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 811-5785
---------------------
Colonial Investment Grade Municipal Trust
------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Russell Kane, Esq.
Columbia Management Group, Inc.
One Financial Center
Boston, MA 02111
------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-772-3363
-------------------
Date of fiscal year end: 11/30/2003
------------------
Date of reporting period: 11/30/2003
-----------------
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.
[photo of domed building]
COLONIAL INVESTMENT GRADE MUNICIPAL TRUST ANNUAL REPORT
NOVEMBER 30, 2003
Not FDIC Insured
May Lose Value
No Bank Guarantee
COLONIAL FUNDS
One Financial Center
Boston, MA 02111-2621
January 14, 2004
Dear Shareholder:
I am writing to you as the independent chairman of the board of trustees of your
Colonial fund. I have been privileged to serve on the board of the Colonial
funds for more than three years and on the board of many of the affiliated
Columbia funds for more than seven years. On December 8, 2003 the board of
trustees elected me the chairman. Over those seven years I have gained a deep
sense of responsibility for the continued success of our funds. Needless to say,
the entire board shares that commitment to you.
These have been troubling times in the fund industry, with newspapers reporting
widely on trading and governance failings. Your board has been energetic over
the past year in strengthening our organization and our capacity to effectively
oversee the Colonial funds.
First, as already indicated, the trustees in December elected an independent
trustee to chair our twelve person board. All of the trustees are completely
independent of the advisor and its affiliates except for the president of the
funds, Joseph Palombo. Each committee of the board is comprised only of
independent trustees.
Second, last year we reconfigured the membership of the four person audit
committee to include only persons qualifying as "audit committee financial
experts" under the demanding standards of the Sarbanes-Oxley legislation. Few
audit committees are fortunate to possess such a breadth and depth of financial
experience.
Third, we strengthened our oversight capacity by appointing Martha Fox as chief
compliance officer of the Colonial funds, reporting directly to your fund's
audit committee. We also assigned board members to four separate investment
oversight committees, each better able to monitor performance of individual
funds.
Fourth, with guidance from our board the investment advisor last year increased
its vigilance to identify and discourage trading in open end mutual fund shares
by speculators. Monitoring personnel have attempted to identify and reject
frequent traders, but frankly that effort by itself cannot be 100% effective.
Accordingly, in February 2003 we implemented 2% redemption penalties in the open
end international funds most subject to market timing, and we are considering
still broader application of redemption fees to curb further attempts to profit
from the open end funds by short-term trading. We are also closely monitoring
legislative and regulatory initiatives that would aid in preventing abuses of
open end funds that currently cannot be detected directly by management or our
transfer agent.
Finally, to further align the interests of the trustees with those of our
shareholders, the board late last year voted to double the required investment
by each trustee in the funds that we oversee. At the same time, new policies
were instituted requiring all investment personnel and trustees to hold any
mutual fund shares for a minimum of one year (unless extraordinary circumstances
warrant an exception to be granted by a board committee).
Undoubtedly, more improvements will be made in the period ahead, but the board
wants you to know that we take our responsibilities very seriously and we commit
to you our continued efforts to serve your interests.
Sincerely,
/s/ Thomas C. Theobald
Thomas C. Theobald
Chairman
PRESIDENT'S MESSAGE
DEAR SHAREHOLDER:
It was another solid year for the US bond market. However, the positive gains
reported from all major sectors masked an extremely volatile environment. Most
of the gains were actually earned in the first half of the reporting period and
they were sufficient to offset losses or declining performance in the second
half.
From December through mid-June, interest rates generally declined and bond
prices rose as the economy struggled to gain a solid footing and the nation
prepared to go to war. In June, the yield on the 10-year Treasury note fell to a
45-year low of just over 3.1%. High-yield bonds were the primary beneficiaries
of this trend as investors seemed willing to put their fears aside and look to
better times ahead. However, after the major military battles of the war were
declared over and the economy showed clear signs of picking up, interest rates
began to rise and bond prices came down in most sectors. The 10-year yield
reached a high of 4.4% in August, then moved within a tight range around 4.0% to
4.2% for the remainder of the period. As the environment changed, high-yield and
mortgage bonds held up better than other sectors while Treasury bonds lagged.
This reversal of fortune for bonds and a shift of investor enthusiasm back to
stocks, which drove equity returns back into double digit territory, serve as a
reminder that a diversified portfolio may offer the best opportunity for
long-term investment success. Talk to your financial advisor if you're uncertain
about the level of diversification of your portfolio. Your advisor can help you
keep your investments on track.
As always, thank you for investing in Colonial Funds. We look forward to
continuing to serve you in the years ahead.
Sincerely,
/s/ Joseph R. Palombo
Joseph R. Palombo
President
January 12, 2004
Economic and market conditions change frequently. There is no assurance that the
trends described in this report will continue or commence.
1
PORTFOLIO MANAGER'S REPORT
PRICE PER SHARE AS OF 11/30/03 ($)
Net asset value 11.47
-----------------------------
Market price 10.63
-----------------------------
1-YEAR TOTAL RETURN
AS OF 11/30/03 (%)
Net asset value 10.35
-----------------------------
Market price 12.48
-----------------------------
Lipper General Municipal
Debt Funds (Leveraged)
Category average 10.65
-----------------------------
All results shown assume reinvestment of distributions.
DISTRIBUTIONS DECLARED
PER COMMON SHARE
12/1/02-11/30/03 ($)
0.68
-----------------------------
A portion of the trust's income may be subject to the alternative minimum tax.
The trust may at times purchase tax-exempt securities at a discount from their
original issue price. Some or all of this discount may be included in the
trust's ordinary income, and any market discount is taxable when distributed.
TOP 5 SECTORS AS OF 11/30/03 (%)
Local general obligations 18.8
-------------------------------
State appropriated 8.5
-------------------------------
Hospitals 7.9
-------------------------------
Investor owned 6.3
-------------------------------
Education 6.2
-------------------------------
QUALITY BREAKDOWN
AS OF 11/30/03 (%)
AAA 56.2
-----------------------------
AA 15.2
-----------------------------
A 6.4
-----------------------------
BBB 9.1
-----------------------------
BB 1.2
-----------------------------
B 0.6
-----------------------------
CC 0.1
-----------------------------
Non-rated 8.3
-----------------------------
Cash equivalents 2.9
-----------------------------
Sector breakdowns are calculated as a percentage of net assets (including
auction preferred shares). Quality breakdowns are calculated as a percentage of
total investments, including short-term obligations. Ratings shown in the
quality breakdown represent the highest rating assigned to a particular bond by
one of the following nationally-recognized rating agencies: Standard & Poor's
Corporation, Moody's Investors Service, Inc. or Fitch Investors Service, Inc.
Because the trust is actively managed, there can be no guarantee that the trust
will continue to maintain this quality breakdown or invest in these sectors in
the future.
For the 12-month period ended November 30, 2003, Colonial Investment Grade
Municipal Trust returned 10.35%, based on investment at net asset value. The
trust fell slightly behind its peer group, the Lipper General Municipal Debt
Funds (Leveraged) Category average, which averaged a return of 10.65% for the
same period.1
The trust's biggest gains came during the first half of the period, as a
sluggish economy caused interest rates to drift lower and bond prices to rise.
In particular, the trust benefited from its stake in zero coupon municipal
bonds, which gained in value as yields fell. These are bonds bought at a steep
discount to their face value. They carry no coupon but accrue interest as they
appreciate to face value at maturity. In the second half of the period, however,
the trust's performance was hurt by its overweight in zero coupon and longer
maturity bonds as the economy improved and interest rates rose.
Later in the period, the trust benefited from owning high-yield, lower-quality
municipal bonds, which rallied as the economy improved and interest rates rose.
Strong gainers included US Airways, an airline bond; bonds issued by HealthEast,
a Minnesota hospital; and bonds issued by the Seminole Tribe Convention Center,
a Florida hotel and casino (0.4%, 0.2% and 0.3% of total investments,
respectively).2
Leveraged positions provided the trust with additional income during
the period. We have, in effect, "borrowed against" the trust's investment
positions by issuing preferred shares, which payout a short-term variable rate.
When those preferred shares were issued in 1999, we invested the proceeds in
bonds with longer maturities. During this reporting period, the payout rate of
preferred shares was much lower than the yield the trust earned from those
longer-maturity bonds. The trust issued preferred shares because the leverage
they provided made it possible to enhance yield and improve performance. These
preferred shares also gave us added flexibility to take advantage of timely
market opportunities. However, the use of leverage increases the likelihood of
share price volatility and market risk. In order to reduce that extra price
volatility, we can hedge using futures contracts. When we shorten duration
(decrease price volatility) using futures, and bond prices rise, we show losses
on the futures contracts that are typically offset, at least partially, by
unrealized price gains on the bonds held.
---------
1 Lipper Inc., a widely respected data provider in the industry, calculates
an average total return for mutual funds with similar investment objectives
as those of the trust.
2 Holdings are disclosed as of November 30, 2003.
2
PORTFOLIO MANAGER'S REPORT (CONTINUED)
The trust remained approximately 90% invested in investment grade bonds. We
added tax-exempt income by buying small stakes in high-yield municipals as well
as lower-rated investment grade issues. Our focus was on economically-sensitive
sectors, with purchases issued on behalf of International Paper and Weyerhaeuser
(0.1% and 0.2% of total investments, respectively). We were also attracted to
the health care sector, which offered a good selection of higher-yielding
issues.
Going forward, we expect interest rates to rise gradually and the yield
differential between high-quality and low-quality bonds to narrow if the economy
continues to improve. If this environment prevails, we would expect
higher-yielding, lower-quality municipal bonds to continue to do well. As a
result, we have maintained our exposure to the high-yield sector. In addition,
we plan to focus on adding income, while decreasing our stake in zero coupon and
non-callable municipal bonds.
/s/ Maureen G. Newman
Maureen G. Newman has been the portfolio manager of Colonial Investment Grade
Municipal Trust since January 2002. Ms. Newman has managed various other
tax-exempt funds for Columbia Management Advisors, Inc. or its predecessors
since May 1996.
Past performance is no guarantee of future investment results. Current
performance may be higher or lower than performance data shown.
Tax-exempt investing offers current tax-free income, but it also involves
certain risks. The value of the trust shares will be affected by interest rate
changes and the creditworthiness of issues held in the trust. Investing in
high-yield securities offers the potential for high current income and
attractive total return, but involves certain risks. Lower-rated bond risks
include default of the issuer and rising interest rates. Interest income from
certain tax-exempt bonds may be subject to the federal alternative minimum tax
for individuals and corporations.
3
INVESTMENT PORTFOLIO
November 30, 2003
MUNICIPAL BONDS - 96.4% PAR VALUE
-----------------------------------------------------------
EDUCATION - 7.1%
EDUCATION - 6.2%
AL University of South Alabama,
Series 1999,
(a) 11/15/18 $2,500,000 $ 1,260,325
IL Chicago, State University Auxiliary
Facilities, Series 1998,
5.500% 12/01/23 1,085,000 1,220,972
MA State Development Finance Agency,
Western New England College,
6.125% 12/01/32 315,000 321,133
MA State Industrial Finance Agency,
Tabor Academy, Series 1998,
5.400% 12/01/28 1,000,000 1,009,510
MN University of Minnesota:
Series 1996 A,
5.750% 07/01/14 500,000 587,210
Series 1999 A,
5.500% 07/01/21 2,000,000 2,280,640
MO State Health & Educational
Facilities Authority Central Institute
for the Deaf, Series 1999,
5.850% 01/01/22 600,000 648,414
NH State Business Finance Authority,
Proctor Academy, Series 1998 A,
5.400% 06/01/17 410,000 420,890
NY St. Lawrence County Industrial
Development Agency,
St. Lawrence University, Series 1998 A,
5.500% 07/01/13 1,465,000 1,639,760
TX Texas Tech University,
Series 1999,
5.000% 02/15/29 2,500,000 2,519,200
-----------
11,908,054
-----------
STUDENT LOAN - 0.9%
NE Nebhelp, Inc., Series 1993 A-6,
6.450% 06/01/18 1,500,000 1,654,605
-----------
-----------------------------------------------------------
HEALTH CARE - 11.9%
CONGREGATE CARE RETIREMENT - 1.4%
CA La Verne Certificates
of Participation,
Brethren Hillcrest Home,
Series 2003 B,
6.625% 02/15/25 350,000 348,768
CT State Development Authority,
Elim Park Baptist, Inc.,
Series 2003,
5.750% 12/01/23 250,000 254,568
FL Capital Projects Finance Authority,
Glenridge on Palmer Ranch,
Series 2002 A,
8.000% 06/01/32 500,000 514,490
HI State Department of Budget & Finance,
Kahala Nui Project,
Series 2003 A:
7.875% 11/15/23 250,000 251,573
8.000% 11/15/33 250,000 251,943
PAR VALUE
-----------------------------------------------------------
IL State Health Facilities Authority,
Washington and Jane Smith
Community, Series 2003 A,
7.000% 11/15/32 $ 250,000 $ 249,362
PA Delaware County Authority,
Dunwoody Village, Inc.,
Series 2003 A,
5.375% 04/01/17 250,000 258,420
TX Abilene Health Facilities Development
Corp., Sears Methodist Retirement
Obligation Group,
Series 2003 A,
7.000% 11/15/33 200,000 202,390
WI State Health & Educational Facilities
Authority, Three Pillars Senior
Communities, Series 2003,
5.600% 08/15/23 300,000 297,147
-----------
2,628,661
-----------
HEALTH SERVICES - 0.1%
MA State Health & Educational
Facilities Authority, Civic
Investments, Inc., Series 2002 A,
9.000% 12/15/15 250,000 284,930
-----------
HOSPITALS - 7.9%
AZ Yavapai County Industrial Development
Authority Hospital Facilities, Yavapai
Regional Medical Center,
Series 2003 A,
6.000% 08/01/33 150,000 152,850
FL Citrus County Hospital Board,
Citrus Memorial Hospital,
Series 2002,
6.375% 08/15/32 350,000 358,740
FL Orange County Health Facilities
Authority, Orlando Regional
Healthcare System:
Series 1996 C,
6.250% 10/01/13 720,000 865,771
Series 1999,
6.000% 10/01/26 175,000 182,093
Series 2002,
5.750% 12/01/32 150,000 154,027
FL South Broward Hospital District,
Series 2002,
5.625% 05/01/32 1,000,000 1,042,660
IL Southwestern Illinois Development
Authority, Anderson Hospital,
Series 1999,
5.375% 08/15/15 380,000 385,597
IL State Development Finance Authority,
Adventist Health System, Series 1999,
5.500% 11/15/20 900,000 914,472
IL State Health Facilities Authority,
Swedish American Hospital,
Series 2000,
6.875% 11/15/30 500,000 544,605
See notes to investment portfolio.
4
INVESTMENT PORTFOLIO (CONTINUED)
November 30, 2003
MUNICIPAL BONDS (CONTINUED) PAR VALUE
-----------------------------------------------------------
HEALTH CARE (CONTINUED)
HOSPITALS (CONTINUED)
KS University Hospital Authority,
Kansas University Health System,
Series 2002,
5.625% 09/01/32 $ 500,000 $ 513,340
LA State Public Facilities Authority,
Touro Infirmary, Series 1999 A,
5.625% 08/15/29 500,000 502,310
MA State Health & Educational Facilities
Authority, South Shore Hospital,
Series 1999 F,
5.750% 07/01/29 1,000,000 1,017,770
MD State Health & Educational Facilities
Authority, University of Maryland
Medical System, Series 2000,
6.750% 07/01/30 250,000 274,772
MD State Health & Higher Education
Facilities Authority, Adventist
Healthcare, Series 2003 A:
5.000% 01/01/16 250,000 247,975
5.750% 01/01/25 250,000 252,080
MI Flint Hospital Building Authority,
Hurley Medical Center, Series 1998 B,
5.375% 07/01/28 500,000 410,045
MI State Hospital Finance Authority,
Oakwood Obligated Group,
Series 2003,
5.500% 11/01/18 400,000 417,708
MN St. Paul Housing & Redevelopment
Authority, HealthEast, Inc.:
Series 1993 B,
6.625% 11/01/17 240,000 241,152
Series 1997 A,
5.700% 11/01/15 250,000 235,922
NH Higher Educational & Health Facilities,
Catholic Medical Center, Series 1989,
6.125% 07/01/32 500,000 508,340
NJ Health Care Facilities, Capital Health
System, Inc., Series 2003 A,
5.750% 07/01/23 (b) 350,000 357,742
NV Henderson, Catholic Healthcare West:
Series 1998,
5.375% 07/01/26 250,000 234,312
Series 1999 A,
6.750% 07/01/20 500,000 539,065
NY New York State Dormitory Authority:
North Shore Long Island Jewish
Medical Center, Series 2003,
5.500% 05/01/33 100,000 102,283
Winthrop/South Nassua Hospital,
Series 2003,
5.500% 07/01/23 150,000 153,471
OH Lakewood Hospital Improvement,
Lakewood Hospital Association,
Series 2003,
5.500% 02/15/14 385,000 411,950
PAR VALUE
-----------------------------------------------------------
SC Lexington County Health Services
District, Inc., Hospital Revenue,
5.500% 11/01/23 $ 500,000 $ 515,795
TN Metropolitan Government, Nashville
& Davidson Counties, Meharry
Medical College, Series 1996,
6.000% 12/01/16 1,575,000 1,860,390
TX Comal County Health Facilities
Development, McKenna Memorial,
Series 2002 A,
6.250% 02/01/32 500,000 508,670
VA Augusta County Industrial
Development Authority, Augusta
Health Care, Inc., Series 2003,
5.250% 09/01/19 (b) 1,000,000 1,073,380
WI State Health & Educational Facilities
Authority, Aurora Health Care, Inc.,
Series 2003,
6.400% 04/15/33 175,000 182,655
-----------
15,161,942
-----------
INTERMEDIATE CARE FACILITIES - 0.2%
IL State Development Finance Authority,
Hoosier Care, Inc., Series 1999 A,
7.125% 06/01/34 470,000 387,520
-----------
NURSING HOMES - 2.3%
AK Juneau, St. Ann's Care Center,
Series 1999,
6.875% 12/01/25 500,000 508,330
CO Health Care Facilities Authority,
Pioneer Health Care, Series 1989,
10.500% 05/01/19 1,580,000 1,496,497
DE State Economic Development
Authority, Churchman Village Project,
Series 1991 A,
10.000% 03/01/21 905,000 906,466
PA Chester County Industrial Development
Authority, RHA/Pennsylvania Nursing
Home, Series 2002,
8.500% 05/01/32 765,000 740,711
PA Delaware County Authority,
Main Line and Haverford Nursing,
Series 1992,
9.000% 08/01/22 (c) 565,000 339,000
WI State Health & Educational Facilities
Authority, Metro Health Foundation,
Inc., Series 1993,
11.000% 11/01/22 (c) 1,300,000 338,000
-----------
4,329,004
-----------
-----------------------------------------------------------
HOUSING - 2.9%
ASSISTED LIVING/SENIOR - 0.2%
TX Bell County Health Facilities
Development Corp., Care Institute,
Inc., Series 1994,
9.000% 11/01/24 470,000 476,378
-----------
See notes to investment portfolio.
5
INVESTMENT PORTFOLIO (CONTINUED)
November 30, 2003
MUNICIPAL BONDS (CONTINUED) PAR VALUE
-----------------------------------------------------------
HOUSING (CONTINUED)
MULTI-FAMILY - 2.5%
AZ Maricopa County Industrial
Development Authority, National
Health Facilities II Project,
5.100% 01/01/33 $2,500,000 $ 2,548,300
FL Broward County Housing Finance
Authority, Chaves Lake Apartment
Project, Series 2000,
7.500% 07/01/40 500,000 504,980
FL Clay County Housing Finance
Authority, Madison Commons
Apartments, Series 2000 A,
7.450% 07/01/40 250,000 252,495
MN White Bear Lake, Birch Lake
Townhome Project:
Series 1989 A,
10.250% 07/15/19 775,000 780,580
Series 1989 B,
(a) 07/15/19 671,000 454,928
Resolution Trust Corp., Pass Through
Certificates, Series 1993 A,
9.750% 12/01/16 (d) 227,741 224,459
-----------
4,765,742
-----------
SINGLE FAMILY - 0.2%
CO State Housing Finance Authority,
Series 2000 B-2,
7.250% 10/01/31 165,000 171,113
IL Chicago, Series 2000 A,
7.150% 09/01/31 130,000 134,108
-----------
305,221
-----------
-----------------------------------------------------------
INDUSTRIAL - 1.5%
FOOD PRODUCTS - 0.6%
NE Washington County Waste Water
Facilities, Cargill, Inc.,
Series 2002,
5.900% 11/01/27 1,000,000 1,043,920
-----------
FOREST PRODUCTS - 0.5%
AL Camden Industrial Development
Board, Weyerhaeuser Co.,
Series 2003 B,
6.375% 12/01/24 275,000 290,513
FL Escambia County Environmental
Improvement, International Paper,
Series 2003 A,
5.750% 11/01/27 250,000 252,093
MN International Falls, Boise Cascade
Corp., Series 1999,
6.850% 12/01/29 500,000 501,185
-----------
1,043,791
-----------
MANUFACTURING - 0.1%
MO State Development Finance Board,
Procter & Gamble Co., Series 1999,
5.200% 03/15/29 250,000 261,532
-----------
PAR VALUE
-----------------------------------------------------------
OIL & GAS - 0.3%
NV Clark County Industrial Development,
Southwest Gas Corp.,
Series 2003 E,
5.800% 03/01/38 $ 250,000 $ 266,450
TX Gulf Coast Industrial Development
Authority, Citgo Petroleum,
Series 1998,
8.000% 04/01/28 250,000 258,693
-----------
525,143
-----------
-----------------------------------------------------------
OTHER - 7.1%
OTHER - 1.0%
CA Golden State Tobacco Securitization
Authority:
Series 2003 A-1,
6.250% 06/01/33 250,000 234,695
Series 2003 B,
5.500% 06/01/43 500,000 490,515
NY Convention Center, Yale Building
Project, Series 2003,
(a) 06/01/08 700,000 547,883
SC Tobacco Settlement Revenue
Management Authority, Series 2001 B,
6.375% 05/15/28 400,000 372,672
WI Badger Tobacco Asset Securitization
Corp., Series 2002,
6.375% 06/01/32 250,000 229,955
-----------
1,875,720
-----------
POOL/BOND BANK - 0.8%
FL State Municipal Loan Council,
Series 2000 A,
(a) 04/01/21 520,000 221,733
KS State Development Finance Authority,
Water Pollution Control,
5.500% 11/01/17 1,125,000 1,292,096
-----------
1,513,829
-----------
REFUNDED/ESCROWED (E) - 5.3%
CA San Joaquin Hills Transportation
Corridor Agency, Series 1993,
(a) 01/01/23 5,250,000 2,022,247
CA State Educational Facilities
Authority, Santa Clara University,
Series 1996,
5.000% 09/01/15 800,000 889,096
CT State Special Tax Obligation
Infrastructure, Series 2001 A,
5.375% 10/01/16 500,000 576,370
DC District of Columbia,
Series 1999 A,
5.375% 06/01/18 360,000 414,083
DE State Economic Development
Authority, Osteopathic Hospital
Association of Delaware,
Series 1992 A,
9.500% 01/01/22 210,000 222,067
See notes to investment portfolio.
6
INVESTMENT PORTFOLIO (CONTINUED)
November 30, 2003
MUNICIPAL BONDS (CONTINUED) PAR VALUE
-----------------------------------------------------------
OTHER (CONTINUED)
REFUNDED/ESCROWED (E) (CONTINUED)
FL Orange County Health Facilities
Authority, Orlando Regional
Healthcare System, Series 1996 C,
6.250% 10/01/13 $1,740,000 $ 2,127,742
MA State College Building Authority,
Series 1999 A,
(a) 05/01/23 2,710,000 1,036,385
NC Lincoln County, Lincoln County
Hospital, Series 1991,
9.000% 05/01/07 85,000 96,397
NC State Municipal Power Agency,
Catawba No. 1, Series 1986,
5.000% 01/02/20 1,670,000 1,799,842
TN Shelby County, Health, Education
& Housing Facilities Board, Open
Arms Development Center:
Series 1992 A,
9.750% 08/01/19 415,000 525,004
Series 1992 C,
9.750% 08/01/19 415,000 525,108
-----------
10,234,341
-----------
-----------------------------------------------------------
OTHER REVENUE - 0.8%
RECREATION - 0.8%
DC District of Columbia, Smithsonian
Institute, Series 1997,
5.000% 02/01/28 1,000,000 1,006,220
FL Capital Trust Agency, Seminole
Tribe Convention Center,
Series 2002 A,
10.000% 10/01/33 500,000 616,675
-----------
1,622,895
-----------
-----------------------------------------------------------
RESOURCE RECOVERY - 1.2%
DISPOSAL - 0.6%
IL Development Finance Authority,
Waste Management, Inc.,
Series 1997,
5.050% 01/01/10 500,000 516,240
MA State Industrial Finance Agency,
Peabody Monofill Associates, Inc.,
Series 1995,
9.000% 09/01/05 115,000 119,325
MI State Strategic Fund, Waste
Management, Series 1995,
5.200% 04/01/10 500,000 520,915
-----------
1,156,480
-----------
RESOURCE RECOVERY - 0.6%
MA State Industrial Finance Agency,
Ogden Haverhill Project,
Series 1998 A,
5.450% 12/01/12 1,250,000 1,238,987
-----------
-----------------------------------------------------------
PAR VALUE
-----------------------------------------------------------
TAX-BACKED - 39.7%
LOCAL APPROPRIATED - 2.1%
CA Compton Certificates of Participation,
Civic Center & Capital Improvement,
Series 1997 A,
5.500% 09/01/15 $ 500,000 $ 521,215
CA Los Angeles County, Series 1999 A,
(a) 08/01/21 2,135,000 878,147
MN Hibbing Economic Development
Authority, Series 1997,
6.400% 02/01/12 335,000 344,293
MO Development Finance Board,
St. Louis Convention Center,
Series 2000 C,
(a) 07/15/18 300,000 150,930
SC Berkeley County School District,
Series 2003,
5.000% 12/01/28 500,000 487,460
TX Houston Independent School District,
Public Facilities Corp., Series 1998 A,
(a) 09/15/13 2,500,000 1,667,900
-----------
4,049,945
-----------
LOCAL GENERAL OBLIGATIONS - 18.8%
AK North Slope Borough, Series 2001 A,
(a) 06/30/12 2,000,000 1,420,320
CA Carlsbad Unified School District,
Series 1997,
(a) 05/01/22 2,730,000 1,067,840
CA Las Virgenes Unified School District,
Series 2001 C,
(a) 11/01/22 1,210,000 461,385
CA Modesto High School District,
Stanislaus County, Capital Appreciation,
Series 2002 A,
(a) 08/01/19 1,350,000 634,999
CA Pomona Unified School District,
Series 2000 A,
6.450% 08/01/22 1,000,000 1,246,240
CA Vallejo City Unified School District,
Series 2002 A,
5.900% 08/01/25 2,000,000 2,335,960
CA West Contra Costa Unified School
District, Series 2001 B,
6.000% 08/01/24 250,000 296,727
CO El Paso County School District No. 11,
Colorado Springs, Series 1996,
7.125% 12/01/19 1,870,000 2,460,060
CO Highlands Ranch Metropolitan
District, Series 1996,
6.500% 06/15/11 1,375,000 1,671,835
IL Chicago:
Series 1995 A-2,
6.250% 01/01/14 1,480,000 1,780,144
Series 1999,
5.500% 01/01/23 1,000,000 1,123,040
Series 2001 A,
(a) 01/01/15 3,000,000 1,835,280
See notes to investment portfolio.
7
INVESTMENT PORTFOLIO (CONTINUED)
November 30, 2003
MUNICIPAL BONDS (CONTINUED) PAR VALUE
-----------------------------------------------------------
TAX-BACKED (CONTINUED)
LOCAL GENERAL OBLIGATIONS (CONTINUED)
IL Chicago Board of Education,
Series 1998 B-1:
(a) 12/01/11 $1,000,000 $ 739,850
(a) 12/01/21 2,000,000 807,540
IL St. Clair County,
Series 1999,
(a) 10/01/16 2,000,000 1,120,920
IL St. Clair County Public Building
Commission, Series 1997 B,
(a) 12/01/13 2,000,000 1,326,100
IL Will County School District No. 17,
Series 2001,
8.500% 12/01/15 1,400,000 1,993,614
MI Garden City School District,
Series 2001,
5.500% 05/01/16 325,000 363,116
MI St. John's Public School, Series 1998,
5.100% 05/01/25 1,000,000 1,060,590
NY New York City:
Series 1997 A,
7.000% 08/01/07 2,000,000 2,255,160
Series 2003 J,
5.500% 06/01/18 500,000 544,790
OH Kenston Local School District,
Series 2003,
5.000% 12/01/23 1,000,000 1,034,420
PA Erie, Series 2001 C,
(a) 11/15/26 2,000,000 602,980
TX Brenham, Certificates of Obligation,
Series 2001,
5.375% 08/15/16 1,040,000 1,152,237
TX Dallas County Flood Control
District, Series 2002,
7.250% 04/01/32 500,000 507,820
TX Houston Independent School District,
Series 1999 A,
4.750% 02/15/22 5,000,000 5,027,200
TX La Joya Independent School District,
Series 1998,
5.500% 02/15/12 1,000,000 1,115,630
-----------
35,985,797
-----------
SPECIAL NON-PROPERTY TAX - 4.7%
CA San Diego Redevelopment Agency,
Capital Appreciation Tax Allocation
Center, Series 2001,
(a) 09/01/21 3,725,000 1,525,723
FL Tampa Sports Authority, Tampa Bay
Arena Project, Series 1995,
5.750% 10/01/25 1,000,000 1,155,830
NM Dona Ana County, Series 1998,
5.500% 06/01/15 1,000,000 1,151,230
NY New York City Transitional Finance
Authority, Series 1998 A,
5.000% 11/15/26 1,960,000 1,993,967
PAR VALUE
-----------------------------------------------------------
NY State Local Government Assistance
Corp., Series 1993 E,
5.000% 04/01/21 $3,000,000 $ 3,182,820
-----------
9,009,570
-----------
SPECIAL PROPERTY TAX - 0.5%
CA Huntington Beach Community
Facilities District, Grand Coast Resort,
Series 2001,
6.450% 09/01/31 300,000 308,925
FL Celebration Community Development
District, Special Assessment,
Series 2003 A,
6.400% 05/01/34 250,000 255,830
FL Double Branch Community
Development District,
Series 2002 A,
6.700% 05/01/34 335,000 347,603
FL Lexington Oaks Community
Development District,
Series 1998 B,
5.500% 05/01/05 10,000 10,061
-----------
922,419
-----------
STATE APPROPRIATED - 8.5%
IN State Office Building Commission,
Women's Prison, Series 1995 B,
6.250% 07/01/16 2,820,000 3,427,118
KY State Property & Buildings
Commission, Project No. 73,
Series 2001,
5.500% 11/01/14 455,000 511,461
NY New York State Dormitory Authority:
City University, Series 1993 A,
5.750% 07/01/18 5,000,000 5,906,900
Mental Health Services, Series 1998 C,
5.000% 02/15/11 1,485,000 1,599,033
State University, Series 2000 C,
5.750% 05/15/17 1,000,000 1,175,080
NY State Urban Development Corp.,
5.600% 04/01/15 1,000,000 1,143,900
UT State Building Ownership Authority,
Facilities Master Lease,
Series 1998 C,
5.500% 05/15/19 1,750,000 1,993,915
WV State Building Commission,
Series 1998 A,
5.375% 07/01/18 500,000 560,100
-----------
16,317,507
-----------
STATE GENERAL OBLIGATIONS - 5.1%
CA State, Series 1995,
5.750% 03/01/19 70,000 73,935
DC District of Columbia,
Series 1999 A,
5.375% 06/01/18 890,000 967,359
MA State, Series 1998 C,
5.250% 08/01/17 1,000,000 1,111,640
NJ State, Series 2001,
5.250% 07/01/16 2,000,000 2,255,920
See notes to investment portfolio.
8
INVESTMENT PORTFOLIO (CONTINUED)
November 30, 2003
MUNICIPAL BONDS (CONTINUED) PAR VALUE
-----------------------------------------------------------
TAX-BACKED (CONTINUED)
STATE GENERAL OBLIGATIONS (CONTINUED)
PR Commonwealth of Puerto Rico,
Aqueduct & Sewer Authority:
Series 1995:
6.250% 07/01/12 $1,000,000 $ 1,211,590
6.250% 07/01/13 750,000 915,420
Series 2001,
5.500% 07/01/17 1,000,000 1,159,480
TX State, Series 1999 ABC,
5.500% 08/01/35 2,000,000 2,141,340
-----------
9,836,684
-----------
-----------------------------------------------------------
TRANSPORTATION - 10.3%
AIR TRANSPORTATION - 2.1%
CA Los Angeles Regional Airport
Improvement Corp., American
Airlines, Inc., Series 2000 C,
7.500% 12/01/24 (f) 750,000 736,455
IL Chicago O'Hare International Airport,
United Airlines, Inc., Series 2000 A,
6.750% 11/01/11 (c) 800,000 175,168
KY Kenton County Airport Board,
Delta Airlines, Inc.,
Series 1992 A:
7.500% 02/01/12 250,000 249,957
7.500% 02/01/20 200,000 199,600
MN Minneapolis & St. Paul Metropolitan
Airport Commission, Northwest
Airlines, Series 2001 A,
7.000% 04/01/25 350,000 327,071
NC Charlotte, US Airways, Inc.:
Series 1998,
5.600% 07/01/27 500,000 361,980
Series 2000,
7.750% 02/01/28 500,000 451,965
NY Port Authority of New York &
New Jersey JFK International Air
Terminal, Series 1997,
6.250% 12/01/08 1,000,000 1,150,740
TX Houston Industrial Development
Corp., Air Cargo, Perot Development,
Series 2002,
6.000% 03/01/23 400,000 402,756
-----------
4,055,692
-----------
AIRPORTS - 1.9%
MA State Port Authority:
Series 1998 D,
5.000% 07/01/28 2,500,000 2,523,050
Series 1999, IFRN,
10.140% 07/01/29 (f) 1,000,000 1,170,080
-----------
3,693,130
-----------
TOLL FACILITIES - 3.9%
CA Foothill/Eastern Transportation
Corridor Agency, Series 1995 A,
5.000% 01/01/35 1,000,000 927,270
PAR VALUE
-----------------------------------------------------------
CA San Joaquin Hills Transportation
Corridor Agency, Series 1997 A,
(a) 01/15/15 $2,000,000 $ 1,222,740
CO State Public Highway Authority,
E-470, Series 1997 B,
(a) 09/01/11 2,000,000 1,495,740
MA State Turnpike Authority,
Series 1999 A:
4.750% 01/01/34 1,600,000 1,582,240
5.000% 01/01/39 1,000,000 1,008,830
NH State Turnpike Systems,
Series 1991 C, IFRN,
12.314% 11/01/17 (f) 1,000,000 1,297,680
-----------
7,534,500
-----------
TRANSPORTATION - 2.4%
IL Regional Transportation Authority,
Series 1994 C,
7.750% 06/01/20 1,000,000 1,391,660
NV State Department of Business &
Industry, Las Vegas Monorail Project,
Series 2000:
7.375% 01/01/30 250,000 250,483
7.375% 01/01/40 250,000 248,570
NY Metropolitan Transportation Authority,
Series 2002 A,
5.000% 11/15/30 1,465,000 1,493,597
OH Toledo-Lucas County Port Authority,
CSX Transportation, Inc., Series 1992,
6.450% 12/15/21 1,000,000 1,099,570
-----------
4,483,880
-----------
-----------------------------------------------------------
UTILITIES - 13.9%
INDEPENDENT POWER PRODUCERS - 0.7%
MI Midland County Economic
Development Corp., Series 2000,
6.875% 07/23/09 600,000 617,364
NY New York City Industrial Development
Agency, Brooklyn Navy Yard Partners,
Series 1997,
5.650% 10/01/28 200,000 182,136
PA Carbon County Industrial Development
Authority, Panther Creek Partners,
Series 2000,
6.650% 05/01/10 150,000 162,449
PR Commonwealth of Puerto Rico
Industrial, Educational, Medical
& Environmental Cogeneration
Facilities, AES Project,
Series 2000,
6.625% 06/01/26 325,000 337,191
-----------
1,299,140
-----------
INVESTOR OWNED - 6.3%
AZ Maricopa County Pollution Control
Revenue, El Paso Electric Co.,
Series 2002 A,
6.250% 05/01/37 (f) 500,000 516,085
See notes to investment portfolio.
9
INVESTMENT PORTFOLIO (CONTINUED)
November 30, 2003
MUNICIPAL BONDS (CONTINUED) PAR VALUE
-----------------------------------------------------------
UTILITIES (CONTINUED)
INVESTOR OWNED (CONTINUED)
FL Polk County Industrial Development
Authority, Tampa Electric Co.,
Series 1996,
5.850% 12/01/30 $ 500,000 $ 497,980
IN Petersburg, Indiana Power & Light
Co., Series 1993 B,
5.400% 08/01/17 2,500,000 2,787,425
MI State Strategic Fund, Detroit Edison
Co., Series 1998 A,
5.550% 09/01/29 3,000,000 3,139,920
MS State Business Finance Corp.,
Systems Energy Resources Project,
Series 1998,
5.875% 04/01/22 1,000,000 1,001,020
MT Forsyth Pollution Control,
Portland General, Series 1998 A,
5.200% 05/01/33 150,000 154,701
OH State Air Quality Development
Authority, Cleveland Electric
Illumination, Series 2002 A,
6.000% 12/01/13 650,000 659,633
TX Brazos River Authority, Pollution
Control, TXU Electric Co.:
Series 1999,
7.700% 04/01/33 250,000 280,608
Series 2001,
5.750% 05/01/36 125,000 131,108
Series 2003 C,
6.750% 10/01/38 375,000 394,028
TX Matagorda County Navigation District
No.1, Houston Light & Power Co.,
Series 1997,
5.125% 11/01/28 2,000,000 2,058,740
WY Converse County Pollution Control,
Pacificorp, Series 1988,
3.900% 01/01/14 500,000 485,160
-----------
12,106,408
-----------
JOINT POWER AUTHORITY - 2.6%
MA Municipal Wholesale Electric Co.,
Power Supply System, Project 6-A,
5.250% 07/01/14 1,000,000 1,101,650
NC Eastern Municipal Power Agency,
Series 2003,
5.500% 01/01/16 285,000 303,653
NC State Municipal Power Agency,
Catawba Electric No. 1:
Series 1998 A,
5.500% 01/01/15 640,000 730,227
Series 2003 A,
5.250% 01/01/18 2,500,000 2,714,300
OH Municipal Electricity Generation
Agency, Series 2001,
(a) 02/15/30 1,000,000 258,370
-----------
5,108,200
-----------
PAR VALUE
-----------------------------------------------------------
MUNICIPAL ELECTRIC - 1.2%
CA State Water Resources Authority,
Series 2002 A,
5.500% 05/01/14 $1,000,000 $ 1,131,930
NC University of North Carolina at
Chapel Hill, Series 1997,
(a) 08/01/14 1,000,000 648,260
NE Public Power District, Series 1998 A,
5.250% 01/01/11 500,000 554,845
-----------
2,335,035
-----------
WATER & SEWER - 3.1%
GA Atlanta, Series 1993,
5.500% 11/01/22 (g) 1,000,000 1,130,570
MA State Water Resources Authority,
Series 1998 A,
4.750% 08/01/27 1,000,000 995,850
MS Five Lakes Utility District,
8.250% 07/15/24 140,000 135,722
NY New York City Municipal Water
Finance Authority, Water & Sewer
System, Capital Appreciation,
Series 1998 D,
(a) 06/15/20 3,900,000 1,849,458
WA King County, Series 1999,
5.250% 01/01/30 1,750,000 1,818,512
-----------
5,930,112
-----------
TOTAL MUNICIPAL BONDS
(cost of $173,309,069) 185,086,714
-----------
MUNICIPAL PREFERRED STOCK - 0.3%
-----------------------------------------------------------
HOUSING - 0.3%
MULTI-FAMILY - 0.3%
Charter Municipal Mortgage
Acceptance Co.,
7.600% 11/30/50 (d)
(cost of $500,000) 500,000 554,760
-----------
SHORT-TERM OBLIGATIONS - 2.9%
-----------------------------------------------------------
VARIABLE RATE DEMAND NOTES (H) - 2.9%
FL Alachua County Health Facilities
Authority, Oak Hammock at the
University of Florida,
Series 2002 A,
1.100% 10/01/32 1,100,000 1,100,000
IN State Development Finance Authority,
Cathedral Trustees, Inc.,
Series 2001,
1.150% 09/01/26 100,000 100,000
MO State Development Finance Board,
St. Louis Convention Center,
Series 2000 C,
1.150% 12/01/20 400,000 400,000
MO State Health &Educational
Facilities Authority,
Washington University,
Series 1996 C,
1.050% 09/01/30 200,000 200,000
See notes to investment portfolio.
10
INVESTMENT PORTFOLIO (CONTINUED)
November 30, 2003
SHORT-TERM OBLIGATIONS (CONTINUED) PAR VALUE
-----------------------------------------------------------
VARIABLE RATE DEMAND NOTES (H) (CONTINUED)
MS Jackson County Pollution Control,
Chevron USA, Inc.,
Series 1993,
1.080% 06/01/23 $ 200,000 $ 200,000
NY New York, Series 1993 A-4,
1.080% 08/01/22 3,000,000 3,000,000
SD Lower Brule Sioux Tribe,
Series 1999,
1.150% 12/01/11 500,000 500,000
------------
TOTAL SHORT TERM OBLIGATIONS
(cost of $5,500,000) 5,500,000
------------
TOTAL INVESTMENTS - 99.6%
(cost of $179,309,069) (i) 191,141,474
------------
OTHER ASSETS & LIABILITIES, NET - 0.4% 824,947
-----------------------------------------------------------
NET ASSETS* - 100.0% $191,966,421
============
NOTES TO INVESTMENT PORTFOLIO:
--------------------------------------------------------------------------------
* Net assets represent both Common Shares and Auction Preferred Shares.
(a) Zero coupon bond.
(b) This security has been purchased on a delayed delivery basis.
(c) As of November 30, 2003, the Trust held securities of certain issuers that
have filed filed for bankruptcy protection under Chapter 11, representing
0.4% of net assets. This issuer is in default of certain debt covenants.
Income is not being accrued.
(d) This security is exempt from registration under Rule 144A of the Securities
Act of 1933 and may be resold in transactions exempt from registration,
normally to qualified institutional buyers. At November 30, 2003, the value
of these securities amounted to $779,219, which represents 0.4% of net
assets.
(e) The Trust has been informed that each issuer has placed direct obligations
of the U.S. Government in an irrevocable trust, solely for the payment of
principal and interest.
(f) Interest rates on variable rate securities change periodically. The rate
listed is as of November 30, 2003.
(g) This security, or a portion thereof, with a market value of $887,497, is
being used to collateralize open futures contracts.
(h) Variable rate demand notes are considered short-term obligations. Interest
rates change periodically on specified dates. These securities are payable
on demand and are secured by either letters of credit or other credit
support agreements from banks. The rates listed are as of November 30, 2003.
(i) Cost for federal income tax purposes is $179,038,757.
Short futures contracts open at November 30, 2003:
PAR VALUE UNREALIZED
COVERED BY EXPIRATION APPRECIATION
TYPE CONTRACTS MONTH AT 11/30/03
------------------------------------------------------------
10 Year
U.S. Treasury Note $43,000,000 Mar-04 $64,823
ACRONYM NAME
------- ---------------------------
IFRN Inverse Floating Rate Note
See notes to financial statements.
11
STATEMENT OF ASSETS AND LIABILITIES
November 30, 2003
ASSETS:
Investments, at cost $179,309,069
------------
Investments, at value $191,141,474
Cash 1,979
Receivable for:
Interest 2,745,717
Futures variation margin 329,219
Deferred Trustees' compensation plan 6,756
------------
Total Assets 194,225,145
------------
LIABILITIES:
Payable for:
Investments purchased on a delayed
delivery basis 1,411,359
Distributions--common shares 661,768
Distributions--preferred shares 9,370
Preferred shares remarketing commissions 2,467
Investment advisory fee 99,455
Pricing and bookkeeping fees 14,029
Trustees' fees 1,990
Custody fee 2,923
Audit fee 32,890
Deferred Trustees' fees 6,756
Other liabilities 15,717
------------
Total Liabilities 2,258,724
------------
Auction Preferred Shares (2,400 shares
issued and outstanding at $25,000
per share) $ 60,000,000
------------
COMPOSITION OF NET ASSETS
APPLICABLE TO COMMON SHARES:
Paid-in capital--common shares $126,993,094
Undistributed net investment income 732,461
Accumulated net realized loss (7,656,362)
Net unrealized appreciation on:
Investments 11,832,405
Futures contracts 64,823
------------
Net assets at value applicable to 11,509,000
common shares of beneficial interest
outstanding $131,966,421
============
Net asset value per common share $ 11.47
============
STATEMENT OF OPERATIONS
For the Year Ended November 30, 2003
INVESTMENT INCOME:
Interest $ 10,267,350
------------
EXPENSES:
Investment advisory fee 1,236,147
Pricing and bookkeeping fees 108,493
Trustees' fees 14,032
Preferred shares remarketing commissions 150,582
Custody fee 12,951
Other expenses 185,124
------------
Total Expenses 1,707,329
Custody earnings credit (468)
------------
Net Expenses 1,706,861
------------
Net Investment Income 8,560,489
------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FUTURES CONTRACTS:
Net realized gain (loss) on:
Investments 2,668,407
Futures contracts (1,669,888)
------------
Net realized gain 998,519
------------
Net change in unrealized appreciation/
depreciation on:
Investments 3,919,883
Futures contracts (120,708)
------------
Net change in unrealized
appreciation/depreciation 3,799,175
------------
Net Gain 4,797,694
------------
Net Increase in Net Assets from Operations 13,358,183
------------
LESS DISTRIBUTIONS DECLARED TO
PREFERRED SHAREHOLDERS:
From net investment income (586,950)
------------
Net Increase in Net Assets from Operations
Applicable to Common Shares $ 12,771,233
------------
See notes to financial statements.
12
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED
NOVEMBER 30,
---------------------------------
INCREASE (DECREASE) IN NET ASSETS: 2003 2002
-------------------------------------------------------------------------------------------------------------------------------
OPERATIONS:
Net investment income $ 8,560,489 $ 9,004,083
Net realized gain (loss) on investments and futures contracts 998,519 (1,289,037)
Net change in unrealized appreciation/depreciation on investments and futures contracts 3,799,175 654,972
------------ ------------
Net Increase from Operations 13,358,183 8,370,018
------------ ------------
LESS DISTRIBUTIONS DECLARED TO PREFERRED SHAREHOLDERS:
From net investment income (586,950) (870,588)
------------ ------------
Increase in Net Assets from Operations Applicable to Common Shares 12,771,233 7,499,430
------------ ------------
LESS DISTRIBUTIONS DECLARED TO COMMON SHAREHOLDERS:
From net investment income (7,854,896) (7,722,539)
------------ ------------
Total Increase (Decrease) in Net Assets Applicable to Common Shares 4,916,337 (223,109)
NET ASSETS APPLICABLE TO COMMON SHARES:
Beginning of period 127,050,084 127,273,193
------------ ------------
End of period (including undistributed net investment income
of $732,461 and $624,554, respectively) $131,966,421 $127,050,084
============ ============
NUMBER OF TRUST SHARES:
Common Shares:
Outstanding at end of period 11,509,000 11,509,000
------------ ------------
Preferred Shares:
Outstanding at end of period 2,400 2,400
------------ ------------
See notes to financial statements.
13
NOTES TO FINANCIAL STATEMENTS
November 30, 2003
NOTE 1. ORGANIZATION
Colonial Investment Grade Municipal Trust (the "Trust") is a Massachusetts
business trust registered under the Investment Company Act of 1940 (the "Act"),
as amended, as a diversified, closed-end management investment company.
INVESTMENT GOAL
The Trust seeks as high a level of after-tax return as is consistent with
prudent risk, by pursuing current income generally exempt from ordinary federal
income tax and opportunities for long-term appreciation from a portfolio
primarily invested in investment grade municipal bonds.
TRUST SHARES
The Trust may issue an unlimited number of common shares. On August 26, 1999 the
Trust issued 2,400 Auction Preferred Shares ("APS").
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates. The
following is a summary of significant accounting policies consistently followed
by the Trust in the preparation of its financial statements.
SECURITY VALUATION
Debt securities generally are valued by a pricing service 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. Certain 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. Debt
securities for which quotations are readily available are valued at an
over-the-counter or exchange bid quotation.
Short-term obligations maturing within 60 days are valued at amortized cost,
which approximates market value.
Futures contracts are valued at the settlement price established each day by the
board of trade or exchange on which they are traded.
Options are valued at the last reported sale price, or in the absence of a sale,
the mean between the last quoted bid and ask price.
Investments for which market quotations are not readily available 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.
FUTURES CONTRACTS
The Trust may invest in municipal and U.S. Treasury futures contracts. The Trust
will invest in these instruments to hedge against the effects of changes in the
value of portfolio securities due to anticipated changes in interest rates
and/or market conditions, for duration management, or when the transactions are
economically appropriate to the reduction of risk inherent in the management of
the Trust and not for trading purposes. The use of futures contracts involves
certain risks, which include: (1) imperfect correlation between the price
movement of the instruments and the underlying securities, (2) inability to
close out positions due to differing trading hours, or the temporary absence of
a liquid market, for either the instrument or the underlying securities, or (3)
an inaccurate prediction by Columbia Management Advisors, Inc. of the future
direction of interest rates. Any of these risks may involve amounts exceeding
the variation margin recorded in the Trust's Statement of Assets and Liabilities
at any given time.
Upon entering into a futures contract, the Trust deposits cash or securities
with the broker in an amount sufficient to meet the initial margin requirement.
Subsequent payments are made or received by the Trust equal to the daily change
in the contract value and are recorded as variation margin payable or receivable
and offset in unrealized gains or losses. The Trust also identifies portfolio
securities as segregated with the custodian in a separate account in an amount
equal to the futures contracts. The Trust recognizes a realized gain or loss
when the contract is closed or expires.
14
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 2003
OPTIONS
The Trust may write call and put options on futures it owns or in which it may
invest. Writing put options tends to increase the Trust's exposure to the
underlying instrument. Writing call options tends to decrease the Trust's
exposure to the underlying instrument. When the Trust writes a call or put
option, an amount equal to the premium received is recorded as a liability and
subsequently marked-to-market to reflect the current value of the option
written. Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised or
closed are added to the proceeds or offset against the amounts paid on the
underlying future transaction to determine the realized gain or loss. The Trust
as a writer of an option has no control over whether the underlying future may
be sold (call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the future underlying the written option.
There is the risk the Trust may not be able to enter into a closing transaction
because of an illiquid market.
The Trust may also purchase put and call options. Purchasing call options tends
to increase the Trust's exposure to the underlying instrument. Purchasing put
options tends to decrease the Trust's exposure to the underlying instrument. The
Trust pays a premium, which is included in the Trust's Statement of Assets and
Liabilities as an investment and subsequently marked-to-market to reflect the
current value of the option. The risk associated with purchasing put and call
options is limited to the premium paid. Premiums paid for purchasing options
which expire are treated as realized losses. Premiums paid for purchasing
options which are exercised or closed are added to the amounts paid or offset
against the proceeds on the underlying future transaction to determine the
realized gain or loss. The Trust's custodian will set aside cash or liquid
portfolio securities equal to the amount of the written options contract
commitment in a separate account.
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's custodian will
set aside cash or liquid portfolio securities equal to the amount of the delayed
delivery commitment in a separate account.
INCOME RECOGNITION
Interest income is recorded on the accrual basis. Premium and discount are
amortized and accreted, respectively, on all debt securities.
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, by distributing
substantially all of its taxable or tax-exempt income, if any, for its tax year,
and as such will not be subject to federal income taxes. In addition, by
distributing in each calendar year substantially all of its net investment
income, capital gains and certain other amounts, if any, the Trust will not be
subject to federal excise tax. Therefore, no federal income or excise tax
provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to common shareholders are recorded on ex-date. Distributions to
Auction Preferred shareholders are recorded daily and payable at the end of each
dividend period. Each dividend payment period for the APS is generally seven
days. The applicable dividend rate for the APS on November 30, 2003 was 0.95%.
For the year ended November 30, 2003, the Trust declared dividends to Auction
Preferred shareholders amounting to $586,950, representing an average APS
dividend rate of 0.98%.
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.
For the year ended November 30, 2003, permanent differences resulting primarily
from differing treatments for market discount reclassifications and discount
accretion/premium amortization on debt securities were identified and
reclassified among the components of the Trust's net assets as follows:
UNDISTRIBUTED ACCUMULATED
NET INVESTMENT NET REALIZED PAID-IN
INCOME LOSS CAPITAL
------------ ------------ ------
$(10,736) $10,736 $--
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
15
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 2003
The tax character of distributions paid during the years ended November 30, 2003
and November 30, 2002 was as follows:
NOVEMBER 30, NOVEMBER 30,
2003 2002
------------ ------------
Distributions paid from:
Tax-Exempt Income $8,411,303 $8,504,760
Ordinary Income* 30,543 88,367
Long-Term Capital Gains -- --
* For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
As of November 30, 2003, the components of distributable earnings on a tax basis
were as follows:
UNDISTRIBUTED UNDISTRIBUTED
UNDISTRIBUTED ORDINARY LONG-TERM NET UNREALIZED
TAX-EXEMPT INCOME INCOME CAPITAL GAINS APPRECIATION*
----------------- ------------ ------------- --------------
$1,366,434 $-- $-- $12,102,717
* The difference between book-basis and tax-basis net unrealized appreciation
is primarily due to discount accretion/premium amortization on debt
securities.
Unrealized appreciation (depreciation) at November 30, 2003, based on cost of
investments for federal income tax purposes was:
Unrealized appreciation $16,706,859
Unrealized depreciation (4,604,142)
-----------
Net unrealized appreciation $12,102,717
-----------
The following capital loss carryforwards are 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
---------- -------------
2008 $2,403,657
2010 1,238,884
----------
$3,642,541
----------
Capital loss carryforwards of $2,688,020 were utilized and/or expired during the
year ended November 30, 2003 for the Trust.
Expired capital loss carryforwards are recorded as a reduction of paid-in
capital.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
On April 1, 2003, Colonial Management Associates, Inc., the previous investment
advisor to the Trust, merged into Columbia Management Advisors, Inc.
("Columbia"), formerly known as Columbia Management Co., an indirect,
wholly-owned subsidiary of FleetBoston Financial Corporation. As a result of the
merger, Columbia now serves as the Trust's investment advisor. The merger did
not change the way the Trust is managed, the investment personnel assigned to
manage the Trust or the fees paid by the Trust.
INVESTMENT ADVISORY FEE
Columbia is the investment advisor to the Trust and provides administrative and
other services. Columbia receives a monthly fee at the annual rate of 0.65% of
the Trust's average weekly net assets, including assets applicable to the APS.
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").
Under its pricing and bookkeeping agreement with the Trust, Columbia receives
from the Trust an annual flat fee of $10,000 paid monthly, and in any month that
the Trust's average weekly net assets, including assets applicable to the APS,
exceed $50 million, an additional monthly fee. The additional fee rate is
calculated by taking into account the fees payable to State Street under the
Outsourcing Agreement. This rate is applied to the average weekly net assets,
including assets applicable to the APS, of the Trust for that month. The Trust
also pays additional fees for pricing services. For the year ended November 30,
2003, the effective pricing and bookkeeping fee rate was 0.057%. Columbia pays
the total fees collected to State Street under the Outsourcing Agreement.
CUSTODY CREDITS
The Trust has an agreement with its custodian bank under which custody fees may
be reduced by balance credits. 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
The Trust pays no compensation to its officers, all of whom are employees of
Columbia or its affiliates.
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.
16
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
November 30, 2003
NOTE 5. PREFERRED SHARES
The Trust currently has outstanding 2,400 APS. The APS are redeemable at the
option of the Trust on any dividend payment date at the redemption price of
$25,000 per share, plus an amount equal to any dividends accumulated on a daily
basis unpaid through the redemption date (whether or not such dividends have
been declared).
Under the Act, the Trust is required to maintain asset coverage of at least 200%
with respect to the APS as of the last business day of each month in which any
APS are outstanding. Additionally, the Trust is required to meet more stringent
asset coverage requirements under the terms of the APS Agreement and in
accordance with the guidelines prescribed by the APS' rating agencies.
Should these requirements not be met, or should dividends accrued on the APS not
be paid, the Trust may be restricted in its ability to declare dividends to
common shareholders or may be required to redeem certain APS. At November 30,
2003, there were no restrictions on the Trust.
NOTE 6. PORTFOLIO INFORMATION
PURCHASES AND SALES OF SECURITIES
For the year ended November 30, 2003, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $23,663,236 and
$28,408,168, respectively.
NOTE 7. DISCLOSURE OF SIGNIFICANT RISKS
AND CONTINGENCIES
INDUSTRY FOCUS
The Trust may focus its investments in certain industries, subjecting it to
greater risk than a trust that is more diversified
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 and industry events 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 due to the
extent that there is no established retail secondary market and because of a
decline in the value of such securities.
GEOGRAPHIC CONCENTRATION
The Trust had greater than 5% of its net assets at November 30, 2003, invested
in debt obligations issued by the states of California, Florida, Illinois,
Massachusetts, New York and Texas and their respective political subdivisions,
agencies and public authorities to obtain funds for various purposes. The Trust
is more susceptible to economic and political factors adversely affecting
issuers of each respective state's specific municipal securities than are
municipal bond funds that are not concentrated to the same extent in these
issuers.
17
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as follows
(common shares unless otherwise noted):
PERIOD YEAR
YEAR ENDED NOVEMBER 30, ENDED ENDED
------------------------------------------------------ NOVEMBER 30, DECEMBER 31,
2003 2002 2001 2000 1999 (a) 1998
--------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.04 $ 11.06 $ 10.55 $ 10.31 $ 11.49 $ 11.43
------------ ------------ ------------ ------------ ------------ ------------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.74(b) 0.78(b)(c) 0.75(b) 0.81(d) 0.58 0.60
Net realized and unrealized gain (loss)
on investments and futures contracts 0.42 (0.05)(c) 0.52 0.27 (1.12) 0.07
------------ ------------ ------------ ------------ ------------ ------------
Total from Investment Operations 1.16 0.73 1.27 1.08 (0.54) 0.67
------------ ------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS DECLARED TO
PREFERRED SHAREHOLDERS:
From net investment income (0.05) (0.08) (0.16) (0.22) (0.05) --
------------ ------------ ------------ ------------ ------------ ------------
Total from Investment Operations
Applicable to Common Shareholders 1.11 0.65 1.11 0.86 (0.59) 0.67
------------ ------------ ------------ ------------ ------------ ------------
LESS DISTRIBUTIONS DECLARED
TO COMMON SHAREHOLDERS:
From net investment income (0.68) (0.67) (0.60) (0.60) (0.52) (0.61)
In excess of net investment income -- -- -- -- -- --(e)
------------ ------------ ------------ ------------ ------------ ------------
Total Distributions Declared
to Common Shareholders (0.68) (0.67) (0.60) (0.60) (0.52) (0.61)
------------ ------------ ------------ ------------ ------------ ------------
LESS SHARE TRANSACTIONS:
Commission and offering
costs--preferred shares -- -- -- (0.02) (0.07) --
------------ ------------ ------------ ------------ ------------ ------------
NET ASSET VALUE, END OF PERIOD $ 11.47 $ 11.04 $ 11.06 $ 10.55 $ 10.31 $ 11.49
============ ============ ============ ============ ============ ============
Market price per share-- common shares $ 10.63 $ 10.09 $ 10.87 $ 8.92 $ 9.06 $ 11.19
============ ============ ============ ============ ============ ============
Total return-- based on market
value-- common shares (f) 12.48% (1.10)% 29.28% 5.20% (14.64)%(g) 11.94%
============ ============ ============ ============ ============ ============
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h)(i) 1.31% 1.28% 1.28% 1.31% 1.03%(j) 0.77%
Net investment income before preferred
stock dividend (h)(i) 6.57% 7.06%(c) 6.80% 7.91% 5.75%(j) 5.24%
Net investment income after preferred
stock dividend (h)(i) 6.12% 6.38%(c) 5.38% 5.80% 5.26%(j) 5.24%
Portfolio turnover rate 13% 10% 31% 23% 25%(g) 24%
Net assets, end of period (000's)--
common shares $ 131,966 $127,050 $127,273 $ 121,366 $ 118,660 $ 132,242
(a)The Trust changed its fiscal year end from December 31 to November 30.
(b)Per share data was calculated using average shares outstanding during the
period.
(c)Effective December 1, 2001, the Trust adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended November 30, 2002, was to increase net investment income per
share by $0.01, increase net realized and unrealized loss per share by
$0.01, increase the ratio of net investment income to average net assets
from 6.98% to 7.06% and increase the ratio of net investment income
(adjusted for dividend payments to preferred shareholders) from 6.30% to
6.38%. Per share data and ratios for periods prior to November 30, 2002
have not been restated to reflect this change in presentation.
(d)The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e)Rounds to less than $0.01 per share.
(f)Total return at market value assuming all distributions reinvested at prices
calculated in accordance with the Dividend Reinvestment Plan.
(g)Not annualized.
(h)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(i)Ratios reflect average net assets available to common shares only.
(j)Annualized.
18
FINANCIAL HIGHLIGHTS (CONTINUED)
Selected data for a share outstanding throughout each period is as follows
(common shares unless otherwise noted):
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
-------------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.87 $ 11.05 $ 9.93 $ 11.05 $ 10.96
----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.62 0.63 0.64 0.67 0.79
Net realized and unrealized gain (loss) on
investments and futures contracts 0.58 (0.19) 1.11 (1.12) 0.09
----------- ----------- ----------- ----------- -----------
Total from Investment Operations 1.20 0.44 1.75 (0.45) 0.88
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS DECLARED TO COMMON SHAREHOLDERS:
From net investment income (0.64) (0.62) (0.63) (0.67) (0.79)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 11.43 $ 10.87 $ 11.05 $ 9.93 $ 11.05
=========== =========== =========== =========== ===========
Market price per share--common shares $ 10.56 $ 10.13 $ 9.88 $ 9.25 $ 10.75
=========== =========== =========== =========== ===========
Total return--based on market value--common shares (a) 10.76% 9.06% 13.87% 8.12)% (2.16)%
=========== =========== =========== =========== ===========
RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA:
Expenses (b) 0.83% 0.88% 1.08% 0.94% 0.87%
Net investment income (b) 5.63% 5.80% 6.08% 6.46% 7.08%
Portfolio turnover rate 21% 20% 37% 34% 35%
Net assets, end of period (000's)--common shares $ 131,503 $ 125,125 $ 127,118 $ 114,260 $ 127,213
(a)Total return at market value assuming all distributions reinvested at prices
calculated in accordance with the Dividend Reinvestment Plan.
(b)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
ASSET COVERAGE REQUIREMENTS
INVOLUNTARY AVERAGE
ASSET LIQUIDATING MARKET
TOTAL AMOUNT COVERAGE PREFERENCE VALUE
OUTSTANDING PER SHARE PER SHARE PER SHARE
---------------------------------------------------------------------------------------------------------------------------------
11/30/03 $60,000,000 $79,986 $25,004 $25,000
11/30/02 60,000,000 77,937 25,000 25,000
11/30/01 60,000,000 78,030 25,005 25,000
11/30/00 60,000,000 75,569 25,009 25,000
11/30/99* 60,000,000 74,444 25,003 25,000
* On August 26, 1999, the Trust began offering Auction Preferred Shares.
19
REPORT OF INDEPENDENT AUDITORS
TO THE TRUSTEES AND THE SHAREHOLDERS OF COLONIAL INVESTMENT GRADE MUNICIPAL
TRUST
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 Investment Grade Municipal
Trust (the "Trust") at November 30, 2003, 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 auditing standards generally accepted in
the United States of America, which 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, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 12, 2004
20
UNAUDITED INFORMATION
FEDERAL INCOME TAX INFORMATION
99.64% of the distributions from net investment income will be treated as exempt
income for federal income tax purposes.
21
DIVIDEND REINVESTMENT PLAN
COLONIAL INVESTMENT GRADE MUNICIPAL TRUST
Pursuant to the Trust's Dividend Reinvestment Plan (the "Plan"), all
shareholders whose shares are registered in their own names will have all
distributions reinvested automatically in additional shares of the Trust by
EquiServe Trust Company, N.A. (the "Plan Agent") unless a shareholder elects to
receive cash. Shareholders whose shares are held in the name of a broker or
nominee will have distributions reinvested automatically by the broker or
nominee in additional shares under the Plan, unless the service is not provided
by the broker or the nominee or the shareholder elects to receive distributions
in cash. If the service is not available, such distributions will be paid in
cash. Shareholders whose shares are held in the name of a broker or nominee
should contact the broker or nominee for details. All distributions to
shareholders who elect not to participate in the Plan will be paid by check
mailed directly to the shareholder of record on the record date therefore by the
Plan Agent as the dividend disbursing agent.
Non-participants in the Plan will receive distributions in cash. Distributions
payable to participants in the Plan will be applied by the Plan Agent, acting as
agent for Plan participants, to the purchase of shares of the Trust. Such shares
will be purchased by the Plan Agent at the then current market price of such
shares in the open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts.
Participants in the Plan may withdraw from the Plan upon written notice to the
Plan Agent. When a participant withdraws from the Plan or upon termination of
the Plan as provided below, certificates for whole shares credited to his
account under the Plan will be issued and a cash payment will be made for any
fraction of a share credited to such account. A shareholder's notice of election
to withdraw from the Plan must be received by the Plan Agent before the record
date for a dividend in order to be given effect with respect to that dividend.
In the case of shareholders such as banks, brokers or nominees holding shares
for others who are the beneficial owners of those shares, the Plan Agent will
administer the Plan on the basis of the number of shares certified from time to
time by the shareholder of record as representing the total amount registered in
such shareholder's name and held for the account of beneficial owners who are to
participate in the Plan.
There is no charge to Plan participants for reinvesting distributions. The Plan
Agent's fees for the handling of the reinvestment of distributions will be paid
by the Trust. Each participant in the Plan will pay a pro rata share of
brokerage commissions incurred with respect to the Plan Agent's open market
purchases in connection with the reinvestment of distributions. Purchase orders
from the participants in the Plan may be combined with those of other
participants and the price paid by any particular participant may be the average
of the price paid on various orders executed on behalf of groups of participants
in the Plan.
The automatic reinvestment of distributions will not relieve participants of any
income tax that may be payable on such dividends or distributions.
The Plan may be amended or terminated on 30 days' written notice to Plan
participants. All correspondence concerning the Plan should be directed to
EquiServe Trust Company, N.A., by mail at P.O. Box 43010, Providence, RI
02940-3010, or by phone at 1-800-730-6001.
22
TRUSTEES
Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth were
appointed to the Board of Trustees of the Fund. Messrs. Simpson and Woolworth
had been directors of 15 Columbia Funds and 20 funds in the CMG Fund Trust. Also
effective October 8, 2003, the incumbent trustees of the Fund were elected as
directors of the 15 Columbia Funds and as trustees of the 20 funds in the CMG
Fund Trust. The new combined Board of Trustees/Directors of the Fund now
oversees 119 funds in the Columbia Funds Complex (including the former Liberty
Funds, former Stein Roe Funds, Columbia Funds and CMG Funds). Several of these
trustees/directors also serve on the Boards of other funds in the Columbia Funds
Complex.
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.
Number of
portfolios in
Year first Columbia Funds
elected or Complex Other
Position appointed Principal occupation(s) overseen by directorships
Name, address and age with Funds to office1 during past five years Trustee/Director held
---------------------------------------------------------------------------------------------------------------------------------
Disinterested Trustees
----------------------
Douglas A. Hacker Trustee 1996 Executive Vice President-Strategy of United Airlines 119 Orbitz
(age 48) (airline) since December, 2002 (formerly President (online
P.O. Box 66100 of UAL Loyalty Services (airline) from September, travel
Chicago, IL 60666 2001 to December, 2002; Executive Vice President company)
and Chief Financial Officer of United Airlines from
March, 1993 to September, 2001).
Janet Langford Kelly Trustee 1996 Chief Administrative Officer and Senior Vice 119 None
(age 45) President, Kmart Holding Corporation (consumer
3100 West Beaver Road goods) since September, 2003 (formerly Executive
Troy, MI 48084-3163 Vice President-Corporate Development and
Administration, General Counsel and Secretary,
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).
Richard W. Lowry Trustee 1995 Private Investor since August, 1987 (formerly 121 3 None
(age 67) Chairman and Chief Executive Officer, U.S. Plywood
10701 Charleston Drive Corporation (building products manufacturer)).
Vero Beach, FL 32963
Charles R. Nelson Trustee 1981 Professor of Economics, University of Washington, 119 None
(age 61) since January, 1976; Ford and Louisa Van Voorhis
Department of Economics Professor of Political Economy, University of
University of Washington Washington, since September, 1993; Director,
Seattle, WA 98195 Institute for Economic Research, University of
Washington, since September, 2001; Adjunct
Professor of Statistics, University of Washington,
since September, 1980; Associate Editor, Journal of
Money Credit and Banking, since September, 1993;
consultant on econometric and statistical matters.
John J. Neuhauser Trustee 1985 Academic Vice President and Dean of Faculties 122 3,4 Saucony, Inc.
(age 60) since August, 1999, Boston College (formerly (athletic
84 College Road Dean, Boston College School of Management from footwear);
Chestnut Hill, MA 02467-3838 September, 1977 to September, 1999). SkillSoft Corp.
(e-learning)
Patrick J. Simpson Trustee 2000 Partner, Perkins Coie L.L.P. (law firm). 119 None
(age 58)
1211 S.W. 5th Avenue
Suite 1500
Portland, OR 97204
23
TRUSTEES (CONTINUED)
Number of
portfolios in
Year first Columbia Funds
elected or Complex Other
Position appointed Principal occupation(s) overseen by directorships
Name, address and age with Funds to office1 during past five years Trustee/Director held
---------------------------------------------------------------------------------------------------------------------------------
Disinterested Trustees (continued)
----------------------------------
Thomas E. Stitzel Trustee 1998 Business Consultant since 1999 (formerly Professor 119 None
(age 67) of Finance from 1975 to 1999, College of Business,
2208 Tawny Woods Place Boise State University); Chartered Financial Analyst.
Boise, ID 83706
Thomas C. Theobald Trustee 1996 Managing Director, William Blair Capital Partners 119 Anixter
(age 66) and (private equity investing) since September, 1994. International
27 West Monroe Street, Chairman of (network
Suite 3500 the Board6 support
Chicago, IL 60606 equipment
distributor),
Jones Lang
LaSalle (real
estate
management
services) and
MONY Group
(life insurance)
Anne-Lee Verville Trustee 1998 Author and speaker on educational systems needs 120 4 Chairman of
(age 58) (formerly General Manager, Global Education the Board of
359 Stickney Hill Road Industry, IBM Corporation (computer and Directors,
Hopkinton, NH 03229 technology) from 1994 to 1997). Enesco Group,
Inc. (designer,
importer and
distributor of
giftware and
collectibles)
Richard L. Woolworth Trustee 1991 Retired since December 2003 (formerly Chairman 119 NW Natural
(age 62) and Chief Executive Officer, The Regence Group (a natural gas
100 S.W. Market Street (regional health insurer); Chairman and Chief service provider)
#1500 Executive Officer, BlueCross BlueShield of Oregon;
Portland, OR 97207 Certified Public Accountant, Arthur Young & Company).
24
TRUSTEES (CONTINUED)
Number of
portfolios in
Year first Columbia Funds
elected or Complex Other
Position appointed Principal occupation(s) overseen by directorships
Name, address and age with Funds to office1 during past five years Trustee/Director held
---------------------------------------------------------------------------------------------------------------------------------
Interested Trustees
-------------------
William E. Mayer2 Trustee 1994 Managing Partner, Park Avenue Equity Partners 121 3 Lee Enterprises
(age 63) (private equity) since February, 1999 (formerly (print media),
399 Park Avenue Founding Partner, Development Capital LLC from WR Hambrecht
Suite 3204 November 1996 to February, 1999). + Co. (financial
New York, NY 10022 service provider)
and First Health
(healthcare)
Joseph R. Palombo2 Trustee 2000 Executive Vice President and Chief Operating 120 5 None
(age 50) and Officer of Columbia Management Group, Inc. since
One Financial Center President December, 2001 and Director, Executive Vice
Boston, MA 02111 President and Chief Operating Officer of Columbia
Management Advisors, Inc. (Advisor) since April,
2003 (formerly Chief Operations Officer of Mutual
Funds, Liberty Financial Companies, Inc. from
August, 2000 to November, 2001; Executive Vice
President of Stein Roe & Farnham Incorporated
(Stein Roe) from April, 1999 to April, 2003;
Director of Colonial Management Associates, Inc.
(Colonial) from April, 1999 to April, 2003;
Director of Stein Roe from September, 2000 to
April, 2003) President of Columbia Funds and
Galaxy Funds since February, 2003 (formerly Vice
President from September 2002 to February 2003);
Manager of Columbia Floating Rate Limited Liability
Company since October, 2000; (formerly Vice
President of the Columbia Funds from April, 1999
to August, 2000; Chief Operating Officer and Chief
Compliance Officer, Putnam Mutual Funds from
December, 1993 to March, 1999).
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. Mr. Palombo is an interested person as an employee of the Advisor.
3 Messrs. Lowry, Neuhauser and Mayer each also serve as a director/trustee of
the All-Star Funds, currently consisting of 2 funds, which are advised by
an affiliate of the Advisor.
4 Mr. Neuhauser and Ms. Verville also serve as disinterested directors of
Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the
Advisor.
5 Mr. Palombo also serves as an interested director of Columbia Management
Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor.
6 Mr. Theobald was appointed as Chairman of the Board effective December 10,
2003. Prior to that date, Mr. Palombo was Chairman of the Board.
25
OFFICERS
Year first
Position with elected or
Columbia appointed
Name, address and age funds to office Principal occupation(s) during past five years
------------------------------------------------------------------------------------------------------------------------------------
Officers
--------
Vicki L. Benjamin Chief 2001 Controller of the Columbia Funds and of the Liberty All-Star Funds since May, 2002;
(Age 42) Accounting Chief Accounting Officer of the Columbia Funds and Liberty All-Star Funds since
One Financial Center Officer and June, 2001; Controller and Chief Accounting Officer of the Galaxy Funds since
Boston, MA 02111 Controller September, 2002 (formerly Vice President, Corporate Audit, State Street Bank and
Trust Company from May, 1998 to April, 2001).
J. Kevin Connaughton Treasurer 2000 Treasurer of the Columbia Funds and of the Liberty All-Star Funds since December,
(Age 39) 2000; Vice President of the Advisor since April, 2003 (formerly Controller of the
One Financial Center Liberty Funds and of the Liberty All-Star Funds from February, 1998 to October,
Boston, MA 02111 2000); Treasurer of the Galaxy Funds since September 2002; Treasurer, Columbia
Management Multi-Strategy Hedge Fund, LLC since December, 2002 (formerly Vice
President of Colonial from February, 1998 to October, 2000).
David A. Rozenson Secretary 2003 Secretary of the Columbia Funds and of the Liberty All-Star Funds since December,
(Age 49) 2003; Senior Counsel, Fleet Boston Financial Corporation since January, 1996;
One Financial Center Associate General Counsel, Columbia Management Group since November, 2002.
Boston, MA 02111
26
This page intentionally left blank.
This page intentionally left blank.
TRANSFER AGENT
--------------------------------------------------------------------------------
IMPORTANT INFORMATION ABOUT THIS REPORT
The Transfer Agent for Colonial Investment Grade Municipal Trust is:
EquiServe Trust Company, N.A.
150 Royall Street
Canton, MA 02021
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 policies and procedures that the trust uses to determine
how to vote proxies relating to its portfolio securities is available (i)
without charge, upon request, by calling 800-730-6001 and (ii) on the Securities
and Exchange Commission's website at http://www.sec.gov.
This report has been prepared for shareholders of Colonial Investment Grade
Municipal Trust.
COLONIAL INVESTMENT GRADE MUNICIPAL TRUST ANNUAL REPORT
130-02/574Q-1103 (01/04) 03/3859
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.
Not applicable at this time.
Item 5. Audit Committee of Listed Registrants.
Not applicable at this time.
Item 6. Reserved.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Fund has delegated to Columbia Management Advisors, Inc. (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. 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 three classes of proxy proposals. The first two classes are
predetermined guidelines to vote for or against specific proposals, unless
otherwise directed by the Proxy Committee. The third class is for proposals
given special consideration by the Proxy Committee. In addition, the Proxy
Committee considers requests to vote on proposals in the first two classes other
than according to the predetermined guidelines.
The Advisor generally votes in favor of proposals related to the following
matters: selection of auditors (unless the auditor receives more than 50% of its
revenues from non-audit activities from the company and its affiliates),
election of directors (unless the proposal gives management the ability to alter
the size of the board without shareholder approval), different persons for
chairman of the board /chief executive officer (unless, in light of the size of
the company and the nature of its shareholder base, the role of chairman and CEO
are not held by different persons), compensation (if provisions are consistent
with standard business practices), debt limits (unless proposed specifically as
an anti-takeover action), indemnifications (unless for negligence and or
breaches of fiduciary duty), meetings, name of company, principal office (unless
the purpose is to reduce regulatory or financial supervision), reports and
accounts (if the certifications required by Sarbanes-Oxley Act of 2002 have been
provided), par value, shares (unless proposed as an anti-takeover action), share
repurchase programs, independent committees, and equal opportunity employment.
The Advisor generally votes against proposals related to the following matters:
super majority voting, cumulative voting, preferred stock, warrants, rights,
poison pills, reclassification of common stock and meetings held by written
consent.
The Advisor gives the following matters special consideration: new proposals,
proxies of investment company shares (other than those covered by the
predetermined guidelines), mergers/acquisitions (proposals where a hostile
merger/acquisition is apparent or where the Advisor represents ownership in more
than one of the companies involved), shareholder proposals (other than those
covered by the predetermined guidelines), executive/director compensation (other
than those covered by the predetermined guidelines), pre-emptive rights and
proxies of international issuers which block securities sales between submission
of a proxy and the meeting (proposals for these securities are voted only on the
specific instruction of the Proxy Committee and to the extent practicable in
accordance with predetermined guidelines).
In addition, if a portfolio manager or other party involved with a client of the
Advisor or Fund account concludes that the interest of the client or Fund
requires that a proxy be voted on a proposal other than according to the
predetermined guidelines, he or she may request that the Proxy Committee
consider voting the proxy differently. If any person (or entity) requests the
Proxy Committee (or any of its members) to vote a proxy other than according to
a predetermined guideline, that person must furnish to the Proxy Committee a
written explanation of the reasons for the request and a description of the
person's (or entity's) relationship with the party proposing the matter to
shareholders or any other matter known to the person (or entity) that would
create a potential conflict of interest.
The Proxy Committee may vary from the 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.
The Advisor's Proxy Committee is composed of operational and investment
representatives of its regional offices as well as senior representatives of the
Advisor's equity investments, equity research, compliance and legal functions.
During the first quarter of each year, the Proxy Committee reviews all
guidelines and establishes guidelines for expected new proposals. In addition to
these reviews and its other responsibilities described above, its functions
include annual review of its Proxy Voting Policy and Procedures to ensure
consistency with internal policies and regulatory agency policies, and
development and modification of voting guidelines and procedures as it deems
appropriate or necessary.
The Advisor uses 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. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable at this time.
Item 9. Submission of Matters to a Vote of Security Holders.
Not applicable at this time.
Item 10. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial
officer, based on their evaluation of the registrant's disclosure controls
and procedures as of a date within 90 days of the filing of this report,
have concluded that such controls and procedures are adequately designed to
ensure that information required to be disclosed by the registrant in Form
N-CSR is accumulated and communicated to the registrant's management,
including the principal executive officer and principal financial officer,
or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure.
(b) There were no changes in the registrant's internal control over financial
reporting that occurred during the registrant's last fiscal half-year (the
registrant's second fiscal half-year in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 11. Exhibits.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR
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 Investment Grade Municipal Trust
------------------------------------------------------------------
By (Signature and Title) /s/ Joseph R. Palombo
------------------------------------------------------
Joseph R. Palombo, President
Date February 4, 2004
--------------------------------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title) /s/ Joseph R. Palombo
------------------------------------------------------
Joseph R. Palombo, President
Date February 4, 2004
--------------------------------------------------------------------------
By (Signature and Title) /s/ J. Kevin Connaughton
------------------------------------------------------
J. Kevin Connaughton, Treasurer
Date February 4, 2004
--------------------------------------------------------------------------