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: 811-9533
Colonial Insured Municipal Fund
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(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
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(Address of principal executive offices) (Zip code)
Vincent Pietropaolo, Esq.
Columbia Management Group, Inc.
One Financial Center
Boston, MA 02111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-772-3698
Date of fiscal year end: 11/30/05
Date of reporting period: 05/31/05
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
Item 1. Reports to Stockholders.
[PHOTO]
COLONIAL INSURED MUNICIPAL FUND
Semiannual Report
May 31, 2005
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
[GRAPHIC]
Dear Shareholder:
In 2004, Colonial Funds became part of Columbia Management, the asset
management division of Bank of America, one of the largest, most respected
financial institutions in the United States. As a direct result of this merger,
a number of changes are in the works that we believe offer significant
potential benefits for our shareholders. First, some funds may be merged in
order to eliminate redundancies, others may be liquidated and fund management
teams will be aligned to maximize performance potential. You will receive more
detailed information about these changes if your fund is affected and you may
be asked to vote on certain fund changes. In this matter, your timely response
will enable us to implement the changes in 2005.
As a result of these changes, we believe we will offer shareholders an even
stronger lineup of investment options. What will not change as we enter this
next phase of consolidation is our commitment to the highest standards of
performance and our dedication to superior service. Change for the good has
another name: it's called improvement. It helps move us forward, and we believe
that it represents progress for all our shareholders in their quest for
long-term financial success.
In the pages that follow, you'll find a detailed report from the fund's manager
on key factors that influenced your fund's performance. We hope that you will
read the manager reports carefully and discuss any questions you might have
with your financial advisor.
As always, we thank you for choosing Colonial Funds. We appreciate your
continued confidence. And, we look forward to helping you keep your long-term
financial goals on target in the years to come.
Sincerely,
/s/ Christopher L. Wilson
Christopher L. Wilson
President, Columbia Funds
Christopher L. Wilson is Head of Mutual Funds for Columbia Management,
President of Columbia Funds, President & CEO of Nations Funds and President of
Galaxy Funds, responsible for the day-to-day delivery of mutual fund services
to the firm's investors. With the exception of distribution, Chris oversees all
aspects of the mutual fund services operation, including treasury, investment
accounting and shareholder and broker services.
Chris joined Bank of America in August 2004.
The views expressed in the President's Message and Portfolio Manager's Report
reflect the current views of the respective parties. These views are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions that are difficult to predict so actual outcomes and results may
differ significantly from the views expressed. These views are subject to
change at any time based upon economic, market or other conditions and the
respective parties disclaim any responsibility to update such views. These
views may not be relied on as investment advice and, because investment
decisions for a Colonial Fund are based on numerous factors, may not be relied
on as an indication of trading intent on behalf of any particular Colonial
Fund. References to specific company securities should not be construed as a
recommendation or investment advice.
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PORTFOLIO MANAGER'S REPORT
For the six-month period ended May 31, 2005, Colonial Insured Municipal Fund
had a return of 3.60%, based on its market price. Changes in the market price
of the fund's shares reflect investor demand and are not necessarily linked
directly to changes in the fund's net asset value. The fund returned 5.52%,
based on investment at net asset value. The fund outperformed its peer group,
the Lipper Insured Municipal Debt Funds (Leveraged) Category, which averaged a
5.11% return over the same period./1/
Non-callable and high-yield bonds helped performance
The fund's position in non-callable bonds in the long-intermediate maturity
range helped boost the fund's return. During the period, yields on non-callable
bonds with effective maturity dates 15 years and longer generally declined and
these bonds rose in value. A non-call provision means that the issuer cannot
redeem the bonds prior to maturity. The fund's exposure to the short end of the
maturity spectrum fared poorly over the past six months, as yields on these
bonds rose and prices fell in response to the continued cycle of short-term
interest rate increases by the Federal Reserve (the Fed).
A rebound in the airline sector also aided performance. In particular, holdings
backed by US Airways (2.9% of total investments) improved as it became likely
that the company would emerge from bankruptcy in 2005 and announced a proposed
merger with America West, which bolstered the value of the carrier's bonds./2/
Our high-yield holdings generally helped performance as this sector also
benefited from an environment of relatively low to declining interest rates
among intermediate and long-term maturities, which made lower quality issues
appealing to yield-seeking investors.
Dividend fell, leveraged positions provided income advantage
The fund's dividend dropped as short-term interest rates rose and the fund was
required to raise its payout to preferred shareholders. The fund earned some of
its income through leverage, which comes from preferred shares issued in 1999.
We invested the proceeds from the preferred shares in longer-maturity,
higher-yielding bonds, and then paid out to preferred shareholders at a
short-term rate influenced by the federal funds rate -- the overnight rate at
which banks lend each other money. As the fed funds rate climbed during the
period, the payout rate to preferred shareholders rose, reducing the income
earned by the fund. In addition, leverage adds volatility to the fund, but
continued to give the fund an income advantage over non-leveraged funds.
- -----------
/1/Lipper Inc., a widely respected data provider in the industry, calculates an
average total return (assuming reinvestment of distributions) for mutual
funds with investment objectives similar to those of the fund. Lipper makes
no adjustment for the effect of sales loads./ /
/2/Holdings are disclosed as of May 31, 2005, and are subject to change.
Price per share as of 05/31/05 ($)
Net asset value 14.90
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Market price 13.97
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6-month (cumulative) total return as of 05/31/05 (%)
Net asset value 5.52
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Market price 3.60
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Lipper Insured Municipal Debt
Funds (Leveraged) Category
average 5.11
----------------------------------
All results shown assume reinvestment of distributions.
Distributions declared per common share 12/01/04-05/31/05 ($)
0.44
--------
A portion of the fund's income may be subject to the alternative minimum tax.
The fund 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
fund's ordinary income, and any market discount is taxable when distributed.
Top 5 sectors as of 05/31/05 (%)
Refunded/escrowed 11.4
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Special non-property tax 10.6
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Water & sewer 6.7
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Airport 6.6
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Local general obligations 6.3
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Quality breakdown as of 05/31/05 (%)
AAA 83.8
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AA 4.4
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A 5.6
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BBB 2.0
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BB 0.7
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Non-rated 3.0
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Cash equivalents 0.5
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Sector and quality breakdowns are calculated as a percentage of total
investments. Ratings shown in the quality breakdown represent the rating
assigned to a particular bond by one of the following nationally recognized
rating agencies: Standard & Poor's, a division of The McGraw-Hill Companies,
Inc., Moody's Investors Service, Inc. or Fitch Ratings Ltd.
Because the fund is actively managed, there is no guarantee that the fund will
continue to invest in these sectors or maintain this quality breakdown in the
future.
1
[GRAPHIC]
PORTFOLIO MANAGER'S REPORT (continued)
[GRAPHIC]
In addition, a hedge involving US Treasuries dampened the fund's return during
the period. The intention of the hedge was to reduce the fund's sensitivity to
interest rate changes and brought it in line with that of its peers. However,
by the end of the reporting period the hedge had not fully achieved its desired
result.
Insurance sector update
The bond insurance industry has gained several participants, adding to
competition, yet it is dominated by established companies characterized by
ultraconservative underwriting standards. The industry continues to diversify
from traditional municipal business as international opportunities mature.
MBIA, the world's largest bond insurer, has received subpoena requests from
state and federal authorities covering several points of interest and is fully
cooperating with investigators. Based on available information to date, we
remain comfortable in MBIA's underwriting model and claims paying ability and
continue to approve their municipal insured bonds for purchase.
Subdued inflation and low interest rates keep fund focused on longer term bonds
In our opinion, if economic growth is gradual and inflation controlled,
interest rates are likely to stay relatively low. Against this backdrop, we
will continue to maintain our focus on long to intermediate-term municipal
issues while placing special emphasis on bonds with good call protection.
/s/ Kimberly A.Campbell
Kimberly Campbell has been the portfolio manager of Colonial Insured Municipal
Fund since October 2003. Ms. Campbell has been with Columbia Management
Advisors, Inc. or its predecessors or affiliate organizations since 1995.
Performance data quoted represents past performance and current performance may
be lower or higher. Past performance is no guarantee of future results.
Investing in fixed-income securities may involve certain risks, including the
credit quality of individual issuers, possible prepayments, market or economic
developments and yield and share price fluctuations due to changes in interest
rates.
Tax-exempt investing offers current tax-exempt income, but it also involves
special risks. The value of the fund will be affected by interest rate changes
and the creditworthiness of issues held in the fund. When interest rates go up,
bond prices generally drop and vice versa. Interest income from certain
tax-exempt bonds may be subject to certain state and local taxes and, if
applicable, the alternative minimum tax. Capital gains are not exempt from
income taxes.
Investing in high-yield or "junk bonds" offers the potential for higher income
than investments in investment-grade bonds but they also have a higher degree
of risk. Changes in economic conditions or other circumstances may adversely
affect a high-yield bond issuer's ability to make timely principal and interest
payments.
2
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INVESTMENT PORTFOLIO
May 31, 2005 (Unaudited)
MUNICIPAL BONDS - 156.3% PAR ($) VALUE ($)
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EDUCATION - 8.1%
EDUCATION - 4.2%
AR University Revenue,
Construction UAMS Campus,
Series 2004 B,
Insured: MBIA
5.000% 11/01/28 1,475,000 1,570,668
DC Catholic University of America,
Series 1999,
Insured: AMBAC
5.625% 10/01/29 (a) 1,000,000 1,091,200
---------
Education Total 2,661,868
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STUDENT LOAN - 3.9%
MA Educational Loan Authority,
Issue G, Series 2000 A, AMT,
Insured: MBIA
5.950% 12/01/15 335,000 343,687
MT Higher Education Student
Assistance Corp.,
Series 1999 B, AMT,
6.400% 12/01/32 2,000,000 2,113,160
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Student Loan Total 2,456,847
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EDUCATION TOTAL 5,118,715
---------
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HEALTH CARE - 12.0%
CONTINUING CARE RETIREMENT - 1.8%
NY Dormitory Authority, Miriam
Osborn Memorial Home,
Series 2000 B,
Insured: ACA
6.875% 07/01/19 500,000 567,000
NY Suffolk County Industrial
Development Agency, Jefferson
Ferry, Series 1999 A,
7.200% 11/01/19 550,000 598,857
---------
Continuing Care Retirement Total 1,165,857
---------
HEALTH SERVICES - 3.5%
WI Health & Educational Facilities
Authority, Marshfield Clinic,
Series 1999,
Insured: RAD
6.250% 02/15/29 2,000,000 2,225,940
---------
Health Services Total 2,225,940
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HOSPITALS - 6.7%
CO Health Facilities Authority,
Parkview Medical Center, Inc.,
Series 2001,
6.600% 09/01/25 400,000 444,780
PAR ($) VALUE ($)
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ME Health & Higher Educational
Facilities Authority, Series 1999 B,
Insured: MBIA
6.000% 07/01/29 1,500,000 1,649,685
NV Henderson, Catholic Healthcare
West, Series 1999 A,
6.750% 07/01/20 500,000 560,135
OK Industrial Authority, Revenue
Refunding, Health Systems
Obligation Group,
Series A,
Insured: MBIA
5.750% 08/15/29 1,155,000 1,258,153
WA Health Care Facilities Authority,
Kadlec Medical Center, Series 2001,
Insured: RAD
5.875% 12/01/21 300,000 328,299
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Hospitals Total 4,241,052
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HEALTH CARE TOTAL 7,632,849
---------
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HOUSING - 5.5%
ASSISTED LIVING/SENIOR - 1.1%
DE Kent County, Heritage at Dover,
Series 1999, AMT,
7.625% 01/01/30 240,000 221,561
NC Medical Care Commission,
DePaul Community Facilities Project,
Series 1999,
7.625% 11/01/29 480,000 502,862
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Assisted Living/Senior Total 724,423
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MULTI-FAMILY - 0.8%
FL Broward County Housing Finance
Authority, Chaves Lake Apartment
Project, Series 2000 A, AMT,
7.500% 07/01/40 250,000 252,635
FL Clay County Housing Finance
Authority, Madison Commons
Apartments, Series 2000 A, AMT,
7.450% 07/01/40 250,000 253,397
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Multi-Family Total 506,032
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SINGLE-FAMILY - 3.6%
AK Housing Finance Corp.,
Series 1999 A-1,
Insured: FHA
6.150% 06/01/39 1,575,000 1,659,420
CA Rural Home Mortgage Finance
Authority, Series 1998 A, AMT,
Guarantor: FNMA
6.350% 12/01/29 135,000 138,600
See Accompanying Notes to Financial Statements.
3
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INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($)
-----------------------------------------------------------
HOUSING (CONTINUED)
SINGLE-FAMILY (CONTINUED)
CO Housing Finance Authority,
Series 2000 B-2, AMT,
7.250% 10/01/31 95,000 97,873
OK Housing Finance Agency,
Series 2000 C-2, AMT,
7.550% 09/01/28 375,000 380,993
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Single-Family Total 2,276,886
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HOUSING TOTAL 3,507,341
---------
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OTHER - 23.1%
OTHER - 3.5%
AL Incentives Financing Authority,
Series 1999 A,
Insured: AMBAC
6.000% 10/01/29 2,000,000 2,240,620
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Other Total 2,240,620
---------
POOL/BOND BANK - 1.7%
UT Water Finance Agency,
Series 2002 B,
Insured: AMBAC
5.125% 07/01/23 1,000,000 1,076,430
---------
Pool/Bond Bank Total 1,076,430
---------
REFUNDED/ESCROWED (B) - 17.9%
AL Jefferson County Sewer Authority,
Series 1999 A,
Insured: FGIC
Pre-refunded 02/01/09
5.750% 02/01/38 2,000,000 2,206,740
IL Health Facilities Authority, Swedish
American Hospital, Series 2000,
Pre-refunded 05/15/10
6.875% 11/15/30 500,000 588,505
MI Jonesville Community Schools,
Series 1999,
Insured: FGIC
Pre-refunded 05/01/09
5.750% 05/01/20 1,000,000 1,099,830
OH Jackson, Consolidated Health
Systems, Series 1999,
Insured: RAD
Pre-refunded 10/01/09
6.250% 10/01/29 1,500,000 1,703,925
OK Industrial Authority, Revenue
Refunding, Health Systems Obligation
Group, Series A,
Insured: MBIA
Pre-refunded 08/15/09
5.750% 08/15/29 845,000 942,521
PAR ($) VALUE ($)
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PA Philadelphia, Series 1999 C,
Insured: MBIA
Pre-refunded 03/01/10
5.750% 03/01/29 1,750,000 1,955,975
RI North Kingstown, Series 1999,
Insured: FGIC
Pre-refunded 10/01/09
5.875% 10/01/25 2,000,000 2,246,040
WV Hospital Finance Authority,
Charleston Area Medical Center,
Series 2000,
Pre-refunded 09/01/10
6.750% 09/01/30 500,000 589,885
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Refunded/Escrowed Total 11,333,421
----------
OTHER TOTAL 14,650,471
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RESOURCE RECOVERY - 1.3%
DISPOSAL - 1.3%
CA Salinas Valley Solid Waste Authority,
Series 2002, AMT,
Insured: AMBAC
5.125% 08/01/22 750,000 789,090
----------
Disposal Total 789,090
----------
RESOURCE RECOVERY TOTAL 789,090
----------
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TAX-BACKED - 49.4%
LOCAL APPROPRIATED - 5.8%
CA Sacramento City Financing Authority,
City Hall & Redevelopment Projects,
Series 2002 A,
Insured: FSA
5.000% 12/01/32 1,000,000 1,045,910
IL Chicago Park District,
Series 2004 A,
Insured: AMBAC
5.000% 01/01/25 1,000,000 1,062,190
IN Carmel, Industrial School Building
Corp., First Mortgage,
Series 2003,
Insured: MBIA
5.000% 07/15/22 1,000,000 1,072,840
OK Grady County Correctional Facilities,
Series 1999,
Insured: MBIA
6.000% 11/01/29 500,000 514,615
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Local Appropriated Total 3,695,555
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LOCAL GENERAL OBLIGATIONS - 9.9%
CA Centinela Valley Union High
School District, Series 2002 A,
Insured: MBIA
5.250% 02/01/22 730,000 841,150
See Accompanying Notes to Financial Statements.
4
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INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($)
------------------------------------------------------------
TAX-BACKED (CONTINUED)
LOCAL GENERAL OBLIGATIONS (CONTINUED)
CA Empire Unified School District No.
1987-1-A, Series 2002,
Insured: AMBAC
(c) 10/01/18 1,665,000 938,044
CA Morgan Hill Unified School District,
Series 2002,
Insured: FGIC
(c) 08/01/21 1,000,000 483,960
CA Union Elementary School District,
Series 1999 A,
Insured: FGIC
(c) 09/01/16 1,400,000 879,998
CA Vallejo City Unified School District,
Series 2002 A,
Insured: MBIA
5.900% 02/01/21 500,000 611,080
CT East Hartford, Series 2003,
Insured: FGIC
5.000% 05/01/11 1,000,000 1,101,230
IL Coles & Cumberland Counties
Unified School District, Series 2000,
Insured: FSA
(c) 12/01/14 2,080,000 1,411,779
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Local General Obligations Total 6,267,241
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SPECIAL NON-PROPERTY TAX - 16.7%
IL Metropolitan Pier & Exposition
Authority, McCormick Place
Expansion Project, Series 1999,
Insured: FGIC
5.500% 12/15/24 (a) 2,000,000 2,188,880
LA Ernest N. Morial Exhibition Hall
Authority, Special Tax,
Series 2004, Insured: AMBAC
5.000% 07/15/23 2,000,000 2,144,380
MI Trunk Line Department of Treasury,
Series 2004,
Insured: FSA
5.250% 11/01/21 1,000,000 1,154,590
NJ Economic Development Authority,
Motor Vehicle Revenue,
Series 2004 A,
Insured: MBIA
5.250% 07/01/26 2,000,000 2,331,820
NY Urban Development Corp.,
State Personal Income Tax,
Series 2004 A-2,
Insured: MBIA
5.500% 03/15/22 1,000,000 1,182,070
PAR ($) VALUE ($)
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PR Commonwealth of Puerto Rico
Highway & Transportation Authority,
Series 2002 E,
Insured: FSA
5.500% 07/01/23 1,000,000 1,201,820
Virgin Islands Public Finance Authority,
Series 1999,
6.500% 10/01/24 350,000 398,619
----------
Special Non-Property Tax Total 10,602,179
----------
SPECIAL PROPERTY TAX - 3.9%
CA Huntington Park Public Financing
Authority Revenue, Series 2004,
Insured: FSA
5.250% 09/01/19 1,190,000 1,336,263
CA Pittsburg Redevelopment Agency, Los
Medanos Project, Series 1999,
Insured: AMBAC
(c) 08/01/26 2,500,000 916,025
FL Lexington Oaks Community
Development District, Series 2000 A,
7.200% 05/01/30 185,000 194,130
----------
Special Property Tax Total 2,446,418
----------
STATE APPROPRIATED - 7.1%
IL Department of Central Management
Services, Series 1999,
Insured: MBIA
5.850% 07/01/19 2,000,000 2,201,820
KY Asset Liability Commission,
Insured: MBIA
5.000% 05/01/25 (d) 1,000,000 1,069,330
NJ Economic Development Authority,
Revenue Refunding, School Facilities
Construction, Series N-1,
Insured: FGIC
5.500% 09/01/27 1,000,000 1,202,980
----------
State Appropriated Total 4,474,130
----------
STATE GENERAL OBLIGATIONS - 6.0%
CA Series 2002,
Insured: AMBAC
6.000% 04/01/16 500,000 601,845
MA Series 2004 C,
Insured: AMBAC
5.500% 12/01/24 2,000,000 2,379,400
PR Commonwealth of Puerto Rico,
Series 2004 A,
Insured: FSA
5.000% 07/01/31 750,000 826,440
----------
State General Obligations Total 3,807,685
----------
TAX-BACKED TOTAL 31,293,208
----------
See Accompanying Notes to Financial Statements.
5
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INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($)
------------------------------------------------------------
TRANSPORTATION - 31.5%
AIR TRANSPORTATION - 7.0%
FL Miami-Dade County Industrial
Development Authority, Airis
Miami II, LLC, Series 1999 A, AMT,
Insured: AMBAC
6.000% 10/15/25 1,000,000 1,103,090
IL Chicago O'Hare International Airport,
United Air Lines, Inc.,
Series 2000 A, AMT,
6.750% 11/01/11 (e) 500,000 190,360
MA Port Authority, US Airways,
Inc., Series 1999, AMT,
Insured: MBIA
6.000% 09/01/21 2,500,000 2,604,725
MN Minneapolis & St. Paul
Metropolitan Airports Commission,
Northwest Airlines, Inc.,
Series 2001 A, AMT,
7.000% 04/01/25 250,000 234,100
NC Charlotte/Douglas International
Airport, US Airways, Inc.,
Series 1998, AMT,
5.600% 07/01/27 (f) 200,000 120,126
Series 2000, AMT,
7.750% 02/01/28 (f) 250,000 176,125
---------
Air Transportation Total 4,428,526
---------
AIRPORTS - 10.3%
DC Metropolitan Washington Airports
Authority, Series 2003 A, AMT,
Insured: FGIC
5.500% 10/01/19 1,000,000 1,096,440
NY Niagara Frontier Transportation
Authority, Series 1999 A, AMT,
Insured: MBIA
5.625% 04/01/29 2,000,000 2,148,480
TN Memphis-Shelby County Airport
Authority, Series 1999 D, AMT,
Insured: AMBAC
6.000% 03/01/24 3,000,000 3,302,370
---------
Airports Total 6,547,290
---------
PORTS - 5.3%
WA Seattle Special Port Authority,
Terminal 18, Series 1999 A,
Insured: MBIA
6.000% 09/01/29 3,000,000 3,336,900
---------
Ports Total 3,336,900
---------
TOLL FACILITIES - 4.3%
CO Northwest Parkway Public Highway
Authority, Series 2001 D,
7.125% 06/15/41 200,000 216,296
PAR ($) VALUE ($)
------------------------------------------------------------
NY Thruway Authority, Second
General Highway & Bridge Trust
Fund, Series A,
Insured: MBIA
5.000% 04/01/24 1,000,000 1,078,060
NY Triborough Bridge &
Tunnel Authority, Series 2002
Insured: MBIA
5.500% 11/15/20 1,200,000 1,421,280
----------
Toll Facilities Total 2,715,636
----------
TRANSPORTATION - 4.6%
IN Transportation Finance Authority,
Highway Revenue, Series 2004 A,
Insured: FGIC
5.250% 06/01/20 1,000,000 1,101,640
NV Department of Business & Industry,
Las Vegas Monorail Project,
Series 2000,
7.375% 01/01/40 250,000 262,278
NY Metropolitan Transportation
Authority, Series 2002 A,
Insured: FSA
5.000% 11/15/30 1,500,000 1,579,050
----------
Transportation Total 2,942,968
----------
TRANSPORTATION TOTAL 19,971,320
----------
------------------------------------------------------------
UTILITIES - 25.4%
INDEPENDENT POWER PRODUCERS - 1.3%
MI Midland County Economic
Development Corp.,
Series 2000 A, AMT,
6.875% 07/23/09 500,000 524,495
PR Commonwealth of Puerto Rico
Industrial, Tourist, Educational,
Medical & Environmental
Cogeneration Facilities, AES Project,
Series 2000, AMT,
6.625% 06/01/26 295,000 320,461
----------
Independent Power Producers Total 844,956
----------
INVESTOR OWNED - 8.4%
CA Pollution Control Financing
Authority, San Diego Gas & Electric
Co., Series 1991 A, AMT,
6.800% 06/01/15 500,000 595,885
HI Department of Budget & Finance,
Hawaiian Electric Co.,
Series 1999 C, AMT,
Insured: AMBAC
6.200% 11/01/29 2,000,000 2,231,080
TX Brazos River Authority, Houston
Industries, Inc., Series 1998 A,
Insured: AMBAC
5.125% 05/01/19 2,100,000 2,235,366
See Accompanying Notes to Financial Statements.
6
[GRAPHIC]
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($)
----------------------------------------------------------
UTILITIES (CONTINUED)
INVESTOR OWNED (CONTINUED)
TXU Energy Co. LLC,
Series 2003 C, AMT,
6.750% 10/01/38 215,000 240,078
----------
Investor Owned Total 5,302,409
----------
JOINT POWER AUTHORITY - 0.9%
NC Eastern Municipal Power Agency,
Series 1999 D,
6.700% 01/01/19 500,000 560,530
----------
Joint Power Authority Total 560,530
----------
MUNICIPAL ELECTRIC - 4.3%
CA Department of Water Resources,
Series 2002 A,
Insured: AMBAC
5.500% 05/01/14 1,000,000 1,136,360
TX Lower Colorado River Authority,
Series 1999 A,
Insured: AMBAC
5.500% 05/15/21 1,500,000 1,623,555
----------
Municipal Electric Total 2,759,915
----------
WATER & SEWER - 10.5%
AZ Water System Revenue, Phoenix
Civic Improvement Corp.,
Series 2001,
Insured: FGIC
5.500% 07/01/21 1,000,000 1,180,560
FL Tallahassee Consolidated Utilities
System, Series 2001,
Insured: FGIC
5.500% 10/01/19 1,360,000 1,600,407
SC Lugoff-Elgin Water Authority,
Series 1999,
Insured: MBIA
6.050% 11/01/31 1,500,000 1,676,715
TX Houston, Utility System Revenue,
Series 2004 A,
Insured: FSA
5.250% 05/15/20 2,000,000 2,196,060
----------
Water & Sewer Total 6,653,742
----------
UTILITIES TOTAL 16,121,552
----------
TOTAL MUNICIPAL BONDS
(cost of $90,691,480) 99,084,546
----------
MUNICIPAL PREFERRED STOCKS - 0.9% PAR ($) VALUE ($)
---------------------------------------------------------
HOUSING - 0.9%
MULTI-FAMILY - 0.9%
Charter Mac Equity Issue Trust, AMT,
7.100% 06/30/09 (g) 500,000 557,520
-----------
Multi-Family Total 557,520
-----------
HOUSING TOTAL 557,520
-----------
TOTAL MUNICIPAL PREFERRED STOCKS
(cost of $500,000) 557,520
-----------
INVESTMENT COMPANY - 0.0% SHARES
---------------------------------------------------------
Dreyfus Tax-Exempt Cash
Management Fund 1 1
-----------
TOTAL INVESTMENT COMPANY
(cost of $1) 1
-----------
SHORT-TERM OBLIGATION - 0.2% PAR ($)
---------------------------------------------------------
VARIABLE RATE DEMAND NOTE (H) - 0.2%
MN Brooklyn Center Revenue, BCC
Associates LLC,
Series 2001,
2.610% 12/01/14 100,000 100,000
-----------
TOTAL SHORT-TERM OBLIGATION
(cost of $100,000) 100,000
-----------
TOTAL INVESTMENTS - 157.4%
(cost of $91,291,481) (i) 99,742,067
AUCTION PREFERRED SHARES PLUS CUMULATIVE
UNPAID DISTRIBUTIONS - (58.9)% (37,311,190)
OTHER ASSETS & LIABILITIES, NET - 1.5% 954,935
-----------
NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS - 100.0% 63,385,812
-----------
NOTES TO INVESTMENT PORTFOLIO:
- --------------------------------------------------------------------------------
(a)The security or a portion of these securities are pledged as collateral for
open futures contracts. At May 31, 2005, the total market value of
securities pledged amounted to $2,734,480.
(b)The Fund 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.
(c)Zero coupon bond.
(d)Security purchased on a delayed delivery basis.
(e)The issuer has filed for bankruptcy protection under Chapter 11. Income is
not being accrued. As of May 31, 2005, the value of this security represents
0.3% of net assets.
(f)The issuer has filed for bankruptcy protection under Chapter 11, and is in
default of certain debt covenants. Income is being accrued. As of May 31,
2005 the value of these securities amounted to $296,251, which represents
0.5% of net assets.
(g)Security exempt from registration pursuant to Rule 144A under the Securities
Act of 1933. This security may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At May 31, 2005
the value of this security represents 0.9% of net assets.
(h)Variable rate demand note. This security is payable upon demand and is
secured by letters of credit or other credit support agreements from banks.
The interest rate changes periodically and the interest rate shown reflects
the rate at May 31, 2005.
(i)Cost for federal income tax purposes is $91,217,146.
See Accompanying Notes to Financial Statements.
7
[GRAPHIC]
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2005 (Unaudited)
At May 31, 2005, the fund held the following open short futures contracts:
Number of Aggregate Expiration Unrealized
Type Contracts Value Face Value Date Depreciation
------------------------------------------------------------------------
10-Year U.S
Treasury Note 110 $12,459,219 $12,411,348 Sep-2005 $(47,871)
At May 31, 2005, the composition of the Fund by revenue source is as follows:
% OF
HOLDINGS BY REVENUE SOURCE NET ASSETS
------------------------------------------
Tax-Backed 49.4%
Transportation 31.5
Utilities 25.4
Other 23.1
Health Care 12.0
Education 8.1
Housing 6.4
Resource Recovery 1.3
Short-Term Obligation 0.2
Investment Company 0.0
Auction Preferred Shares (58.9)
Other Assets & Liabilities, Net 1.5
-----
100.0%
-----
Acronym Name
-------------------------------------------------
ACA ACA Financial Guarantee Corp.
AMBAC Ambac Assurance Corp.
AMT Alternative Minimum Tax
FGIC Financial Guaranty Insurance Co.
FHA Federal Housing Administration
FNMA Federal National Mortgage Association
FSA Financial Security Assurance, Inc.
MBIA MBIA Insurance Corp.
RAD Radiant Asset Assurance, Inc.
See Accompanying Notes to Financial Statements.
8
[GRAPHIC]
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2005 (Unaudited)
ASSETS:
Investments, at cost $ 91,291,481
------------
Investments, at value $ 99,742,067
Cash 51,061
Receivable for:
Investments sold 1,103,600
Interest 1,280,723
Expense reimbursement due from
Investment Advisor 6,546
Deferred Trustees' compensation plan 5,767
Other assets 2,071
------------
Total Assets 102,191,835
------------
LIABILITIES:
Payable for:
Investments purchased on a delayed
delivery basis 1,068,370
Preferred shares remarketing commissions 1,279
Futures variation margin 48,125
Distributions -- common shares 304,079
Distributions -- preferred shares 11,190
Investment advisory fee 33,468
Custody fee 1,001
Audit fee 16,237
Transfer agent fee 1,981
Reports to shareholders 14,526
Deferred Trustees' fees 5,767
------------
Total Liabilities 1,506,023
------------
AUCTION PREFERRED SHARES (1,492 shares
issued and outstanding at $25,000 per
share) 37,300,000
------------
COMPOSITION OF NET ASSETS
APPLICABLE TO COMMON SHARES:
Paid-in capital -- common shares $ 60,281,129
Undistributed net investment income 71,837
Accumulated net realized loss (5,369,869)
Net unrealized appreciation (depreciation)
on:
Investments 8,450,586
Futures contracts (47,871)
------------
Net assets at value applicable to 4,252,855
common shares of beneficial interest
outstanding $ 63,385,812
------------
Net asset value per common share $ 14.90
------------
[GRAPHIC]
STATEMENT OF OPERATIONS
For the Six Months Ended May 31, 2005 (Unaudited)
INVESTMENT INCOME:
Interest $ 2,547,372
Dividends 33
-----------
Total Investment Income 2,547,405
-----------
EXPENSES:
Investment advisory fee 325,021
Custody fee 4,387
Pricing and bookkeeping fees 32,144
Trustees' fees 3,588
Preferred shares remarketing commissions 46,550
Other expenses 55,176
-----------
Total Expenses 466,866
Fees and expenses waived or reimbursed by
Investment Advisor (166,451)
Custody earnings credit (469)
-----------
Net Expenses 299,946
-----------
Net Investment Income 2,247,459
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FUTURES CONTRACTS:
Net realized gain (loss) on:
Investments 464,559
Futures contracts (392,236)
-----------
Net realized gain 72,323
-----------
Net change in unrealized
appreciation/depreciation on:
Investments 1,460,634
Futures contracts (23,255)
-----------
Net change in unrealized
appreciation/depreciation 1,437,379
-----------
Net Gain 1,509,702
-----------
Net Increase in Net Assets from Operations 3,757,161
-----------
LESS DISTRIBUTIONS DECLARED TO
PREFERRED SHAREHOLDERS:
From net investment income (344,974)
-----------
Net Increase in Net Assets from Operations
Applicable to Common Shares $ 3,412,187
-----------
See Accompanying Notes to Financial Statements.
9
[GRAPHIC]
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
INCREASE (DECREASE) IN NET ASSETS: 2005 2004
----------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,247,459 $ 4,671,945
Net realized gain on
investments and futures
contracts 72,323 1,761,083
Net change in unrealized
appreciation/depreciation
on investments and futures
contracts 1,437,379 (3,052,478)
----------- -----------
Net Increase from Operations 3,757,161 3,380,550
----------- -----------
LESS DISTRIBUTIONS DECLARED
TO PREFERRED SHAREHOLDERS:
From net investment income (344,974) (373,702)
----------- -----------
Net Increase in Net Assets
from Operations
Applicable to Common
Shares 3,412,187 3,006,848
----------- -----------
LESS DISTRIBUTIONS DECLARED
TO COMMON SHAREHOLDERS:
From net investment income (1,890,396) (4,341,908)
----------- -----------
SHARE TRANSACTIONS:
Distributions reinvested --
common shares -- 78,729
----------- -----------
Total Increase (Decrease) in
Net Assets Applicable to
Common Shares 1,521,791 (1,256,331)
NET ASSETS APPLICABLE TO
COMMON SHARES:
Beginning of period 61,864,021 63,120,352
----------- -----------
End of period (including
undistributed net
investment income of
$71,837 and $59,748,
respectively) $63,385,812 $61,864,021
----------- -----------
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
NUMBER OF FUND SHARES: 2005 2004
----------------------------------------------------------
Common Shares:
Issued for distributions
reinvested -- 5,375
Outstanding at:
Beginning of period 4,252,855 4,247,480
----------- -----------
End of period 4,252,855 4,252,855
----------- -----------
Preferred Shares:
Outstanding at end of period 1,492 1,492
----------- -----------
See Accompanying Notes to Financial Statements.
10
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS
May 31, 2005 (Unaudited)
NOTE 1. ORGANIZATION
Colonial Insured Municipal Fund (the "Fund") is a Massachusetts business trust
registered under the Investment Company Act of 1940 (the "Act"), as amended, as
a non-diversified, closed-end management investment company.
INVESTMENT GOAL
The Fund seeks to provide current income generally exempt from ordinary federal
income tax.
FUND SHARES
The Fund may issue an unlimited number of common shares. On December 20, 1999,
the Fund issued 1,492 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 Fund in the preparation of its financial
statements.
SECURITY VALUATION
Debt securities generally are valued by pricing services approved by the Fund's
Board of Trustees, based upon market transactions for normal,
institutional-size trading units of similar securities. The services may use
various pricing techniques which take into account appropriate factors such as
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other data, as well as broker quotes. Debt securities for which quotations
are readily available are valued at an over-the-counter or exchange bid
quotation. Certain debt securities, which tend to be more thinly traded and of
lesser quality, are priced based on fundamental analysis of the financial
condition of the issuer and the estimated value of any collateral. Valuations
developed through pricing techniques may vary from the actual amounts realized
upon sale of the securities, and the potential variation may be greater for
those securities valued using fundamental analysis.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Investments in other investment companies are valued at net asset value.
Futures contracts are valued at the settlement price established each day by
the board of trade or exchange on which they are traded.
Investments for which market quotations are not readily available, or have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees.
SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the specific identification method for both
financial statement and federal income tax purposes.
FUTURES CONTRACTS
The Fund may invest in municipal and U.S. Treasury futures contracts. The Fund
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 Fund 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 Fund's Statement of Assets and Liabilities
at any given time.
Upon entering into a futures contract, the Fund 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 Fund equal to the daily change
in the contract value and are recorded as variation margin receivable or
payable and offset in unrealized gains or losses. The Fund also identifies
11
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS (continued)
May 31, 2005 (Unaudited)
portfolio securities as segregated with the custodian in a separate account in
an amount equal to the futures contract. The Fund recognizes a realized gain or
loss when the contract is closed or expires.
DELAYED DELIVERY SECURITIES
The Fund may trade securities on other than normal settlement terms, including
securities purchased or sold on a "when-issued" basis. This may increase the
risk if the other party to the transaction fails to deliver and causes the Fund
to subsequently invest at less advantageous prices. The Fund identifies cash or
liquid portfolio securities in an amount equal to the delayed delivery
commitment.
INCOME RECOGNITION
Interest income is recorded on the accrual basis. Original issue discount is
accreted to interest income over the life of the security with a corresponding
increase in the cost basis. Premium and discount are amortized and accreted,
respectively, on all debt securities. Dividend income is recorded on the
ex-date.
FEDERAL INCOME TAX STATUS
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, as amended, and will distribute
substantially all of its taxable or tax-exempt income, if any, for its tax
year, and as such will not be subject to federal income taxes. In addition, the
Fund intends to distribute in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, such that
the Fund should not be subject to federal excise tax. Therefore, no federal
income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to common shareholders are recorded on the 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 May 31, 2005, was
2.19%. For the six months ended May 31, 2005, the Fund declared dividends to
Auction Preferred shareholders amounting to $344,974 representing an average
dividend rate of 1.85% per APS.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended November 30, 2004
was as follows:
NOVEMBER 30,
2004
- ------------
Distributions paid from:
Tax-Exempt Income $4,691,126
Ordinary Income 24,484
Long-Term Capital Gains --
Unrealized appreciation and depreciation at May 31, 2005, based on cost of
investments for federal income tax purposes, was:
Unrealized appreciation $8,968,858
Unrealized depreciation (443,937)
----------
Net unrealized appreciation $8,524,921
----------
The following capital loss carryforwards, determined as of November 30, 2004,
may be available to reduce taxable income arising from future net realized
gains on investments, if any, to the extent permitted by the Internal Revenue
Code:
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
------------ --------------
2010.... $ 611,489
2011.... 2,232,409
----------
$2,843,898
----------
Capital loss carryforwards of $1,525,713 were utilized during the year ended
November 30, 2004 for the Fund.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISORY FEE
Columbia Management Advisors, Inc. ("Columbia"), an indirect wholly owned
subsidiary of Bank of America Corporation ("BOA"), is the investment advisor to
the Fund and provides administrative and other services to the Fund. Columbia
receives a monthly investment advisory fee at the annual rate of 0.65% of the
Fund's average weekly net assets, including assets applicable to the APS.
Columbia contractually agreed to waive a portion of its investment advisory fee
through November 30, 2005, so that such fees will not exceed 0.40% annually.
12
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS (continued)
May 31, 2005 (Unaudited)
PRICING AND BOOKKEEPING FEES
Columbia is responsible for providing pricing and bookkeeping services to the
Fund under a pricing and bookkeeping agreement. Under a separate agreement (the
"Outsourcing Agreement"), Columbia has delegated those functions to State
Street Corporation ("State Street"). As a result, Columbia pays the total fees
received to State Street under the Outsourcing Agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives
from the Fund an annual flat fee of $10,000 paid monthly, and in any month that
the Fund's average weekly net assets, including assets applicable to 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 APS, of the Fund for that month. The Fund also
pays additional fees for pricing services based on the number of securities
held by the Fund. For the six months ended May 31, 2005, the Fund's annualized
effective pricing and bookkeeping fee rate, inclusive of out-of-pocket
expenses, was 0.064% of the Fund's average weekly net assets, including assets
applicable to APS.
FEE WAIVERS
Columbia has voluntarily agreed to reimburse the Fund for certain expenses so
that total expenses (exclusive of investment advisory fees, brokerage
commissions, interest, taxes and extraordinary expenses, if any) will not
exceed 0.20% annually of the Fund's average weekly net assets, including assets
applicable to APS. Columbia, at its discretion, may revise or discontinue this
arrangement any time.
CUSTODY CREDITS
The Fund has an agreement with its custodian bank under which custody fees may
be reduced by balance credits. These credits are recorded as a reduction of
total expenses on the Statement of Operations. The Fund could have invested a
portion of the assets utilized in connection with the expense offset
arrangement in an income-producing asset if it had not entered into such an
agreement.
FEES PAID TO OFFICERS AND TRUSTEES
With the exception of one officer, all officers of the Fund are employees of
Columbia or its affiliates and receive no compensation from the Fund. The Board
of Trustees appointed a Chief Compliance Officer to the Fund in accordance with
federal securities regulations. The Fund, along with other affiliated funds,
will pay its pro-rata share of the expenses associated with the Office of the
Chief Compliance Officer. The Fund's fee for the Office of the Chief Compliance
Officer will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may
be terminated at any time. Obligations of the plan will be paid solely out of
the Fund's assets.
OTHER
Columbia provides certain services to the Fund related to Sarbanes-Oxley
compliance. For the six months ended May 31, 2005, the Fund paid $781 to
Columbia for such services. This amount is included in "Other expenses" on the
Statement of Operations.
NOTE 5. PORTFOLIO INFORMATION
For the six months ended May 31, 2005, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $6,338,771 and
$6,316,371 respectively.
NOTE 6. PREFERRED SHARES
The Fund currently has outstanding 1,492 APS. The APS are redeemable at the
option of the Fund 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 Fund 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 Fund 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 Fund may be restricted in its ability to declare dividends to common
shareholders or may be required to redeem certain APS. At May 31, 2005, there
were no such restrictions on the Fund.
NOTE 7. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
CONCENTRATION OF CREDIT RISK
The Fund holds investments that are insured by private insurers who guarantee
the payment of principal and interest in the event of default or that are
supported by a letter of credit. Each of the Fund's insurers is rated AAA
13
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS (continued)
May 31, 2005 (Unaudited)
by Moody's Investor Services Inc. except for Radian Asset Assurance, Inc. which
is rated AA by Standard & Poor's. At May 31, 2005, private insurers who insure
greater than 5% of the total investments of the Fund were as follows:
% OF TOTAL
INSURER INVESTMENTS
----------------------------------------------
MBIA Insurance Corp. 29.9
Ambac Assurance Corp. 24.9
Financial Guaranty Insurance Corp. 16.4
Financial Security Assurance, Inc. 10.8
Radian Asset Assurance, Inc. 6.8
GEOGRAPHIC CONCENTRATION
The Fund has greater than 5% of its total investments at May 31, 2005 invested
in debt obligations issued by each of the states of Alabama, California,
Florida, Illinois, Massachusetts, New York, Tennessee, Texas and Washington and
their respective political subdivisions, agencies and public authorities. The
Fund is more susceptible to economic and political factors adversely affecting
issuers of the specific state's municipal securities than are municipal bond
funds that are not concentrated to the same extent in these issuers.
HIGH-YIELD SECURITIES
Investing in high-yield securities may involve greater credit risk and
considerations not typically associated with investing in U.S. government bonds
and other higher quality fixed income securities. These securities are
non-investment grade securities, often referred to as "junk bonds." Economic
downturns may disrupt the high yield market and impair the ability of issuers
to repay principal and interest. Also, an increase in interest rates would
likely have an adverse impact on the value of such obligations. Moreover,
high-yield securities may be less liquid to the extent that there is no
established secondary market.
LEGAL PROCEEDINGS
On February 9, 2005, Columbia and Columbia Funds Distributor, Inc.
(collectively, the "Columbia Group") entered into an Assurance of
Discontinuance with the New York Attorney General ("NYAG") (the "NYAG
Settlement") and consented to the entry of a cease-and-desist order by the
Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and
the NYAG Settlement are referred to collectively as the "Settlements". The
Settlements contain substantially the same terms and conditions as outlined in
the agreements in principle which Columbia Group entered into with the SEC and
NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution
consultant (see below). The Columbia Funds have also undertaken to implement
certain governance measures designed to maintain the independence of their
boards of trustees. The NYAG Settlement also, among other things, requires
Columbia and its affiliates, Banc of America Capital Management, LLC and BACAP
Distributors, LLC to reduce certain Columbia Funds, Nations Funds and other
mutual funds management fees collectively by $32 million per year for five
years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan to be developed by an independent distribution consultant,
who is acceptable to the SEC staff and the Columbia Funds' independent
trustees. The distribution plan must be based on a methodology developed in
consultation with the Columbia Group and the Fund's independent trustees and
not unacceptable to the staff of the SEC. At this time, the distribution plan
is still under development. As such, any gain to the fund or its shareholders
can not currently be determined.
As a result of these matters or any adverse publicity or other developments
resulting from them, the market price of fund shares could decline.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov.
A copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with events described in detail above, various parties have filed
suit against certain funds, the Trustees of the Columbia Funds, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities. More than 300 cases including those
filed against entities unaffiliated with the funds, their Boards, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America
Corporation and its affiliated entities have been transferred to the Federal
District Court in Maryland and consolidated in a multi-district proceeding (the
"MDL").
14
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
May 31, 2005 (Unaudited)
The derivative cases purportedly brought on behalf of the Columbia Funds in the
MDL have been consolidated under the lead case. The fund derivative plaintiffs
allege that the funds were harmed by market timing and late trading activity
and seek, among other things, removal of the trustees of the Columbia Funds,
removal of the Columbia Group, disgorgement of all management fees and monetary
damages.
On March 21, 2005 purported class action plaintiffs filed suit in Massachusetts
state court alleging that the conduct, including market timing, entitles Class
B shareholders in certain Columbia funds to an exemption from contingent
deferred sales charges upon early redemption (the "CDSC Lawsuit"). The CDSC
Lawsuit has been removed to federal court in Massachusetts and the federal
Judicial Panel has conditionally ordered its transfer to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this
litigation on any fund, if any, can not currently be made.
On January 11, 2005, a putative class action lawsuit was filed in federal
district court in Massachusetts against, among others, the Trustees of the
Columbia Funds and Columbia. The lawsuit alleges that defendants violated
common law duties to fund shareholders as well as sections of the Investment
Company Act of 1940, by failing to ensure that the Fund and other affiliated
funds participated in securities class action settlements for which the funds
were eligible. Specifically, plaintiffs allege that defendants failed to submit
proof of claims in connection with settlements of securities class action
lawsuits filed against companies in which the funds held positions.
In 2004, certain Columbia funds, advisers and affiliated entities were named as
defendants in certain purported shareholder class and derivative actions making
claims, including claims under the Investment Company and the Investment
Advisers Acts of 1940 and state law. The suits allege, inter alia, that the
fees and expenses paid by the funds are excessive and that the advisers and
their affiliates inappropriately used fund assets to distribute the funds and
for other improper purpose. On March 2, 2005, the actions were consolidated in
the Massachusetts federal court as In re Columbia Entities Litigation. The
plaintiffs filed a consolidated amended complaint on June 9, 2005.
The Fund and the other defendants to these actions, including Columbia and
various of its affiliates, certain other mutual funds advised by Columbia and
its affiliates, and various directors of such funds, have denied these
allegations and are contesting the plaintiffs' claims. These proceedings are
ongoing, however, based on currently available information, Columbia believes
that these lawsuits are without merit, that the likelihood they will have a
material adverse impact on any fund is remote, and that the lawsuits are not
likely to materially affect its ability to provide investment management
services to its clients, including the Fund.
15
[GRAPHIC]
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as follows
(common shares unless otherwise noted):
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED NOVEMBER 30,
MAY 31, ---------------------------------------------------------
2005 2004 2003 2002 2001 2000
- -------------------------------------------- --------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.55 $ 14.86 $ 14.93 $ 15.20 $ 14.68 $ 14.30
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.53(b) 1.10(b) 1.14(b) 1.21(b)(c) 1.24(b) 1.24(d)
Net realized and unrealized gain (loss) on
investments, written options and
futures contracts 0.34 (0.30) (0.08) (0.25)(c) 0.51 0.55
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.87 0.80 1.06 0.96 1.75 1.79
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO
PREFERRED SHAREHOLDERS:
From net investment income (0.08) (0.09) (0.08) (0.12) (0.26) (0.35)
------- ------- ------- ------- ------- -------
Total from Investment Operations
Applicable to Common Shareholders 0.79 0.71 0.98 0.84 1.49 1.44
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO
COMMON SHAREHOLDERS:
From net investment income (0.44) (1.02) (1.05) (1.11) (0.97) (0.93)
------- ------- ------- ------- ------- -------
LESS SHARE TRANSACTIONS:
Offering costs -- common shares -- -- -- -- -- --(e)
Commission and offering costs --
preferred shares -- -- -- -- -- (0.13)
------- ------- ------- ------- ------- -------
Total Share Transactions -- -- -- -- -- (0.13)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 14.90 $ 14.55 $ 14.86 $ 14.93 $ 15.20 $ 14.68
------- ------- ------- ------- ------- -------
Market price per share -- common shares $ 13.97 $ 13.92 $ 15.30 $ 15.09 $ 16.50 $ 12.63
------- ------- ------- ------- ------- -------
Total return -- based on market value --
common shares (f)(g) 3.60%(h) (2.45)% 8.77% (1.72)% 39.25% (9.77)%
------- ------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (i)(j) 0.96%(k)(l) 0.88%(k) 0.88%(k) 0.87%(k) 0.87%(k) 0.86%(k)
Net investment income before preferred
stock dividend (i)(j) 7.18%(l) 7.48% 7.68% 8.04%(c) 8.11% 8.78%
Net investment income after preferred
stock dividend (i)(j) 6.07%(l) 6.88% 7.12% 7.22%(c) 6.42% 6.34%
Voluntary waiver/reimbursement (j) 0.13%(l) 0.12% 0.18% 0.13% 0.17% 0.48%
Portfolio turnover rate 6%(h) 21% 4% 13% 8% 33%
Net assets, end of period (000's) --
common shares $63,386 $61,864 $63,120 $63,252 $64,290 $62,051
PERIOD
ENDED
NOVEMBER 30,
1999 (A)
- -------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.33
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.06
Net realized and unrealized gain (loss) on
investments, written options and
futures contracts (0.06)
-------
Total from Investment Operations --
-------
LESS DISTRIBUTIONS DECLARED TO
PREFERRED SHAREHOLDERS:
From net investment income --
-------
Total from Investment Operations
Applicable to Common Shareholders --
-------
LESS DISTRIBUTIONS DECLARED TO
COMMON SHAREHOLDERS:
From net investment income --
-------
LESS SHARE TRANSACTIONS:
Offering costs -- common shares (0.03)
Commission and offering costs --
preferred shares --
-------
Total Share Transactions (0.03)
-------
NET ASSET VALUE, END OF PERIOD $ 14.30
-------
Market price per share -- common shares $ 15.00
-------
Total return -- based on market value --
common shares (f)(g) 0.00%(h)
-------
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (i)(j) 0.55%(l)
Net investment income before preferred
stock dividend (i)(j) 4.38%(l)
Net investment income after preferred
stock dividend (i)(j) 4.38%(l)
Voluntary waiver/reimbursement (j) 0.61%(l)
Portfolio turnover rate 7%(h)
Net assets, end of period (000's) --
common shares $54,422
(a)The Fund commenced investment operations on October 29, 1999. Per share data
and total return reflect activity from that date.
(b)Per share data was calculated using average shares outstanding during the
period.
(c)Effective December 1, 2001, the Fund adopted the provision 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 the ratio of net investment
income to average net assets from 8.02% to 8.04% and increase the ratio of
net investment income (adjusted for dividend payments to preferred
shareholders) from 7.20% to 7.22%. The impact to the net investment income
and net realized and unrealized loss per share was less than $0.01. 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)Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(h)Not annualized.
(i)The benefits derived from custody credits and directed brokerage
arrangements, if applicable, had an impact of less than 0.01%.
(j)Ratios reflect average net assets available to common shares only.
(k)Ratios calculated using average net assets of the Fund equal 0.60%, 0.55%,
0.55%, 0.55%, 0.55% and 0.54% for the period ended May 31, 2005 and the
years ended November 30, 2004, November 30, 2003, November 30, 2002,
November 30, 2001 and November 30, 2000, respectively.
(l)Annualized.
16
[GRAPHIC]
FINANCIAL HIGHLIGHTS (continued)
ASSET COVERAGE REQUIREMENTS
INVOLUNTARY
ASSET LIQUIDATING AVERAGE
TOTAL AMOUNT COVERAGE PREFERENCE MARKET VALUE
OUTSTANDING PER SHARE* PER SHARE PER SHARE
-------------------------------------------------------------
05/31/05 ** $37,300,000 $67,484 $25,008 $25,000
11/30/04 37,300,000 66,464 25,006 25,000
11/30/03 37,300,000 67,306 25,002 25,000
11/30/02 37,300,000 67,396 25,012 25,000
11/30/01 37,300,000 68,090 25,001 25,000
11/30/00 *** 37,300,000 66,589 25,020 25,000
*Calculated by subtracting the Fund's total liabilities from the Fund's total
assets and dividing the amount by the number of APS outstanding.
**Unaudited.
***On December 20, 1999, the Fund began offering Auction Preferred Shares.
17
[GRAPHIC]
SHAREHOLDER MEETING RESULTS
RESULTS OF THE ANNUAL MEETING OF SHAREHOLDERS
On May 25, 2005, the Annual Meeting of Shareholders of the Fund was held to
conduct a vote for or against the approval of the following Items listed on the
Fund's Proxy Statement for said Meeting. On March 10, 2005, the record date for
the Meeting, the Fund had 4,252,859 shares outstanding. The votes cast were as
follows:
PROPOSAL 1.
ELECTION OF TRUSTEES:
FOR WITHHELD
---------- --------
Janet Langford Kelly 40,099,137 60,632
Patrick J. Simpson 40,110,729 49,040
On March 10, 2005, the record date of the Meeting, the Fund had 1,492 preferred
shares outstanding. The votes cast were as follows:
PROPOSAL 2.
ELECTION OF TRUSTEES:
FOR WITHHELD
----- --------
Douglas A. Hacker 1,257 1
Janet Langford Kelly 1,257 1
Patrick J. Simpson 1,257 1
Thomas E. Stitzell 1,257 1
18
[GRAPHIC]
DIVIDEND REINVESTMENT PLAN
COLONIAL CALIFORNIA INSURED MUNICIPAL FUND
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), all Common
Shareholders whose shares are registered in their own names will have all
distributions reinvested automatically in additional Common Shares of the Fund
by Computershare (the "Plan Agent"), as agent under the Plan, unless a Common
Shareholder elects to receive cash. An election to receive cash may be revoked
or reinstated at the option of the Common Shareholder. 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 nominee, or
unless 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 investors who elect not to
participate (or whose broker or nominee elects not to participate) in the Plan
will be paid by check mailed directly to the record holder by the Plan Agent,
as dividend paying agent.
The Plan Agent will furnish each person who buys shares in the offering with
written information relating to the Plan. Included in such information will be
procedures for electing to receive distributions in cash (or, in the case of
shares held in the name of a broker or nominee who does not participate in the
Plan, procedures for having such shares registered in the name of the
shareholder so that such shareholder may participate in the Plan).
If the Trustees of the Fund declare a dividend (including a capital gain
dividend) payable either in shares or in cash, as holders of shares may have
elected, then nonparticipants in the Plan will receive cash and participants in
the Plan will receive the equivalent in shares valued as set forth below.
Whenever a market price is equal to or exceeds net asset value at the time
shares are valued for the purpose of determining the number of shares
equivalent to the distribution, participants will be issued shares at the net
asset value most recently determined as provided under "Net Asset Value" in the
Fund's prospectus and its Statement of Additional Information, but in no event
less than 95% of the market price. If the net asset value of the shares at such
time exceeds the market price of shares at such time, or if the Fund should
declare a dividend (including a capital gain dividend) payable only in cash,
the Plan Agent will, as agent for the participants, use the cash that the
shareholders would have received as a dividend to buy shares in the open
market, the American Stock Exchange or elsewhere, for the participants'
accounts. If, before the Plan Agent has completed its purchases, the market
price exceeds the net asset value of the shares, the average per share purchase
price paid by the Plan Agent may exceed the net asset value of the shares,
resulting in the acquisition of fewer shares than if the dividend (including a
capital gain dividend) had been paid in shares issued by the Fund. The Plan
Agent will apply all cash received as a dividend (including a capital gain
dividend) to purchase shares on the open market as soon as practicable after
the payment date of such dividend, but in no event later than 30 days after
such date, except where necessary to comply with applicable provisions of the
federal securities laws.
There is no charge to participants for reinvesting dividends (including capital
gain dividends). The Plan Agent's fees for handling the reinvestment of
dividends (including capital gain dividends) will be paid by the Fund. There
will be no brokerage charges with respect to shares issued directly by the Fund
as a result of dividends or capital gains distributions payable either in stock
or in cash. However, each participant 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 dividends (including capital gain
dividends).
The automatic reinvestment of dividends (including capital gain dividends) will
not relieve participants of any income tax which may be payable on such
dividends. The amount of the dividend for tax purposes may vary depending on
whether the Fund issues new Common Shares or purchases them on the open market.
The Plan may be amended or terminated on 30 days' written notice to Plan
participants. All correspondence concerning the Plan should be directed to
Computershare by mail at P.O. Box 43010, Providence, RI 02940-3010, or by phone
at 1-800-730-6001.
19
[GRAPHIC]
BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENT
Section 15(c) of the Investment Company Act of 1940 (the "1940 Act") requires
that the Board of Trustees/Directors (the "Board") of the Columbia Funds ("The
Funds"), including a majority of the Trustees and Directors (collectively, the
"Trustees") who are not "interested persons" of the Trusts, as defined in the
1940 Act (the "Independent Trustees"), annually review and approve the terms of
the Funds' investment advisory agreements. At a meeting held on October 13,
2004, the Board reviewed and approved the management contracts ("Advisory
Agreement") with Columbia Management Advisors, Inc. ("CMA") for the Fund.
At meetings held on September 23, 2004 and October 12, 2004, the Advisory Fees
and Expenses Committee (the "Committee") of the Board considered the factors
described below relating to the selection of CMA and the approval of the
Advisory Agreement. At a meeting held on October 13, 2004, the Board, including
the Independent Trustees (who were advised by their independent legal counsel),
considered these factors and reached the conclusions described below.
NATURE, EXTENT AND QUALITY OF SERVICES
The Board considered information regarding the nature, extent and quality of
services that CMA provides to the Fund under the Advisory Agreement. CMA
provided the most recent investment adviser registration form ("Form ADV") and
code of ethics for CMA to the Board. The Board reviewed information on the
status of Securities and Exchange Commission ("SEC") and New York Attorney
General ("NYAG") proceedings against CMA and certain of its affiliates,
including the agreement in principle entered into with the SEC and the NYAG on
March 15, 2004 to settle civil complaints filed by the SEC and the NYAG
relating to trading activity in mutual fund shares./1/
The Board evaluated the ability of CMA, including its resources, reputation and
other attributes, to attract and retain highly qualified research, advisory and
supervisory investment professionals. The Board considered information
regarding CMA's compensation program for its personnel involved in the
management of the Fund.
Based on these considerations and other factors, including those referenced
below, the Board concluded that they were generally satisfied with the nature,
extent and quality of the investment advisory services provided to the Fund by
CMA.
FUND PERFORMANCE AND EXPENSES
CMA provided the Board with relative performance and expense information for
the Fund in a report prepared by Lipper Inc. ("Lipper") an independent provider
of investment company data. The Board considered the total return performance
information, which included the ranking of the Fund within a performance
universe made up of funds with the same Lipper investment classification and
objective (the "Performance Universe") by total return for one-year,
three-year, five-year, ten-year or life of fund periods, as applicable. They
also considered the Fund's performance in comparison to the performance results
of a group (the "Performance Peer Group") of funds selected by Lipper based on
similarities in fund type (e.g. open-end), investment classification and
objective, asset size, load type and 12b-1/service fees and other expense
features, and to the performance results of the Fund's benchmark index. The
Board reviewed a description of Lipper's methodology for selecting the mutual
funds in the Fund's Performance Peer Group and Performance Universe.
The Board considered statistical information regarding the Fund's total
expenses and certain components thereof, including management fees (both actual
management fees based on expenses for advisory and administrative fees
including any reductions for fee waivers and expense reimbursements as well as
contractual management fees that are computed for a hypothetical level of
assets), actual non-management expenses, and fee waivers/caps and expense
reimbursements. They also considered comparisons of these expenses to the
expense information for funds within a group (the "Expense Peer Group")
selected by Lipper based on similarities in fund type (e.g. open-end),
investment classification and objective, asset size, load type and
12b-1/service fees and other expense features (but which, unlike the
Performance Peer Group, may include funds with several different investment
classifications and objectives) and an expense universe ("Expense Universe")
selected by Lipper based on the criteria for determining the Expense Peer Group
other than asset size. The expense information in the Lipper report took into
account all existing fee waivers and expense reimbursements as well as all
voluntary advisory fee reductions applicable to certain Funds that were being
proposed by management in order to reduce the aggregate advisory fees received
from mutual funds advised by CMA and Banc of America Capital Management, LLC
("BACAP") by $32 million per year for five years as contemplated by the
agreement in principle with the NYAG.
The Committee also considered the projected impact on expenses of these Funds
resulting from the overall cost reductions that management anticipated would
result from the proposed shift to a common group of service providers for
transfer agency, fund accounting and custody services for mutual funds advised
by Bank of America affiliates.
The Board also considered information in the Lipper report that ranked each
Fund based on (i) each Fund's one-year performance and actual management fees,
(ii) each Fund's one-year performance and total expenses and (iii) each Fund's
3-year performance and total expenses. Based on these comparisons and expense
and performance rankings of the Fund in the Lipper Report, CMA determined an
overall score for the Fund. The Committee and the Board also considered
projected savings to the Fund that would result from certain modifications in
soft dollar arrangements.
The Committee also considered more detailed information relating to certain
Funds that were highlighted for
/1/On February 9, 2005, CMA and its affiliate, Columbia Funds Distributor,
Inc., entered into settlement agreements with the SEC and the NYAG that
contain substantially the terms outlined in the agreements in principle.
20
[GRAPHIC]
BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENT
(CONTINUED)
additional review based upon the fact that they ranked poorly in terms of
overall expense or management fees, maintained poor performance or demonstrated
a combination of below average to poor performance while maintaining below
average or poor expense rankings. At its September 23, 2004 meeting, the
Committee discussed these Funds with management and in executive session. The
Committee requested additional information from management regarding the
cause(s) of the below-average relative performance of these Funds, any remedial
actions management recommended to improve performance and the general standards
for review of portfolio manager performance. At its October 12, 2004 meeting,
the Committee considered additional information provided by management
regarding these Funds. The Board also considered management's proposal to merge
or liquidate some of these Funds.
Based on these considerations and other factors, the Board concluded that the
overall performance and expense results supported by the approval of the
Advisory Agreements for each Fund.
INVESTMENT ADVISORY FEE RATES
The Board reviewed and considered the proposed contractual investment advisory
fee rates (the "Advisory Agreement Rates") payable by the Funds to CMA for
investment advisory services. In addition, the Board reviewed and considered
the existing and proposed fee waiver and reimbursement arrangements applicable
to the Advisory Agreement Rates and considered the Advisory Agreement Rates
after taking the fee waivers and reimbursements into account (the "Net Advisory
Rates"). At previous meetings, the Committee had separately considered
management's proposal to reduce annual investment advisory fees for certain
Funds under the NYAG agreement in principle and the impact of these reductions
on each affected Fund. Additionally, the Board considered information comparing
the Advisory Agreement Rates and Net Advisory Rates (both on a stand-alone
basis and on a combined basis with the Funds' administration fee rates) with
those of the other funds in the Expense Peer Group. The Board concluded that
the Advisory Agreement Rates and Net Advisory Rates represented reasonable
compensation to CMA, in light of the nature, extent and quality of the services
provided to the Funds, the fees paid and expenses borne by comparable funds and
the costs that CMA incurs in providing these services to the Funds.
PROFITABILITY
The Board considered a detailed profitability analysis of CMA based on 2003
financial statements, adjusted to take into account advisory fee reductions
implemented in November 2003 and proposed reductions under the NYAG proposed
settlement. The Board concluded that, in light of the costs of providing
investment management and other services to the Funds, the profits and other
ancillary benefits that CMA and its affiliates received for providing these
services to the Funds were not unreasonable.
ECONOMIES OF SCALE
In evaluating potential economies of scale, the Board considered CMA's proposal
to implement a standardized breakpoint schedule for combined advisory and
administrative fees for the majority of the funds of the same general asset
type within the Columbia Funds complex (other than index and closed-end funds).
The Board noted that the standardization of the breakpoints would not result in
a fee increase for any Fund. The Board concluded that any actual or potential
economies of scale are, or will be, shared fairly with Fund shareholders,
including most particularly through Advisory Agreement Rate breakpoints at
current and reasonably foreseeable asset levels.
INFORMATION ABOUT SERVICES TO OTHER CLIENTS
In evaluating the proposed fee reductions under the NYAG agreement in
principle, the Board considered information regarding the advisory fee rates
charged by BACAP for the Nations Funds. Members of the Committee and the Board
had also separately reviewed advisory fee rates for variable insurance product
funds advised by CMA. This information assisted the Board in assessing the
reasonableness of fees paid under the Advisory Agreements in light of the
nature, extent and quality of services provided under those agreements.
OTHER BENEFITS TO CMA
The Board considered information regarding potential "fall-out" or ancillary
benefits received by CMA and its affiliates as a result of their relationship
with the Funds. These benefits could include benefits directly attributable to
the relationship of CMA with the Funds (such as soft dollar credits) and
benefits potentially derived from an increase in the business of CMA as a
result of their relationship with the Funds (such as the ability to market to
shareholders other financial products offered by CMA and its affiliates).
OTHER FACTORS AND BROADER REVIEW
The Board reviews detailed materials provided by CMA annually as part of the
approval process under Section 15(c) of the 1940 Act. The Board also regularly
reviews and assesses the quality of the services that the Funds receive
throughout the year. In this regard, the Board reviews information provided by
CMA at their regular meetings, including, among other things, a detailed
portfolio review, and detailed fund performance reports. In addition, the Board
interviews the heads of each investment area at each regular meeting of the
Board and selected portfolio managers of the Funds at various times throughout
the year. After considering the above-described factors and based on the
deliberations and their evaluation of the information provided to them, the
Board concluded that re-approval of the Advisory Agreements for each of the
Funds was in the best interest of the Funds and their shareholders.
Accordingly, the Board unanimously approved the Advisory Agreements.
21
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[LOGO]
Transfer Agent
Important Information About This Report
The Transfer Agent for Colonial Insured Municipal Fund is:
Computershare
P.O. Box 43010
Providence, RI 02940-3010
The fund mails one shareholder report to each shareholder address. Shareholders
can order additional reports by calling 800-730-6001. In addition,
representatives at that number can provide shareholders information about the
fund.
Financial advisors who want additional information about the fund may speak to
a representative at 800-426-3750.
A description of the fund's proxy voting policies and procedures is available
(i) at www.columbiamanagement.com; (ii) on the Securities and Exchange
Commission's website at www.sec.gov, and (iii) without charge, upon request, by
calling 800-730-6001. Information regarding how the fund voted proxies relating
to portfolio securities during the 12-month period ended June 30, 2004 is
available from the SEC's website. Information regarding how the fund voted
proxies relating to portfolio securities is also available
at www.columbiamanagement.com.
The fund files a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q
is available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
This report has been prepared for shareholders of Colonial Insured Municipal
Fund.
[GRAPHIC]
COLONIAL INSURED MUNICIPAL FUND
SEMIANNUAL REPORT
SHC-44/87268-0605 (07/05) 05/6540
Item 2. Code of Ethics.
Not applicable at this time.
Item 3. Audit Committee Financial Expert.
Not applicable at this time.
Item 4. Principal Accountant Fees and Services.
Not applicable at this time.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments
The registrant's "Schedule I - Investments in securities of unaffiliated
issuers" (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form
N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Registrant Purchases of Equity Securities*
(c)
Total Number of (d)
(a) Shares Purchased as Maximum Number of
Total Number (b) Part of Publicly Shares that May Yet
of Shares Average Price Announced Plans Be Purchased Under
Period Purchased Paid Per Share or Programs the Plans or Programs
- --------------------------------------------------------------------------------------------------------------
12/01/04 through 12/31/04 402 $ 14.06 402 N/A
01/01/05 through 01/31/05 379 $ 14.05 379 N/A
02/01/05 through 02/28/05 350 $ 14.18 350 N/A
03/01/05 through 03/31/05 317 $ 13.92 317 N/A
04/01/05 through 04/30/05 318 $ 13.59 318 N/A
05/01/05 through 05/31/05 312 $ 13.70 312 N/A
- -------------------------------------------------------------------------------------------------------------
Total 2,078 $ 13.93 2,078 N/A
- -------------------------------------------------------------------------------------------------------------
* Includes shares purchased by the Dividend Reinvestment Agent pursuant to the
Registrant's Dividend Reinvestment Plan.
Item 10. Submission of Matters to a Vote of Security Holders.
There have not been any material changes to the procedures by which shareholders
may recommend nominees to the registrant's board of directors, since those
procedures were last disclosed in response to the requirements of Item
7(d)(2)(ii)(G) of Schedule 14A or this Item.
Item 11. Controls and Procedures.
(a) The registrant's principal executive officer and principal
financial officers, based on their evaluation of the
registrant's disclosure controls and procedures as of a date
within 90 days of the filing of this report, have concluded that
such controls and procedures are adequately designed to ensure
that information required to be disclosed by the registrant in
Form N-CSR is accumulated and communicated to the registrant's
management, including the principal executive officer and
principal financial officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding
required disclosure.
(b) There were no changes in the registrant's internal control over
financial reporting that occurred during the registrant's second
fiscal quarter of the period covered by
this report that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control
over financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR: Not
applicable at this time.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act
of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of
1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Colonial Insured Municipal Fund
------------------------------------------------------
By (Signature and Title) /S/ Christopher L. Wilson
------------------------------------------------------
Christopher L. Wilson, President
Date July 28, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title) /S/ Christopher L. Wilson
------------------------------------------------------
Christopher L. Wilson, President
Date July 28, 2005
By (Signature and Title) /S/ J. Kevin Connaughton
------------------------------------------------------
J. Kevin Connaughton, Treasurer
Date July 28, 2005