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
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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)
James R. Bordewick, Jr., Esq.
Columbia Management Advisors, LLC
One Financial Center
Boston, MA 02111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-426-3750
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Date of fiscal year end: November 30, 2006
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Date of reporting period: November 30, 2006
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Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. (S) 3507.
Item 1. Reports to Stockholders.
[PHOTO]
COLONIAL INSURED MUNICIPAL FUND
Annual Report
November 30, 2006
[LOGO] NOT FDIC INSURED May Lose Value
No Bank Guarantee
Economic Update - Colonial Insured Municipal Fund
The US economy grew at a solid but uneven pace during the 12-month period that
began December 1, 2005 and ended November 30, 2006. Gross domestic product
(GDP) growth was robust in the first quarter of 2006, as businesses created
jobs at a brisk pace, industrial production rose and both personal spending and
personal income moved higher. However, a weak housing market began to weigh on
the economy, and the manufacturing sector contracted late in the
period--registering its first downturn since the spring of 2003. Against this
backdrop, economic growth averaged 3.0% for the 12-month period.
Between December and June, the Federal Reserve Board (the Fed) raised a key
short-term interest rate, the federal funds rate, five times--to 5.25%. But as
economic growth slowed, the Fed turned cautious and declined to increase the
federal funds rate after its June meeting. Inflation also retreated during the
period, which lent further support to the Fed's decision. Investors reacted
favorably to the prospect of stable or possibly even lower interest rates and
both the stock and bond markets rallied in the second half of the period.
Solid returns from fixed income markets
Although yields moved higher early in the period, the US fixed income markets
delivered respectable returns, as prices rose and yields declined in reaction
to the Fed's mid-year decision to put further short-term rate increases on
hold. The yield on the 10-year US Treasury note, a bellwether for the bond
market, ended the period at 4.4%--slightly lower than where it started.
High-yield bonds led the fixed income markets, reflecting investor confidence
about the overall resilience of the economy despite its slower pace of growth.
The views expressed in the Economic Update and Portfolio 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 Fund are based on numerous factors, may not be relied on as an
indication of trading intent on behalf of any particular Fund. References to
specific securities should not be construed as a recommendation or investment
advice.
Portfolio Manager's Report - Colonial Insured Municipal Fund
Price per share
as of 11/30/06 ($)
Market price 13.45
Net asset value 15.17
1-year total return
as of 11/30/06 (%)*
Market price 8.79
Net asset value 9.90
Lipper Insured Municipal
Debt Funds
(Leveraged)
Classification average 7.84
Performance is historical, assumes reinvestment of all dividends and capital
gains, and does not guarantee future results. Investment return and principal
value fluctuate with changing market conditions so that, when sold, shares
may be worth more or less than their original cost. Current performance may
be lower or higher than the performance data quoted. Please call 800-730-6001
for the fund's most recent performance. Total return based on net asset value
reflects changes in the fund's net asset value during each period. Total
return based on market value reflects changes in market value. These figures
will differ depending on the level of any discount from or premium to net
asset value during the period.
Distributions declared per
common share
12/01/05 - 11/30/06 ($) 0.69
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.
For the 12-month period ended November 30, 2006, Colonial Insured Municipal
Fund had a return of 8.79%, 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
9.90%, based on investment at net asset value. The average return of the fund's
peer group, the Lipper Insured Municipal Debt Funds (Leveraged) Classification,
was 7.84% over the same period./1/
Longer maturity bonds and non-callable bonds boosted returns
As the pace of economic growth slowed, the Federal Reserve Board (the Fed)
curtailed its streak of 17 consecutive increases in the federal funds rate--a
key short-term interest rate. The Fed's last hike brought the federal funds
rate to 5.25% in June, where it stood through the end of the period. While
inflationary pressures remain, the Fed has said that it expects a slowing
economy to keep inflation in check. The fixed income market also broadcasted
muted inflationary expectations, sending prices higher and yields lower on
bonds with maturities generally beyond 10 years. As a result, our exposure to
bonds with maturities of 15 years and longer was rewarded during the period. We
also believe that the fund had less exposure than its peer group to bonds
maturing within five years, which also contributed to its return.
In addition, an emphasis on non-callable bonds boosted the fund's return, as
these issues performed to their stated maturities. As yields rose and prices
declined in the one- to 10-year maturity range, callable bonds were hurt,
because they give the issuer the option to redeem the bonds prior to
maturity--typically ten years from the date of issuance.
General obligation bonds and revenue bonds aided performance
The fund's holdings in local general obligation (GO) bonds issued by cities and
towns (8.5% of net assets as of 11/30/06) performed well during the period.
Strong performance from non-property tax revenue bonds (18.1% of net assets as
of 11/30/06), which are secured by revenue sources unrelated to property
values, such as sales, fuel and excise taxes, also aided returns. Both sectors
were buoyed by continued economic growth, and most of the fund's holdings in
these sectors mature in 15 years or longer. These bonds performed well for the
period. Many of these bonds also carry large coupons, which generated
substantial interest income and contributed to the fund's total return.
Leveraged positions provided income
Generally rising short-term rates increased the fund's payout rate to preferred
shareholders during the period and reduced the total income earned by the
common shareholder. Yet, the fund benefited from the leveraged positions made
possible by the sale of preferred shares issued in 1999. Proceeds from the sale
of these shares were invested in longer maturity, higher-yielding bonds which
continued to give the fund an income advantage over its non-leveraged peers.
/1/Lipper Inc., a widely respected data provider in the industry, calculates an
average total return (assuming reinvestment of distributions) for mutual
funds with investment objectives similar to those of the fund. Lipper makes
no adjustment for the effect of sales loads.
*See page 15 for returns based on market price for the past five fiscal years.
1
Portfolio Manager's Report (continued) - Colonial Insured Municipal Fund
Top 5 sectors
as of 11/30/06 (%)
Special Non-Property Tax 18.1
Local General Obligations 8.5
Investor Owned Utilities 8.2
Water & Sewer 8.1
Airports 7.6
Quality breakdown
as of 11/30/06 (%)
AAA 89.4
AA 2.5
A 5.3
BBB 0.2
B 0.2
Non-Rated 2.1
Cash & Equivalents 0.3
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. Ratings are
relative and subjective and are not absolute standards of quality. The fund's
credit quality does not remove market risk.
Portfolio characteristics and holdings are subject to change periodically and
may not be representative of current characteristics and holdings. Because
the fund is actively managed, there is no guarantee that the fund will
continue to invest in these sectors or maintain this quality breakdown in the
future.
Looking ahead
The Fed has indicated that it is likely to base any further actions with
respect to short-term interest rates on evidence presented in the economic
data. As a result, we plan to continue to monitor the data--especially
inflation, employment and wage statistics and housing market movements--to
gauge our expectations for fixed income market activity. Given the current
environment of relatively slow growth, moderate inflation and the Fed on hold,
we plan to continue to focus on bonds with good call protection in the longer
intermediate range of the maturity spectrum. However, we may alter our approach
if our expectations for economic growth and inflation are not met.
Portfolio Management
Kimberly Campbell has been the portfolio manager of Colonial Insured Municipal
Fund since October 2003. Ms. Campbell has been with Columbia Management
Advisors, LLC or its predecessors or affiliate organizations since 1995.
Shares of closed-end funds frequently trade at a discount to net asset value.
The price of the fund's shares is determined by a number of factors, several of
which are beyond the control of the fund. Therefore, the fund cannot predict
whether its shares will trade at, below or above net asset value.
Investing in fixed-income securities may involve certain risks, including the
credit quality of individual issuers, possible prepayments, market or economic
developments and yield and share price fluctuations due to changes in interest
rates. When interest rates go up, bond prices generally drop and vice versa.
Investing in high-yield or "junk" bonds offers the potential for higher income
than investments in investment-grade bonds but also has a higher degree of
risk. Changes in economic conditions or other circumstances may adversely
affect a high-yield bond issuer's ability to make timely principal and interest
payments.
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. 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.
2
Investment Portfolio - Colonial Insured Municipal Fund
November 30, 2006
Municipal Bonds - 154.9%
Par ($) Value ($)
Education - 5.7%
Education - 2.4%
AR University Revenue Construction UAMS Campus, Series 2004 B,
Insured: MBIA
5.000% 11/01/28 1,475,000 1,578,368
----------------------------------------------- --------- ---------
Education Total 1,578,368
Student Loan - 3.3%
MT Higher Education Student Series 1999 B, AMT,
Assistance Corp. 6.400% 12/01/32 2,000,000 2,122,520
----------------------------------------------- --------- ---------
Student Loan Total 2,122,520
Education Total 3,700,888
Health Care - 8.5%
Continuing Care Retirement - 0.9%
NY Dormitory Authority Miriam Osborn Memorial Home, Series 2000 B,
Insured: ACA
6.875% 07/01/19 500,000 556,770
----------------------------------------------- --------- ---------
Continuing Care Retirement Total 556,770
Health Services - 3.4%
WI Health & Educational Facilities Marshfield Clinic, Series 1999,
Authority Insured: RAD
6.250% 02/15/29 2,000,000 2,157,360
----------------------------------------------- --------- ---------
Health Services Total 2,157,360
Hospitals - 4.2%
CO Health Facilities Authority Parkview Medical Center, Inc., Series 2001,
6.600% 09/01/25 400,000 443,080
NV Henderson Catholic Healthcare West, Series 1999 A,
6.750% 07/01/20 60,000 65,874
OK Industrial Authority Revenue Health Systems Obligation Group, Series 1999 A,
Refunding Insured: MBIA
5.750% 08/15/29 1,155,000 1,220,350
WI Health & Educational Facilities Thedacare, Inc., Series 2005,
Authority Insured: AMBAC
4.500% 12/15/25 1,000,000 1,008,860
----------------------------------------------- --------- ---------
Hospitals Total 2,738,164
Health Care Total 5,452,294
Housing - 5.1%
Assisted Living/Senior - 1.1%
DE Kent County Heritage at Dover, Series 1999, AMT,
7.625% 01/01/30 235,000 219,344
NC Medical Care Commission DePaul Community Facilities, Inc., Series 1999,
7.625% 11/01/29 465,000 490,045
----------------------------------------------- --------- ---------
Assisted Living/Senior Total 709,389
See Accompanying Notes to Financial Statements.
3
Colonial Insured Municipal Fund
November 30, 2006
Municipal Bonds (continued)
Par ($) Value ($)
Housing (continued)
Multi-Family - 0.8%
FL Broward County Housing Finance Chaves Lake Apartments Ltd., Series 2000 A, AMT,
Authority 7.500% 07/01/40 250,000 266,760
FL Clay County Housing Finance Breckenridge Commons Ltd., Series 2000 A, AMT,
Authority 7.450% 07/01/40 245,000 259,896
------------------------------------------------ --------- ---------
Multi-Family Total 526,656
Single-Family - 3.2%
AK Housing Finance Corp. Series 1999, Insured: FHA
6.150% 06/01/39 1,575,000 1,643,150
CA Rural Home Mortgage Finance Series 1998 A, AMT, Guarantor: GNMA
Authority 6.350% 12/01/29 70,000 70,130
CO Housing & Finance Authority Series 2000 B-2, AMT,
7.250% 10/01/31 65,000 65,963
OK Housing Finance Agency Series 2000 C-2, AMT,
7.550% 09/01/28 290,000 294,919
------------------------------------------------ --------- ---------
Single-Family Total 2,074,162
Housing Total 3,310,207
Industrials - 3.2%
Oil & Gas - 3.2%
NV Clark County Industrial Southwest Gas Corp., Series 2005 A, AMT,
Development Authority Insured: AMBAC
4.850% 10/01/35 2,000,000 2,065,180
------------------------------------------------ --------- ---------
Oil & Gas Total 2,065,180
Industrials Total 2,065,180
Other - 8.9%
Other - 3.3%
AL Incentives Financing Authority Series 1999 A, Insured: AMBAC
6.000% 10/01/29 2,000,000 2,159,840
------------------------------------------------ --------- ---------
Other Total 2,159,840
Pool/Bond Bank - 1.7%
UT Water Finance Agency Series 2002 B, Insured: AMBAC
5.125% 07/01/23 1,000,000 1,064,540
------------------------------------------------ --------- ---------
Pool/Bond Bank Total 1,064,540
Refunded/Escrowed (a) - 3.9%
CA Morgan Hill Unified School Series 2002, Escrowed to Maturity,
District Insured: FGIC
(b) 08/01/21 1,000,000 545,840
NV Henderson Catholic Healthcare West, Series 1999 A,
Pre-refunded 07/01/10,
6.750% 07/01/20 440,000 489,623
See Accompanying Notes to Financial Statements.
4
Colonial Insured Municipal Fund
November 30, 2006
Municipal Bonds (continued)
Par ($) Value ($)
Other (continued)
Refunded/Escrowed (a) (continued)
NY Suffolk County Industrial Series 1999 A, Pre-refunded 11/01/09,
Development Agency 7.200% 11/01/19 550,000 606,936
WA Health Care Facilities Authority Kadlec Medical Center, Series 2001,
Pre-refunded 12/01/10, Insured: RAD
5.875% 12/01/21 300,000 325,347
WV Hospital Finance Authority Charleston Area Medical Center, Series 2000,
Pre-refunded 09/01/10,
6.750% 09/01/30 500,000 558,975
-------------------------------------------- --------- ---------
Refunded/Escrowed Total 2,526,721
Other Total 5,751,101
Resource Recovery - 1.2%
Disposal - 1.2%
CA Salinas Valley Solid Waste Series 2002, AMT, Insured: AMBAC
Authority 5.125% 08/01/22 750,000 788,107
-------------------------------------------- --------- ---------
Disposal Total 788,107
Resource Recovery Total 788,107
Tax-Backed - 59.6%
Local Appropriated - 4.1%
IL Chicago Park District Series 2004 A, Insured: AMBAC
5.000% 01/01/25 1,000,000 1,065,520
IN Carmel Industrial School Building First Mortgage, Series 2003, Insured: MBIA
Corp. 5.000% 07/15/22 1,000,000 1,062,430
OK Grady County Correctional Series 1999, Insured: MBIA
Facilities 6.000% 11/01/29 500,000 512,155
-------------------------------------------- --------- ---------
Local Appropriated Total 2,640,105
Local General Obligations - 13.4%
CA Empire Unified School District Series 2002, Insured: AMBAC
No. 1987-1-A (b) 10/01/18 1,665,000 1,026,306
CA Union Elementary School Series 1999 A, Insured: FGIC
District (b) 09/01/16 1,400,000 951,706
IL Chicago Series 2005 A, Insured: FSA
5.000% 01/01/26 1,000,000 1,069,190
IL Coles & Cumberland Counties Series 2000, Insured: FSA
Unified School District (b) 12/01/14 2,080,000 1,525,971
MI Detroit City School District Series 2005 A, Insured: FSA
5.250% 05/01/30 1,500,000 1,788,405
OR Clackamas County School Lake Oswego, Series 2005, Insured: FSA
District No. 7J 5.250% 06/01/25 1,000,000 1,172,400
See Accompanying Notes to Financial Statements.
5
Colonial Insured Municipal Fund
November 30, 2006
Municipal Bonds (continued)
Par ($) Value ($)
Tax-Backed (continued)
Local General Obligations (continued)
WA King County Public Hospital Evergreen Hospital Medical Center, Series 2006,
District No. 002 Insured: MBIA
5.000% 12/01/26 1,000,000 1,076,650
--------------------------------------------------- --------- ----------
Local General Obligations Total 8,610,628
Special Non-Property Tax - 28.3%
LA Ernest N. Morial Exhibition Hall Special Tax, Series 2004, Insured: AMBAC
Authority 5.000% 07/15/23 2,000,000 2,128,080
MA Bay Transportation Authority Sales Tax Revenue, Series 2005 B, Insured: MBIA
5.500% 07/01/28 1,000,000 1,225,350
MI Trunk Line Department of Series 2004, Insured: FSA
Treasury 5.250% 11/01/21 1,000,000 1,158,980
NJ Economic Development Motor Vehicle Revenue, Series 2004 A, Insured: MBIA
Authority 5.250% 07/01/26 2,000,000 2,352,200
NM County of Bernalillo Gross Receipts, Series 2005, Insured: AMBAC
5.250% 10/01/26 2,000,000 2,367,340
NY Urban Development Corp. State Personal Income Tax, Series 2004 A-2,
Insured: MBIA
5.500% 03/15/22 1,000,000 1,184,190
PR Commonwealth of Puerto Rico Series 2006, Insured: AMBAC
Convention Center Authority 5.000% 07/01/20 1,000,000 1,099,840
PR Commonwealth of Puerto Rico Series 2002 E, Insured: FSA
Highway & Transportation Authority 5.500% 07/01/21 1,000,000 1,182,810
5.500% 07/01/23 1,000,000 1,194,030
Series 2005 L, Insured: MBIA
5.250% 07/01/35 1,000,000 1,209,790
PR Commonwealth of Puerto Rico Series 2005 A, Insured: FGIC
Infrastructure Financing Authority 5.500% 07/01/24 1,125,000 1,349,303
Series 2005 C, Insured: AMBAC
5.500% 07/01/23 1,500,000 1,791,045
--------------------------------------------------- --------- ----------
Special Non-Property Tax Total 18,242,958
Special Property Tax - 4.0%
CA Huntington Park Public Series 2004, Insured: FSA
Financing Authority Revenue 5.250% 09/01/19 1,190,000 1,328,861
CA Pittsburg Redevelopment Los Medanos Project, Series 1999, Insured: AMBAC
Agency (b) 08/01/26 2,500,000 1,073,575
FL Lexington Oaks Community Series 2000 A,
Development District 7.200% 05/01/30 180,000 184,887
--------------------------------------------------- --------- ----------
Special Property Tax Total 2,587,323
See Accompanying Notes to Financial Statements.
6
Colonial Insured Municipal Fund
November 30, 2006
Municipal Bonds (continued)
Par ($) Value ($)
Tax-Backed (continued)
State Appropriated - 5.2%
NJ Economic Development Revenue Refunding School Facilities Construction,
Authority Series 2005 N-1, Insured: FGIC
5.500% 09/01/27 1,000,000 1,218,080
OK Capital Improvement Authority Higher Education Project, Series 2005 F, Insured:
AMBAC
5.000% 07/01/30 1,000,000 1,075,040
PA Commonwealth Financing Series 2005 A, Insured: MBIA
Authority 5.000% 06/01/25 1,000,000 1,076,710
------------------------------------------------- --------- ----------
State Appropriated Total 3,369,830
State General Obligations - 4.6%
CA State Series 2002, Insured: AMBAC
6.000% 04/01/16 500,000 593,445
MA State Series 2004 C, Insured: AMBAC
5.500% 12/01/24 2,000,000 2,402,480
------------------------------------------------- --------- ----------
State General Obligations Total 2,995,925
Tax-Backed Total 38,446,769
Transportation - 33.8%
Air Transportation - 6.5%
FL Miami-Dade County Industrial Airis Miami II, LLC, Series 1999 A, AMT,
Development Authority Insured: AMBAC
6.000% 10/15/25 1,000,000 1,068,870
MA Port Authority US Airways, Inc., Series 1999, AMT, Insured: MBIA
6.000% 09/01/21 2,500,000 2,631,925
NC Charlotte/Douglas International US Airways, Inc.: Series 1998, AMT,
Airport 5.600% 07/01/27 200,000 202,180
Series 2000, AMT,
7.750% 02/01/28 250,000 270,282
------------------------------------------------- --------- ----------
Air Transportation Total 4,173,257
Airports - 11.9%
DC Metropolitan Washington Series 2003 A, AMT, Insured: FGIC
Airports Authority 5.500% 10/01/19 1,000,000 1,092,010
IN Indianapolis Local Public Airport Authority Project,
Improvement Bond Bank Series 2005 B, AMT, Insured: MBIA
5.250% 01/01/29 1,000,000 1,084,890
MO St. Louis Airport Revenue Lambert-St. Louis International Airport,
Series 2005, Insured: MBIA
5.500% 07/01/27 1,000,000 1,209,020
NY Niagara Frontier Transportation Series 1999 A, AMT, Insured: MBIA
Authority 5.625% 04/01/29 1,000,000 1,050,450
TN Memphis-Shelby County Airport Series 1999 D, AMT, Insured: AMBAC
Authority 6.000% 03/01/24 3,000,000 3,217,920
------------------------------------------------- --------- ----------
Airports Total 7,654,290
See Accompanying Notes to Financial Statements.
7
Colonial Insured Municipal Fund
November 30, 2006
Municipal Bonds (continued)
Par ($) Value ($)
Transportation (continued)
Ports - 3.1%
TX Harris County Port of Houston Series 2005 B, Insured: MBIA
Authority 4.125% 10/01/23 2,000,000 1,974,800
------------------------------------------------------ --------- ----------
Ports Total 1,974,800
Toll Facilities - 7.8%
CO Northwest Parkway Public Series 2001 D,
Highway Authority 7.125% 06/15/41 200,000 209,412
NY Thruway Authority Second General Highway & Bridge Trust Fund:
Series 2005 A, Insured: MBIA
5.000% 04/01/24 1,000,000 1,076,120
Series 2005 B, Insured: AMBAC
5.500% 04/01/20 1,000,000 1,177,670
NY Triborough Bridge & Tunnel Series 2002, Insured: MBIA
Authority 5.500% 11/15/20 1,200,000 1,422,252
PA Turnpike Commission Series 2005 A, Insured: FSA
Registration Fee Revenue 5.250% 07/15/25 1,000,000 1,176,050
------------------------------------------------------ --------- ----------
Toll Facilities Total 5,061,504
Transportation - 4.5%
IN Transportation Finance Authority Series 2004 A, Insured: FGIC
Highway Revenue 5.250% 06/01/20 1,000,000 1,094,570
NV Department of Business & Las Vegas Monorail Co., Series 2000,
Industry 7.375% 01/01/40 250,000 255,975
NY Metropolitan Transportation Series 2002 A, Insured: FSA
Authority 5.000% 11/15/30 1,500,000 1,586,940
------------------------------------------------------ --------- ----------
Transportation Total 2,937,485
Transportation Total 21,801,336
Utilities - 28.9%
Investor Owned - 12.8%
CA Pollution Control Financing San Diego Gas & Electric Co., Series 1991 A, AMT,
Authority 6.800% 06/01/15 500,000 593,210
CO Adams County Pollution Control Public Service Co., Colorado Project,
Revenue Series 2005 A, Insured: MBIA
4.375% 09/01/17 1,000,000 1,031,660
HI Department of Budget & Finance Hawaiian Electric Co., Series 1999 C, AMT,
Insured: AMBAC
6.200% 11/01/29 2,000,000 2,151,480
KY Boone County Pollution Control Dayton Power & Light Co., Series 2005 A, Insured: FGIC
Revenue 4.700% 01/01/28 1,000,000 1,032,780
OH Air Quality Development Dayton Power & Light Co., Series 2006, Insured: FGIC
Authority 4.800% 09/01/36 1,000,000 1,030,820
See Accompanying Notes to Financial Statements.
8
Colonial Insured Municipal Fund
November 30, 2006
Municipal Bonds (continued)
Par ($) Value ($)
Utilities (continued)
Investor Owned (continued)
TX Brazos River Authority Centerpoint Energy, Inc., Series 1998 A,
Insured: AMBAC
5.125% 05/01/19 2,100,000 2,176,965
TXU Energy Co., LLC, Series 2003 C, AMT,
6.750% 10/01/38 215,000 242,937
------------------------------------------- --------- ----------
Investor Owned Total 8,259,852
Joint Power Authority - 1.7%
SC Public Service Authority Santee Cooper, Series 2006 A, Insured: MBIA
5.000% 01/01/29 1,000,000 1,077,100
------------------------------------------- --------- ----------
Joint Power Authority Total 1,077,100
Municipal Electric - 1.7%
CA Department of Water Resources Series 2002 A, Insured: AMBAC
5.500% 05/01/14 1,000,000 1,105,690
------------------------------------------- --------- ----------
Municipal Electric Total 1,105,690
Water & Sewer - 12.7%
AZ Phoenix Civic Improvement Series 2001, Insured: FGIC
Corp. 5.500% 07/01/21 1,000,000 1,184,040
FL Tallahassee Consolidated Series 2001, Insured: FGIC
Utilities System 5.500% 10/01/19 1,360,000 1,594,573
MA Water Resources Authority Series 2006 A, Insured: AMBAC
5.000% 08/01/26 1,000,000 1,096,380
TX Corpus Christi Utility System Series 2005 A, Insured: AMBAC
Revenue 5.000% 07/15/22 2,000,000 2,150,640
TX Houston Utility System Revenue Series 2004 A, Insured: FSA
5.250% 05/15/20 2,000,000 2,182,700
------------------------------------------- --------- ----------
Water & Sewer Total 8,208,333
Utilities Total 18,650,975
Total Municipal Bonds (Cost of $93,702,679) 99,966,857
Municipal Preferred Stocks - 0.8% Shares
Housing - 0.8%
Multi-Family - 0.8%
Charter Mac Equity Issue Trust 7.100% 06/30/09 (c) 500,000 532,155
------------------------------------------- --------- ----------
Multi-Family Total 532,155
Housing Total 532,155
Total Municipal Preferred Stocks (Cost of $500,000) 532,155
Investment Company - 0.0%
Dreyfus Tax-Exempt Cash Management Fund 460 460
------------------------------------------- --------- ----------
Total Investment Company (Cost of $460) 460
See Accompanying Notes to Financial Statements.
9
Colonial Insured Municipal Fund
November 30, 2006
Short-Term Obligations - 0.5%
Par ($) Value ($)
Variable Rate Demand Notes (d) - 0.5%
FL Pinellas County Health Facilities All Childrens Hospital, Series 1985,
Authority Insured: AMBAC, SPA: Wachovia Bank N.A.
3.650% 12/01/15 100,000 100,000
MN Center City Health Care Hazelden Foundation, Series 2005,
Facilities LOC: Bank of New York
3.650% 11/01/35 100,000 100,000
WY Uinta County Pollution Control Chevron Corp., Series 1993,
Revenue 3.600% 08/15/20 100,000 100,000
----------------------------------------------- ------- -----------
Variable Rate Demand Notes Total 300,000
----------------------------------------------- ------- -----------
Total Short-Term Obligations (Cost of $300,000) 300,000
----------------------------------------------- ------- -----------
Total Investments - 156.2% (Cost of $94,503,139) (e) 100,799,472
----------------------------------------------- ------- -----------
Auction Preferred Shares Plus
Cumulative Unpaid Distributions - (57.8)% (37,323,604)
----------------------------------------------- ------- -----------
Other Assets & Liabilities, Net - 1.6% 1,060,479
----------------------------------------------- ------- -----------
Net Assets - 100.0% 64,536,347
Notes to Investment Portfolio:
(a)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.
(b)Zero coupon bond.
(c)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 November 30, 2006, the
value of this security, which is not illiquid,
represents 0.8% of net assets.
(d)Variable rate demand notes. These securities are
payable upon demand and are secured by letters of
credit or other credit support agreements from
banks. The interest rates change periodically and
the interest rates shown reflect the rates at
November 30, 2006.
(e)Cost for federal income tax purposes is
$94,433,770.
At November 30, 2006, the composition of the Fund
by revenue source is as follows:
Holdings by Revenue Source (Unaudited) % of Net Assets
-------------------------------------- ---------------
Tax-Backed 59.6%
Transportation 33.8
Utilities 28.9
Other 8.9
Health Care 8.5
Housing 5.9
Education 5.7
Industrial 3.2
Resource Recovery 1.2
-----
155.7
Investment Company 0.0*
Short-Term Obligations 0.5
Auction Preferred Shares Plus Cumulative Unpaid
Distributions (57.8)
Other Assets & Liabilities, Net 1.6
-----
100.0%
=====
* Rounds to less than 0.1%
See Accompanying Notes to Financial Statements.
10
Colonial Insured Municipal Fund
November 30, 2006
Acronym Name
------- ----
ACA ACA Financial Guaranty Corp.
AMBAC Ambac Assurance Corp.
AMT Alternative Minimum Tax
FGIC Financial Guaranty Insurance Co.
FHA Federal Housing Administration
FSA Financial Security Assurance, Inc.
GNMA Government National Mortgage Association
LOC Letter of Credit
MBIA MBIA Insurance Corp.
RAD Radian Asset Assurance, Inc.
SPA Stand-by Purchase Agreement
See Accompanying Notes to Financial Statements.
11
Statement of Assets and Liabilities - Colonial Insured Municipal Fund
November 30, 2006
($)
Assets Investments, at cost 94,503,139
-----------
Investments, at value 100,799,472
Cash 40,483
Receivable for interest 1,348,634
Expense reimbursement due from Investment Advisor 17,131
Deferred Trustees' compensation plan 10,722
----------------------------------------------------------------------- -----------
Total Assets 102,216,442
Liabilities Payable for:
Futures variation margin 5,703
Distributions -- common shares 221,148
Distributions -- preferred shares 23,604
Investment advisory fee 36,835
Pricing and bookkeeping fees 6,514
Trustees' fees 872
Custody fee 589
Audit fee 29,500
Transfer agent fee 5,357
Reports to shareholders 35,758
Preferred shares remarketing commissions 1,790
Chief compliance officer expenses 618
Deferred Trustees' fees 10,722
Other liabilities 1,085
----------------------------------------------------------------------- -----------
Total Liabilities 380,095
Auction Preferred Shares 1,492 shares issued and outstanding at $25,000 per share 37,300,000
----------------------------------------------------------------------- -----------
Composition of Net Assets Paid-in capital -- common shares 60,281,127
Applicable to Common Shares Undistributed net investment income 24,656
Accumulated net realized loss (2,065,769)
Net unrealized appreciation on investments 6,296,333
----------------------------------------------------------------------- -----------
Net assets at value applicable to 4,252,855 common shares of beneficial
interest outstanding 64,536,347
----------------------------------------------------------------------- -----------
Net asset value per common share 15.17
----------------------------------------------------------------------- -----------
See Accompanying Notes to Financial Statements.
12
Statement of Operations - Colonial Insured Municipal Fund
For the Year Ended November 30, 2006
($)
Investment Income Interest 4,807,571
Dividend 366
------------------------------------------------------------------ ----------
Total Investment Income 4,807,937
Expenses Investment advisory fee 645,925
Transfer agent fee 36,413
Pricing and bookkeeping fees 81,745
Trustees' fees 12,093
Preferred shares remarketing commissions 93,357
Custody fee 6,383
Audit fee 41,783
Reports to shareholders 44,214
Chief compliance officer expenses 3,877
Other expenses 30,378
------------------------------------------------------------------ ----------
Total Expenses 996,168
Fees and expenses waived or reimbursed by Investment Advisor (348,423)
Custody earnings credit (1,904)
------------------------------------------------------------------ ----------
Net Expenses 645,841
------------------------------------------------------------------ ----------
Net Investment Income 4,162,096
Net Realized and Unrealized Gain Net realized gain on:
(Loss) on Investments and Futures Investments 457,402
Contracts Futures contracts 66,473
------------------------------------------------------------------ ----------
Net realized gain 523,875
Net change in unrealized appreciation on:
Investments 2,483,850
Futures contracts 3,980
------------------------------------------------------------------ ----------
Net change in unrealized appreciation 2,487,830
------------------------------------------------------------------ ----------
Net Gain 3,011,705
------------------------------------------------------------------ ----------
Net Increase Resulting from Operations 7,173,801
Less Distributions Declared to
Preferred Shareholders From net investment income (1,229,285)
------------------------------------------------------------------ ----------
Net Increase Resulting from Operations Applicable to Common Shares 5,944,516
See Accompanying Notes to Financial Statements.
13
Statement of Changes in Net Assets - Colonial Insured Municipal Fund
Increase (Decrease) in Net Assets Year Ended November 30, 2006 ($) 2005 ($)
Operations Net investment income 4,162,096 4,432,710
Net realized gain on investments and futures contracts 523,875 2,823,095
Net change in unrealized appreciation on investments
and futures contracts 2,487,830 (3,156,833)
------------------------------------------------------ ---------- ----------
Net Increase Resulting from Operations 7,173,801 4,098,972
Less Distributions Declared to
Preferred Shareholders From net investment income (1,229,285) (785,610)
------------------------------------------------------ ---------- ----------
Net Increase Resulting from Net Assets from
Operations Applicable to Common Shares 5,944,516 3,313,362
Less Distributions Declared to
Common Shareholders From net investment income (2,925,967) (3,659,585)
------------------------------------------------------ ---------- ----------
Total Increase (Decrease) in Net Assets from
Operations Applicable to Common Shares 3,018,549 (346,223)
Net Assets Applicable to Common
Shares Beginning of period 61,517,798 61,864,021
End of period (including undistributed net investment
income of $24,656 and $20,706, respectively) 64,536,347 61,517,798
------------------------------------------------------ ---------- ----------
Number of Fund Shares Common Shares
Outstanding at 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.
14
Financial Highlights - Colonial Insured Municipal Fund
Selected data for a share outstanding throughout each period is as follows
(common shares unless otherwise noted):
Year Ended November 30,
---------------------------------------------
2006 2005 2004 2003 2002
---------------------------------------------------------------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 14.47 $ 14.55 $ 14.86 $ 14.93 $ 15.20
Income from Investment Operations:
Net investment income (a) 0.98 1.04 1.10 1.14 1.21
Net realized and unrealized gain (loss) on investments, written options and
futures contracts 0.70 (0.08) (0.30) (0.08) (0.25)
------- ------- ------- ------- -------
Total from Investment Operations 1.68 0.96 0.80 1.06 0.96
Less Common Share Equivalent of Distributions Declared to Preferred
Shareholders:
From net investment income (0.29) (0.18) (0.09) (0.08) (0.12)
------- ------- ------- ------- -------
Total from Investment Operations Applicable to Common Shareholders 1.39 0.78 0.71 0.98 0.84
Less Distributions Declared to Common Shareholders:
From net investment income (0.69) (0.86) (1.02) (1.05) (1.11)
------- ------- ------- ------- -------
Net Asset Value, End of Period $ 15.17 $ 14.47 $ 14.55 $ 14.86 $ 14.93
------- ------- ------- ------- -------
Market price per share -- common shares $ 13.45 $ 13.02 $ 13.92 $ 15.30 $ 15.09
------- ------- ------- ------- -------
Total return -- based on market value -- common shares (b) 8.79% (0.52)% (2.45)% 8.77% (1.72)%
Ratios to Average Net Assets/Supplemental Data:
Expenses (c)(d)(e) 1.04% 0.96% 0.88% 0.88% 0.87%
Voluntary waiver/reimbursement (d) 0.24% 0.16% 0.12% 0.18% 0.13%
Net investment income before preferred stock dividend (c)(d) 6.71% 7.06% 7.48% 7.68% 8.04%
Net investment income after preferred stock dividend (c)(d) 4.72% 5.81% 6.88% 7.12% 7.22%
Portfolio turnover rate 9% 32% 21% 4% 13%
Net assets, end of period (000's) -- common shares $64,536 $61,518 $61,864 $63,120 $63,252
(a)Per share data was calculated using average shares outstanding during the
period.
(b)Total return at market value assuming all distributions reinvested at prices
calculated in accordance with the Dividend Reinvestment Plan.
(c)The benefits derived from custody credits had an impact of less than 0.01%.
(d)Ratios reflect average net assets available to common shares only.
(e)Ratios calculated using average net assets including auction preferred
shares of the Fund equal 0.65%, 0.60%, 0.55%, 0.55% and 0.55% for the years
ended November 30, 2006, November 30, 2005, November 30, 2004, November 30,
2003 and November 30, 2002, respectively.
See Accompanying Notes to Financial Statements.
15
Asset Coverage Requirements - Colonial Insured Municipal Fund
Involuntary
Total Asset Liquidating Average
Amount Coverage Preference Market Value
Outstanding Per Share* Per Share Per Share
----------------------------------------------------------
11/30/06 $37,300,000 $68,255 $25,016 $25,000
11/30/05 37,300,000 66,232 25,012 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 Auction Preferred Shares
outstanding.
**On December 20, 1999, the Fund began offering Auction Preferred Shares.
See Accompanying Notes to Financial Statements.
16
Notes to Financial Statements - Colonial Insured Municipal Fund
November 30, 2006
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 closed-end management investment company and is operating as a diversified
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 open-end 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 that have
quotations which management believes are not reliable, are valued at fair value
as determined in good faith under consistently applied procedures established
by and under the general supervision of the Board of Trustees. If a security is
valued at a "fair value", such value is likely to be different from the last
quoted market price for the security.
In September 2006, Statement of Financial Accounting Standards No. 157, Fair
Value Measurements ("SFAS 157"), was issued. SFAS 157 is effective for fiscal
years beginning after November 15, 2007. SFAS 157 defines fair value,
establishes a framework for measuring fair value and expands disclosures about
fair value measurements. Management has recently begun to evaluate the impact
the application of SFAS 157 will have on the Fund's financial statement
disclosures.
Security Transactions
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the specific identification method for both
financial statement and federal income tax purposes.
Futures Contracts
The Fund may invest in futures contracts 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,
17
Colonial Insured Municipal Fund
November 30, 2006
for either the instrument or the underlying securities, or (3) an inaccurate
prediction by Columbia Management Advisors, LLC 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 recognizes a
realized gain or loss when the contract is closed or expires.
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 November 30, 2006, was
3.60%. For the year ended November 30, 2006, the Fund declared dividends to
Auction Preferred shareholders amounting to $1,229,285, representing an average
dividend rate of 3.29% per APS.
Indemnification
In the normal course of business, the Fund enters into contracts that contain a
variety of representations and warranties and which provide general
indemnities. The Fund's maximum exposure under these arrangements is unknown,
as this would involve future claims against the Fund. Also, under the Fund's
organizational documents and by contract, the Trustees and Officers of the
Trust are indemnified against certain liabilities that may arise out of their
duties to the Trust. However, based on experience, the Fund expects the risk of
loss due to these representations, warranties and indemnities to be minimal.
Note 3. Federal Tax Information
The timing and character of income and capital gain distributions are
determined in accordance with income tax regulations, which may differ from
GAAP. Reclassifications are made to the Fund's capital accounts for permanent
tax differences to reflect income and gains available for distribution (or
available capital loss carryforwards) under income tax regulations.
For the year ended November 30, 2006, permanent book and tax basis differences
resulting primarily from differing treatments for discount accretion/premium
amortization on debt securities were identified and reclassified among the
components of the Fund's net assets as follows:
Undistributed Accumulated
Net Investment Net Realized
Income Loss Paid-In Capital
$(2,894) $2,896 $(2)
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended November 30,
2006 and November 30, 2005 was as follows:
November 30,
2006 2005
Distributions paid from:
Tax-Exempt Income $4,155,252 $4,445,195
Ordinary Income* -- --
Long-Term Capital Gains -- --
*For tax purposes short-term capital gains distributions, if any, are
considered ordinary income distributions.
18
Colonial Insured Municipal Fund
November 30, 2006
As of November 30, 2006, the components of distributable earnings on a tax
basis were as follows:
Undistributed Undistributed Undistributed
Tax-Exempt Ordinary Long-term Net Unrealized
Income Income Capital Gains Appreciation*
$211,247 $-- $-- $6,365,702
*The differences between book-basis and tax-basis net unrealized
appreciation/depreciation are primarily due to discount accretion/premium
amortization on debt securities.
Unrealized appreciation and depreciation at November 30, 2006, based on cost of
investments for federal income tax purposes, was:
Unrealized appreciation $6,393,049
Unrealized depreciation (27,347)
Net unrealized appreciation $6,365,702
The following capital loss carryforwards, determined as of November 30, 2006,
may be available to reduce taxable income arising from future net realized
gains on investments, if any, to the extent permitted by the Internal Revenue
Code:
Year of Expiration Capital Loss Carryforward
2011 $376,624
Capital loss carryforwards of $673,372 were utilized during the year ended
November 30, 2006 for the Fund.
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes,
an Interpretation of FASB Statement No. 109 (the "Interpretation"). This
Interpretation is effective for fiscal years beginning after December 15, 2006
and is to be applied to open tax positions upon initial adoption.
This Interpretation prescribes a minimum recognition threshold and measurement
method for the financial statement recognition of tax positions taken or
expected to be taken in a tax return and also requires certain expanded
disclosures. Management has recently begun to evaluate the application of this
Interpretation to the Fund and has not at this time quantified the impact, if
any, resulting from the adoption of this Interpretation on the Fund's financial
statements.
Note 4. Fees and Compensation Paid to Affiliates
Investment Advisory Fee
Columbia Management Advisors, LLC ("Columbia"), an indirect, wholly-owned
subsidiary of Bank of America Corporation ("BOA"), is the investment advisor to
the Fund and provides administrative and other services. Columbia receives a
monthly investment advisory fee at the annual rate of 0.65% of the Fund's
average weekly net assets, including assets applicable to the APS. Columbia
contractually agreed to waive a portion of its investment advisory fee through
November 30, 2006, so that the fee would not exceed the annual rate of 0.45% of
the Fund's average weekly net assets, including assets applicable to the APS.
Columbia also has contractually agreed to waive a portion of its investment
advisory fee for the years ending November 30, 2007, 2008 and 2009 so that the
Fund's investment advisory fees will not exceed the annual rates of 0.50%,
0.55% and 0.60%, respectively.
Pricing and Bookkeeping Fees
Columbia is responsible for providing pricing and bookkeeping services to the
Fund under a pricing and bookkeeping agreement. Under a separate agreement (the
"Outsourcing Agreement"), Columbia has delegated certain functions to State
Street Bank & Trust Company ("State Street"). As a result, the total fees
payable under the pricing and bookkeeping agreement (other than certain
reimbursements paid to Columbia and discussed below) are paid to State Street.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives an
annual fee of $38,000 paid monthly plus an additional monthly fee based on the
level of average daily net assets for the month; provided that during any
12-month period, the aggregate fee (exclusive of out-of-pocket expenses and
charges) shall not exceed $140,000.
The Fund also reimburses Columbia and State Street for out-of-pocket expenses
and charges, including fees payable to third parties for pricing the Fund's
portfolio securities and direct internal costs incurred by Columbia in
connection with providing fund accounting oversight and monitoring and certain
other services. For the year ended November 30, 2006, the effective pricing and
bookkeeping fee rate for the Fund, inclusive of out-of-pocket expenses, was
0.082% of the Fund's average daily net assets.
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
19
Colonial Insured Municipal Fund
November 30, 2006
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
All officers of the Fund, with the exception of the Fund's Chief Compliance
Officer, are employees of Columbia or its affiliates and receive no
compensation from the Fund. The Board of Trustees has appointed a Chief
Compliance Officer to the Fund in accordance with federal securities
regulations. The Fund, along with other affiliated funds, pays its pro-rata
share of the expenses associated with the Chief Compliance Officer. The Fund's
expenses for the Office of the Chief Compliance Officer will not exceed $15,000
per year.
The Fund's Trustees may participate in a deferred compensation plan which may
be terminated at any time. Obligations of the plan will be paid solely out of
the Fund's assets.
Other
Columbia provides certain services to the Fund related to Sarbanes-Oxley
compliance. For the year ended November 30, 2006, the Fund paid $2,504 to
Columbia for such services. This amount is included in "Other expenses" on the
Statement of Operations.
Note 5. Portfolio Information
For the year ended November 30, 2006, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $9,155,758 and
$8,372,453, respectively.
Note 6. Preferred Shares
The Fund currently has outstanding 1,492 APS. The APS have a liquidation
preference of $25,000 per APS plus accumulated but unpaid dividends and have
certain class-specific preferences over the common shares. The dividend rate on
the APS is set, typically every seven days, through an auction process.
Dividends on the APS are cumulative. Each holder of the APS is entitled to one
vote per APS. Unless otherwise required by law or under the terms of the
bylaws, each holder of APS has the same voting rights as common shareholders
and will vote together with common shareholders as a single class. The holders
of APS, voting as a separate class, have the right to: (a) elect at least two
Trustees, (b) elect a majority of the Trustees at any time when dividends on
the APS are due and unpaid for two full years, and (c) vote on certain matters
affecting the rights of the APS.
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 November 30, 2006,
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 by
Moody's Investor Services, Inc. ("Moody's") or rated AAA by Standard & Poor's
except for Radian Asset Assurance, Inc., which is rated Aa3 and AA by Moody's
and Standard & Poor's, respectively. At November 30, 2006, investments
supported by private insurers that represent greater than 5% of the total
investments of the Fund were as follows:
% of Total
Insurer Investments
AMBAC Assurance Corp. 35.6
MBIA Insurance Corp. 24.9
Financial Security Assurance, Inc. 15.2
Financial Guaranty Insurance Corp. 11.0
20
Colonial Insured Municipal Fund
November 30, 2006
Geographic Concentration
The Fund has greater than 5% of its total investments at November 30, 2006
invested in debt obligations issued by the states of California, Massachusetts,
New York, Texas and the Commonwealth of Puerto Rico 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 Management Advisors, Inc. (which has since merged
into Banc of America Capital Management, LLC (now named Columbia Management
Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has
been renamed Columbia Management Distributors, Inc.) (the "Distributor")
(collectively, the "Columbia Group") entered into an Assurance of
Discontinuance with the New York Attorney General ("NYAG") (the "NYAG
Settlement") and consented to the entry of a cease-and-desist order by the
Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and
the NYAG Settlement are referred to collectively as the "Settlements". The
Settlements contain substantially the same terms and conditions as outlined in
the agreements in principle which Columbia Group entered into with the SEC and
NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group agreed, among other
things, to: pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution
consultant (see below). The Columbia Funds have also voluntarily undertaken to
implement certain governance measures designed to maintain the independence of
their boards of trustees. The NYAG Settlement also, among other things,
requires Columbia and its affiliates to reduce management fees for certain
Columbia Funds (including the former Nations Funds) and other mutual funds
collectively by $32 million per year for five years, for a projected total of
$160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan developed by an independent distribution consultant and
approved by the SEC. The independent distribution consultant has been in
consultation with the staff of the SEC and has submitted a proposed plan of
distribution. The SEC has released the proposed plan of distribution for public
notice and comment but has not yet approved a final plan of distribution.
As a result of these matters or any adverse publicity or other developments
resulting from them, the market price of fund shares could decline.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov.
A copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have
filed suit against certain funds, the Trustees of the Columbia Funds,
FleetBoston Financial Corporation and its affiliated entities and/or Bank of
America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation
transferred these cases and cases against other mutual fund companies based on
similar allegations to the United States District Court in Maryland for
consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently,
additional related cases were transferred to the MDL. On September 29, 2004,
the plaintiffs in the MDL filed amended and consolidated complaints. One of
these amended
21
Colonial Insured Municipal Fund
November 30, 2006
complaints is a putative class action that includes claims under the federal
securities laws and state common law, and that names Columbia, the Distributor,
the Trustees of the Columbia Funds, Bank of America Corporation and others as
defendants. Another of the amended complaints is a derivative action
purportedly on behalf of the Columbia Funds that asserts claims under federal
securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss
the claims in the pending cases. On March 1, 2006, for reasons stated in the
court's memoranda dated November 3, 2005, the U.S. District Court for the
District of Maryland granted in part and denied in part the defendants' motions
to dismiss. The court dismissed all of the class action claims pending against
the Columbia Funds Trusts. As to Columbia and the Distributor, the claims under
the Securities Act of 1933, the claims under Sections 34(b) and 36(a) of the
Investment Company Act of 1940 ("ICA") and the state law claims were dismissed.
The claims under Sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and claims under Section 36(b) of the ICA were not dismissed.
On March 21, 2005, a purported class action was filed in Massachusetts state
court alleging that the conduct, including market timing, entitles Class B
shareholders in certain Columbia funds to an exemption from contingent deferred
sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has
been removed to federal court in Massachusetts and the federal Judicial Panel
has transferred the CDSC Lawsuit to the MDL.
On April 4, 2006, the plaintiffs and the Columbia defendants named in the MDL,
including the Columbia Funds, entered into a term sheet containing the
principal terms of a stipulation of settlement that would settle all
Columbia-related claims in the MDL described above, including the CDSC Lawsuit.
On April 6, 2006, the U.S. District Court for the District of Maryland stayed
all actions with respect to these Columbia-related claims.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers
and affiliated entities were named as defendants in certain purported
shareholder class and derivative actions making claims, including claims under
the Investment Company and the Investment Advisers Acts of 1940 and state law.
The suits allege, inter alia, that the fees and expenses paid by the funds are
excessive and that the advisers and their affiliates inappropriately used fund
assets to distribute the funds and for other improper purposes. On March 2,
2005, the actions were consolidated in the Massachusetts federal court as In re
Columbia Entities Litigation. The plaintiffs filed a consolidated amended
complaint on June 9, 2005 naming the Columbia Funds as nominal defendants. On
November 30, 2005, the judge dismissed all claims by plaintiffs and ordered
that the case be closed. The plaintiffs filed a notice of appeal to the United
States Court of Appeals for the First Circuit on December 30, 2005; this appeal
is currently pending. The parties have advised the appellate court that they
are engaged in settlement discussions and the court has, accordingly, deferred
the briefing schedule for the appeal. The settlement has not yet been
finalized. Any settlement ultimately agreed by the parties will be subject to
court approval.
The matter is ongoing. Accordingly, no estimate can be made of the financial
impact, if any, of this litigation on any fund.
22
Report of Independent Registered Public Accounting Firm
To the Trustees and the Shareholders of Colonial Insured Municipal Fund
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 Insured Municipal Fund
(the "Fund") at November 30, 2006, 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
Fund's management. 0ur responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at November 30, 2006 by correspondence with the custodian and
brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 25, 2007
23
Unaudited Information - Colonial Insured Municipal Fund
Federal Income Tax Information
100.00% of the distributions from net investment income will be treated as
exempt income for federal income tax purposes.
For the calendar year ended December 31, 2006, 23.32% of distributions from net
investment income is subject to the alternative minimum tax.
24
Dividend Reinvestment Plan
Colonial 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. Contact the Plan Agent for additional information regarding the
Plan. 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.
25
Fund Governance - Colonial Insured Municipal Fund
The Trustees serve terms of indefinite duration. The names, addresses and ages
of the Trustees and officers of the Funds in the Columbia Funds Complex, the
year each was first elected or appointed to office, their principal business
occupations during at least the last five years, the number of portfolios
overseen by each Trustee and other directorships they hold are shown below.
Each officer listed below serves as an officer of each Fund in the Columbia
Funds Complex.
Independent Trustees
Name, Address and Year of Birth, Principal Occupation(s) During Past Five Years, Number
Position with Funds, Year First of Portfolios in Columbia Funds Complex Overseen by
Elected or Appointed to Office/(1)/ Trustee, Other Directorships Held
Douglas A. Hacker (Born 1955)
-------------------------------------------------------------------------------------------
c/o Columbia Management Independent business executive since May, 2006;
Advisors, LLC Executive Vice President-Strategy of United Airlines
One Financial Center (airline) from December, 2002 to May, 2006; President
Boston, MA 02111 of UAL Loyalty Services (airline marketing company)
Trustee (since 1996) from September, 2001 to December, 2002; Executive Vice
President and Chief Financial Officer of United
Airlines from July, 1999 to September, 2001. Oversees
81, Nash Finch Company (food distributor); Aircastle
Limited (aircraft leasing)
Janet Langford Kelly (Born 1957)
-------------------------------------------------------------------------------------------
c/o Columbia Management Deputy General Counsel-Corporate Legal Services,
Advisors, LLC ConocoPhillips (integrated petroleum company) since
One Financial Center August, 2006; Partner, Zelle, Hofmann, Voelbel, Mason&
Boston, MA 02111 Gette LLP (law firm) from March, 2005 to July, 2006;
Trustee (since 1996) Adjunct Professor of Law, Northwestern University,
from September, 2004 to June, 2006, Director, UAL
Corporation (airline) from February, 2006 to July,
2006; Chief Administrative Officer and Senior Vice
President, Kmart Holding Corporation (consumer goods),
from September, 2003 to March, 2004; Executive Vice
President-Corporate Development and Administration,
General Counsel and Secretary, Kellogg Company (food
manufacturer), from September, 1999 to August, 2003.
Oversees 81, None
Richard W. Lowry (Born 1936)
-------------------------------------------------------------------------------------------
c/o Columbia Management Private Investor since August, 1987 (formerly Chairman
Advisors, LLC and Chief Executive Officer, U.S. Plywood Corporation
One Financial Center (building products manufacturer) until 1987). Oversees
Boston, MA 02111 81, None
Trustee (since 1995)
Charles R. Nelson (Born 1943)
-------------------------------------------------------------------------------------------
c/o Columbia Management Professor of Economics, University of Washington,
Advisors, LLC since January, 1976; Ford and Louisa Van Voorhis
One Financial Center Professor of Political Economy, University of
Boston, MA 02111 Washington, since September, 1993; Director, Institute
Trustee (since 1981) for Economic Research, University of Washington from
September, 2001 to June, 2003; Adjunct Professor of
Statistics, University of Washington, since September,
1980; Associate Editor, Journal of Money Credit and
Banking, since September, 1993; consultant on
econometric and statistical matters. Oversees 81, None
/1/In December 2000, the boards of each of the former Liberty Funds and former
Stein Roe Funds were combined into one board of trustees responsible for the
oversight of both fund groups (collectively, the "Liberty Board"). In
October 2003, the trustees on the Liberty Board were elected to the boards
of the Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the
"CMG Funds Board"); simultaneous with that election, Patrick J. Simpson who
had been a director on the Columbia Board and trustee on the CMG Funds
Board, was appointed to serve as trustee of the Liberty Board. The date
shown is the earliest date on which a trustee/director was elected or
appointed to the board of a Fund in the Columbia Funds Complex.
26
Fund Governance (continued) - Colonial Insured Municipal Fund
Name, Address and Year of Birth, Principal Occupation(s) During Past Five Years, Number
Position with Funds, Year First of Portfolios in Columbia Funds Complex Overseen by
Elected or Appointed to Office/(1)/ Trustee, Other Directorships Held
John J. Neuhauser (Born 1942)
----------------------------------------------------------------------------------------------
c/o Columbia Management University Professor, Boston College since November,
Advisors, LLC 2005; Academic Vice President and Dean of Faculties,
One Financial Center Boston College from August, 1999 to October, 2005.
Boston, MA 02111 Oversees 81, None
Trustee (since 1985)
Patrick J. Simpson (Born 1944)
----------------------------------------------------------------------------------------------
c/o Columbia Management Partner, Perkins Coie LLP (law firm). Oversees 81, None
Advisors, LLC
One Financial Center
Boston, MA 02111
Trustee (since 2000)
Thomas E. Stitzel (Born 1936)
----------------------------------------------------------------------------------------------
c/o Columbia Management Business Consultant since 1999; Chartered Financial
Advisors, LLC Analyst. Oversees 81, None
One Financial Center
Boston, MA 02111
Trustee (since 1998)
Thomas C. Theobald (Born 1937)
----------------------------------------------------------------------------------------------
c/o Columbia Management Partner and Senior Advisor, Chicago Growth Partners
Advisors, LLC (private equity investing) since September, 2004;
One Financial Center Managing Director, William Blair Capital Partners
Boston, MA 02111 (private equity investing) from September, 1994 to
Trustee and Chairman of the Board/(2)/ September, 2004. Oversees 81, Anixter International
(since 1996) (network support equipment distributor); Ventas, Inc.
(real estate investment trust); Jones Lang LaSalle
(real estate management services); Ambac Financial
Group (financial guaranty insurance)
Anne-Lee Verville (Born 1945)
----------------------------------------------------------------------------------------------
c/o Columbia Management Retired since 1997 (formerly General Manager, Global
Advisors, LLC Education Industry, IBM Corporation (computer and
One Financial Center technology) from 1994 to 1997). Oversees 81, None
Boston, MA 02111
Trustee (since 1998)
Interested Trustee
------------------ ------------------------------------------------------
William E. Mayer (Born 1940)
------------------------------------------------------------------------------------
c/o Columbia Management Partner, Park Avenue Equity Partners (private equity)
Advisors, LLC since February, 1999; Dean and Professor, College of
One Financial Center Business, University of Maryland, 1992 to 1997.
Boston, MA 02111 Oversees 81, Lee Enterprises (print media), WR
Trustee/(3)/ (since 1994) Hambrecht + Co. (financial service provider); Reader's
Digest (publishing)
/2/Mr. Theobald was appointed as Chairman of the Board effective December 10,
2003.
/3/Mr. Mayer is an "interested person" (as defined in the Investment Company
Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co.
The Statement of Additional Information includes additional information about
the Trustees of the Funds and is available, without charge, upon request by
calling 800-426-3750.
27
Fund Governance (continued) - Colonial Insured Municipal Fund
Officers
Name, Address and Year of Birth, Principal Occupation(s) During Past Five Years
Position with Columbia Funds, Year
First Elected or Appointed to Office
Christopher L. Wilson (Born 1957)
--------------------------------------------------------------------------------------------
One Financial Center Head of Mutual Funds since August, 2004 and Managing
Boston, MA 02111 Director of Columbia Management Advisors, LLC ("the
President (since 2004) Advisor") since September, 2005; President and Chief
Executive Officer, CDC IXIS Asset Management Services,
Inc. (investment management) from September, 1998 to
August, 2004.
James R. Bordewick, Jr. (Born 1959)
--------------------------------------------------------------------------------------------
One Financial Center Associate General Counsel, Bank of America since
Boston, MA 02111 April, 2005; Senior Vice President and Associate
Senior Vice President, Secretary General Counsel, MFS Investment Management (investment
and Chief Legal Officer (since 2006) management) prior to April, 2005.
J. Kevin Connaughton (Born 1964)
--------------------------------------------------------------------------------------------
One Financial Center Managing Director of the Advisor since February, 1998.
Boston, MA 02111
Senior Vice President,
Chief Financial Officer and
Treasurer (since 2000)
Linda J. Wondrack (Born 1964)
--------------------------------------------------------------------------------------------
One Financial Center Director (Columbia Management Group LLC and Investment
Boston, MA 02111 Product Group Compliance), Bank of America since June
Senior Vice President , 2005; Director of Corporate Compliance and Conflicts
Chief Compliance Officer Officer, MFS Investment Management (investment
(since 2007) management), August 2004 to May 2005; Managing
Director, Deutsche Asset Management (investment
management) prior to August, 2004.
Michael G. Clarke (Born 1969)
--------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Managing Director of the Advisor
Chief Accounting Officer and September, 2004 to December, 2005; Vice President Fund
Assistant Treasurer (since 2004) Administration of the Advisor June, 2002 to September,
2004. Vice President Product Strategy and Development
of the Advisor from February, 2001 to June, 2002.
Jeffrey R. Coleman (Born 1969)
--------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Fund Controller of the Advisor from
Deputy Treasurer (since 2006) October 2004 to January 2006; Vice President of CDC
IXIS Asset Management Services, Inc. (investment
management) from August, 2000 to September, 2004.
Joseph F. DiMaria (Born 1968)
--------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Head of Tax/Compliance and Assistant
Deputy Treasurer (since 2006) Treasurer of the Advisor from November, 2004 to
December, 2005; Director of Trustee Administration
(Sarbanes-Oxley) of the Advisor from May, 2003 to
October, 2004; Senior Audit Manager,
PricewaterhouseCoopers (independent registered public
accounting firm) from July, 2000 to April, 2003.
28
Fund Governance (continued) - Colonial Insured Municipal Fund
Name, Address and Year of Birth, Principal Occupation(s) During Past Five Years
Position with Columbia Funds, Year
First Elected or Appointed to Office
Ty S. Edwards (Born 1966)
--------------------------------------------------------------------------------------------
One Financial Center Director of Fund Administration of the Advisor since
Boston, MA 02111 January, 2006; Vice President of the Advisor from
Deputy Treasurer (since 2006) July, 2002 to December, 2005; Assistant Vice president
and Director, State Street Corporation (financial
services) prior to 2002.
Barry S. Vallan (Born 1969)
--------------------------------------------------------------------------------------------
One Financial Center Vice President-Fund Treasury of the Advisor since
Boston, MA 02111 October, 2004; Vice President- Trustee Reporting of
Controller (since 2006) the Advisor from April, 2002 to October, 2004;
Management Consultant, PricewaterhouseCoopers
(independent registered public accounting firm) prior
to October, 2002.
29
Board Consideration and Re-Approval of Investment Advisory Agreements
The Advisory Fees and Expenses Committee of the Board of Trustees meets one or
more times annually to review the advisory agreements (collectively, the
"Agreements") of the funds for which the Trustees serve as trustees (each a
"fund") and determine whether to recommend that the full Board approve the
continuation of the Agreements for an additional one-year period. After the
Committee has made its recommendation, the full Board, including the
Independent Trustees, determines whether to approve the continuation of the
Agreements. In addition, the Board, including the Independent Trustees,
considers matters bearing on the Agreements at most of its other meetings
throughout the year and meets regularly with the heads of each investment area
within Columbia. Through the Board's Investment Oversight Committees, Trustees
also meet with selected fund portfolio managers at various times throughout the
year.
The Trustees receive and review all materials that they, their legal counsel or
Columbia, the funds' investment adviser, believe to be reasonably necessary for
the Trustees to evaluate the Agreements and determine whether to approve the
continuation of the Agreements. Those materials generally include, among other
items, (i) information on the investment performance of each fund relative to
the performance of peer groups of mutual funds and the fund's performance
benchmarks, (ii) information on each fund's advisory fees and other expenses,
including information comparing the fund's expenses to those of peer groups of
mutual funds and information about any applicable expense caps and fee
"breakpoints," (iii) information about the profitability of the Agreements to
Columbia, including potential "fall-out" or ancillary benefits that Columbia
and its affiliates may receive as a result of their relationships with the
funds and (iv) information obtained through Columbia's response to a
questionnaire prepared at the request of the Trustees by counsel to the funds
and independent legal counsel to the Independent Trustees. The Trustees also
consider other information such as (v) Columbia's financial results and
financial condition, (vi) each fund's investment objective and strategies and
the size, education and experience of Columbia's investment staffs and their
use of technology, external research and trading cost measurement tools,
(vii) the allocation of the funds' brokerage, if any, and the use of "soft"
commission dollars to pay for research products and services, (viii) Columbia's
resources devoted to, and its record of compliance with, the funds' investment
policies and restrictions, policies on personal securities transactions and
other compliance policies, (ix) Columbia's response to various legal and
regulatory proceedings since 2003 and (x) the economic outlook generally and
for the mutual fund industry in particular. In addition, the Advisory Fees and
Expenses Committee confers with the funds' independent fee consultant and
reviews materials relating to the funds' relationships with Columbia provided
by the independent fee consultant. Throughout the process, the Trustees have
the opportunity to ask questions of and request additional materials from
Columbia and to consult with independent legal counsel to the Independent
Trustees and the independent fee consultant.
The Board of Trustees most recently approved the continuation of the Agreements
at its October, 2006 meeting, following meetings of the Advisory Fees and
Expenses Committee held in August, September and October, 2006. In considering
whether to approve the continuation of the Agreements, the Trustees, including
the Independent Trustees, did not identify any single factor as determinative,
and each weighed various factors as he or she deemed appropriate. The Trustees
considered the following matters in connection with their approval of the
continuation of the Agreements:
The nature, extent and quality of the services provided to the funds under the
Agreements. The Trustees considered the nature, extent and quality of the
services provided by Columbia and its affiliates to the funds and the resources
dedicated to the funds by Columbia and its affiliates. Among other things, the
Trustees considered (i) Columbia's ability (including its personnel and other
resources, compensation programs for personnel involved in fund management,
reputation and other attributes) to attract and retain highly qualified
research, advisory and supervisory investment professionals; (ii) the portfolio
management services provided by those investment professionals; and (iii) the
trade execution services provided on behalf of the funds. For each fund, the
Trustees also considered the benefits to shareholders of investing in a mutual
fund that is part of a family of funds offering exposure to a variety of asset
classes and investment disciplines and providing a variety of fund and
shareholder services. After reviewing those and related factors, the Trustees
concluded, within the context of their overall conclusions regarding each of
the Agreements, that the
30
nature, extent and quality of services provided supported the continuation of
the Agreements.
Investment performance of the funds and Columbia. The Trustees reviewed
information about the performance of each fund over various time periods,
including information prepared by an independent third party that compared the
performance of each fund to the performance of peer groups of mutual funds and
performance benchmarks. The Trustees also reviewed a description of the third
party's methodology for identifying each fund's peer group for purposes of
performance and expense comparisons. The Trustees also considered additional
information that the Advisory Fees and Expenses Committee requested from
Columbia relating to funds that presented relatively weaker performance and/or
relatively higher expenses.
In the case of each fund whose performance lagged that of a relevant peer group
for certain (although not necessarily all) periods, the Trustees concluded that
other factors relevant to performance were sufficient, in light of other
considerations, to warrant continuation of the fund's Agreements. Those factors
varied from fund to fund, but included one or more of the following: (i) that
the fund's performance, although lagging in certain recent periods, was
stronger over the longer term; (ii) that the underperformance was attributable,
to a significant extent, to investment decisions that were reasonable and
consistent with the fund's investment strategy and policies and that the fund
was performing as expected, given these investment decisions, market conditions
and the fund's investment strategy; (iii) that the fund's performance was
competitive when compared to other relevant performance benchmarks or peer
groups; (iv) that Columbia had taken or was taking steps designed to help
improve the fund's investment performance, including, but not limited to,
replacing portfolio managers or modifying investment strategies; and (v) that
the fund was proposed to be reorganized into another fund, and that such
reorganization would result in a reduction in fund expenses.
The Trustees also considered Columbia's performance and reputation generally,
the funds' performance as a fund family generally, and Columbia's historical
responsiveness to Trustee concerns about performance and Columbia's willingness
to take steps intended to improve performance.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
performance of each fund and Columbia was sufficient, in light of other
considerations, to warrant the continuation of the Agreement(s) pertaining to
that fund.
The costs of the services provided and profits realized by Columbia and its
affiliates from their relationships with the funds. The Trustees considered the
fees charged to the funds for advisory services as well as the total expense
levels of the funds. That information included comparisons (provided by
management and by an independent third party) of each fund's advisory fees and
total expense levels to those of the fund's peer groups and information about
the advisory fees charged by Columbia to comparable institutional accounts. In
considering the fees charged to those accounts, the Trustees took into account,
among other things, management's representations about the differences between
managing mutual funds as compared to other types of accounts, including
differences in the services provided, differences in the risk profile of such
business for Columbia, and the additional resources required to manage mutual
funds effectively. In evaluating each fund's advisory fees, the Trustees also
took into account the demands, complexity and quality of the investment
management of the fund. The Trustees considered existing advisory fee
breakpoints, and Columbia's use of advisory fee waivers and expense caps, which
benefited a number of the funds. The Trustees also noted management's stated
justification for the fees charged to the funds, which included information
about the investment performance of the funds and the services provided to the
funds.
The Trustees also considered the compensation directly or indirectly received
by Columbia and its affiliates from their relationships with the funds. The
Trustees reviewed information provided by management as to the profitability to
Columbia and its affiliates of their relationships with each fund, and
information about the allocation of expenses used to calculate profitability.
When reviewing profitability, the Trustees also considered court cases in which
adviser profitability was an issue in whole or in part, the performance of the
relevant funds, the expense level of each fund, and whether Columbia had
implemented breakpoints and/or expense caps with respect to the fund.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions
31
regarding each of the Agreements, that the advisory fees charged to each fund,
and the related profitability to Columbia and its affiliates of their
relationships with the fund, supported the continuation of the Agreement(s)
pertaining to that fund.
Economies of Scale. The Trustees considered the existence of any economies of
scale in the provision by Columbia of services to each fund, to groups of
related funds, and to Columbia's investment advisory clients as a whole and
whether those economies were shared with the funds through breakpoints in the
investment advisory fees or other means, such as expense waivers/reductions and
additional investments by Columbia in investment, trading and compliance
resources. The Trustees noted that many of the funds benefited from
breakpoints, expense caps, or both. In considering those issues, the Trustees
also took note of the costs of the services provided (both on an absolute and a
relative basis) and the profitability to Columbia and its affiliates of their
relationships with the funds, as discussed above.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
extent to which economies of scale were shared with the funds supported the
continuation of the Agreements.
Other Factors. The Trustees also considered other factors, which included but
were not limited to the following:
.. the extent to which each fund had operated in accordance with its investment
objective and investment restrictions, the nature and scope of the compliance
programs of the funds and Columbia and the compliance-related resources that
Columbia and its affiliates were providing to the funds;
.. the nature, quality, cost and extent of administrative and shareholder
services performed by Columbia and its affiliates, both under the Agreements
and under separate agreements for the provision of transfer agency and
administrative services;
.. so-called "fall-out benefits" to Columbia and its affiliates, such as the
engagement of its affiliates to provide distribution, brokerage and transfer
agency services to the funds, and the benefits of research made available to
Columbia by reason of brokerage commissions generated by the funds'
securities transactions, as well as possible conflicts of interest associated
with those fall-out and other benefits, and the reporting, disclosure and
other processes in place to disclose and monitor those possible conflicts of
interest; and
.. the draft report provided by the funds' independent fee consultant, which
included information about and analysis of the funds' fees, expenses and
performance.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel and the independent fee consultant, the Trustees, including
the Independent Trustees, approved the continuance of each of the Agreements
through October 31, 2007.
32
Summary of Management Fee Evaluation by Independent Fee Consultant
INDEPENDENT FEE CONSULTANT'S EVALUATION OF THE PROCESS BY WHICH MANAGEMENT FEES
ARE NEGOTIATED FOR THE COLUMBIA MUTUAL FUNDS OVERSEEN BY THE COLUMBIA ATLANTIC
BOARD
Prepared Pursuant to the February 9, 2005 Assurance of Discontinuance between
the Office of Attorney General of New York State and Columbia Management
Advisors, Inc. and Columbia Funds Distributor, Inc. October 11, 2006
I. Overview
Columbia Management Advisors, LLC ("CMA") and Columbia Funds Distributors,
Inc./1/ ("CFD") agreed on February 9, 2005 to the New York Attorney General's
Assurance of Discontinuance ("AOD"). Among other things, the AOD stipulates
that CMA may manage or advise a Columbia Fund ("Fund" and together with all
such funds or a group of such funds as the "Funds") only if the Independent
Members of the Fund's Board of Trustees (such Independent Members of the Fund's
Board together with the other members of the Fund's Board, referred to as the
"Trustees") appoint a Senior Officer or retain an Independent Fee Consultant
("IFC") who is to manage the process by which proposed management fees are
negotiated. The AOD further stipulates that the Senior Officer or IFC is to
prepare a written annual evaluation of the fee negotiation process.
On September 14, 2006, the Independent Members of the Funds' Boards retained me
as IFC for the Funds. In this capacity, I have prepared the second annual
written evaluation of the fee negotiation process. I am successor to the first
IFC, Erik Sirri, who prepared the annual evaluation in 2005 and who contributed
to the second annual written evaluation until his resignation as IFC in August
2006 to become Director of the Division of Market Regulation at the U.S.
Securities and Exchange Commission./2/
A. Role of the Independent Fee Consultant
The AOD charges the IFC with "managing the process by which proposed management
fees...to be charged the Columbia Fund are negotiated so that they are
negotiated in a manner which is at arms' length and reasonable and consistent
with this Assurance of Discontinuance." In this role, the IFC does not replace
the Trustees in negotiating management fees with CMA, and the IFC does not
substitute his or her judgment for that of the Trustees about the
reasonableness of proposed fees. As the AOD states, CMA "may manage or advise a
Columbia Fund only if the reasonableness of the proposed management fees is
determined by the Board of Trustees...using...an annual independent written
evaluation prepared by or under the direction of...the Independent Fee
Consultant."
B. Elements Involved in Managing the Fee Negotiation Process
Managing the fee negotiation process has three elements. One involves reviewing
the information provided by CMG to the Trustees for evaluating the proposed
management fees and augmenting that information, as necessary, with additional
information from CMG or other sources and with further analyses of the
information and data. The second element involves reviewing the information and
analysis relative to at least the following six factors set forth in the AOD:
1.The nature and quality of CMA's services, including the Fund's performance;
2.Management fees (including any components thereof) charged by other mutual
fund companies for like services;
3.Possible economies of scale as the Fund grows larger;
4.Management fees (including any components thereof) charged to institutional
and other clients of CMA for like services;
/1/ CMA and CFD are subsidiaries of Columbia Management Group, Inc. ("CMG"),
which also is the parent of Columbia Management Services, Inc. ("CFS"), the
Funds' transfer agent. Before the date of this report, CMA merged into an
affiliated entity, Banc of America Capital Management, LLC, which was
renamed Columbia Management Advisors, LLC and which carries on the business
of CMA. CFD also has been renamed Columbia Management Distributors, Inc.
/2/ I am an independent economic consultant. From August 2005 until August
2006, I provided support to Mr. Sirri as an independent consultant. From
1994 to 2004, I was Chief Economist at the Investment Company Institute.
Earlier, I was Section Chief and Assistant Director at the Federal Reserve
Board and Professor of Economics at Oklahoma State University. I have no
material relationship with Bank of America or CMG, aside from serving as
IFC, and I am aware of no material relationship with any of their
affiliates. To assist me with the report, I engaged NERA Economic
Consulting, an independent consulting firm that has had extensive
experience in the mutual fund industry. I also have retained Willkie Farr &
Gallagher LLP as counsel to advise me in connection with the report.
33
5.Costs to CMA and its affiliates of supplying services pursuant to the
management fee agreements, excluding any intra-corporate profit; and
6.Profit margins of CMA and its affiliates from supplying such services.
The final element involves providing the Trustees with a written evaluation of
the above factors as they relate to the fee negotiation process.
C. Organization of the Annual Evaluation
The 2006 annual evaluation focuses on the six factors and contains a section
for each factor except that CMA's costs and profits from managing the Funds
have been combined into a single section. In each section, the discussion of
the factor considers and analyzes the available data and other information as
they bear upon the fee negotiation process. If appropriate, the discussion in
the section may point out certain aspects of the proposed fees that may warrant
particular attention from the Trustees. The discussion also may suggest other
data, information, and approaches that the Trustees might consider
incorporating into the fee negotiation process in future years.
In addition to a discussion of the six factors, the report reviews the status
of recommendations made in the 2005 IFC evaluation. The 2006 report also
summarizes the findings with regard to the six factors and contains a summary
of recommendations for possible enhancements to the process.
II. Status of 2005 Recommendations
The 2005 IFC evaluation contains recommendations aimed at enhancing the
evaluation of proposed management fees by Trustees. The section summarizes
those recommendations and includes my assessment of the response to the
recommendations.
1.Recommendation: Trustees should consider requesting more analytical work from
CMG in the preparation of future 15(c) materials.
Status: CMG has provided additional analyses to the Trustees on economies of
scale, a comparative analysis of institutional and retail management fees,
management fee breakpoints, risk-adjusted performance, fee waivers and
expense reimbursements, and CMG's costs and profitability.
2.Recommendation: Trustees may wish to consider whether CMG should continue
expanding the use of Morningstar or other third party data to supplement
CMG's fee and performance analysis that is now based primarily on Lipper
reports.
Status: CMG has used data from Morningstar Inc. to compare with data from
Lipper Inc. ("Lipper") in performing the Trustees' screening procedures.
3.Recommendation: Trustees should consider whether...the fund-by-fund
screen...should place comparable emphasis on both basis point and quintile
information in their evaluation of the funds...Also, the Trustees should
consider incorporating sequences of one-year performance into a fund-by-fund
screen.
Status: CMG has not provided Trustees with results of the screening process
using percentiles. CMG has provided Trustees with information on the changes
in performance and expenses between 2005 and 2006 and data on oneyear returns.
4.Recommendation: Given the volatility of fund performance, the Trustees may
want to consider whether a better method exists than th[e] fee waiver process
to deal with fund underperformance.
Status: It is my understanding that the Trustees have determined to address
fund underperformance not only through fee waivers and expense caps but also
through discussions with CMG regarding the sources of underperformance. CMG
has provided Trustees with an analysis of the relationship between
breakpoints, expense reimbursements, and fee waivers.
5.Recommendation: [Seventy-one] percent of funds [have] yet to reach their
first management fee breakpoint...Trustees may wish to consider whether the
results of my ongoing economies-of-scale work affects the underlying economic
assumptions reflected in the existing breakpoint schedules.
Status: CMG has prepared a memo for the Trustees discussing its views on the
nature and sharing of potential economies of scale. The memo discuses CMG's
view that economies of scale arise at the complex level rather than the fund
level. The memo also describes steps, including the introduction of
breakpoints, taken to share economies
34
of scale with shareholders. CMG's analysis, however, does not discuss
specific sources of economies of scale and does not link breakpoints to
economies of scale that might be realized as the Funds' assets increase.
6.Recommendation: Trustees should continue working with management to address
issues of funds that demonstrate consistent or significant underperformance
even if the fee levels for the funds are low.
Status: Trustees monitor performance on an ongoing basis.
III. Findings
A. General
1.Based upon my examination of the available information and the six factors, I
conclude that the Trustees have the relevant information necessary to
evaluate the reasonableness of the proposed management fees for the Funds.
CMG has provided the Trustees with relevant materials on the six factors
through the 15(c) contract renewal process and in materials prepared for
review at Board and Committee meetings.
2.In my view, the process by which the proposed management fees of the Funds
have been negotiated in 2006 thus far has been, to the extent practicable, at
arms' length and reasonable and consistent with the AOD.
B. Nature and Quality of Services, Including Performance
3.The performance of the Funds has been relatively strong, especially that of
fixed-income Funds. For each of the 1-, 3-, 5- and 10-year performance
periods, over 60 percent of the funds have ranked in the top three
performance quintiles.
4.The performance of the equity Funds overall, though less concentrated in the
top two quintiles than the fixed-income Funds, improved in 2006 relative to
that in 2005. The fixedincome funds maintained the relatively high
performance level of 2005 in 2006.
5.The Funds' overall performance adjusted for risk was significantly stronger
than performance unadjusted for risk. Domestic and international equity
funds, in particular, moved to higher relative performance rankings after
adjusting for risk.
6.The procedure used to construct the performance universe in which each Fund's
performance is ranked relative to comparable funds may bias a Fund's ranking
upward within that universe. The bias occurs because the performance ranking
procedure includes all share classes of multi-class funds in the universe and
because the procedure ranks either no-load or A share classes of the Funds.
No-load and A share classes generally have lower total expenses than B and C
shares (owing to B and C shares having higher distribution/service fees) and
thus, given all else, would outperform many of B and C share classes included
in the universe. A preliminary analysis that adjusts for the bias results in
a downward movement in the relative performance for the Funds but does not
change the general finding that the Funds' performance has been strong
relative to comparable funds.
C. Management Fees Charged by Other Mutual Fund Companies
7.The Funds' management fees and total expenses are generally low relative to
those of their peers. At least 56 percent of the Funds are in the first or
second quintiles with the lowest fees and expenses and nearly three-fourths
or more in the first three quintiles. Equity Funds are more highly
concentrated in the first three quintiles than fixedincome Funds.
8.The fee and expense rankings as whole are similar to those in 2005 in that
the majority of funds are ranked in the top quintiles. Nonetheless, a number
of individual funds experienced a change in ranking between 2005 and 2006.
This fund-level instability may reflect sensitivity of rankings to the
composition of the comparison groups, as the membership of the peer groups
typically changed substantially between the two years.
9.The Liberty Money Market Fund VS appears to have a higher management fee
structure than that of other Columbia money market funds of comparable asset
size.
D. Trustees' Fee and Performance Evaluation Process
10.The Trustees' evaluation process identified 21 funds in 2006 for further
review based upon their relative performance or expenses. Seventeen of these
funds had been subject to review in 2004 or 2005.
35
E. Potential Economies of Scale
11.CMG has prepared a memo for the Trustees containing its views on the sources
and sharing of potential economies of scale. CMG views economies of scale as
arising at the complex level and would regard estimates of scale economies
for individual funds as unreliable. CMG has not, however, identified
specific sources of economies of scale nor has it provided any estimates of
the magnitude of any economies of scale. In the memo, CMG also describes
measures taken by the Trustees and CMG that seek to share any potential
economies of scale through breakpoints in management fee schedules, expense
reimbursements, fee waivers, enhanced shareholder services, fund mergers,
and operational consolidation. These measures, although of significant
benefit to shareholders, have not been directly linked in the memo to the
existence, sources, and magnitude of economies of scale.
F. Management Fees Charged to Institutional Clients
12.CMG has provided Trustees with comparisons of mutual fund management fees
and institutional fees based upon standardized fee schedules and upon actual
fees. Based upon the information, institutional fees are generally lower
than the Funds' management fees. This pattern is consistent with the
economics of the two financial products. Data are not available, however, on
actual institutional fees at other money managers. Thus, it is not possible
to determine the extent to which differences between the Funds' management
fees and institutional fees are consistent with those seen generally in the
marketplace.
G. Revenues, Expenses, and Profits
13.The financial statements and the methodology underlying their construction
generally form a sufficient basis for Trustees to evaluate the expenses and
profitability of the Funds.
IV. Recommendations
A. Performance
1.Trustees may wish to consider incorporating risk-adjusted measures in their
evaluation of performance. CMG has begun to prepare reports for the Trustees
with risk adjustments, which could form the basis for formally including the
measures in the 15(c) materials. To this end, Trustees may wish to have CMG
prepare documents explaining risk adjustments and describing their advantages
and disadvantages.
2.Trustees may wish to consider having CMG evaluate the sensitivity of
performance rankings to the design of the universe. The preliminary analysis
contained in the evaluation suggests that the method employed by Lipper, the
source of performance rankings used by the Trustees, may bias performance
rankings upward.
B. Economies of Scale
3.Trustees may wish to consider having CMG extend its analysis of economies of
scale by examining the sources of such economies, if any. Identification of
the sources may enable the Trustees and CMG to gauge their magnitude. It also
may enable the Trustees and CMG to build upon past work on standardized fee
schedules so that the schedules themselves are consistent with any economies
of scale and their sources. Finally, an extension of the analysis may enable
the Trustees and CMG to develop a framework that coordinates the use of fee
waivers and expense caps with the standard fee schedules and with any
economies of scale and their sources.
C. Institutional Fees
4.Trustees may wish to consider encouraging CMG to build further upon its
expanded analysis of institutional fees by refining the matching of
institutional accounts with mutual funds, by dating the establishment of each
institutional account, and by incorporating other accounts, such as
subadvisory relationships, trusts, offshore funds, and separately managed
accounts into the analysis.
D. Profitability
5.Trustees may wish to consider requesting that CMG expand the reporting of
revenues and expenses to include more line-item detail for management and
administration, transfer agency, fund accounting, and distribution.
6.Trustees may wish to consider requesting that CMG provide a statement of its
operations in the 15(c) materials.
7.Trustees may wish to consider the treatment of the revenue sharing with the
Private Bank of Bank of America in their review of CMG's profitability.
Respectfully submitted,
John D. Rea
36
APPENDIX
SOURCES OF INFORMATION USED IN THE EVALUATION
The following list generally describes the sources and types of information
that were used in preparing this report.
1.Performance, management fees, and expense ratios for the Funds and comparable
funds from other fund complexes from Lipper and CMG. The sources of this
information were CMG and Lipper;
2.CMG's expenses and profitability obtained directly from CMG;
3.Information on CMG's organizational structure;
4.Profitability of publicly traded asset managers from Lipper;
5.Interviews with CMG staff, including members of senior management, legal
staff, heads of affiliates, portfolio managers, and financial personnel;
6.Documents prepared by CMG for Section 15(c) contract renewals in 2005 and
2006;
7.Academic research papers, industry publications, professional materials on
mutual fund operations and profitability, and SEC releases and studies of
mutual fund expenses
8.Interviews with and documents prepared by Ernst & Young LLP in its review of
the Private Bank Revenue Sharing Agreement;
9.Discussions with Trustees and attendance at Board and committee meetings
during which matters pertaining to the evaluation were considered.
In addition, I engaged NERA Economic Consulting ("NERA") to assist me in data
management and analysis. NERA has extensive experience in the mutual fund
industry that provides unique insights and special knowledge pertaining to my
independent analysis of fees, performance, and profitability. I have also
retained attorneys in the Washington, D.C. office of Willkie Farr & Gallagher
LLP as outside counsel to advise me in connection with my evaluation.
Finally, meetings and discussions with CMG staff were informative. My
participation in Board and committee meetings in which Trustees and CMG
management discussed issues relating to management contracts were of great
benefit to the preparation of the evaluation.
37
Important Information About This Report
Colonial Insured Municipal Fund
Transfer Agent
Computershare
P.O. Box 43010
Providence, RI 02940-3010
The fund mails one shareholder report to each shareholder address. Shareholders
can order additional reports by calling 800-730-6001. In addition,
representatives at that number can provide shareholders information about the
fund.
Financial advisors who want additional information about the fund may speak to
a representative at 800-426-3750.
A description of the fund's proxy voting policies and procedures is available
(i) at www.columbiamanagement.com; (ii) on the Securities and Exchange
Commission's website at www.sec.gov, and (iii) without charge, upon request, by
calling 800-730-6001. Information regarding how the fund voted proxies relating
to portfolio securities during the 12-month period ended June 30 is available
from the SEC's website. Information regarding how the fund voted proxies
relating to portfolio securities is also available at
www.columbiamanagement.com.
The fund files a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q
is available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
This report has been prepared for shareholders of Colonial Insured Municipal
Fund.
38
[GRAPHIC]
COLONIAL INSURED MUNICIPAL FUND
ANNUAL REPORT
SHC-42/115725-1106 (01/07) 07/33038
Item 2. Code of Ethics.
(a) The registrant has, as of the end of the period covered by this
report, adopted a code of ethics that applies to the registrant's
principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar
functions, regardless of whether these individuals are employed by the
registrant or a third party.
(b) The registrant's Board adopted, effective January 3, 2006, a revised
code of ethics described in 2(a) above. This revised code of ethics,
which is attached as an exhibit hereto, does not differ materially
from the code of ethics in effect for the year ended November 30, 2005.
(c) During the period covered by this report, there were no waivers,
including any implicit waivers, from a provision of the code of ethics
described in 2(a) above that relates to one or more of the items set
forth in paragraph (b) of this item's instructions.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Trustees has determined that Douglas A. Hacker,
Thomas E. Stitzel and Anne-Lee Verville, each of whom are members of the
registrant's Board of Trustees and Audit Committee, each qualify as an audit
committee financial expert. Mr. Hacker, Mr. Stitzel and Ms. Verville are each
independent trustees, as defined in paragraph (a)(2) of this item's
instructions and collectively constitute the entire Audit Committee.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. Aggregate Audit Fees billed by the principal accountant for
professional services rendered during the fiscal years ended November 30, 2006
and November 30, 2005 are approximately as follows:
2006 2005
---- ----
$26,900 $24,100
Audit Fees include amounts related to the audit of the registrant's annual
financial statements or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements for those
fiscal years.
(b) Audit-Related Fees. Aggregate Audit-Related Fees billed to the registrant
by the principal accountant for professional services rendered during the
fiscal years ended November 30, 2006 and November 30, 2005 are approximately as
follows:
2006 2005
---- ----
$13,700 $13,200
Audit-Related Fees include amounts for assurance and related services by the
principal accountant that are reasonably related to the performance of the
audit of the registrant's financial statements and are not reported in Audit
Fees above. In both fiscal years 2006 and 2005, Audit-Related Fees include
agreed-upon procedures performed for semi-annual shareholder reports and rating
agency reviews.
During the fiscal years ended November 30, 2006 and November 30, 2005, there
were no Audit-Related Fees billed by the registrant's principal accountant to
the registrant's investment adviser (not including any sub-adviser whose role
is primarily portfolio management and is subcontracted with or overseen by
another investment adviser) and any entity controlling, controlled by, or under
common control with the adviser that provides ongoing services to the
registrant for an engagement that related directly to the operations and
financial reporting of the registrant.
(c) Tax Fees. Aggregate Tax Fees billed by the principal accountant to the
registrant for professional services rendered during the fiscal years ended
November 30, 2006 and November 30, 2005 are approximately as follows:
2006 2005
---- ----
$4,100 $3,400
Tax Fees consist primarily of the review of annual tax returns and include
amounts for professional services by the principal accountant for tax
compliance, tax advice and tax planning.
During the fiscal years ended November 30, 2006 and November 30, 2005, there
were no Tax Fees billed by the registrant's principal accountant to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser) and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant for
an engagement that related directly to the operations and financial reporting
of the registrant.
(d) All Other Fees. Aggregate All Other Fees billed by the principal accountant
to the registrant for professional services rendered during the fiscal years
ended November 30, 2006 and November 30, 2005 are approximately as follows:
2006 2005
---- ----
$0 $0
All Other Fees include amounts for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) above.
Aggregate All Other Fees billed by the registrant's principal accountant to the
registrant's investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser) and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant for
an engagement that related directly to the operations and financial reporting
of the registrant during the fiscal years ended November 30, 2006 and
November 30, 2005 are approximately as follows:
2006 2005
---- ----
$505,500 $255,500
In both fiscal years 2006 and 2005, All Other Fees include internal control
reviews of the registrant's investment advisor.
(e)(1) Audit Committee Pre-Approval Policies and Procedures
The registrant's Audit Committee is required to pre-approve the engagement of
the registrant's independent accountants to provide audit and non-audit
services to the registrant and non-audit services to its investment adviser
(not including any sub-adviser whose role is primarily portfolio management and
is subcontracted with or overseen by another investment adviser) or any entity
controlling, controlled by or under common control with such investment adviser
that provides ongoing services to the registrant ("Adviser Affiliates"), if the
engagement relates directly to the operations and financial reporting of the
registrant.
The Audit Committee has adopted a Policy for Engagement of Independent
Accountants for Audit and Non-Audit Services ("Policy"). The Policy sets forth
the understanding of the Audit Committee regarding the engagement of the
registrant's independent accountants to provide (i) audit and permissible
audit-related, tax and other services to the registrant (collectively "Fund
Services"); (ii) non-audit services to the registrant's investment adviser (not
including any sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser) and Adviser
Affiliates, if the engagement relates directly to the operations or financial
reporting of a Fund (collectively "Fund-related Adviser Services"); and
(iii) certain other audit and non-audit services to the registrant's investment
adviser (not including any sub-adviser whose role is primarily portfolio
management and is
subcontracted with or overseen by another investment adviser) and Adviser
Affiliates. Unless a type of service receives general pre-approval under the
Policy, it requires specific pre-approval by the Audit Committee if it is to be
provided by the independent accountants. Pre-approval of non-audit services to
the registrant, the registrant's investment adviser (not including any
sub-adviser whose role is primarily portfolio management and is subcontracted
with or overseen by another investment adviser) and Adviser Affiliates may be
waived provided that the "de minimis" requirements set forth under paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X are met.
Under the Policy, the Audit Committee may delegate pre-approval authority to
any pre-designated member or members who are Independent Trustees/Directors.
The member(s) to whom such authority is delegated must report, for
informational purposes only, any pre-approval decisions to the Audit Committee
at its next regular meeting. The Audit Committee's responsibilities with
respect to the pre-approval of services performed by the independent
accountants may not be delegated to management.
The Policy requires the Fund Treasurer and/or Director of Board
Administration to submit to the Audit Committee, on an annual basis, a schedule
of the types of services that are subject to general pre-approval. The
schedule(s) provide a description of each type of service that is subject to
general pre-approval and, where possible, will provide estimated fee caps for
each instance of providing each service. The Audit Committees will review and
approve the types of services and review the projected fees for the next fiscal
year and may add to, or subtract from, the list of general pre-approved
services from time to time based on subsequent determinations. That approval
acknowledges that the Audit Committee is in agreement with the specific types
of services that the independent accountants will be permitted to perform.
The Fund Treasurer and/or Director of Board Administration shall report to the
Audit Committee at each of its regular meetings regarding all Fund Services or
Fund-related Adviser Services initiated since the last such report was
rendered, including a general description of the services, actual billed and
projected fees, and the means by which such Fund Services or Fund-related
Adviser Services were pre-approved by the Audit Committee.
*****
(e)(2) The percentage of services described in paragraphs (b) through (d) of
this Item approved pursuant to the "de minimis" exception under paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X during both fiscal years ended
November 30, 2006 and November 30, 2005 was zero.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the registrant's accountant for
services rendered to the registrant, and rendered to the registrant's
investment adviser (not
including any sub-adviser whose role is primarily portfolio management and is
subcontracted with or overseen by another investment adviser), and any entity
controlling, controlled by, or under common control with the adviser that
provides ongoing services to the registrant for the fiscal years ended
November 30, 2006 and November 30, 2005 are approximately as follows:
2006 2005
---- ----
$523,300 $272,100
(h) The registrant's Audit Committee of the Board of Directors has considered
whether the provision of non-audit services that were rendered to the
registrant's adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X, is compatible with maintaining the principal
accountant's independence.
Item 5. Audit Committee of Listed Registrants.
The registrant has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C.
78c(a)(58)(A)). Douglas A. Hacker, Thomas E. Stitzel and Anne-Lee Verville are
each independent trustees and collectively constitute the entire Audit
Committee.
Item 6. Schedule of Investments
The registrant's "Schedule I - Investments in securities of unaffiliated
issuers" (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form
N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Fund has delegated to Columbia Management Advisors, LLC (the "Advisor") the
responsibility to vote proxies relating to portfolio securities held by the
Fund. In deciding to delegate this responsibility to the Advisor, the Board of
Trustees of the Trust reviewed and approved the policies and procedures adopted
by the Advisor. These included the procedures that the Advisor follows when a
vote presents a conflict between the interests of the Fund and its shareholders
and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner
considered by the Advisor to be in the best interest of the Fund and its
shareholders without regard to any benefit to the Advisor, its affiliates, its
other clients or other persons. The Advisor examines each proposal and votes
against the proposal, if, in its judgment, approval or adoption of the proposal
would be expected to impact adversely the current or potential
market value of the issuer's securities. The Advisor also examines each
proposal and votes the proxies against the proposal, if, in its judgment, the
proposal would be expected to affect adversely the best interest of the Fund.
The Advisor determines the best interest of the Fund in light of the potential
economic return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having
predetermined voting guidelines. For those proposals that require special
consideration or in instances where special circumstances may require varying
from the predetermined guideline, the Advisor's Proxy Committee determines the
vote in the best interest of the Fund, without consideration of any benefit to
the Advisor, its affiliates, its other clients or other persons. The Advisor
may also address potential material conflicts of interest by delegating the
proxy to an independent third party voting agent.
The Advisor's Proxy Committee is composed of representatives of the Advisor's
investment management team, compliance, legal and fund administration
functions. In addition to the responsibilities described above, the Proxy
Committee has the responsibility to review, at least annually, the Advisor's
proxy voting policies to ensure consistency with internal and regulatory agency
policies and to develop additional predetermined voting guidelines to assist in
the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines
that voting on the proposal according to the predetermined guideline would be
expected to impact adversely the current or potential market value of the
issuer's securities or to affect adversely the best interest of the client.
References to the best interest of a client refer to the interest of the client
in terms of the potential economic return on the client's investment. In
determining the vote on any proposal, the Proxy Committee does not consider any
benefit other than benefits to the owner of the securities to be voted. A
member of the Proxy Committee is prohibited from voting on any proposal for
which he or she has a conflict of interest by reason of a direct relationship
with the issuer or other party affected by a given proposal. Persons making
recommendations to the Proxy Committee or its members are required to disclose
to the Committee any relationship with a party making a proposal or other
matter known to the person that would create a potential conflict of interest.
The Advisor has retained a third party vendor to implement its proxy voting
process. The vendor provides proxy analysis, record keeping services and vote
disclosure services.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a)(1) PORTFOLIO MANAGER
KIMBERLY A. CAMPBELL, a senior vice president of Columbia Management Advisors,
LLC, is the manager for the Fund and has managed the Fund since October 2003.
Ms. Campbell has been associated with Columbia Management Advisors, LLC or its
predecessors since 1995.
(2) OTHER ACCOUNTS MANAGED BY THE PORTFOLIO MANAGER
The following table shows the number and assets of other investment accounts
(or portions of investment accounts) that the Fund's portfolio manager managed
as of the Fund's fiscal year-end.
Other SEC-
registered open-
end and closed-end Other pooled
funds investment vehicles Other accounts
---------------------- ------------------- --------------------
Number of Number of Number of
Portfolio Manager accounts Assets accounts Assets accounts Assets
----------------- --------- ------------ --------- ------ --------- ----------
Kimberly A. Campbell 2 $2.7 billion 0 $0 12 $1 million
None of these accounts are subject to an advisory fee that is based on the
performance of the account.
POTENTIAL CONFLICTS OF INTEREST IN MANAGING MULTIPLE ACCOUNTS
Like other investment professionals with multiple clients, a portfolio manager
for the Fund may face certain potential conflicts of interest in connection
with managing both the Fund and other accounts at the same time. The paragraphs
below describe some of these potential conflicts, which Columbia Management
Advisors, LLC believes are faced by investment professionals at most major
financial firms. Columbia Management Advisors, LLC and the Trustees of the Fund
have adopted compliance policies and procedures that attempt to address certain
of these potential conflicts.
The management of accounts with different advisory fee rates and/or fee
structures, including accounts that pay advisory fees based on account
performance ("performance fee accounts"), may raise potential conflicts of
interest by creating an incentive to favor higher-fee accounts. These potential
conflicts may include, among others:
. The most attractive investments could be allocated to higher-fee
accounts or performance fee accounts.
. The trading of higher-fee accounts could be favored as to timing and/or
execution price. For example, higher-fee accounts could be permitted to
sell securities earlier than other accounts when a prompt sale is
desirable or to buy securities at an earlier and more opportune time.
. The trading of other accounts could be used to benefit higher-fee
accounts (front- running).
. The investment management team could focus their time and efforts
primarily on higher-fee accounts due to a personal stake in compensation.
Potential conflicts of interest may also arise when the portfolio managers have
personal investments in other accounts that may create an incentive to favor
those accounts. As a general matter and subject to limited exceptions, Columbia
Management Advisors, LLC's investment professionals do not have the opportunity
to invest in client accounts, other than the Columbia Funds.
A potential conflict of interest may arise when the Fund and other accounts
purchase or sell the same securities. On occasions when a portfolio manager
considers the purchase or sale of a security to be in the best interests of the
Fund as well as other accounts, Columbia Management Advisors, LLC 's trading
desk may, to the extent permitted by applicable laws and regulations, aggregate
the securities to be sold or purchased in order to obtain the best execution
and lower brokerage commissions, if any. Aggregation of trades may create the
potential for unfairness to the Fund or another account if one account is
favored over another in allocating the securities purchased or sold -- for
example, by allocating a disproportionate amount of a security that is likely
to increase in value to a favored account.
"Cross trades," in which one Columbia account sells a particular security to
another account (potentially saving transaction costs for both accounts), may
also pose a potential conflict of interest. Cross trades may be seen to involve
a potential conflict of interest if, for example, one account is permitted to
sell a security to another account at a higher price than an independent third
party would pay. Columbia Management Advisors, LLC and the Funds' Trustees have
adopted compliance procedures that provide that any transactions between the
Fund and another Columbia-advised account are to be made at an independent
current market price, as required by law.
Another potential conflict of interest may arise based on the different
investment objectives and strategies of the Fund and other accounts. For
example, another account may have a shorter-term investment horizon or
different investment objectives, policies or restrictions than the Fund.
Depending on another account's objectives or other factors, a portfolio manager
may give advice and make decisions that may differ from advice given, or the
timing or nature of decisions made, with respect to the Fund. In addition,
investment decisions are the product of many factors in addition to basic
suitability for the particular account involved. Thus, a particular security
may be bought or sold for certain accounts even though it could have been
bought or sold for other accounts at the same time. More rarely, a particular
security may be bought for one or more accounts managed by a portfolio manager
when one or more other accounts are selling the security (including short
sales). There may be circumstances when purchases or sales of portfolio
securities for one or more accounts may have an adverse effect on other
accounts.
The Fund's portfolio manager who is responsible for managing multiple funds
and/or accounts may devote unequal time and attention to the management of
those funds and/or accounts. As a result, the portfolio manager may not be able
to formulate as complete a strategy or identify equally attractive investment
opportunities for each of those accounts as might be the case if he or she were
to devote substantially more attention to the management of a single fund. The
effects of this potential conflict may be more
pronounced where funds and/or accounts overseen by a particular portfolio
manager have different investment strategies.
The Fund's portfolio managers may be able to select or influence the selection
of the brokers and dealers that are used to execute securities transactions for
the Fund. In addition to executing trades, some brokers and dealers provide
portfolio managers with brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934), which may
result in the payment of higher brokerage fees than might have otherwise be
available. These services may be more beneficial to certain funds or accounts
than to others. Although the payment of brokerage commissions is subject to the
requirement that the portfolio manager determine in good faith that the
commissions are reasonable in relation to the value of the brokerage and
research services provided to the fund, a portfolio manager's decision as to
the selection of brokers and dealers could yield disproportionate costs and
benefits among the funds and/or accounts that he or she manages.
Columbia Management Advisors, LLC or an affiliate may provide more services
(such as distribution or recordkeeping) for some types of funds or accounts
than for others. In such cases, a portfolio manager may benefit, either
directly or indirectly, by devoting disproportionate attention to the
management of fund and/or accounts that provide greater overall returns to the
investment manager and its affiliates.
The Fund's portfolio manager(s) may also face other potential conflicts of
interest in managing the Fund, and the description above is not a complete
description of every conflict that could be deemed to exist in managing both
the Fund and other accounts. In addition, the Fund's portfolio manager may also
manage other accounts (including their personal assets or the assets of family
members) in their personal capacity. The management of these accounts may also
involve certain of the potential conflicts described above. Investment
personnel at Columbia Management Advisors, LLC, including the Fund's portfolio
manager, are subject to restrictions on engaging in personal securities
transactions pursuant to Codes of Ethics adopted by the Columbia Management
Advisors, LLC and the Fund, which contain provisions and requirements designed
to identify and address certain conflicts of interest between personal
investment activities and the interests of the Fund.
(3) COMPENSATION
As of the Fund's most recent fiscal year end, the portfolio manager received
all of her compensation from Columbia Management Advisors, LLC and its parent
company, Columbia Management Group, in the form of salary, bonus, stock options
and restricted stock. A portfolio manager's bonus is variable and is generally
based on (1) an evaluation of the manager's investment performance and (2) the
results of a peer and/or management review of such individual, which takes into
account skills and attributes such as team participation, investment process,
communication and professionalism. In evaluating investment performance,
Columbia Management Advisors, LLC generally considers the one-, three- and
five-year performance of mutual funds and other accounts
under the portfolio manager's oversight relative to the benchmarks and peer
groups noted below, emphasizing the manager's three- and five-year performance.
Columbia Management Advisors, LLC may also consider the portfolio manager's
performance in managing client assets in sectors and industries assigned to the
manager as part of her investment team responsibilities, where applicable. For
portfolio managers who also have group management responsibilities, another
factor in their evaluation is an assessment of the group's overall investment
performance.
Portfolio Manager Performance Benchmark Peer Group
----------------- ------------------------- ------------------------
Kimberly A. Campbell Lehman Brothers Municipal Lipper Insured Municipal
Bond Index Debt Funds (Leveraged)
The size of the overall bonus pool each year is determined by Columbia
Management Group and depends in part on levels of compensation generally in the
investment management industry (based on market compensation data) and Columbia
Management Advisors, LLC 's profitability for the year, which is influenced by
assets under management.
(4) OWNERSHIP OF SECURITIES
The table below shows the dollar ranges of shares of the Fund beneficially
owned (as determined pursuant to Rule 16a-1(a)(2) under the Securities Exchange
Act of 1934, as amended) by the portfolio manager listed above at the end of
the Fund's most recent fiscal year:
Dollar Range of Equity Securities in the Fund
Portfolio Manager Beneficially Owned
----------------- ---------------------------------------------
Kimberly A. Campbell None
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Registrant Purchases of Equity Securities*
(c)
Total Number of (d)
(a) (b) Shares Purchased as Maximum Number of
Total Number Average Part of Publicly Shares that May Yet
of Shares Price Paid Announced Plans Be Purchased Under
Period Purchased Per Share or Programs the Plans or Programs
------ ------------ ---------- ------------------- ---------------------
06/01/06 through 06/30/06 319 $13.03 319 N/A
07/01/06 through 07/31/06 229 $12.63 229 N/A
08/01/06 through 08/31/06 227 $12.92 227 N/A
09/01/06 through 09/30/06 197 $13.20 197 N/A
10/01/06 through 10/31/06 194 $13.48 194 N/A
11/01/06 through 11/30/06 197 $13.46 197 N/A
----- ------ ----- ---
Total 1,363 $13.10 1,363 N/A
----- ------ ----- ---
* Includes shares purchased by the Dividend Reinvestment Agent pursuant to the
Registrant's Dividend Reinvestment Plan.
Item 10. Submission of Matters to a Vote of Security Holders.
There have not been any material changes to the procedures by which
shareholders may recommend nominees to the registrant's board of directors,
since those procedures were last disclosed in response to requirements of
Item 7(d)(2)(ii)(G) of Schedule 14A or this Item.
Item 11. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial
officers, based on their evaluation of the registrant's disclosure
controls and procedures as of a date within 90 days of the filing of
this report, have concluded that such controls and procedures are
adequately designed to ensure that information required to be
disclosed by the registrant in Form N-CSR is accumulated and
communicated to the registrant's management, including the principal
executive officer and principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
(b) There was no change in the registrant's internal control over
financial reporting that occurred during the registrant's second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR
attached hereto as Exhibit 99.CODE ETH.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of
1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Colonial Insured Municipal Fund
-------------------------------
By (Signature and Title) /s/ Christopher L. Wilson
-------------------------------
Christopher L. Wilson, President
Date January 25, 2007
-------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title) /s/ Christopher L. Wilson
-------------------------------
Christopher L. Wilson, President
Date January 25, 2007
-------------------------------
By (Signature and Title) /s/ J. Kevin Connaughton
-------------------------------
J. Kevin Connaughton, Treasurer
Date January 25, 2007
-------------------------------