACTICE MANAGEMENT - 0.2%
US Oncology Holdings, Inc.
9.264% 03/15/15(b) 55,000 54,037
US Oncology, Inc.
9.000% 08/15/12 160,000 170,000
--------------
224,037
--------------
Healthcare Services Total 1,432,235
--------------
HOUSEHOLD PRODUCTS / WARES - 0.4%
CONSUMER PRODUCTS - MISCELLANEOUS - 0.3%
Amscan Holdings, Inc.
8.750% 05/01/14 125,000 93,750
Playtex Products, Inc.
9.375% 06/01/11 140,000 147,000
Visant Corp.
7.625% 10/01/12 105,000 103,950
--------------
344,700
--------------
OFFICE SUPPLIES & FORMS - 0.1%
ACCO Brands Corp.
7.625% 08/15/15 110,000 102,850
--------------
102,850
--------------
Household Products / Wares Total 447,550
--------------
PHARMACEUTICALS - 0.8%
MEDICAL - DRUGS - 0.3%
Elan Finance PLC
7.750% 11/15/11 215,000 197,262
Warner Chilcott Corp.
8.750% 02/01/15(a) 105,000 95,550
--------------
292,812
--------------
MEDICAL - GENERIC DRUGS - 0.1%
Mylan Laboratories, Inc.
6.375% 08/15/15(a) 170,000 169,150
--------------
169,150
--------------
MEDICAL - WHOLESALE DRUG DISTRIBUTION - 0.3%
AmerisourceBergen Corp.
5.875% 09/15/15(a) 130,000 130,325
Nycomed A/S
PIK,
11.750% 09/15/13(a) EUR 121,531 144,701
--------------
275,026
--------------
See Accompanying Notes to Financial Statements. | 9
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
CONSUMER NON-CYCLICAL (CONTINUED)
PHARMACEUTICALS (CONTINUED)
VITAMINS & NUTRITION PRODUCTS - 0.1%
NBTY, Inc.
7.125% 10/01/15(a) 105,000 101,063
--------------
101,063
--------------
Pharmaceuticals Total 838,051
--------------
CONSUMER NON-CYCLICAL TOTAL 5,485,416
--------------
- -------------------------------------------------------------------------------
ENERGY - 5.2%
COAL - 0.2%
COAL - 0.2%
Arch Western Finance LLC
6.750% 07/01/13 165,000 166,650
--------------
166,650
--------------
Coal Total 166,650
--------------
OIL & GAS - 2.3%
OIL & GAS DRILLING - 0.1%
Pride International, Inc.
7.375% 07/15/14 75,000 80,625
--------------
80,625
--------------
OIL COMPANIES - EXPLORATION & PRODUCTION - 2.0%
Chesapeake Energy Corp.
6.375% 06/15/15 90,000 87,300
7.500% 06/15/14 150,000 157,875
Compton Petroleum Corp.
7.625% 12/01/13(a) 125,000 125,313
Delta Petroleum Corp.
7.000% 04/01/15 75,000 70,125
Forest Oil Corp.
8.000% 12/15/11 90,000 99,000
Magnum Hunter Resources, Inc.
9.600% 03/15/12 97,000 104,760
PEMEX Finance Ltd.
9.150% 11/15/18 205,000 255,555
10.610% 08/15/17 135,000 175,415
PEMEX Project Funding Master Trust
5.010% 12/03/12(a)(b)(f) 450,000 449,725
Pogo Producing Co.
6.625% 03/15/15 95,000 92,625
Ras Laffan LNG III
5.838% 09/30/27(a) 250,000 244,965
Whiting Petroleum Corp.
7.250% 05/01/12 215,000 216,075
--------------
2,078,733
--------------
PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
OIL REFINING & MARKETING - 0.2%
Premcor Refining Group, Inc.
7.500% 06/15/15 105,000 111,038
Tesoro Corp.
6.625% 11/01/15(a) 130,000 129,675
--------------
240,713
--------------
Oil & Gas Total 2,400,071
--------------
OIL & GAS SERVICES - 1.1%
OIL - FIELD SERVICES - 1.1%
Gazprom
9.625% 03/01/13 400,000 479,640
Gazprom International SA
7.201% 02/01/20 360,000 381,636
Hornbeck Offshore Services, Inc.
6.125% 12/01/14(a) 150,000 145,500
Newpark Resources, Inc.
8.625% 12/15/07 120,000 120,000
--------------
1,126,776
--------------
Oil & Gas Services Total 1,126,776
--------------
PIPELINES - 1.6%
PIPELINES - 1.6%
Coastal Corp.
7.625% 09/01/08 100,000 100,875
7.750% 06/15/10 190,000 191,900
Colorado Interstate Gas Co.
6.800% 11/15/15(a) 185,000 185,462
Northwest Pipeline Corp.
8.125% 03/01/10 55,000 58,438
Pacific Energy Partners LP
6.250% 09/15/15(a) 165,000 162,113
Sonat, Inc.
7.625% 07/15/11 425,000 423,937
Southern Natural Gas Co.
8.875% 03/15/10 95,000 101,650
Williams Companies, Inc.
6.375% 10/01/10(a) 375,000 371,250
8.125% 03/15/12 70,000 75,600
--------------
1,671,225
--------------
Pipelines Total 1,671,225
--------------
ENERGY TOTAL 5,364,722
--------------
- -------------------------------------------------------------------------------
FINANCIALS - 1.7%
DIVERSIFIED FINANCIAL SERVICES - 1.5%
FINANCE - AUTO LOANS - 0.6%
Ford Motor Credit Co.
7.375% 02/01/11 145,000 132,337
General Motors Acceptance Corp.
8.000% 11/01/31 450,000 445,932
--------------
578,269
--------------
10 | See Accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
FINANCIALS (CONTINUED)
DIVERSIFIED FINANCIAL SERVICES (CONTINUED)
FINANCE - CONSUMER LOANS - 0.4%
SLM Corp.
6.500% 06/15/10 NZD 615,000 421,986
--------------
421,986
--------------
FINANCE - INVESTMENT BANKER / BROKER - 0.5%
E*Trade Financial Corp.
8.000% 06/15/11 USD 140,000 142,800
LaBranche & Co., Inc.
11.000% 05/15/12 315,000 346,500
--------------
489,300
--------------
Diversified Financial Services Total 1,489,555
--------------
REAL ESTATE INVESTMENT TRUSTS - 0.1%
REITS - MORTGAGE - 0.1%
Thornburg Mortgage, Inc.
8.000% 05/15/13 100,000 97,500
--------------
97,500
--------------
Real Estate Investment Trusts Total 97,500
--------------
SAVINGS & LOANS - 0.1%
SAVINGS & LOANS / THRIFTS - WESTERN US - 0.1%
Western Financial Bank
9.625% 05/15/12 100,000 112,000
--------------
112,000
--------------
Savings & Loans Total 112,000
--------------
FINANCIALS TOTAL 1,699,055
--------------
- -------------------------------------------------------------------------------
INDUSTRIALS - 6.2%
AEROSPACE & DEFENSE - 0.7%
AEROSPACE / DEFENSE - EQUIPMENT - 0.6%
Argo-Tech Corp.
9.250% 06/01/11 110,000 113,025
BE Aerospace, Inc.
8.500% 10/01/10 155,000 165,462
Sequa Corp.
8.875% 04/01/08 70,000 72,800
9.000% 08/01/09 60,000 63,150
Standard Aero Holdings, Inc.
8.250% 09/01/14 100,000 83,000
TransDigm, Inc.
8.375% 07/15/11 110,000 113,850
--------------
611,287
--------------
ELECTRONICS - MILITARY - 0.1%
L-3 Communications Corp.
6.375% 10/15/15(a) 150,000 148,500
--------------
148,500
--------------
Aerospace & Defense Total 759,787
--------------
PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
BUILDING MATERIALS - 0.3%
BUILDING & CONSTRUCTION PRODUCTS - MISCELLANEOUS - 0.2%
Nortek, Inc.
8.500% 09/01/14 80,000 76,800
NTK Holdings, Inc.
(d) 03/01/14
(10.750% 09/01/09) 125,000 75,625
--------------
152,425
--------------
BUILDING PRODUCTS - CEMENT / AGGREGATION - 0.1%
RMCC Acquisition Co.
9.500% 11/01/12(a) 100,000 100,500
--------------
100,500
--------------
Building Materials Total 252,925
--------------
ELECTRICAL COMPONENTS & EQUIPMENT - 0.1%
WIRE & CABLE PRODUCTS - 0.1%
Coleman Cable, Inc.
9.875% 10/01/12 115,000 98,900
--------------
98,900
--------------
Electrical Components & Equipment Total 98,900
--------------
ELECTRONICS - 0.2%
ELECTRONIC COMPONENTS - MISCELLANEOUS - 0.2%
Flextronics International Ltd.
6.250% 11/15/14 140,000 137,200
Sanmina-SCI Corp.
6.750% 03/01/13 85,000 81,175
--------------
218,375
--------------
Electronics Total 218,375
--------------
ENGINEERING & CONSTRUCTION - 0.2%
BUILDING & CONSTRUCTION - MISCELLANEOUS - 0.2%
J. Ray McDermott SA
11.500% 12/15/13(a) 180,000 205,875
--------------
205,875
--------------
Engineering & Construction Total 205,875
--------------
ENVIRONMENTAL CONTROL - 0.6%
NON - HAZARDOUS WASTE DISPOSAL - 0.5%
Allied Waste
North America, Inc.
7.250% 03/15/15 80,000 80,100
7.875% 04/15/13 325,000 338,000
Waste Services, Inc.
9.500% 04/15/14 120,000 119,400
--------------
537,500
--------------
RECYCLING - 0.1%
Aleris International, Inc.
9.000% 11/15/14 50,000 51,125
--------------
51,125
--------------
Environmental Control Total 588,625
--------------
See Accompanying Notes to Financial Statements. | 11
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
INDUSTRIALS (CONTINUED)
HAND / MACHINE TOOLS - 0.1%
MACHINE TOOLS & RELATED PRODUCTS - 0.1%
Newcor, Inc.
6.000% 01/31/13
(7.000% 01/31/08)(c)(g) 165,817 102,807
--------------
102,807
--------------
Hand / Machine Tools Total 102,807
--------------
MACHINERY - DIVERSIFIED - 0.3%
MACHINERY - GENERAL INDUSTRY - 0.1%
Douglas Dynamics LLC
7.750% 01/15/12(a) 130,000 125,450
--------------
125,450
--------------
MACHINERY - MATERIAL HANDLING - 0.2%
Columbus McKinnon Corp.
8.875% 11/01/13(a) 185,000 192,400
--------------
192,400
--------------
Machinery - Diversified Total 317,850
--------------
METAL FABRICATE / HARDWARE - 0.5%
METAL PROCESSORS & FABRICATION - 0.3%
Mueller Group, Inc.
10.000% 05/01/12 135,000 141,750
Mueller Holdings, Inc.
(d) 04/15/14
(14.750% 04/15/09) 115,000 83,950
TriMas Corp.
9.875% 06/15/12 145,000 119,625
--------------
345,325
--------------
METAL PRODUCTS - FASTENERS - 0.2%
FastenTech, Inc.
11.500% 05/01/11 155,000 152,675
--------------
152,675
--------------
Metal Fabricate / Hardware Total 498,000
--------------
MISCELLANEOUS MANUFACTURING - 0.8%
DIVERSIFIED MANUFACTURING OPERATORS - 0.7%
Bombardier, Inc.
6.300% 05/01/14(a) 275,000 239,250
J.B. Poindexter & Co.
8.750% 03/15/14 140,000 122,500
Koppers Industries, Inc.
9.875% 10/15/13 140,000 152,600
Trinity Industries, Inc.
6.500% 03/15/14 215,000 210,162
--------------
724,512
--------------
PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
MISCELLANEOUS MANUFACTURING - 0.1%
Samsonite Corp.
8.875% 06/01/11 120,000 122,400
--------------
122,400
--------------
Miscellaneous Manufacturing Total 846,912
--------------
PACKAGING & CONTAINERS - 1.2%
CONTAINERS - METAL / GLASS - 0.7%
Crown Americas LLC
7.750% 11/15/15(a) 155,000 157,325
Owens-Brockway Glass Container, Inc.
6.750% 12/01/14 160,000 153,200
8.250% 05/15/13 245,000 251,738
Owens-Illinois, Inc.
7.500% 05/15/10 90,000 90,225
--------------
652,488
--------------
CONTAINERS - PAPER / PLASTIC - 0.5%
Consolidated Container Co., LLC
(d) 06/15/09
(10.750% 06/15/07) 105,000 88,856
Jefferson Smurfit Corp.
8.250% 10/01/12 110,000 106,975
PIK,
11.500% 10/01/15(a) EUR 170,587 176,908
MDP Acquisitions PLC
9.625% 10/01/12 USD 150,000 147,750
--------------
520,489
--------------
Packaging & Containers Total 1,172,977
--------------
TRANSPORTATION - 1.2%
TRANSPORTATION - MARINE - 0.5%
Ship Finance International Ltd.
8.500% 12/15/13 265,000 254,400
Stena AB
7.500% 11/01/13 155,000 149,187
9.625% 12/01/12 115,000 124,200
--------------
527,787
--------------
TRANSPORTATION - RAILROAD - 0.2%
TFM SA de CV
9.375% 05/01/12(a) 150,000 164,250
12.500% 06/15/12 40,000 45,950
--------------
210,200
--------------
TRANSPORTATION - SERVICES - 0.3%
CHC Helicopter Corp.
7.375% 05/01/14 200,000 201,500
Petroleum Helicopters, Inc.
9.375% 05/01/09 135,000 142,763
--------------
344,263
--------------
12 | See Accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
November 30, 2005
CORPORATE FIXED-INCOME
BONDS & NOTES (CONTINUED) PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
INDUSTRIALS (CONTINUED)
TRANSPORTATION (CONTINUED)
TRANSPORTATION - TRUCKS - 0.2%
QDI LLC
9.000% 11/15/10 160,000 144,000
--------------
144,000
--------------
Transportation Total 1,226,250
--------------
INDUSTRIALS TOTAL 6,289,283
--------------
- -------------------------------------------------------------------------------
TECHNOLOGY - 0.1%
SEMICONDUCTORS - 0.1%
ELECTRONIC COMPONENTS - SEMICONDUCTORS - 0.1%
Amkor Technology, Inc.
9.250% 02/15/08 125,000 120,313
--------------
120,313
--------------
Semiconductors Total 120,313
--------------
TECHNOLOGY TOTAL 120,313
--------------
- -------------------------------------------------------------------------------
UTILITIES - 2.1%
ELECTRIC - 2.1%
ELECTRIC - GENERATION - 0.5%
AES Corp.
9.000% 05/15/15(a) 45,000 49,275
9.500% 06/01/09 182,000 196,105
Edison Mission Energy
7.730% 06/15/09 170,000 177,650
Texas Genco LLC
6.875% 12/15/14(a) 100,000 107,000
--------------
530,030
--------------
ELECTRIC - INTEGRATED - 0.6%
CMS Energy Corp.
8.900% 07/15/08 165,000 176,344
Nevada Power Co.
9.000% 08/15/13 49,000 54,088
10.875% 10/15/09 97,000 106,215
Sierra Pacific Resources
6.750% 08/15/17(a) 135,000 135,169
TECO Energy, Inc.
7.000% 05/01/12 110,000 114,950
--------------
586,766
--------------
INDEPENDENT POWER PRODUCER - 1.0%
Calpine Generating Co., LLC
9.839% 04/01/10(b) 135,000 136,688
Dynegy Holdings, Inc.
6.875% 04/01/11 205,000 199,362
7.125% 05/15/18 20,000 17,900
9.875% 07/15/10(a) 130,000 141,700
MSW Energy Holdings LLC
7.375% 09/01/10 50,000 51,125
8.500% 09/01/10 190,000 201,400
PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
Orion Power Holdings, Inc.
12.000% 05/01/10 220,000 251,900
--------------
1,000,075
--------------
Electric Total 2,116,871
--------------
UTILITIES TOTAL 2,116,871
--------------
TOTAL CORPORATE FIXED-INCOME BONDS & NOTES
(cost of $39,019,212) 39,740,689
--------------
MORTGAGE-BACKED SECURITIES - 2.2%
- -------------------------------------------------------------------------------
Federal National Mortgage Association
TBA,
6.500% 12/13/35(f) 1,895,000 1,940,006
Government National Mortgage
Association
9.000% 04/15/16 246 266
9.000% 05/15/16 30,241 32,742
9.000% 06/15/16 28,441 30,793
9.000% 11/15/16 56,874 61,576
9.000% 12/15/16 21,992 23,811
10.500% 07/15/19 8,161 9,146
10.500% 05/15/20 7,979 8,955
11.000% 01/15/18 3,248 3,566
11.000% 05/15/18 14,562 15,984
11.000% 08/15/18 7,105 7,800
11.000% 01/15/19 52,946 58,162
11.000% 02/15/19 2,820 3,041
11.000% 04/15/19 1,633 1,794
11.000% 05/15/19 8,791 9,657
--------------
TOTAL MORTGAGE-BACKED SECURITIES
(cost of $2,193,737) 2,207,299
--------------
ASSET-BACKED SECURITIES - 0.7%
- -------------------------------------------------------------------------------
Equity One ABS, Inc.
4.205% 04/25/34 425,000 406,376
GMAC Mortgage Corp.
4.865% 09/25/34 350,000 342,451
--------------
TOTAL ASSET-BACKED SECURITIES
(cost of $771,945) 748,827
--------------
CONVERTIBLE BONDS - 0.4%
- -------------------------------------------------------------------------------
COMMUNICATIONS - 0.3%
TELECOMMUNICATION SERVICES - 0.3%
TELECOMMUNICATION EQUIPMENT - 0.3%
Nortel Networks Corp.
4.250% 09/01/08 265,000 248,437
--------------
248,437
--------------
See Accompanying Notes to Financial Statements. | 13
- --------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
- --------------------------------------------------------------------------------
November 30, 2005
CONVERTIBLE BONDS (CONTINUED) PAR ($) VALUE ($)
- -------------------------------------------------------------------------------
COMMUNICATIONS (CONTINUED)
TELECOMMUNICATION SERVICES (CONTINUED)
TELEPHONE - INTEGRATED - 0.0%
Qwest Communications International, Inc.
3.500% 11/15/25 30,000 32,700
--------------
32,700
--------------
Telecommunication Services Total 281,137
--------------
COMMUNICATIONS TOTAL 281,137
--------------
- --------------------------------------------------------------------------------
UTILITIES - 0.1%
ELECTRIC - 0.1%
INDEPENDENT POWER PRODUCER - 0.1%
Mirant Corp.
2.500% 06/15/21(e) 80,000 84,000
--------------
84,000
--------------
Electric Total 84,000
--------------
UTILITIES TOTAL 84,000
--------------
TOTAL CONVERTIBLE BONDS
(cost of $324,219) 365,137
--------------
MUNICIPAL BOND (TAXABLE) - 0.2%
- -------------------------------------------------------------------------------
CALIFORNIA - 0.2%
CA Cabazon Band Mission Indians
13.000% 10/01/11 230,000 232,394
--------------
CALIFORNIA TOTAL 232,394
--------------
TOTAL MUNICIPAL BOND (TAXABLE)
(cost of $230,000) 232,394
--------------
COMMON STOCKS - 0.0% SHARES
- -------------------------------------------------------------------------------
CONSUMER DISCRETIONARY - 0.0%
HOTELS, RESTAURANTS & LEISURE - 0.0%
Shreveport Gaming Holdings, Inc.(g)(h) 2,098 30,463
--------------
Hotels, Restaurants & Leisure Total 30,463
--------------
CONSUMER DISCRETIONARY TOTAL 30,463
--------------
- -------------------------------------------------------------------------------
INDUSTRIALS - 0.0%
COMMERCIAL SERVICES & SUPPLIES - 0.0%
Fairlane Management Corp.(g)(h)(i) 1,800 --
--------------
Commercial Services & Supplies Total --
--------------
INDUSTRIALS TOTAL --
--------------
TOTAL COMMON STOCKS
(cost of $30,463) 30,463
--------------
WARRANTS - 0.0% UNITS VALUE ($)
- -------------------------------------------------------------------------------
COMMUNICATIONS - 0.0%
TELECOMMUNICATION SERVICES - 0.0%
CELLULAR TELECOMMUNICATIONS - 0.0%
UbiquiTel, Inc.
Expires 04/15/10(a)(g)(h) 150 1
--------------
1
--------------
TELECOMMUNICATION SERVICES - 0.0%
Jazztel PLC
Expires 07/15/10(g)(h)(i) 40 --
--------------
--
--------------
Telecommunication Services Total 1
--------------
COMMUNICATIONS TOTAL 1
--------------
- -------------------------------------------------------------------------------
INDUSTRIALS - 0.0%
TRANSPORTATION - 0.0%
TRANSPORTATION - TRUCKS - 0.0%
QDI LLC
Expires 01/15/07(a)(g)(h) 510 1,622
--------------
1,622
--------------
Transportation Total 1,622
--------------
INDUSTRIALS TOTAL 1,622
--------------
TOTAL WARRANTS
(cost of $7,679) 1,623
--------------
SHORT-TERM OBLIGATIONS - 6.4% PAR ($)
- -------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES & OBLIGATIONS - 1.5%
Federal Home Loan Bank
3.810% 12/23/05(j) 1,520,000 1,516,252
--------------
U.S. GOVERNMENT AGENCIES
& OBLIGATIONS TOTAL 1,516,252
--------------
REPURCHASE AGREEMENT - 4.9%
Repurchase agreement with State Street
Bank & Trust Co., dated 11/30/05, due
12/01/05 at 3.850%, collateralized by a
U.S. Treasury Bill maturing 12/22/05,
market value of $5,097,225 (repurchase
proceeds $4,995,534) 4,995,000 4,995,000
--------------
TOTAL SHORT-TERM OBLIGATIONS
(cost of $6,511,252) 6,511,252
--------------
TOTAL INVESTMENTS - 100.8%
(cost of $101,662,694)(k) 102,677,624
--------------
OTHER ASSETS & LIABILITIES, NET - (0.8)% (803,289)
--------------
NET ASSETS - 100.0% 101,874,335
==============
14 | See Accompanying Notes to Financial Statements.
- -------------------------------------------------------------------------------
INVESTMENT PORTFOLIO (CONTINUED)
- -------------------------------------------------------------------------------
November 30, 2005
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a) Security exempt from registration pursuant to Rule 144A under the
Securities Act of 1933. These securities may be resold in transactions
exempt from registration, normally to qualified institutional buyers. At
November 30, 2005, these securities, which did not include any illiquid
securities, except for the following, amounted to $8,542,462, which
represents 8.4% of net assets.
ACQUISITION
SECURITY DATE PAR/UNITS COST VALUE
- --------------------------------------------------------------------------------
Hollinger, Inc: 03/05/03 $80,000 $79,502 $ 84,400
09/30/04 54,000 54,000 54,000
QDI LLC 06/01/02 510 -- 1,622
UbiquiTel, Inc. 04/11/00 150 7,600 1
----------
$ 140,023
==========
(b) The interest rate shown on floating rate or variable rate securities
reflects the rate at November 30, 2005.
(c) Step bond. Shown parenthetically is the next interest rate to be paid and
the date the Trust will begin accruing at this rate.
(d) 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.
(e) The issuer has filed for bankruptcy protection under Chapter 11 and is in
default of certain debt covenants. Income is not being accrued. At
November 30, 2005, the value of these securities amounted to $102,000,
which represents 0.1% of net assets.
(f) Security purchased on a delayed delivery basis.
(g) Represents fair value as determined in good faith under procedures
approved by the Board of Trustees.
(h) Non-income producing security.
(i) Security has no value.
(j) The rate shown represents the annualized yield at the date of purchase.
(k) Cost for federal income tax purposes is $103,318,739.
At November 30, 2005, the Trust had entered into the following forward currency
exchange contracts:
UNREALIZED
FORWARD CURRENCY AGGREGATE SETTLEMENT APPRECIATION
CONTRACTS TO BUY VALUE FACE VALUE DATE (DEPRECIATION)
- --------------------------------------------------------------------------------
EUR $1,026,175 $1,028,384 12/08/05 $ (2,209)
GBP 458,142 456,860 01/23/06 1,282
------------
$ (927)
============
UNREALIZED
FORWARD CURRENCY AGGREGATE SETTLEMENT APPRECIATION
CONTRACTS TO SELL VALUE FACE VALUE DATE (DEPRECIATION)
- --------------------------------------------------------------------------------
AUD $ 674,620 $ 675,201 02/01/06 $ 581
EUR 1,026,174 1,028,405 12/08/05 2,231
EUR 432,618 431,016 01/17/06 (1,602)
EUR 827,411 824,530 01/17/06 (2,881)
EUR 203,370 202,616 01/23/06 (754)
EUR 1,933,195 1,927,616 01/23/06 (5,579)
EUR 904,616 897,766 01/25/06 (6,850)
EUR 1,011,354 1,005,736 01/31/06 (5,618)
GBP 1,016,556 1,026,648 01/23/06 10,092
GBP 458,142 462,690 01/23/06 4,548
NOK 480,683 492,378 01/23/06 11,695
SEK 728,441 717,689 12/16/05 (10,752)
SEK 714,637 704,657 01/17/06 (9,980)
------------
$ (14,869)
============
- --------------------------------------------------------------------------------
At November 30, 2005, the asset allocation of the Trust is as follows:
% OF
ASSET ALLOCATION (UNAUDITED) NET ASSETS
- -------------------------------------------------------------------------------
Government Agencies & Obligations 51.9%
Corporate Fixed-Income Bonds & Notes 39.0
Mortgage-Backed Securities 2.2
Asset-Backed Securities 0.7
Convertible Bonds 0.4
Municipal Bond (Taxable) 0.2
Common Stocks 0.0*
Warrants 0.0*
Short-Term Obligations 6.4
Other Assets & Liabilities, Net (0.8)
-----
100.0%
=====
* Rounds to less than 0.1%.
ACRONYM NAME
- --------------------------------------------------------------------------------
AUD Australian Dollar
CAD Canadian Dollar
EUR Euro
GBP British Pound
NOK Norwegian Krone
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
- --------------------------------------------------------------------------------
November 30, 2005
ASSETS:
Investments, at cost $ 101,662,694
-----------------
Investments, at value $ 102,677,624
Cash 26,971
Net unrealized appreciation on
foreign forward currency contracts 30,429
Receivable for:
Investments sold 431,399
Interest 2,065,537
Foreign tax reclaims 20,978
Dollar roll fee income 2,517
Deferred Trustees' compensation plan 12,532
-----------------
Total Assets 105,267,987
-----------------
LIABILITIES:
Net unrealized depreciation on
foreign forward currency contracts 46,225
Payable for:
Investments purchased 111,583
Investments purchased on a delayed
delivery basis 2,514,913
Distributions 594,486
Investment advisory fee 61,911
Transfer agent fee 3,658
Pricing and bookkeeping fees 9,848
Trustees' fees 478
Audit fee 30,858
Custody fee 1,007
Chief compliance officer expenses 1,032
Deferred dollar roll fee income 818
Deferred Trustees' fees 12,532
Other liabilities 4,303
-----------------
Total Liabilities 3,393,652
-----------------
NET ASSETS $ 101,874,335
=================
COMPOSITION OF NET ASSETS:
Paid-in capital $ 120,444,508
Overdistributed net investment income (323,290)
Accumulated net realized loss (19,235,674)
Net unrealized appreciation (depreciation) on:
Investments 1,014,930
Foreign currency translations (26,139)
-----------------
NET ASSETS $ 101,874,335
=================
Shares outstanding 11,009,000
-----------------
Net asset value per share $ 9.25
=================
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
For the Year Ended November 30, 2005
INVESTMENT INCOME:
Interest $ 7,095,987
Dollar roll fee income 25,153
-----------------
Total Investment Income (net of foreign
taxes withheld of $26) 7,121,140
-----------------
EXPENSES:
Investment advisory fee 785,747
Transfer agent fee 44,366
Pricing and bookkeeping fees 86,778
Trustees' fees 10,652
Custody fee 33,786
Chief compliance officer expenses
(See Note 4) 4,580
Other expenses 124,916
-----------------
Total Expenses 1,090,825
Custody earnings credit (1,188)
-----------------
Net Expenses 1,089,637
-----------------
Net Investment Income 6,031,503
-----------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FOREIGN CURRENCY:
Net realized gain on:
Investments 566,914
Foreign currency transactions 912,894
-----------------
Net realized gain 1,479,808
-----------------
Net change in unrealized
appreciation (depreciation) on:
Investments (5,269,121)
Foreign currency translations 17,018
-----------------
Net change in unrealized
appreciation (depreciation) (5,252,103)
-----------------
Net Loss (3,772,295)
-----------------
Net Increase in Net Assets from Operations $ 2,259,208
-----------------
16 | See Accompanying Notes to Financial Statements.
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED NOVEMBER 30,
------------------------------
INCREASE (DECREASE) IN NET ASSETS: 2005 2004
- -------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 6,031,503 $ 6,197,645
Net realized gain on investments and foreign currency transactions 1,479,808 3,652,989
Net change in unrealized appreciation (depreciation)
on investments and foreign currency translations (5,252,103) 1,402,665
------------- -------------
Net Increase from Operations 2,259,208 11,253,299
------------- -------------
DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (6,939,699) (6,572,813)
From net realized gain (1,242,191) (1,121,377)
------------- -------------
Total Distributions Declared to Shareholders (8,181,890) (7,694,190)
------------- -------------
Total Increase (Decrease) in Net Assets (5,922,682) 3,559,109
------------- -------------
NET ASSETS:
Beginning of period 107,797,017 104,237,908
------------- -------------
End of period $ 101,874,335 $ 107,797,017
============= =============
Undistributed (overdistributed) net investment income at end of period $ (323,290) $ 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
- --------------------------------------------------------------------------------
November 30, 2005
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. Certain
prior year amounts have been reclassified to conform to the current year
financial statement presentation. 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 4:00 p.m. Eastern (U.S.) time. Events affecting the
values of such foreign securities and such exchange rates may occur between the
times at which they are determined and the close of the customary trading
session of the NYSE, which would not be reflected in the computation of the
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. If a security is valued at a "fair
value", such value is likely to be different from the last quoted market price
for the security.
Investments for which market quotations are not readily available, or that have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees.
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
18 |
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
November 30, 2005
of the underlying currency, resulting in unrealized gains (losses) which become
realized at the time the foreign currency contracts are closed or mature.
Realized and unrealized gains (losses) arising from such transactions are
included in net realized and unrealized gains (losses) on foreign currency
transactions. The use of forward currency contracts does not eliminate
fluctuations in the prices of the 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 rolls involve the
risks that the market value of the securities the Trust is obligated to
repurchase may decline below the repurchase price, or that the other party may
default on its obligations. 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 as segregated with the custodian 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 timing and character of income and capital gain distributions are determined
in accordance with income tax regulations, which may differ from GAAP.
Reclassifications are made to the Trust's capital accounts for permanent tax
differences to reflect income and gains available for distribution (or available
capital loss carryforwards) under income tax regulations.
| 19
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
November 30, 2005
For the year ended November 30, 2005, permanent book and tax basis differences
resulting primarily from differing treatments for discount accretion/premium
amortization on debt securities, foreign currency transactions, market discount
reclassification adjustments and paydown reclassifications were identified and
reclassified among the components of the Trust's net assets as follows:
OVERDISTRIBUTED ACCUMULATED
NET INVESTMENT INCOME NET REALIZED LOSS PAID-IN CAPITAL
--------------------- ----------------- ---------------
$412,136 $(412,132) $ (4)
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended November 30, 2005
and November 30, 2004 was as follows:
NOVEMBER 30, NOVEMBER 30,
2005 2004
----------------- ---------------
Distributions paid from:
Ordinary Income* $ 8,181,890 $ 7,694,190
Long-Term Capital Gains -- --
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of November 30, 2005, the components of distributable earnings on a tax basis
were as follows:
UNDISTRIBUTED UNDISTRIBUTED
ORDINARY LONG-TERM NET UNREALIZED
INCOME CAPITAL GAINS DEPRECIATION*
------------- ----------------- ---------------
$ 1,908,382 $ -- $(641,115)
* The differences between book-basis and tax-basis net unrealized
depreciation are primarily due to deferral of losses from wash sales and
discount accretion/premium amortization on debt securities.
Unrealized appreciation and depreciation at November 30, 2005, based on cost of
investments for federal income tax purposes, was:
Unrealized appreciation $ 3,806,004
Unrealized depreciation (4,447,119)
-----------
Net unrealized depreciation $ (641,115)
===========
The following capital loss carryforwards, determined as of November 30, 2005,
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
2013 333,261
--------------
$ 18,953,057
==============
Under current tax rules, certain capital losses realized after October 31 may be
deferred and treated as occurring on the first day of the following fiscal year.
As of November 30, 2005, post-October capital losses of $266,114 attributed to
security transactions were deferred to December 1, 2005.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISORY FEE
Columbia Management Advisors, LLC ("Columbia"), an indirect wholly owned
subsidiary of Bank of America Corporation ("BOA"), is the investment advisor to
the Trust and provides administrative and other services to the Trust. Prior to
September 30, 2005, Columbia Management Advisors, Inc. was investment advisor to
the Trust under the same fee structure. On September 30, 2005, Columbia
Management Advisors, Inc. merged into Banc of America Capital Management, LLC.
At that time, the investment advisor was then renamed Columbia Management
Advisors, LLC. 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, the total fees payable under the
pricing and bookkeeping agreement are paid to State Street.
Under its pricing and bookkeeping agreement with the Trust, Columbia receives an
annual fee of $38,000 paid monthly plus an additional monthly fee based on the
level of average weekly net assets for the month; provided that during any
12-month period, the aggregate fee shall not exceed $140,000.
Prior to November 1, 2005, Columbia received from the Trust an annual fee of
$10,000 paid monthly, and in any month that the Trust's average weekly net
assets exceeded $50 million, an additional monthly fee, calculated by taking
into account the fees payable to State Street under the Outsourcing Agreement.
20 |
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
November 30, 2005
The Trust also reimburses Columbia and State Street for out-of pocket expenses
and charges, including fees payable to third parties for pricing the Trust's
portfolio securities and direct internal costs incurred by Columbia in
connection with providing Trust accounting oversight and monitoring and certain
other services. For the year ended November 30, 2005, the Trust's effective
pricing and bookkeeping rate, inclusive of out-of-pocket expenses, was 0.083%.
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
All officers of the Trust, with the exception of the Trust's Chief Compliance
Officer, are employees of Columbia or its affiliates and receive no compensation
from the Trust. The Board of Trustees has appointed a Chief Compliance Officer
to the Trust in accordance with federal securities regulations. The Trust, along
with other affiliated funds, pays its pro-rata share of the expenses associated
with the Office of the Chief Compliance Officer. The Trust's expenses for 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 year ended November 30, 2005, the Trust paid $1,607 to
Columbia for such services. This amount is included in "Other expenses" on the
Statement of Operations.
NOTE 5. PORTFOLIO INFORMATION
For the year ended November 30, 2005, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $46,994,476 and
$50,602,424, respectively, of which $5,004,162 and $3,378,669, 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.
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 Management Advisors, Inc. (which has since merged
into Banc of America Capital Management, LLC (now named Columbia Management
Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has
been renamed Columbia Management Distributors, Inc.) (the "Distributor")
(collectively, the "Columbia Group") entered into an Assurance of Discontinuance
with the New York Attorney General ("NYAG") (the "NYAG Settlement") and
consented to the entry of a cease-and-desist order by the Securities and
Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and the NYAG
Settlement are referred to collectively as the "Settlements". The Settlements
contain substantially the same terms and conditions as outlined in the
agreements in principle which Columbia Group entered into with the SEC and NYAG
in March 2004.
Under the terms of the SEC Order, the Columbia Group 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
| 21
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------
November 30, 2005
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution consultant
(see below). The Columbia Funds have also voluntarily undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates to reduce certain Columbia Funds (including the
former 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 funds' 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 funds or their shareholders cannot
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 the events described in detail above, various parties have
filed suit against certain funds, the Trustees of the Columbia Funds,
FleetBoston Financial Corporation and its affiliated entities and/or Bank of
America and its affiliated entities. 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 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, the 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 transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this
litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers
and affiliated entities were named as defendants in certain purported
shareholder class and derivative actions making claims, including claims under
the Investment Company and the Investment Advisers Acts of 1940 and state law.
The suits allege, inter alia, that the fees and expenses paid by the funds are
excessive and that the advisers and their affiliates inappropriately used fund
assets to distribute the funds and for other improper purposes. On March 2,
2005, the actions were consolidated in the Massachusetts federal court as IN RE
COLUMBIA ENTITIES LITIGATION. The plaintiffs filed a consolidated amended
complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims
by plaintiffs and ordered that the case be closed. The plaintiffs filed a notice
of appeal on December 30, 2005.
22 |
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period is as follows:
YEAR ENDED NOVEMBER 30,
------------------------------------------------------------------
2005 2004 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.79 $ 9.47 $ 8.60 $ 8.91 $ 9.14
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income (a) 0.55 0.56 0.59 0.63(b) 0.78
Net realized and unrealized gain (loss)
on investments and foreign currency (0.35) 0.46 0.93 (0.23)(b) (0.17)
--------- --------- --------- --------- ---------
Total from Investment Operations 0.20 1.02 1.52 0.40 0.61
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.63) (0.60) (0.65) (0.64) (0.75)
From net realized gain (0.11) (0.10)(c) -- -- --
Return of capital -- -- -- (0.07) (0.09)
--------- --------- --------- --------- ---------
Total Distributions Declared to Shareholders (0.74) (0.70) (0.65) (0.71) (0.84)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.25 $ 9.79 $ 9.47 $ 8.60 $ 8.91
--------- --------- --------- --------- ---------
Market price per share $ 8.09 $ 8.68 $ 8.96 $ 7.98 $ 8.19
========= ========= ========= ========= =========
Total return - based on market value (d) 1.30% 4.91% 20.93% 6.00% 13.47%
========= ========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (e) 1.04% 1.01% 1.04% 1.00% 1.04%
Net investment income (e) 5.76% 5.91% 6.44% 7.24%(b) 8.52%
Portfolio turnover rate 47% 73% 64% 83% 65%
Net assets, end of period (000's) $ 101,874 $ 107,797 $ 104,238 $ 94,665 $ 98,088
(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) Certain prior year amounts have been reclassified to conform to the
current year financial statement presentation.
(d) Total return at market value assuming all distributions reinvested at
prices calculated in accordance with the Dividend Reinvestment Plan.
(e) The benefits derived from custody credits had an impact of less than
0.01%.
| 23
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS (CONTINUED)
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period is as follows:
YEAR ENDED NOVEMBER 30,
------------------------------------------------------------------
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.26 $ 11.13 $ 11.45 $ 11.52 $ 11.27
--------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.90(a) 0.91 0.94 0.91 1.00
Net realized and unrealized gain (loss)
on investments and foreign currency (1.13) (0.88) (0.25) --(b) 0.24
--------- --------- --------- --------- ---------
Total from Investment Operations (0.23) 0.03 0.69 0.91 1.24
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS DECLARED TO SHAREHOLDERS:
From net investment income (0.87) (0.90) (0.93) (0.98) (0.99)
In excess of net investment income -- -- --(b) -- --
From net realized gains -- -- (0.03) -- --
In excess of net realized gains -- -- (0.05) -- --
Return of capital (0.02) -- -- -- --
--------- --------- --------- --------- ---------
Total Distributions Declared to Shareholders (0.89) (0.90) (1.01) (0.98) (0.99)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 9.14 $ 10.26 $ 11.13 $ 11.45 $ 11.52
--------- --------- --------- --------- ---------
Market price per share $ 7.94 $ 8.31 $ 10.56 $ 10.94 $ 10.63
========= ========= ========= ========= =========
Total return - based on market value (c) 6.08% (13.51)% 6.26% 12.62% 8.30%
========= ========= ========= ========= =========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (d) 0.94% 1.00% 0.93% 0.96% 0.95%
Net investment income (d) 9.08% 8.51% 8.22% 8.06% 8.33%
Portfolio turnover rate 53% 52% 99% 156% 117%
Net assets, end of period (000's) $ 100,649 $ 113,005 $ 122,490 $ 126,011 $ 126,835
(a) The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(b) Rounds to less than $0.01 per share.
(c) Total return at market value assuming all distributions reinvested at
prices calculated in accordance with the Dividend Reinvestment Plan.
(d) The benefits derived from custody credits had an impact of less than
0.01%.
24 |
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
TO THE TRUSTEES AND SHAREHOLDERS OF COLONIAL INTERMARKET INCOME TRUST I
In our opinion, the accompanying statement of assets and liabilities, including
the investment portfolio, and the related statements of operations and of
changes in net assets and the financial highlights present fairly, in all
material respects, the financial position of Colonial InterMarket Income Trust I
(the "Trust") at November 30, 2005, and the results of its operations, the
changes in its net assets and its financial highlights for the periods
indicated, in conformity with accounting principles generally accepted in the
United States of America. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Trust's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
November 30, 2005 by correspondence with the custodian and brokers, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 24, 2006
| 25
- --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------
The Trustees/Directors serve terms of indefinite duration. The names, addresses
and ages of the Trustees/Directors and officers of the Funds in the Columbia
Funds Complex, the year each was first elected or appointed to office, their
principal business occupations during at least the last five years, the number
of portfolios overseen by each Trustee/Director and other directorships they
hold are shown below. Each officer listed below serves as an officer of each
Fund in the Columbia Funds Complex.
NAME, ADDRESS AND AGE,
POSITION WITH FUNDS,
YEAR FIRST ELECTED OR PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN
APPOINTED TO OFFICE (1) COLUMBIA FUNDS COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD
- --------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES
DOUGLAS A. HACKER (Age 50) Executive Vice President-Strategy of United Airlines (airline) since December, 2002
c/o Columbia Management (formerly President of UAL Loyalty Services (airline) from September, 2001 to
Advisors, LLC December, 2002; Executive Vice President and Chief Financial Officer of United
One Financial Center Airlines from July, 1999 to September, 2001; Senior Vice President-Finance from
Boston, MA 02111 March, 1993 to July, 1999). Oversees 83, Nash Finch Company (food distributor)
Trustee (since 1996)
JANET LANGFORD KELLY (Age 48) Partner, Zelle, Hofmann, Voelbel, Mason & Gette LLP (law firm) since March, 2005;
c/o Columbia Management Adjunct Professor of Law, Northwestern University, since September, 2004 (formerly
Advisors, LLC Chief Administrative Officer and Senior Vice President, Kmart Holding Corporation
One Financial Center (consumer goods) from September, 2003 to March, 2004; Executive Vice
Boston, MA 02111 President-Corporate Development and Administration, General Counsel and Secretary,
Trustee (since 1996) Kellogg Company (food manufacturer), from September, 1999 to August, 2003; Senior
Vice President, Secretary and General Counsel, Sara Lee Corporation (branded,
packaged, consumer-products manufacturer) from January, 1995 to September, 1999).
Oversees 83, None
RICHARD W. LOWRY (Age 69) Private Investor since August, 1987 (formerly Chairman and Chief Executive Officer,
c/o Columbia Management U.S. Plywood Corporation (building products manufacturer)). Oversees 89 (3), None
Advisors, LLC
One Financial Center
Boston, MA 02111
Trustee (since 1995)
CHARLES R. NELSON (Age 62) Professor of Economics, University of Washington, since January, 1976; Ford and
c/o Columbia Management Louisa Van Voorhis Professor of Political Economy, University of Washington, since
Advisors, LLC September, 1993 (formerly Director, Institute for Economic Research, University of
One Financial Center Washington from September, 2001 to June, 2003); Adjunct Professor of Statistics,
Boston, MA 02111 University of Washington, since September, 1980; Associate Editor, Journal of Money
Trustee (since 1981) Credit and Banking, since September, 1993; consultant on econometric and statistical
matters. Oversees 83, None
JOHN J. NEUHAUSER (Age 63) Academic Vice President and Dean of Faculties since August, 1999, Boston College
c/o Columbia Management (formerly Dean, Boston College School of Management from September, 1977 to August,
Advisors, LLC 1999). Oversees 89 (3), Saucony, Inc. (athletic footwear)
One Financial Center
Boston, MA 02111
Trustee (since 1985)
26 |
- --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS (CONTINUED)
- --------------------------------------------------------------------------------
NAME, ADDRESS AND AGE,
POSITION WITH FUNDS,
YEAR FIRST ELECTED OR PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS, NUMBER OF PORTFOLIOS IN
APPOINTED TO OFFICE(1) COLUMBIA FUNDS COMPLEX OVERSEEN BY TRUSTEE/DIRECTOR, OTHER DIRECTORSHIPS HELD
- --------------------------------------------------------------------------------------------------------------------------------
DISINTERESTED TRUSTEES (continued)
PATRICK J. SIMPSON (Age 61) Partner, Perkins Coie LLP (law firm). Oversees 83, None
c/o Columbia Management
Advisors, LLC
One Financial Center
Boston, MA 02111
Trustee (since 2000)
THOMAS E. STITZEL (Age 69) Business Consultant since 1999 (formerly Professor of Finance from 1975 to 1999,
c/o Columbia Management College of Business, Boise State University); Chartered Financial Analyst. Oversees
Advisors, LLC 83, None
One Financial Center
Boston, MA 02111
Trustee (since 1998)
THOMAS C. THEOBALD (Age 68) Partner and Senior Advisor, Chicago Growth Partners (private equity investing)
c/o Columbia Management since September, 2004 (formerly Managing Director, William Blair Capital Partners
Advisors, LLC (private equity investing) from September, 1994 to September, 2004). Oversees 83,
One Financial Center Anixter International (network support equipment distributor); Ventas, Inc. (real
Boston, MA 02111 estate investment trust); Jones Lang LaSalle (real estate management services) and
Trustee and Chairman of the Board (4) Ambac Financial Group (financial guaranty insurance)
(since 1996)
ANNE-LEE VERVILLE (Age 60) Retired since 1997 (formerly General Manager, Global Education Industry, IBM
c/o Columbia Management Corporation (computer and technology) from 1994 to 1997). Oversees 83, Chairman of
Advisors, LLC the Board of Directors, Enesco Group, Inc. (designer, importer and distributor of
One Financial Center giftware and collectibles)
Boston, MA 02111
Trustee (since 1998)
RICHARD L. WOOLWORTH (Age 64) Retired since December, 2003 (formerly Chairman and Chief Executive Officer, The
c/o Columbia Management Regence Group (regional health insurer); Chairman and Chief Executive Officer,
Advisors, LLC BlueCross BlueShield of Oregon; Certified Public Accountant, Arthur Young & Company).
One Financial Center Oversees 83, Northwest Natural Gas Co. (natural gas service provider)
Boston, MA 02111
Trustee (since 1991)
INTERESTED TRUSTEE
WILLIAM E. MAYER (2) (Age 65) Partner, Park Avenue Equity Partners (private equity) since February, 1999 (formerly
c/o Columbia Management Partner, Development Capital LLC from November 1996, to February, 1999). Oversees 89
Advisors, LLC (3), Lee Enterprises (print media), WR Hambrecht + Co. (financial service provider);
One Financial Center Reader's Digest (publishing); OPENFIELD Solutions (retail industry technology
Boston, MA 02111 provider)
Trustee (since 1994)
(1) In December 2000, the boards of each of the former Liberty Funds and
former Stein Roe Funds were combined into one board of trustees
responsible for the oversight of both fund groups (collectively, the
"Liberty Board"). In October 2003, the trustees on the Liberty Board were
elected to the boards of the Columbia Funds (the "Columbia Board") and of
the CMG Fund Trust (the "CMG Funds Board"); simultaneous with that
election, Patrick J. Simpson and Richard L. Woolworth, who had been
directors on the Columbia Board and trustees on the CMG Funds Board, were
appointed to serve as trustees of the Liberty Board. The date shown is the
earliest date on which a trustee/director was elected or appointed to the
board of a Fund in the Columbia Funds Complex.
(2) Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht +
Co.
(3) Messrs. Lowry, Neuhauser and Mayer also serve as directors/trustees of the
Liberty All-Star Funds, currently consisting of 2 funds, which are advised
by an affiliate of the Advisor.
(4) Mr. Theobald was appointed as Chairman of the Board effective December 10,
2003.
The Statement of Additional Information includes additional information about
the Trustees of the Funds and is available, without charge, upon request by
calling 800-426-3750.
| 27
- --------------------------------------------------------------------------------
TRUSTEES AND OFFICERS (CONTINUED)
- --------------------------------------------------------------------------------
NAME, ADDRESS AND AGE,
POSITION WITH COLUMBIA FUNDS,
YEAR FIRST ELECTED OR
APPOINTED TO OFFICE PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- --------------------------------------------------------------------------------------------------------------------------------
OFFICERS
CHRISTOPHER L. WILSON (Age 48) Head of Mutual Funds since August, 2004 and Managing Director of the Advisor since
One Financial Center September, 2005; President of the Columbia Funds, Liberty Funds and Stein Roe Funds
Boston, MA 02111 since October, 2004; President and Chief Executive Officer of the Nations Funds
President (since 2004) since January, 2005; President of the Galaxy Funds since April, 2005; Director of
Bank of America Global Liquidity Funds, PLC since May, 2005; Director of Banc of
America Capital Management (Ireland), Limited since May, 2005; Director of FIM
Funding, Inc. since January, 2005; Senior Vice President of Columbia Management
Distributors, Inc. since January, 2005; Director of Columbia Management Services,
Inc. since January, 2005 (formerly Senior Vice President of Columbia Management
from January, 2005 to August, 2005; Senior Vice President of BACAP Distributors LLC
from January, 2005 to July, 2005; President and Chief Executive Officer, CDC IXIS
Asset Management Services, Inc. from September, 1998 to August, 2004).
J. KEVIN CONNAUGHTON (Age 41) Treasurer of the Columbia Funds since October, 2003 and of the Liberty Funds, Stein
One Financial Center Roe Funds and All-Star Funds since December, 2000; Managing Director of the Advisor
Boston, MA 02111 since September, 2005 (formerly Vice President of Columbia Management from April,
Treasurer (since 2000) 2003 to August, 2005; President of the Columbia Funds, Liberty Funds and Stein Roe
Funds from February, 2004 to October, 2004; Chief Accounting Officer and Controller
of the Liberty Funds and All-Star Funds from February, 1998 to October, 2000);
Treasurer of the Galaxy Funds from September, 2002 to November, 2005 (formerly
Treasurer from December, 2002 to December, 2004 and President from February, 2004
to December, 2004 of the Columbia Management Multi-Strategy Hedge Fund, LLC; Vice
President of Colonial Management Associates, Inc. from February, 1998 to October,
2000).
MARY JOAN HOENE (Age 56) Senior Vice President and Chief Compliance Officer of the Columbia Funds, Liberty
100 Federal Street Funds, Stein Roe Funds and All-Star Funds since August, 2004; Chief Compliance
Boston, MA 02110 Officer of the Columbia Management Multi-Strategy Hedge Fund, LLC since August
Senior Vice President and 2004; Chief Compliance Officer of the BACAP Alternative Multi-Strategy Hedge Fund
Chief Compliance Officer LLC since October 2004 (formerly Partner, Carter, Ledyard & Milburn LLP from
(since 2004) January, 2001 to August, 2004; Counsel, Carter, Ledyard & Milburn LLP from
November, 1999 to December, 2000; Vice President and Counsel, Equitable Life
Assurance Society of the United States from April, 1998 to November, 1999).
MICHAEL G. CLARKE (Age 36) Chief Accounting Officer of the Columbia Funds, Liberty Funds, Stein Roe Funds and
One Financial Center All-Star Funds since October, 2004; Managing Director of the Advisor since
Boston, MA 02111 September, 2005 (formerly Controller of the Columbia Funds, Liberty Funds, Stein
Chief Accounting Officer Roe Funds and All-Star Funds from May, 2004 to October, 2004; Assistant Treasurer
(since 2004) from June, 2002 to May, 2004; Vice President, Product Strategy & Development of the
Liberty Funds and Stein Roe Funds from February, 2001 to June, 2002; Assistant
Treasurer of the Liberty Funds, Stein Roe Funds and the All-Star Funds from August,
1999 to February, 2001; Audit Manager, Deloitte & Touche LLP from May, 1997 to
August, 1999).
JEFFREY R. COLEMAN (Age 36) Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and All-Star Funds
One Financial Center since October, 2004 (formerly Vice President of CDC IXIS Asset Management Services,
Boston, MA 02111 Inc. and Deputy Treasurer of the CDC Nvest Funds and Loomis Sayles Funds from
Controller (since 2004) February, 2003 to September, 2004; Assistant Vice President of CDC IXIS Asset
Management Services, Inc. and Assistant Treasurer of the CDC Nvest Funds from
August, 2000 to February, 2003; Tax Manager of PFPC, Inc. from November, 1996 to
August, 2000).
R. SCOTT HENDERSON (Age 46) Secretary of the Columbia Funds, Liberty Funds and Stein Roe Funds since December,
One Financial Center 2004 (formerly Of Counsel, Bingham McCutchen from April, 2001 to September, 2004;
Boston, MA 02111 Executive Director and General Counsel, Massachusetts Pension Reserves Investment
Secretary (since 2004) Management Board from September, 1997 to March, 2001).
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BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
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The Advisory Fees and Expenses Committee of the Board of Trustees meets one or
more times annually, usually in late summer, to review the advisory agreements
(collectively, the "Agreements") of the funds for which the Trustees serve as
trustees or directors (each a "fund") and determine whether to recommend that
the full Board approve the continuation of the Agreements for an additional
one-year period. After the Committee has made its recommendation, the full
Board, including the Independent Trustees, determines whether to approve the
continuation of the Agreements. In addition, the Board, including the
Independent Trustees, considers matters bearing on the Agreements at most of its
other meetings throughout the year and meets regularly with the heads of each
investment area within Columbia. The Trustees also meet with selected fund
portfolio managers at various times throughout the year. The Trustees receive
and review all materials that they, their legal counsel or Columbia, the funds'
investment adviser, believe to be reasonably necessary for the Trustees to
evaluate the Agreements and determine whether to approve the continuation of the
Agreements. Those materials generally include, among other items, (i)
information on the investment performance of each fund relative to the
performance of peer groups of mutual funds and the fund's performance
benchmarks, (ii) information on each fund's advisory fees and other expenses,
including information comparing the fund's expenses to those of peer groups of
mutual funds and information about any applicable expense caps and fee
"breakpoints," (iii) sales and redemption data, (iv) information about the
profitability of the Agreements to Columbia, and potential "fall-out" or
ancillary benefits that Columbia and its affiliates may receive as a result of
their relationships with the funds and (v) information obtained through
Columbia's response to a questionnaire prepared at the request of the Trustees
by counsel to the funds and independent legal counsel to the Independent
Trustees. The Trustees also consider other information such as (vi) Columbia's
financial results and financial condition, (vii) each fund's investment
objective and strategies and the size, education and experience of Columbia's
investment staffs and their use of technology, external research and trading
cost measurement tools, (viii) the allocation of the funds' brokerage, if any,
including allocations to brokers affiliated with Columbia and the use of "soft"
commission dollars to pay fund expenses and to pay for research products and
services, (ix) Columbia's resources devoted to, and its record of compliance
with, the funds' investment policies and restrictions, policies on personal
securities transactions and other compliance policies, (x) Columbia's response
to various legal and regulatory proceedings since 2003 and (xi) the economic
outlook generally and for the mutual fund industry in particular. In addition,
the Trustees confer with their independent fee consultant and review materials
relating to the Agreements that the independent fee consultant provides.
Throughout the process, the Trustees have the opportunity to ask questions of
and request additional materials from Columbia and to consult independent legal
counsel to the Independent Trustees.
The Board of Trustees most recently approved the continuation of the Agreements
at its October, 2005 meeting, following meetings of the Advisory Fees and
Expenses Committee held in August, September, and October, 2005. In considering
whether to approve the continuation of the Agreements, the Trustees, including
the Independent Trustees, did not identify any single factor as determinative,
and each weighed various factors as he or she deemed appropriate. The Trustees
considered the following matters in connection with their approval of the
continuation of the Agreements: The nature, extent and quality of the services
provided to the funds under the Agreements. The Trustees considered the nature,
extent and quality of the services provided by Columbia and its affiliates to
the funds and the resources dedicated to the funds by Columbia and its
affiliates. Among other things, the Trustees considered (i) Columbia's ability,
including its resources, compensation programs for personnel involved in fund
management, reputation and other attributes, to attract and retain highly
qualified research, advisory and supervisory investment professionals; (ii) the
portfolio management services provided by those investment professionals; and
(iii) the trade execution services provided on behalf of the funds. For each
fund, the Trustees also considered the benefits to shareholders of investing in
a mutual fund that is part of a family of funds offering exposure to a variety
of asset classes and investment disciplines and providing for a variety of fund
and shareholder services. After reviewing those and related factors, the
Trustees concluded, within the context of their overall conclusions regarding
each of the Agreements, that the nature, extent and quality of services provided
supported the continuation of the Agreements. Investment performance of the
funds and Columbia. The Trustees reviewed information about the performance of
each fund over various time periods, including information prepared by an
independent third party that compared the performance of each fund to the
performance of peer groups of mutual funds and performance benchmarks. The
Trustees also reviewed a description of the third party's methodology for
identifying each fund's peer group for purposes of performance and expense
comparisons. The Trustees also considered additional information that the
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BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (CONTINUED)
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Advisory Fees and Expenses Committee requested from Columbia relating to funds
that presented relatively weaker performance and/or relatively higher expenses.
In the case of each fund that had performance that lagged that of a relevant
peer group for certain (although not necessarily all) periods, the Trustees
concluded that other factors relevant to performance were sufficient, in light
of other considerations, to warrant continuation of the fund's Agreements. Those
factors varied from fund to fund, but included one or more of the following: (i)
that the fund's performance, although lagging in certain recent periods, was
stronger over the longer term; (ii) that the underperformance was attributable,
to a significant extent, to investment decisions that were reasonable and
consistent with the fund's investment strategy and policies and that the fund
was performing as expected, given market conditions and the fund's investment
strategy; (iii) that the fund's performance was competitive when compared to
other relevant performance benchmarks or peer groups; (iv) that Columbia had
taken or was taking steps designed to help improve the fund's investment
performance, including, but not limited to, replacing portfolio managers or
modifying investment strategies; (v) that the fund's advisory fee had recently
been, or was proposed to be, reduced, with the goal of helping the fund's net
return to shareholders become more competitive; and (vi) that other fund
expenses, such as transfer agency or fund accounting fees, have recently been
reduced, with the goal of helping the fund's net return to shareholders become
more competitive. The Trustees also considered Columbia's performance and
reputation generally, the funds' performance as a fund family generally, and
Columbia's historical responsiveness to Trustee concerns about performance and
Columbia's willingness to take steps intended to improve performance. After
reviewing those and related factors, the Trustees concluded, within the context
of their overall conclusions regarding each of the Agreements, that the
performance of each fund and Columbia was sufficient, in light of other
considerations, to warrant the continuation of the Agreements.
THE COSTS OF THE SERVICES PROVIDED AND PROFITS REALIZED BY COLUMBIA AND ITS
AFFILIATES FROM THEIR RELATIONSHIPS WITH THE FUNDS. The Trustees considered the
fees charged to the funds for advisory services as well as the total expense
levels of the funds. That information included comparisons (provided both by
management and by an independent third party) of the funds' advisory fees and
total expense levels to those of their peer groups and information about the
advisory fees charged by Columbia to comparable accounts. In considering the
fees charged to comparable accounts, the Trustees took into account, among other
things, management's representations about the differences between managing
mutual funds as compared to other types of accounts, including the additional
resources required to effectively manage mutual funds and distribute mutual fund
shares. In evaluating each fund's advisory fees, the Trustees also took into
account the demands, complexity and quality of the investment management of the
fund. The Trustees considered reductions in advisory fee rates, implementation
of advisory fee breakpoints, institution of advisory fee waivers, and changes to
expense caps, which benefited a number of the funds. Furthermore, the Trustees
considered the projected impact on expenses resulting from the overall cost
reductions that management anticipated would result from the 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 Trustees
also noted management's stated justification for the fees charged to the funds,
which included information about the performance of the funds, the services
provided to the funds and management's view as to why it was appropriate that
some funds bear advisory fees or total expenses greater than their peer group
medians. The Trustees also considered the compensation directly or indirectly
received by Columbia and its affiliates from their relationships with the funds.
The Trustees reviewed information provided by management as to the profitability
to Columbia and its affiliates of their relationships with the funds, and
information about the allocation of expenses used to calculate profitability.
When reviewing profitability, the Trustees also considered court cases in which
adviser profitability was an issue in whole or in part, the performance of the
relevant funds, the expense levels of the funds, and whether Columbia had
implemented breakpoints and/or expense caps with respect to the funds.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
advisory fees charged to each of the funds were fair and reasonable, and that
the costs of the advisory services generally, and the related profitability to
Columbia and its affiliates of their relationships with the funds, supported the
continuation of the Agreements.
ECONOMIES OF SCALE. The Trustees considered the existence of any economies of
scale in the provision of services by Columbia to each fund and whether those
economies were shared with the fund through breakpoints in the investment
advisory fees or other means, such as expense waivers. The Trustees noted that
many of the funds benefited from breakpoints, expense caps, or both. In
30 |
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BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (CONTINUED)
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considering those issues, the Trustees also took note of the costs of the
services provided (both on an absolute and a relative basis) and the
profitability to Columbia and its affiliates of their relationships with the
funds, as discussed above. After reviewing those and related factors, the
Trustees concluded, within the context of their overall conclusions regarding
each of the Agreements, that the extent to which economies of scale were shared
with the funds supported the continuation of the Agreements.
OTHER FACTORS. The Trustees also considered other factors, which included but
were not limited to the following:
o the extent to which each fund had operated in accordance with its
investment objective and its record of compliance with its investment
restrictions, and the compliance programs of the funds and Columbia. They
also considered the compliance-related resources that Columbia and its
affiliates were providing to the funds.
o the nature, quality, cost and extent of administrative and shareholder
services performed by Columbia and its affiliates, both under the
Agreements and under separate agreements for the provision of transfer
agency and administrative services.
o so-called "fall-out benefits" to Columbia, such as the engagement of its
affiliates to provide distribution, brokerage and transfer agency services
to the funds, and the benefits of research made available to Columbia by
reason of brokerage commissions generated by the funds' securities
transactions, as well as possible conflicts of interest associated with
those fall-out and other benefits, and the reporting, disclosure and other
processes in place to disclose and monitor those possible conflicts of
interest.
o the draft report provided by the independent fee consultant, which
included information about and analysis of the funds' fees, expenses and
performance.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel and the independent fee consultant, the Trustees, including
the Independent Trustees, approved the continuance of each of the Agreements
through November 30, 2006.
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SUMMARY OF MANAGEMENT FEE EVALUATION BY INDEPENDENT FEE CONSULTANT
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PREPARED PURSUANT TO THE FEBRUARY 9, 2005
ASSURANCE OF DISCONTINUANCE
BETWEEN THE OFFICE OF
ATTORNEY GENERAL OF NEW YORK STATE AND
COLUMBIA MANAGEMENT ADVISORS, INC. AND
COLUMBIA FUNDS DISTRIBUTOR, INC.
OCTOBER 11, 2005
I. OVERVIEW
Columbia Management Advisors, Inc. ("CMA") and Columbia Funds Distributors, Inc.
("CFD") (CFD together with CMA referred to herein as Columbia Management Group
or "CMG 1"), entered into an agreement with the New York Attorney General's
Office in the form of an Assurance of Discontinuance (the "AOD"). The AOD
stipulated that CMA would be permitted to manage or advise the Columbia Funds
only if the Independent Members (as such term is defined in the AOD) of the
Columbia Funds' Board of Trustees/Directors (collectively the "Trustees")
appointed a Senior Officer or an Independent Fee Consultant ("IFC") who, among
other things, is to manage the process by which management fees are negotiated.
On May 15, 2005, the Independent Members of the Board appointed me as the IFC
for the Columbia Funds. This report is the annual written evaluation of the
Columbia Funds for 2005 that I have prepared in my capacity as IFC, as required
by the AOD.
A. DUTIES OF THE INDEPENDENT FEE CONSULTANT
As part of the AOD, the Independent Members of the Columbia Funds' Board of
Trustees/Directors agreed to retain an independent fee consultant who was to
participate in the management fee negotiation process. The IFC is charged with
"... duties and responsibilities [that] include managing the process by which
proposed management fees (including, but not limited to, advisory fees) to be
charged the Columbia Fund[s] are negotiated so that they are negotiated in a
manner which is at arms length and reasonable and consistent with this Assurance
of Discontinuance." However, the IFC does not replace the Trustees in their role
of negotiating management and other fees with CMG and its affiliates. In
particular, the AOD states that "Columbia Advisors may manage or advise a
Columbia Fund only if the reasonableness of the proposed management fees is
determined by the Board of Trustees of the Columbia Fund using ... an annual
independent written evaluation prepared by or under the direction of the ...
Independent Fee Consultant...." This report, pursuant to the AOD, constitutes
the "annual independent written evaluation prepared by or under the direction of
the... Independent Fee Consultant."
The AOD requires the IFC report to consider at least the following:
a) Management fees (including any components thereof) charged by other mutual
fund companies for like services;
b) Management fees (including any components thereof) charged to institutional
and other clients of CMA for like services;
c) Costs to CMA and its affiliates of supplying services pursuant to the
management fee agreements, excluding any intra-corporate profit;
d) Profit margins of CMA and its affiliates from supplying such services;
e) Possible economies of scale as the CMA fund grows larger; and
f) The nature and quality of CMA services, including Columbia Funds'
performance.
This report is designed to assist the Board in evaluating the 2005 contract
renewal for Columbia Funds. In addition, this report points out areas where the
Board may deem additional information and analysis to be appropriate over time.
B. SOURCES OF INFORMATION USED IN MY EVALUATION
I have requested data from CMG and various third party industry data sources or
independent research companies that work in the mutual fund arena. The following
list generally describes the types of information I requested.
1. I collected data on performance, management fees, and expense ratios of both
Columbia Funds and comparable non-Columbia Funds. The sources of this
information were CMG, Lipper Inc. ("Lipper") and Morningstar Inc.
("Morningstar"). While Lipper and Morningstar each selected a different group of
peer funds it deemed appropriate against which to measure the relative
performance and fees of Columbia Funds, I conducted an independent review of the
appropriateness of each peer group.
2. I reviewed data on CMG's expense and profitability that I obtained from CMA
directly.
3. I have reviewed data on the organizational structure of CMG in
general.
4. I collected information on profitability from Strategic Insight Mutual Fund
Research and Consulting, LLC ("Strategic Insight"). I used this third-party
independent research as an additional method to gauge the accuracy of the data
collected in (2) above.
1 Prior to the date of this report, CMA merged into an affiliated entity,
Banc of America Capital Management, LLC ("BACAP"), and BACAP then changed
its name to Columbia Management Advisors, LLC which carries on the
business of CMA, and CFD changed its name to Columbia Management
Distributors, Inc.
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SUMMARY OF MANAGEMENT FEE EVALUATION BY INDEPENDENT FEE CONSULTANT (CONTINUED)
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5. I conducted interviews with various CMG staff, including members of the
senior management team, legal staff, heads of affiliates, portfolio managers,
and financial personnel.
6. I reviewed current 2005 Section 15(c) material provided to the Board and
material presented to the Board in the 2004 fee and performance evaluation.
7. I have reviewed various academic research papers, industry publications, and
other available literature dealing with mutual fund operations, profitability,
and other issues. In addition, I have reviewed SEC releases and studies of
mutual fund expenses.
8. I have reviewed documents pertaining to recent mutual fund litigation in
general and publicly available information about litigation where CMG has been
involved.
In addition, I have engaged NERA Economic Consulting ("NERA") and
independent consultant Dr. John Rea to assist me in data management and
analysis. Both NERA and Dr. Rea have extensive experience in the mutual fund
industry through consulting, government positions, or industry trade groups that
provide unique insights and special knowledge pertaining to my independent
analysis of fees, performance, and profitability. I have also retained Shearman
& Sterling LLP as outside counsel to advise me in connection with my review.
C. QUALIFICATIONS AND INDEPENDENCE
I am the Walter H. Carpenter Chair and Professor of Finance at Babson College.
Before this I was the Chief Economist of the U.S. Securities and Exchange
Commission. I have no material relationship with Bank of America or CMG aside
from acting as IFC, and am aware of no relationship with any of their
affiliates. [Resume omitted]
II. EVALUATION OF THE GENERAL PROCESS USED TO NEGOTIATE THE ADVISORY CONTRACT
A. GENERAL CONSIDERATIONS
My analysis considered all factors and information I reviewed on the finances
and operations of Columbia Funds. I gave each factor an appropriate weight in my
overall findings, and no single factor was in itself the sole criterion for a
finding or conclusion. My objective was to assess all of the information
provided and conduct a robust evaluation of Columbia Funds' operations, fees,
and performance.
My analysis and thought processes will and, I believe, should, differ in certain
ways from the processes used by Trustees in their evaluation of the management
agreements. In particular, because of my technical and quantitative background,
I may use techniques and data that Trustees have not previously felt would be
useful. I view this supplemental analysis as appropriate because my role is to
assist Trustees in their decisions, and to the extent that I bring new ideas or
analysis to the evaluation, I believe this improves the process by which
management fees for the Columbia Funds may be negotiated in accordance with the
AOD.
Finally, as part of my role as IFC, I have, from time to time, sent to Trustees
additional papers and reports produced by third parties that I felt had bearing
on the fee negotiation process. I viewed these materials as educational in
nature and felt they would aid Trustees in placing their work in context.
B. CMG MANAGEMENT INTERVIEWS
As a starting point of my analysis, I have met with members of CMG staff to gain
an understanding of the organizational structure and personnel involved in
running the Columbia fund family.
I have had general discussions and have received information about the
management structure of CMG. My conversations with management have been
informative. In addition, I have participated in Board meetings where Trustees
and management have discussed issues relating to management agreements and
performance of Columbia Funds. When I felt it was appropriate, I added my
opinions on particular matters, such as fund performance or fee levels, to the
discussion.
C. TRUSTEES' FEE AND PERFORMANCE EVALUATION PROCESS
After making initial requests for information, members of the Trustees
of the Columbia Funds met in advance of the October Section 15(c) contract
approval meeting to review certain fee, performance and other data for the
Columbia Funds and to ask questions and make requests of management. Trustees
have developed a process to evaluate the fee and expense levels and performance
of Columbia Funds. This process is used to highlight those funds that have been
performing poorly, may have had higher management fees or expense ratios, or
both.
The process involves providing instructions to Lipper to prepare specific data
analyses tailored to the Trustees review framework. These instructions include
highlighting funds that hit one or more fee performance "screens." The six
screens the Trustees use are as follows:
a. 5th Lipper quintile in actual management fee;
b. 5th Lipper quintile in total expense ratio;
c. Three or more 5th Lipper quintile rankings in the 1-, 3-, 5- or 10-year
performance rankings;
d. Sum of the Lipper Quintile Rank (1-year performance) and the Lipper Quintile
Rank (actual management fee) totals a number equal to or higher than 8;
e. Sum of the Lipper Quintile Rank (1-year performance) and the Lipper Quintile
Rank (total expense ratio) totals a number equal to or higher than 8; and
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SUMMARY OF MANAGEMENT FEE EVALUATION BY INDEPENDENT FEE CONSULTANT (CONTINUED)
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f. Sum of the Lipper Quintile Rank (3-year performance) and the Lipper Quintile
Rank (total expense ratio) totals a number equal to or higher than 8.
If a fund hits one or more of these screens, it is highlighted for additional
review by the Trustees. This method is only used as an aid for Trustees to
highlight funds and is not the sole test of whether the Board will determine to
take particular actions concerning fees or performance. Funds that have not been
flagged by this screen also may be singled out for fee and performance reasons,
and the Trustees may determine not to take action with respect to the fees or
performance of funds that have been flagged by the screen. These screens
contribute to the basis for discussions on Trustees' views on the Columbia
Funds.
III. FINDINGS
My findings based on my work as IFC are as follows:
1. The Trustees have the relevant information necessary to form an opinion on
the reasonableness of fees and evaluate the performance of the Columbia Funds.
The process the Trustees used in preparing to reach their determination has been
open and informative. In my view, the 2005 process by which the management fees
of the Columbia Funds have been negotiated thus far has been, to the extent
practicable, at arm's length and reasonable and consistent with the AOD.
2. Columbia Funds demonstrated a range of performance relative to their peers. I
find that across the fund complex, 54.26 percent of Columbia Funds have
performance higher than the median of their respective Lipper performance
universe, and 42.55 percent of Columbia Funds have performance higher than the
median of their respective Lipper performance group. In addition, Lipper
performance universe and group comparison showed that Columbia Funds were
distributed roughly evenly across these quintiles. The Trustees have worked with
management to address issues of funds that have demonstrated consistent or
significant underperformance.
3. Columbia Funds demonstrate a range of management fees and expense ratios
relative to their peers. I find that across the fund complex, 58.51 percent of
Columbia Funds have expenses below the median of their Lipper expense universe,
and 53.19 percent of Columbia Funds have expenses below the median of their
Lipper expense group. In addition, Lipper expense universe and group comparisons
show that Columbia Funds are distributed roughly evenly across these quintiles.
The Trustees have taken steps to limit shareholder expenses for certain funds
having management fees significantly above their peers, often though the use of
fee waivers to which CMG has agreed. Consolidation of various funds and fund
families managed by CMG has resulted in substantial savings in non-advisory
expenses.
4. Profitability to CMG of the individual funds ranges widely, but the overall
profitability to CMG of its relationship with the Columbia Funds appears to fall
within a reasonable range. The method of cost allocation to funds is addressed
in the material provided by CMG to the Trustees, but additional information may
be necessary to make a judgment on fund level profitability. My review of
profitability and cost allocation is ongoing, and I plan to continue to develop
my views with regard to fund level profitability.
5. Columbia Funds have instituted fee schedules with breakpoints designed to
enable investors to benefit from fund economies of scale, although 71% of the
funds have not yet reached their first breakpoint. My analysis of the
appropriateness of the breakpoint levels, which I expect will take into account
the cost and profitability of the individual funds, is ongoing.
My work is ongoing and my views may develop over time in light of new
information and analysis.
Respectfully submitted,
Erik R. Sirri
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TRANSFER AGENT
- --------------------------------------------------------------------------------
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, 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.
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COLONIAL INTERMARKET INCOME TRUST I ANNUAL REPORT
- --------------------------------------------------------------------------------
SHC-42/92697-1105(01/06)05/9250
ITEM 2. CODE OF ETHICS.
(a) The registrant has, as of the end of the period covered by this
report, adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party.
(b) During the period covered by this report, there were not any
amendments to a provision of the code of ethics adopted in 2(a) above.
(c) During the period covered by this report, there were not any waivers
or implicit waivers to a provision of the code of ethics adopted in
2(a) above.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's Board of Trustees has determined that Douglas A. Hacker, Thomas
E. Stitzel, Anne-Lee Verville and Richard L. Woolworth, each of whom are members
of the registrant's Board of Trustees and Audit Committee, each qualify as an
audit committee financial expert. Mr. Hacker, Mr. Stitzel, Ms. Verville and Mr.
Woolworth are each independent trustees, as defined in paragraph (a)(2) of this
item's instructions and collectively constitute the entire Audit Committee.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
(a) Aggregate Audit Fees billed by the principal accountant for professional
services rendered during the fiscal years ended November 30, 2005 and November
30, 2004 are approximately as follows:
2005 2004
$30,800 $28,400
Audit Fees include amounts related to the audit of the registrant's annual
financial statements or services that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years.
(b) Aggregate Audit-Related Fees billed by the principal accountant for
professional services rendered during the fiscal years ended November 30, 2005
and November 30, 2004 are approximately as follows:
2005 2004
$3,900 $3,700
Audit-Related Fees include amounts for assurance and related services by the
principal accountant that are reasonably related to the performance of the audit
of the registrant's financial statements and are not reported in Audit Fees
above. In both fiscal years 2005 and 2004, Audit-Related Fees include certain
agreed-upon procedures performed for semi-annual shareholder reports.
(c) Aggregate Tax Fees billed by the principal accountant for professional
services rendered during the fiscal years ended November 30, 2005 and November
30, 2004 are approximately as follows:
2005 2004
$2,500 $2,600
Tax Fees in both fiscal years 2005 and 2004 consist primarily of the review of
annual tax returns. Tax fees include amounts for professional services by the
principal accountant for tax compliance, tax advice and tax planning.
(d) Aggregate All Other Fees billed by the principal accountant for professional
services rendered during the fiscal years ended November 30, 2005 and November
30, 2004 are approximately as follows:
2005 2004
$0 $0
All Other Fees include amounts for products and services provided by the
principal accountant, other than the services reported in paragraphs (a) through
(c) above.
None of the amounts described in paragraphs (a) through (d) above were approved
pursuant to the "de minimis" exception under paragraph (c)(7)(i)(C) of Rule 2-01
of Regulation S-X.
(e)(1) AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES
I. GENERAL OVERVIEW
The Audit Committee of the registrant has adopted a formal policy (the "Policy")
which sets forth the procedures and the conditions pursuant to which the Audit
Committee will pre-approve (i) all audit and non-audit (including audit related,
tax and all other) services provided by the registrant's independent auditor to
the registrant and individual funds
(collectively "Fund Services"), and (ii) all non-audit services provided by the
registrant's independent auditor to the funds' adviser or a control affiliate of
the adviser, that relate directly to the funds' operations and financial
reporting (collectively "Fund-related Adviser Services"). A "control affiliate"
is an entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the funds, and the term "adviser" is
deemed to exclude any unaffiliated sub-adviser whose role is primarily portfolio
management and is sub-contracted or overseen by another investment adviser. The
adviser and control affiliates are collectively referred to as "Adviser
Entities."
The Audit Committee uses a combination of specific (on a case-by-case basis as
potential services are contemplated) and general (pre-determined list of
permitted services) pre-approvals. Unless a type of service has received general
pre-approval, it will require specific pre-approval by the Audit Committee if it
is to be provided by the independent auditor.
The Policy does not delegate the Audit Committee's responsibilities to
pre-approve services performed by the independent auditor to management.
II. GENERAL PROCEDURES
On an annual basis, the Fund Treasurer and/or Director of Trustee Administration
shall submit to the Audit Committee a schedule of the types of Fund Services and
Fund-related Adviser Services that are subject to general pre-approval.
These schedules will provide a description of each type of service that is
subject to general pre-approval and, where possible, will provide estimated fees
for each instance of providing each service. This general pre-approval and
related fees (where provided) will generally cover a one-year period (for
example, from June 1 through May 31 of the following year). The Audit Committee
will review and approve the types of services and review the projected fees for
the next one-year period and may add to, or subtract from, the list of general
pre-approved services from time to time, based on subsequent determinations.
This approval acknowledges that the Audit Committee is in agreement with the
specific types of services that the independent auditor will be permitted to
perform. The fee amounts will be updated to the extent necessary at other
regularly scheduled meetings of the Audit Committee.
In addition to the fees for each individual service, the Audit Committee has the
authority to implement a fee cap on the aggregate amount of non-audit services
provided to an individual fund.
If, subsequent to general pre-approval, a fund, its investment adviser or a
control affiliate determines that it would like to engage the independent
auditor to perform a service that requires pre-approval and that is not included
in the general pre-approval list, the specific pre-approval procedure shall be
as follows:
o A brief written request shall be prepared by management detailing the
proposed engagement with explanation as to why the work is proposed to
be performed by the independent auditor;
o The request should be addressed to the Audit Committee with copies to
the Fund Treasurer and/or Director of Trustee Administration;
o The Fund Treasurer and/or Director of Trustee Administration will
arrange for a discussion of the service to be included on the agenda
for the next regularly scheduled Audit Committee meeting, when the
Committee will discuss the proposed engagement and approve or deny the
request.
o If the timing of the project is critical and the project needs to
commence before the next regularly scheduled meeting, the Chairperson
of the Audit Committee may approve or deny the request on behalf of
the Audit Committee, or, in the Chairperson's discretion, determine to
call a special meeting of the Audit Committee for the purpose of
considering the proposal. Should the Chairperson of the Audit
Committee be unavailable, any other member of the Audit Committee may
serve as an alternate for the purpose of approving or denying the
request. Discussion with the Chairperson (or alternate, if necessary)
will be arranged by the Fund Treasurer and/or Director of Trustee
Administration. The independent auditor will not commence any such
project unless and until specific approval has been given.
III. CERTAIN OTHER SERVICES PROVIDED TO ADVISER ENTITIES
The Audit Committee recognizes that there are cases where services proposed to
be provided by the independent auditor to the adviser or control affiliates are
not Fund-related Adviser Services within the meaning of the Policy, but
nonetheless may be relevant to the Audit Committee's ongoing evaluation of the
auditor's independence and objectivity with respect to its audit services to the
funds. As a result, in all cases where an Adviser Entity engages the independent
auditor to provide audit or non-audit services that are not Fund Services or
Fund-related Adviser Services, were not subject to pre-approval by the Audit
Committee, and the projected fees for any such engagement (or the aggregate of
all such engagements during the period covered by the Policy) exceeds a
pre-determined threshold established by the Audit Committee; the independent
auditor, Fund Treasurer and/or Director of Trustee Administration will notify
the Audit Committee not later than its next meeting. Such notification shall
include a general description of the services provided, the entity that is to be
the recipient of such services, the timing of the engagement, the entity's
reasons for selecting the independent auditor, and the projected fees. Such
information will allow the Audit Committee to consider whether non-audit
services provided to the adviser and Adviser Entities, which were not subject to
Audit Committee pre-approval, are compatible with maintaining the auditor's
independence with respect to the Funds.
IV. REPORTING TO THE AUDIT COMMITTEE
The Fund Treasurer or Director of Trustee Administration shall report to the
Audit Committee at each of its regular meetings regarding all Fund Services or
Fund-related Adviser Services initiated since the last such report was rendered,
including:
o A general description of the services, and
o Actual billed and projected fees, and
o The means by which such Fund Services or Fund-related Adviser Services
were pre-approved by the Audit Committee.
In addition, the independent auditor shall report to the Audit Committee
annually, and no more than 90 days prior to the filing of audit reports with the
SEC, all non-audit services provided to entities in the funds' "investment
company complex," as defined by SEC rules, that did not require pre-approval
under the Policy.
V. AMENDMENTS; ANNUAL APPROVAL BY AUDIT COMMITTEE
The Policy may be amended from time to time by the Audit Committee. Prompt
notice of any amendments will be provided to the independent auditor, Fund
Treasurer and Director of Trustee Administration. The Policy shall be reviewed
and approved at least annually by the Audit Committee.
*****
(e)(2) The percentage of services described in paragraphs (b) through (d) of
this Item approved pursuant to the "de minimis" exception under paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X during both fiscal years ended
November 30, 2005 and November 30, 2004 was zero.
(f) Not applicable.
(g) All non-audit fees billed by the registrant's accountant for services
rendered to the registrant for the fiscal years ended November 30, 2005 and
November 30, 2004 are disclosed in (b) through (d) of this Item.
During the fiscal years ended November 30, 2005 and November 30, 2004, there
were no Audit-Related Fees, Tax Fees or All Other Fees that were approved for
services to the investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser) and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant under
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
The percentage of Audit-Related Fees, Tax Fees and All Other Fees required to be
approved under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X that were
approved under the "de minimis" exception during both fiscal years ended
November 30, 2005 and November 30, 2004 was zero.
(h) The registrant's Audit Committee of the Board of Directors has considered
whether the provision of non-audit services that were rendered to the
registrant's adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another investment
adviser), and any entity controlling, controlled by, or under common control
with the investment adviser that provides ongoing services to the registrant
that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of
Regulation S-X, is compatible with maintaining the principal accountant's
independence. The Audit Committee determined that the provision of such services
is compatible with maintaining the principal accountant's independence.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C.
78c(a)(58)(A)). Douglas A. Hacker, Thomas E. Stitzel, Anne-Lee Verville and
Richard L. Woolworth are each independent trustees and collectively constitute
the entire Audit Committee.
ITEM 6. SCHEDULE OF INVESTMENTS
The registrant's "Schedule I - Investments in securities of unaffiliated
issuers" (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form
N-CSR.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Fund has delegated to Columbia Management Advisors, LLC (the "Advisor") the
responsibility to vote proxies relating to portfolio securities held by the
Fund. In deciding to delegate this responsibility to the Advisor, the Board of
Trustees of the Trust reviewed and approved the policies and procedures adopted
by the Advisor. These included the procedures that the Advisor follows when a
vote presents a conflict between the interests of the Fund and its shareholders
and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner
considered by the Advisor to be in the best interest of the Fund and its
shareholders without regard to any benefit to the Advisor, its affiliates, its
other clients or other persons. The Advisor examines each proposal and votes
against the proposal, if, in its judgment, approval or adoption of the proposal
would be expected to impact adversely the current or potential market value of
the issuer's securities. The Advisor also examines each proposal and votes the
proxies against the proposal, if, in its judgment, the proposal would be
expected to affect adversely the best interest of the Fund. The Advisor
determines the best interest of the Fund in light of the potential economic
return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having
predetermined voting guidelines. For those proposals that require special
consideration or in instances where special circumstances may require varying
from the predetermined guideline, the Advisor's Proxy Committee determines the
vote in the best interest of the Fund, without consideration of any benefit to
the Advisor, its affiliates, its other clients or other persons. The Advisor's
Proxy Committee is composed of representatives of the Advisor's equity
investments, equity research, compliance, legal and fund administration
functions. In addition to the responsibilities described above, the Proxy
Committee has the responsibility to review, on a semi-annual basis, the
Advisor's proxy voting policies to ensure consistency with internal and
regulatory agency policies and to develop additional predetermined voting
guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines
that voting on the proposal according to the predetermined guideline would be
expected to impact adversely the current or potential market value of the
issuer's securities or to affect adversely the best interest of the client.
References to the best interest of a client refer to the interest of the client
in terms of the potential economic return on the client's investment. In
determining the vote on any proposal, the Proxy Committee does not consider any
benefit other than benefits to the owner of the securities to be voted. A member
of the Proxy Committee is prohibited from voting on any proposal for which he or
she has a conflict of interest by reason of a direct relationship with the
issuer or other party affected by a given proposal. Persons making
recommendations to the Proxy Committee or its members are required to disclose
to the Committee any relationship with a party making a proposal or other matter
known to the person that would create a potential conflict of interest.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third
party vendor, to implement its proxy voting process. ISS provides proxy
analysis, record keeping services and vote disclosure services.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not yet 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 Publically Be Purchased Under
of Shares Paid Per Share Announced Plans the Plans or Programs
- -----------------------------------------------------------------------------------------------------------------------------
06/01/05 through 06/30/05 5,375 $8.92 5,375 N/A
07/01/05 through 07/31/05 5,385 $8.95 5,385 N/A
08/01/05 through 08/31/05 5,535 $9.03 5,535 N/A
09/01/05 through 09/30/05 5,724 $8.98 5,724 N/A
10/01/05 through 10/31/05 5,929 $8.77 5,929 N/A
11/01/05 through 11/30/05 6,132 $8.41 6,132 N/A
- -----------------------------------------------------------------------------------------------------------------------------
Total 34,080 $8.83 34,080 N/A
- -----------------------------------------------------------------------------------------------------------------------------
* Includes shares purchased by the Dividend Reinvestment Agent pursuant to the
Registrant's Dividend Reinvestment Plan.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have not been any material changes to the procedures by which shareholders
may recommend nominees to the registrant's board of directors, since those
procedures were last disclosed in response to requirements of Item
7(d)(2)(ii)(G) of Schedule 14A or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) The registrant's principal executive officer and principal financial
officers, based on their evaluation of the registrant's disclosure
controls and procedures as of a date within 90 days of the filing of
this report, has concluded that such controls and procedures are
adequately designed to ensure that information required to be
disclosed by the registrant in Form N-CSR is accumulated and
communicated to the registrant's management, including the principal
executive officer and principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
(b) There were no changes in the registrant's internal control over
financial reporting that occurred during the registrant's second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR
attached hereto as Exhibit 99.CODE ETH.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of
1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Colonial 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 January 25, 2006
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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 January 25, 2006
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By (Signature and Title) /S/ J. Kevin Connaughton
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J. Kevin Connaughton, Treasurer
Date January 25, 2006
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