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 811-9537
Colonial California Insured Municipal Fund
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Vincent Pietropaolo, Esq.
Columbia Management Group, Inc.
One Financial Center
Boston, MA 02111
--------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-772-3698
Date of fiscal year end: November 30, 2005
Date of reporting period: November 30, 2005
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
Item 1. Reports to Stockholders.
[PHOTO]
COLONIAL CALIFORNIA
INSURED MUNICIPAL FUND
Annual Report
November 30, 2005
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
[GRAPHIC]
Dear Shareholder:
The US financial markets withstood a host of unfavorable factors to deliver a
year of positive investment returns. Record energy prices took a significant
bite out of household budgets and raised operating costs for industry. Higher
short-term interest rates made borrowing more expensive. Two catastrophic
hurricanes exacted an enormous personal toll from Americans living in the Gulf
Coast: the storms claimed lives, disrupted energy flows and dealt a sharp blow
to local job markets. Yet, the US economy moved ahead at a healthy pace during
the 12-month period that began December 1, 2004 and ended November 30, 2005.
Fixed income markets delivered modest gains
In this environment, the US fixed income markets delivered positive but modest
returns. Short-term interest rates rose steadily as the Federal Reserve Board
raised a key intrabank lending rate. Longer-term rates remained low during most
of the year. However, the yield on the 10-year US Treasury note, a bellwether
for the bond market edged up to 4.5% by the end of this reporting period. In
this environment, most domestic bond market sectors delivered low single-digit
returns. Generally, high-yield bonds continued to perform well despite a
setback in the spring, when bonds of certain high profile companies were
downgraded. However, municipal bonds generally performed better than high yield
bonds--even before accounting for their tax-exempt status--as state revenues
increased and budgets stabilized.
In the pages that follow, your fund's manager discusses key factors that
influenced performance. We urge you to read this report carefully and discuss
any questions you might have with your financial advisor.
As always, we thank you for choosing Colonial Funds.
Sincerely,
/s/ Christopher L. Wilson
Christopher L. Wilson
President, Columbia Funds
Christopher L. Wilson is Head of Mutual Funds for Columbia Management and
President of Columbia Funds, responsible for the day-to-day delivery of mutual
fund services to the firm's investors. With the exception of distribution,
Chris oversees all aspects of the mutual fund services operation, including
treasury, investment accounting and shareholder and broker services.
Chris joined Bank of America in August 2004.
The views expressed in the President's Letter and Portfolio Manager's Report
reflect the current views of the respective parties. These views are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions that are difficult to predict so actual outcomes and results may
differ significantly from the views expressed. These views are subject to
change at any time based upon economic, market or other conditions and the
respective parties disclaim any responsibility to update such views. These
views may not be relied on as investment advice and, because investment
decisions for a Colonial Fund are based on numerous factors, may not be relied
on as an indication of trading intent on behalf of any particular Colonial
Fund. References to specific company securities should not be construed as a
recommendation or investment advice.
[GRAPHIC]
[GRAPHIC]
PORTFOLIO MANAGER'S REPORT
For the 12-month period ended November 30, 2005, Colonial California Insured
Municipal Fund had a return of 10.63%, 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 4.29% based on investment at net asset value, which was less than the
6.01% average return of its peer group, the Lipper California Insured Municipal
Debt Funds Category./1/
Bonds with short-term call dates detracted from returns
A combination of significant events--including successive Federal Reserve rate
hikes, record high oil prices, devastating hurricanes and relatively muted
inflation--helped create an unusual scenario in the bond market: the gap
between short- and long-term interest rates narrowed as short-term yields rose
and long-term rates generally ended the period lower. Bond yields and prices
move in opposite directions. In this environment, the fund's position in
long-term bonds with call dates between one and six years detracted from
performance. Bonds with call features allow the issuer to redeem the bonds
prior to their maturity date. As rates moved lower or bonds with maturities
longer than 15 years, these callable holdings lost value compared to
longer-term issues with better call protection. In addition, the fund's
exposure to bonds maturing in the intermediate range (10 to 15 years)--where
yields were little-changed during the period--did not perform as well as longer
bonds.
Over the past two years, we reduced the fund's holdings in bonds with
short-term call dates because we believed that inflation would be benign and
growth moderate, providing a good environment for long-term rates to decline.
We used the proceeds to increase the fund's position in non-callable bonds, or
bonds with good call protection, that mature in 20 to 25 years. However, two
factors limited the effectiveness of our strategy in this regard: 1) a scarcity
of non-callable California bonds in the 20-25 year range, which led us to
purchase bonds with 10-year call dates when we would have preferred better call
protection had more such bonds been available; and 2) a desire to avoid the
potential volatility in 30-year bonds. These bonds at the very long end of the
maturity spectrum were the period's best performers. Both factors helped dampen
the fund's return relative to funds with longer-term maturities and better call
protection.
Leveraged positions aided performance
The fund earns some of its income through leverage, which comes from preferred
shares issued in 1999 that allow the fund to borrow against its
-------------
/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 long term returns based on market price.
Price per share as of 11/30/05 ($)
Market price 14.20
---------------------
Net asset value 14.77
---------------------
1-year total return as of 11/30/05 (%)*
Market price 10.63
-------------------------------
Net asset value 4.29
-------------------------------
Lipper California Insured
Municipal Debt Funds
Category average 6.01
-------------------------------
All results shown assume reinvestment of distributions.
Distributions declared
per common share
12/01/04-11/30/05 ($)
0.84
--------
A portion of the fund's income may be subject to the alternative minimum tax.
The fund may at times purchase tax-exempt securities at a discount from their
original issue price. Some or all of this discount may be included in the
Fund's ordinary income, and any market discount is taxable when distributed.
Top 5 sectors as of 11/30/05 (%)
Local general obligations 19.0
------------------------------
Water & sewer 16.0
------------------------------
Local appropriated 10.0
------------------------------
Education 9.1
------------------------------
Special property tax 7.1
------------------------------
Quality breakdown as of 11/30/05 (%)
AAA 89.3
---------------------
A 5.5
---------------------
BBB 3.2
---------------------
Non-rated 1.2
---------------------
Cash equivalents 0.8
---------------------
Sector and quality breakdowns are calculated as a percentage of total
investments and net assets, respectively. Ratings shown in the quality
breakdowns 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.
Because the fund is actively managed, there is no guarantee that the fund will
continue to invest in these sectors or maintain these quality breakdowns in the
future.
1
[GRAPHIC]
PORTFOLIO MANAGER'S REPORT (continued)
[GRAPHIC]
underlying investments. We invest the proceeds from the preferred shares in
longer maturity, higher-yielding bonds, and then pay out to preferred
shareholders at a short-term rate influenced by the federal funds rate--the
overnight rate at which banks lend each other money. While leveraged positions
have provided the fund an income advantage over its non-leveraged peers, the
payout rate to preferred shareholders rose as the fed funds rate increased,
which reduced the overall income earned by the fund.
Improvements seen in California
In July 2005, two major ratings agencies, Moody's and Fitch, raised their
ratings on California municipal securities from 'BBB' to 'A'. In 2004, Standard
and Poor's had raised its rating of the state to 'A'. In our opinion,
California's large and diverse economy can support a high 'A' rating. However,
to maintain the current rating or boost it higher, we believe that California
must reduce its reliance on one-time budget solutions, implement longer-term
budgetary changes and achieve a better match between expenditures and revenues.
Difficult budgetary decisions lie ahead, due in part to predetermined amounts
the state must spend on education. Nevertheless, in light of recent economic
improvements, we remain confident in our continuing emphasis on municipal bonds
with good call protection and maturing in 20-25 years.
/s/ Kimberly A.Campbell
Kimberly Campbell has been the portfolio manager of Colonial California 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 typically drop, and vice versa.
Investing in high-yield or "junk" bonds offers the potential for higher income
than investments in investment-grade bonds, but also has a higher degree of
risk. Changes in economic conditions or other circumstances may adversely
affect a high-yield bond issuer's ability to make timely principal and interest
payments.
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
[GRAPHIC]
INVESTMENT PORTFOLIO
November 30, 2005
MUNICIPAL BONDS - 156.8% PAR ($) VALUE ($)
-------------------------------------------------------------
EDUCATION - 14.4%
EDUCATION - 14.4%
CA Community College Financing
Authority, West Valley Mission
Community College, Series 1997,
Insured: MBIA
5.625% 05/01/22 2,000,000 2,100,380
CA Educational Facilities Authority:
Pepperdine University, Series 2005 A,
Insured: AMBAC
5.000% 12/01/35 1,000,000 1,035,840
Pooled College & University,
Series 2000 B,
6.625% 06/01/20 250,000 272,045
CA University Enterprises, Inc.,
Auxiliary Organization, Series 2005 A,
Insured: FGIC
4.375% 10/01/30 1,000,000 946,990
CA University Revenue, Series 2005 C,
Insured: MBIA
5.000% 11/01/29 1,500,000 1,564,305
----------
Education Total 5,919,560
----------
EDUCATION TOTAL 5,919,560
----------
-------------------------------------------------------------
HEALTH CARE - 4.0%
CONTINUING CARE RETIREMENT - 0.7%
CA Statewide Community Development
Authority, Eskaton Village - Grass
Valley, Series 2000,
8.250% 11/15/31(a) 250,000 282,948
----------
Continuing Care Retirement Total 282,948
----------
HOSPITALS - 3.3%
CA Statewide Communities
Development Authority Revenue,
Catholic Healthcare West,
Series 1999,
6.500% 07/01/20 500,000 569,460
Daughters of Charity Health,
Series 2005 A,
5.250% 07/01/30 500,000 508,260
CA Whittier Health Facility Revenue,
Presbyterian Intercommunity Hospital,
Series 2002,
5.750% 06/01/31 250,000 263,392
----------
Hospitals Total 1,341,112
----------
HEALTH CARE TOTAL 1,624,060
----------
-------------------------------------------------------------
PAR ($) VALUE ($)
-----------------------------------------------------------
HOUSING - 5.5%
ASSISTED LIVING/SENIOR - 5.1%
CA ABAG Finance Authority for
Nonprofit Corps., Odd Fellows Home,
Series 1999,
Insured: MBIA
6.000% 08/15/24 2,000,000 2,103,700
---------
Assisted Living/Senior Total 2,103,700
---------
SINGLE-FAMILY - 0.4%
CA Rural Home Mortgage Finance
Authority:
Series 1998 A, AMT,
Guarantor: GNMA
6.350% 12/01/29 80,000 80,933
Series 1998 B-5, AMT,
Guarantor: FNMA
6.350% 12/01/29 60,000 60,625
---------
Single-Family Total 141,558
---------
HOUSING TOTAL 2,245,258
---------
-----------------------------------------------------------
OTHER - 12.4%
REFUNDED/ESCROWED (B) - 9.9%
CA Oakland Harrison Foundation,
Series 1999 A,
Pre-refunded 01/01/10,
Insured: AMBAC
6.000% 01/01/29 1,000,000 1,099,980
CA Orange County Community Facilities
District, Ladera Ranch,
Pre-refunded 08/15/09,
Series 1999 A,
6.700% 08/15/29 200,000 226,550
CA Public Works Board Department of
Health Services,
Pre-refunded 11/01/09,
Series 1999 A,
Insured: MBIA
5.750% 11/01/24(c) 2,500,000 2,735,725
---------
Refunded/Escrowed Total 4,062,255
---------
TOBACCO - 2.5%
CA Golden State Tobacco, Securitization
Enhanced Asset Backed,
Series 2005 A,
Insured: FGIC
5.000% 06/01/35 1,000,000 1,022,010
---------
Tobacco Total 1,022,010
---------
OTHER TOTAL 5,084,265
---------
-----------------------------------------------------------
See Accompanying Notes to Financial Statements.
3
[GRAPHIC]
INVESTMENT PORTFOLIO (continued)
November 30, 2005
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($)
-------------------------------------------------------------
RESOURCE RECOVERY - 1.3%
DISPOSAL - 1.3%
CA Salinas Valley Solid Waste Authority,
Series 2002, AMT,
Insured: AMBAC
5.125% 08/01/22 500,000 515,160
----------
Disposal Total 515,160
----------
RESOURCE RECOVERY TOTAL 515,160
----------
-------------------------------------------------------------
TAX-BACKED - 72.1%
LOCAL APPROPRIATED - 15.8%
CA Los Angeles County Schools,
Series 1999 A,
Insured: AMBAC:
(d) 08/01/18 2,020,000 1,128,291
(d) 08/01/23 2,220,000 942,146
CA Pacifica, Series 1999,
Insured: AMBAC
5.875% 11/01/29 1,500,000 1,646,850
CA San Bernardino County, Medical
Center Financing Project, Series 1994,
Insured: MBIA
5.500% 08/01/17 2,500,000 2,756,075
----------
Local Appropriated Total 6,473,362
----------
LOCAL GENERAL OBLIGATIONS - 30.0%
CA Culver City Unified School District,
Series 2005,
Insured: FSA
5.500% 08/01/25 1,000,000 1,152,350
CA Menifee Unified School District,
Election 2002, Series 2005 B,
Insured: FGIC
5.000% 08/01/28 1,000,000 1,032,450
CA Newhall School District, Series 2004,
Insured: FGIC
5.000% 05/01/20 500,000 542,355
CA Pomona Unified School District,
Series 2000 A,
Insured: MBIA
6.550% 08/01/29 1,000,000 1,277,660
CA Rescue Unified School District GO,
Election 1998, Capital Appreciation,
Series 2005,
Insured: MBIA
(d) 09/01/26 1,125,000 400,444
CA San Diego Unified School District,
Election of 1998, Series 2000 B,
Insured: MBIA
6.000% 07/01/19 1,000,000 1,182,590
PAR ($) VALUE ($)
-------------------------------------------------------------
CA Santa Clara Community College
District, Election 2001, Series 2005,
Insured: FSA
5.000% 08/01/28 1,000,000 1,042,780
CA Sonoma County Junior College
District, Series 2005 B,
Insured: FSA
5.000% 08/01/27 1,000,000 1,043,580
CA Temecula Valley Unified School
District, Series 2004,
Insured: FSA
5.000% 08/01/20 500,000 542,875
CA Union Elementary School District,
Series 1999 A,
Insured: FGIC
(d) 09/01/18 1,630,000 916,076
CA Upland Unified School District,
Series 2001,
Insured: FSA
5.125% 08/01/25 250,000 264,850
CA Vallejo City Unified School District,
Series 2002 A,
Insured: MBIA:
5.900% 02/01/21 500,000 591,515
5.900% 08/01/25 500,000 587,990
CA West Contra Costa Unified School
District, Series 2001 A,
Insured: MBIA
5.700% 02/01/23 500,000 584,345
CA West Covina Unified School District,
Series 2002 A,
Insured: MBIA
5.800% 02/01/21 500,000 585,970
CA Yuba City Unified School District,
Series 2000,
Insured: FGIC
(d) 09/01/18 1,000,000 559,210
----------
Local General Obligations Total 12,307,040
----------
SPECIAL NON-PROPERTY TAX - 7.1%
CA San Francisco City & County Hotel
Tax Agency, Series 1994,
Insured: FSA
6.750% 07/01/25 1,000,000 1,017,130
PR Commonwealth of Puerto Rico
Highway & Transportation Authority:
Series 1996 Y,
5.500% 07/01/36 500,000 526,385
Insured: FSA
5.500% 07/01/36 1,000,000 1,102,760
Series 2002 E,
Insured: FSA
5.500% 07/01/21 250,000 285,035
----------
Special Non-Property Tax Total 2,931,310
----------
See Accompanying Notes to Financial Statements.
4
[GRAPHIC]
INVESTMENT PORTFOLIO (continued)
November 30, 2005
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($)
---------------------------------------------------------------
TAX-BACKED (CONTINUED)
SPECIAL PROPERTY TAX - 11.2%
CA Carson Redevelopment Agency,
Redevelopment Project Area-1,
Series 2003 B,
Insured: MBIA
5.250% 10/01/20 500,000 534,080
CA Fontana Public Finance Authority,
Tax Allocation Revenue,
North Fontana Redevelopment,
Series 2005 A,
Insured: AMBAC
5.000% 10/01/29 1,000,000 1,032,100
CA Huntington Beach Community
Facilities District, Grand Coast Resort,
Series 2001-1,
6.450% 09/01/31 100,000 103,743
CA Huntington Park Public Financing
Authority Revenue, Series 2004,
Insured: FSA
5.250% 09/01/19 1,000,000 1,097,040
CA Lancaster Financing Authority,
Redevelopment Project No. 5 & 6,
Series 2003,
Insured: MBIA
5.250% 02/01/20 1,075,000 1,181,253
CA Oceanside Community Development
Commission, Downtown
Redevelopment Project, Series 2003,
5.700% 09/01/25 500,000 514,135
CA Orange County Community Facilities
District, Ladera Ranch, Series 2004 A,
5.625% 08/15/34 150,000 154,275
----------
Special Property Tax Total 4,616,626
----------
STATE APPROPRIATED - 1.3%
CA Public Works Board, Department of
Mental Health, Coalinga State
Hospital, Series 2004 A,
5.500% 06/01/19 500,000 539,030
----------
State Appropriated Total 539,030
----------
STATE GENERAL OBLIGATIONS - 6.7%
CA State:
Series 2002,
Insured: AMBAC
6.000% 02/01/17 1,000,000 1,169,820
Series 2003,
5.250% 02/01/20 500,000 547,195
Series 2004,
5.000% 02/01/22 1,000,000 1,039,350
----------
State General Obligations Total 2,756,365
----------
TAX-BACKED TOTAL 29,623,733
----------
---------------------------------------------------------------
PAR ($) VALUE ($)
-----------------------------------------------------------
TRANSPORTATION - 9.4%
AIRPORTS - 3.9%
CA Port of Oakland, Series 2002 K,
AMT,
Insured: FGIC
5.750% 11/01/29 1,000,000 1,061,890
CA San Diego County Regional Airport
Authority, Series 2005, AMT,
Insured: AMBAC
5.250% 07/01/20 500,000 540,325
---------
Airports Total 1,602,215
---------
PORTS - 3.8%
CA Port of Oakland, Series 2002 L,
AMT,
Insured: FGIC
5.500% 11/01/20 250,000 266,280
CA San Diego Unified Port District
Revenue, Series 2004 B,
Insured: MBIA
5.000% 09/01/29 1,250,000 1,286,512
---------
Ports Total 1,552,792
---------
TRANSPORTATION - 1.7%
CA San Francisco Bay Area Rapid
Transit District, Series 2005 A,
Insured: MBIA
5.000% 07/01/30 685,000 711,948
---------
Transportation Total 711,948
---------
TRANSPORTATION TOTAL 3,866,955
---------
-----------------------------------------------------------
UTILITIES - 37.7%
INDEPENDENT POWER PRODUCERS - 0.6%
PR Commonwealth of Puerto Rico
Industrial, Tourist, Educational,
Medical & Environmental
Cogeneration Facilities, AES Project,
Series 2000, AMT
6.625% 06/01/26 250,000 268,618
---------
Independent Power Producers Total 268,618
---------
See Accompanying Notes to Financial Statements.
5
[GRAPHIC]
INVESTMENT PORTFOLIO (continued)
November 30, 2005
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($)
-------------------------------------------------------------
UTILITIES (CONTINUED)
INVESTOR OWNED - 7.9%
CA Pollution Control Financing
Authority:
Pacific Gas & Electric Co., Series 1996
A, AMT,
Insured: MBIA
5.350% 12/01/16 1,000,000 1,059,590
San Diego Gas & Electric Co.,
Series 1991 A, AMT
6.800% 06/01/15 500,000 586,940
Southern California Edison Co.,
Series 1999 B,
Insured: MBIA
5.450% 09/01/29 1,500,000 1,593,855
---------
Investor Owned Total 3,240,385
---------
MUNICIPAL ELECTRIC - 3.9%
CA Department of Water Resources,
Power Supply Revenue Bonds,
Series 2002 A,
Insured: AMBAC
5.500% 05/01/14 500,000 553,035
CA Los Angeles Department of Water &
Power Waterworks, Series 2004 C,
Insured: MBIA
5.000% 07/01/22 1,000,000 1,046,850
---------
Municipal Electric Total 1,599,885
---------
WATER & SEWER - 25.3%
CA Culver City, Series 1999 A,
Insured: FGIC
5.700% 09/01/29 1,500,000 1,630,380
CA Department of Water Resources
Water Revenue, Central Valley Project,
Series 2005 AD,
Insured: FSA
5.000% 12/01/25 1,000,000 1,046,190
CA El Dorado Irrigation District,
Series 2004 A,
Insured: FGIC
5.000% 03/01/21 1,000,000 1,045,310
CA Elsinore Valley Municipal Water
District, Series 2002,
Insured: FGIC
5.375% 07/01/18 1,160,000 1,289,746
CA Metropolitan Water District of
Southern California, Series 2005 A,
Insured: FSA
5.000% 07/01/30 1,000,000 1,039,340
CA Pico Rivera Water Authority Revenue,
Water System Project, Series 1999 A,
Insured: MBIA
5.500% 05/01/29 2,000,000 2,253,740
PAR ($) VALUE ($)
-------------------------------------------------------------
CA Pomona Public Financing Authority,
Series 1999 AC,
Insured: FGIC
5.500% 05/01/29 1,000,000 1,063,780
CA Westlands Water District Revenue,
Certificates of Participation,
Series 2005 A,
Insured: MBIA
5.000% 09/01/30 1,000,000 1,027,520
-----------
Water & Sewer Total 10,396,006
-----------
UTILITIES TOTAL 15,504,894
-----------
TOTAL MUNICIPAL BONDS
(cost of $60,777,076) 64,383,885
-----------
INVESTMENT COMPANY - 0.0% SHARES
-------------------------------------------------------------
Dreyfus California Tax-Exempt Money
Market Fund 1 1
-----------
TOTAL INVESTMENT COMPANY
(cost of $1) 1
-----------
SHORT-TERM OBLIGATIONS - 1.2% PAR ($)
-------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (E) - 1.2%
CA Department of Water Resources,
Power Supply Revenue,
Series 2002 B-3,
2.940% 05/01/22 200,000 200,000
CA Economic Recovery, Series 2004 C-8,
LOC: Lloyds TSB Bank Plc
2.940% 07/01/23 200,000 200,000
CA Irvine Ranch Water District, Dates
Consolidated Bonds Refunding,
Series 1991 B,
LOC: Landesbank Hessen-Thuringen
Girozentrale
2.950% 08/01/16 100,000 100,000
-----------
VARIABLE RATE DEMAND NOTES TOTAL 500,000
-----------
TOTAL SHORT-TERM OBLIGATIONS
(cost of $500,000) 500,000
-----------
TOTAL INVESTMENTS - 158.0%
(cost of $61,277,077)(f) 64,883,886
AUCTION PREFERRED SHARES PLUS
CUMULATIVE UNPAID DISTRIBUTIONS
- (59.6)% (24,461,577)
OTHER ASSETS & LIABILITIES, NET - 1.6% 654,585
-----------
NET ASSETS APPLICABLE TO
COMMON SHAREHOLDERS - 100.0% 41,076,894
-----------
See Accompanying Notes to Financial Statements.
6
[GRAPHIC]
INVESTMENT PORTFOLIO (continued)
November 30, 2005
NOTES TO INVESTMENT PORTFOLIO:
--------------------------------------------------------------------------------
(a)Denotes a restricted security, which is subject to restrictions on resale
under federal securities laws. At November 30, 2005, the value of this
security represents 0.7% of net assets.
Acquisition Acquisition
Security Date Cost
------------------------------------------------------------
CA Statewide Community
Development Authority, Eskaton
Village - Grass Valley, Series 2000
8.250% 11/15/31 09/08/00 $250,000
(b)The Fund has been informed that each issuer has placed direct obligations of
the U.S. Government in an irrevocable trust, solely for the payment of
principal and interest.
(c)A portion of this security with a market value of $2,013,494 is pledged as
collateral for open futures contracts.
(d)Zero coupon bond.
(e)Variable rate demand note. 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 rate at November 30, 2005.
(f)Cost for federal income tax purposes is $61,220,650.
At November 30, 2005, the Fund held the following open short futures contracts:
NUMBER OF AGGREGATE EXPIRATION UNREALIZED
TYPE CONTRACTS VALUE FACE VALUE DATE DEPRECIATION
----------------------------------------------------------------------
10-Year U.S.
Treasury Note 41 $4,449,781 $4,447,634 Mar-06 $(2,147)
At November 30, 2005, the composition of the Fund by revenue source is as
follows:
% OF
HOLDINGS BY REVENUE SOURCE (UNAUDITED) NET ASSETS
-------------------------------------------------
Tax-Backed 72.1%
Utilities 37.7
Education 14.4
Other 12.4
Transportation 9.4
Housing 5.5
Health Care 4.0
Resource Recovery 1.3
Investment Company 0.0*
Short-Term Obligations 1.2
Auction Preferred Shares (59.6)
Other Assets & Liabilities, Net 1.6
-----
100.0%
-----
* Rounds to less than 0.1%
ACRONYM NAME
--------- ------------------------------------------
ABAG Association of Bay Area Government
AMBAC Ambac Assurance Corp.
AMT Alternative Minimum Tax
FGIC Financial Guaranty Insurance Co.
FNMA Federal National Mortgage Association
FSA Financial Security Assurance, Inc.
GNMA Government National Mortgage Association
GO General Obligation
LOC Letter of Credit
MBIA MBIA Insurance Corp.
See Accompanying Notes to Financial Statements.
7
[GRAPHIC]
STATEMENT OF ASSETS AND LIABILITIES
November 30, 2005
ASSETS:
Investments, at cost $61,277,077
-----------
Investments, at value $64,883,886
Cash 73,567
Receivable for:
Interest 802,008
Futures variation margin 5,955
Expense reimbursement due from Investment
Advisor 30,907
Deferred Trustees' compensation plan 6,776
-----------
Total Assets 65,803,099
-----------
LIABILITIES:
Payable for:
Distributions -- common shares 189,092
Distributions -- preferred shares 11,577
Investment advisory fee 22,413
Pricing and bookkeeping fees 5,983
Trustees' fees 985
Audit fee 24,286
Transfer agent fee 2,729
Reports to shareholders 9,715
Preferred shares remarketing commissions 1,005
Chief compliance officer expenses 893
Deferred Trustees' fees 6,776
Other liabilities 751
-----------
Total Liabilities 276,205
-----------
AUCTION PREFERRED SHARES (978 shares
issued and outstanding at $25,000 per
share) $24,450,000
-----------
COMPOSITION OF NET ASSETS APPLICABLE
TO COMMON SHARES:
Paid-in capital -- common shares $39,376,142
Undistributed net investment income 61,489
Accumulated net realized loss (1,965,399)
Net unrealized appreciation (depreciation) on:
Investments 3,606,809
Futures contracts (2,147)
-----------
Net assets at value applicable to 2,780,771
common shares of beneficial interest
outstanding $41,076,894
-----------
Net asset value per common share $ 14.77
-----------
[GRAPHIC]
STATEMENT OF OPERATIONS
For the Year Ended November 30, 2005
INVESTMENT INCOME:
Interest $ 3,225,001
-----------
EXPENSES:
Investment advisory fee 432,188
Transfer agent fee 33,580
Pricing and bookkeeping fees 59,236
Trustees' fees 9,258
Preferred shares remarketing commissions 61,195
Custody fee 7,659
Audit fee 34,688
Reports to shareholders 31,576
Chief compliance officer expenses
(See Note 4) 4,102
Other expenses 21,848
-----------
Total Expenses 695,330
Fees and expenses waived or reimbursed by
Investment Advisor (294,894)
Custody earnings credit (1,176)
-----------
Net Expenses 399,260
-----------
Net Investment Income 2,825,741
-----------
NET REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS AND FUTURES
CONTRACTS:
Net realized gain (loss) on:
Investments 1,547,566
Futures contracts (113,670)
-----------
Net realized gain 1,433,896
-----------
Net change in unrealized appreciation
(depreciation) on:
Investments (2,021,575)
Futures contracts 20,337
-----------
Net change in unrealized appreciation
(depreciation) (2,001,238)
-----------
Net Loss (567,342)
-----------
Net Increase in Net Assets from Operations 2,258,399
-----------
LESS DISTRIBUTIONS DECLARED TO
PREFERRED SHAREHOLDERS:
From net investment income (482,024)
-----------
Net Increase in Net Assets from Operations
Applicable to Common Shares $ 1,776,375
-----------
See Accompanying Notes to Financial Statements.
8
[GRAPHIC]
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED
NOVEMBER 30,
------------------------
INCREASE (DECREASE) IN NET ASSETS: 2005 2004
------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,825,741 $ 2,870,601
Net realized gain on
investments and futures
contracts 1,433,896 60,525
Net change in unrealized
appreciation (depreciation)
on investments and futures
contracts (2,001,238) (780,770)
----------- -----------
Net Increase from Operations 2,258,399 2,150,356
----------- -----------
LESS DISTRIBUTIONS
DECLARED TO PREFERRED
SHAREHOLDERS:
From net investment income (482,024) (243,499)
----------- -----------
Net Increase in Net Assets
from Operations Applicable
to Common Shares 1,776,375 1,906,857
----------- -----------
LESS DISTRIBUTIONS
DECLARED TO COMMON
SHAREHOLDERS:
From net investment income (2,330,286) (2,563,605)
----------- -----------
SHARE TRANSACTIONS:
Distributions reinvested --
common shares -- 27,367
----------- -----------
Total Decrease in Net Assets
Applicable to Common
Shares (553,911) (629,381)
NET ASSETS APPLICABLE TO
COMMON SHARES:
Beginning of period 41,630,805 42,260,186
----------- -----------
End of period (including
undistributed net
investment income of
$61,489 and $73,970,
respectively) $41,076,894 $41,630,805
----------- -----------
YEAR ENDED
NOVEMBER 30,
-------------------
NUMBER OF FUND SHARES: 2005 2004
-------------------------------------------------------
Common Shares:
Issued for distributions reinvested -- 1,806
Outstanding at:
Beginning of period 2,780,771 2,778,965
--------- ---------
End of period 2,780,771 2,780,771
--------- ---------
Preferred Shares:
Outstanding at end of period 978 978
--------- ---------
See Accompanying Notes to Financial Statements.
9
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS
November 30, 2005
NOTE 1. ORGANIZATION
Colonial California Insured Municipal Fund (the "Fund") is a Massachusetts
business trust registered under the Investment Company Act of 1940 (the "Act"),
as amended, as a non-diversified, closed-end management investment company.
INVESTMENT GOAL
The Fund seeks to provide current income generally exempt from ordinary federal
income tax and California State personal income tax.
FUND SHARES
The Fund may issue an unlimited number of common shares. On December 10, 1999,
the Fund issued 978 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 have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees. 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.
SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the specific identification method for both
financial statement and federal income tax purposes.
FUTURES CONTRACTS
The Fund may invest in municipal and U.S. Treasury futures contracts. The Fund
will invest in these instruments to hedge against the effects of changes in the
value of portfolio securities due to anticipated changes in interest rates
and/or market conditions, for duration management, or when the transactions are
economically appropriate to the reduction of risk inherent in the management of
the Fund and not for trading purposes. The use of futures contracts involves
certain risks, which include: (1) imperfect correlation between the price
movement of the instruments and the underlying securities, (2) inability to
close out positions due to differing trading hours, or the temporary absence of
a liquid market, for either the instrument or the underlying securities, or
(3) an inaccurate prediction by Columbia Management Advisors, 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 also identifies
portfolio securities as segregated with the custodian in a separate account in
an amount equal to the futures
10
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS (continued)
November 30, 2005
contract. The Fund recognizes a realized gain or loss when the contract is
closed or expires.
RESTRICTED SECURITIES
Restricted securities are securities that may only be resold upon registration
under federal securities laws or in transactions exempt from registration. In
some cases, the issuer of restricted securities has agreed to register such
securities for resale at the issuer's expense either upon demand by the Fund or
in connection with another registered offering of the securities. Many
restricted securities may be resold in the secondary market in transactions
exempt from registration. Such restricted securities may be determined to be
liquid under criteria established by the Board of Trustees. The Fund will not
incur any registration costs upon such resale.
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.
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 tax-exempt or taxable 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, 2005, was
2.88%. For the year ended November 30, 2005, the Fund declared dividends to
Auction Preferred shareholders amounting to $482,024, representing an average
dividend rate of 1.97% per APS.
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, 2005, permanent book and tax basis differences
resulting primarily from differing treatments for discount accretion / premium
amortization on debt securities and market discount reclassifications were
identified and reclassified among the components of the Fund's net assets as
follows:
UNDISTRIBUTED
NET INVESTMENT ACCUMULATED
INCOME NET REALIZED LOSS PAID-IN CAPITAL
-------------- ----------------- ---------------
$(25,912) $25,912 $--
Net investment income and net realized gains (losses), as disclosed on the
Statement of Operations, and net assets were not affected by this
reclassification.
The tax character of distributions paid during the years ended November 30,
2005 and November 30, 2004 was as follows:
NOVEMBER 30, NOVEMBER 30,
2005 2004
- ------------ ------------
Distributions paid
from:
Tax-Exempt
Income $2,812,194 $2,806,938
Ordinary Income 116 166
Long-Term
Capital Gains -- --
As of November 30, 2005, the components of distributable earnings on a tax
basis were as follows:
UNDISTRIBUTED UNDISTRIBUTED UNDISTRIBUTED NET
TAX-EXEMPT ORDINARY LONG-TERM UNREALIZED
INCOME INCOME CAPITAL GAINS APPRECIATION*
------------- ------------- ------------- -------------
$212,745 $-- $-- $3,663,236
* The differences between book-basis and tax-basis net unrealized appreciation
are primarily due to discount accretion / premium amortization on debt
securities.
Unrealized appreciation and depreciation at November 30, 2005, based on cost of
investments for federal income tax purposes, was:
Unrealized appreciation $3,979,059
Unrealized depreciation (315,823)
----------
Net unrealized appreciation $3,663,236
----------
11
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS (continued)
November 30, 2005
The following capital loss carryforwards, determined as of November 30, 2005,
may be available to reduce taxable income arising from future net realized
gains on investments, if any, to the extent permitted by the Internal Revenue
Code:
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
------------ ------------
2011 $567,385
2012 70,908
--------
$638,293
--------
Capital loss carryforwards of $1,087,945 were utilized during the year ended
November 30, 2005.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISORY FEE
Columbia Management Advisors, LLC ("Columbia"), an indirect wholly owned
subsidiary of Bank of America Corporation ("BOA"), is the investment advisor to
the Fund and provides administrative and other services to the Fund. Prior to
September 30, 2005, Columbia Management Advisors, Inc. was the investment
advisor to the Fund under the same fee structure. On September 30, 2005,
Columbia Management Advisors, Inc. merged into Banc of America Capital
Management, LLC. At that time, the investment advisor was then renamed Columbia
Management Advisors, LLC.
Columbia receives a monthly investment advisory fee at the annual rate of 0.65%
of the Fund's average weekly net assets, including assets applicable to the
APS. Columbia contractually agreed to waive a portion of its investment
advisory fee through November 30, 2005, so that such fee will not exceed 0.40%
annually. Columbia has contractually agreed to waive a portion of investment
advisory fee for the years ending November 30, 2006, 2007, 2008 and 2009 so
that the Fund's investment advisory fee will not exceed the annual rates of
0.45%, 0.50%, 0.55% and 0.60%, respectively.
For the year ended November 30, 2005, the Fund's effective investment advisory
fee rate was 0.40%.
PRICING AND BOOKKEEPING FEES
Columbia is responsible for providing pricing and bookkeeping services to the
Fund under a pricing and bookkeeping agreement. Under a separate agreement (the
"Outsourcing Agreement"), Columbia has delegated those functions to State
Street Corporation ("State Street"). As a result, the total fees payable under
the pricing and bookkeeping agreement 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 weekly net assets for the month; provided that during any
12-month period, the aggregate fee shall not exceed $140,000.
Prior to November 1, 2005, Columbia received from the Fund an annual fee of
$10,000 paid monthly, and in any month that the Fund's average weekly net
assets exceeded $50 million, an additional monthly fee, calculated by taking
into account the fees payable to State Street under the Outsourcing Agreement.
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, 2005, the Fund's effective
pricing and bookkeeping rate, inclusive of out-of-pocket expenses, was 0.090%.
FEE WAIVERS
Columbia has voluntarily agreed to reimburse the Fund for certain expenses so
that total expenses (exclusive of investment advisory fees, brokerage
commissions, interest, taxes and extraordinary expenses, if any) will not
exceed 0.20% annually of the Fund's average weekly net assets, including assets
applicable to APS. Columbia, at its discretion, may revise or discontinue this
arrangement any time.
CUSTODY CREDITS
The Fund has an agreement with its custodian bank under which custody fees may
be reduced by balance credits. These credits are recorded as a reduction of
total expenses on the Statement of Operations. The Fund could have invested a
portion of the assets utilized in connection with the expense offset
arrangement in an income-producing asset if it had not entered into such an
agreement.
FEES PAID TO OFFICERS AND TRUSTEES
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 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.
12
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS (continued)
November 30, 2005
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, 2005, the Fund paid $1,542 to
Columbia for such services. This amount is included in "Other expenses" on the
Statement of Operations.
NOTE 5. PORTFOLIO INFORMATION
For the year ended November 30, 2005, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $18,942,788 and
$19,156,181, respectively.
NOTE 6. PREFERRED SHARES
The Fund currently has outstanding 978 APS. The APS are redeemable at the
option of the Fund on any dividend payment date at the redemption price of
$25,000 per share, plus an amount equal to any dividends accumulated on a daily
basis unpaid through the redemption date (whether or not such dividends have
been declared).
Under the Act, the Fund is required to maintain asset coverage of at least 200%
with respect to the APS as of the last business day of each month in which any
APS are outstanding. Additionally, the Fund is required to meet more stringent
asset coverage requirements under the terms of the APS Agreement and in
accordance with the guidelines prescribed by the APS' rating agencies. Should
these requirements not be met, or should dividends accrued on the APS not be
paid, the Fund may be restricted in its ability to declare dividends to common
shareholders or may be required to redeem certain APS. At November 30, 2005,
there were no such restrictions on the Fund.
NOTE 7. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
CONCENTRATION OF CREDIT RISK
The Fund holds investments that are insured by private insurers who guarantee
the payment of principal and interest in the event of default or that are
supported by a letter of credit. Each of the Fund's insurers is rated Aaa by
Moody's Investor Services, Inc. At November 30, 2005, private insurers who
insure greater than 5% of the total investments of the Fund were as follows:
% OF TOTAL
INVESTMENTS
INSURER (UNAUDITED)
----------------------------------------------
MBIA Insurance Corp. 41.9
Financial Guaranty Insurance Co. 17.5
Ambac Assurance Corp. 14.9
Financial Security Assurance, Inc. 14.8
GEOGRAPHIC CONCENTRATION
The Fund has greater than 5% of its total investments at November 30, 2005
invested in debt obligations issued by the state of California and its
respective political subdivisions, agencies and public authorities. The Fund is
more susceptible to economic and political factors adversely affecting issuers
of the 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.
ISSUER FOCUS
As a non-diversified fund, the Fund may invest a greater percentage of its
total assets in the securities of fewer issuers than a diversified fund. The
Fund may, therefore, have a greater risk of loss from a few issuers than a
similar fund that invests more broadly.
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged
into Banc of America Capital Management, LLC (now named Columbia Management
Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has
been renamed Columbia Management Distributors, Inc.) (the "Distributor")
(collectively, the "Columbia Group") entered into an Assurance of
Discontinuance with the New York Attorney General ("NYAG") (the "NYAG
Settlement") and consented to the entry of a cease-and-desist order by the
Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and
the NYAG Settlement are referred to collectively as the "Settlements". The
Settlements contain substantially the same terms and conditions as outlined in
the agreements in principle which Columbia Group entered into with the SEC and
NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group has agreed among other
things, to: pay $70
13
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS (continued)
November 30, 2005
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 certain Columbia Funds (including the former Nations Funds) and other
mutual funds management fees collectively by $32 million per year for five
years, for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan to be developed by an independent distribution consultant,
who is acceptable to the SEC staff and the Columbia Funds' independent
trustees. The distribution plan must be based on a methodology developed in
consultation with the Columbia Group and the funds' independent trustees and
not unacceptable to the staff of the SEC. At this time, the distribution plan
is still under development. As such, any gain to the funds or their
shareholders cannot currently be determined.
As a result of these matters or any adverse publicity or other developments
resulting from them, the market price of fund shares could decline.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov.
A copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have
filed suit against certain funds, the Trustees of the Columbia Funds,
FleetBoston Financial Corporation and its affiliated entities and/or Bank of
America and its affiliated entities. More than 300 cases including those filed
against entities unaffiliated with the funds, their Boards, FleetBoston
Financial Corporation and its affiliated entities and/or Bank of America and
its affiliated entities have been transferred to the Federal District Court in
Maryland and consolidated in a multi-district proceeding (the "MDL").
The derivative cases purportedly brought on behalf of the Columbia Funds in the
MDL have been consolidated under the lead case. The fund derivative plaintiffs
allege that the funds were harmed by market timing and late trading activity
and seek, among other things, the removal of the trustees of the Columbia
Funds, removal of the Columbia Group, disgorgement of all management fees and
monetary damages.
On March 21, 2005, purported class action plaintiffs filed suit in
Massachusetts state court alleging that the conduct, including market timing,
entitles Class B shareholders in certain Columbia Funds to an exemption from
contingent deferred sales charges upon early redemption ("the CDSC Lawsuit").
The CDSC Lawsuit has been removed to federal court in Massachusetts and the
federal Judicial Panel has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this
litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia Funds, the Trustees of the Columbia Funds, advisers
and affiliated entities were named as defendants in certain purported
shareholder class and derivative actions making claims, including claims under
the Investment Company and the Investment Advisers Acts of 1940 and state law.
The suits allege, inter alia, that the fees and expenses paid by the funds are
excessive and that the advisers and their affiliates inappropriately used fund
assets to distribute the funds and for other improper purposes. On March 2,
2005, the actions were consolidated in the Massachusetts federal court as In re
Columbia Entities Litigation. The plaintiffs filed a consolidated amended
complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims
by plaintiffs and ordered that the case be closed. The plaintiffs filed a
notice of appeal on December 30, 2005.
14
[GRAPHIC]
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as
follows (common shares unless otherwise noted):
PERIOD
YEAR ENDED NOVEMBER 30, ENDED
----------------------------------------------------------------- NOVEMBER 30,
2005 2004 2003 2002 2001 2000 1999 (A)
------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.97 $ 15.21 $ 15.30 $ 15.78 $ 15.16 $ 14.29 $ 14.33
------- ------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 1.02(b) 1.03(b) 1.10(b) 1.17(b)(c) 1.19(b) 1.18(d) 0.05
Net realized and unrealized gain (loss) on
investments, futures contracts and written
options (0.21) (0.26) (0.09) (0.46)(c) 0.59 1.07 (0.06)
------- ------- ------- ------- ------- ------- -------
Total from Investment Operations 0.81 0.77 1.01 0.71 1.78 2.25 (0.01)
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO
PREFERRED SHAREHOLDERS:
From net investment income (0.17) (0.09) (0.08) (0.12) (0.24) (0.34) --
------- ------- ------- ------- ------- ------- -------
Total from Investment Operations
Applicable to Common Shareholders 0.64 0.68 0.93 0.59 1.54 1.91 (0.01)
------- ------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO COMMON
SHAREHOLDERS:
From net investment income (0.84) (0.92) (1.02) (1.07) (0.92) (0.90) --
------- ------- ------- ------- ------- ------- -------
LESS SHARE TRANSACTIONS:
Offering costs -- common shares -- -- -- -- -- --(e) (0.03)
Commission and offering costs -- preferred
shares -- -- -- -- -- (0.14) --
------- ------- ------- ------- ------- ------- -------
Total Share Transactions -- -- -- -- -- (0.14) (0.03)
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 14.77 $ 14.97 $ 15.21 $ 15.30 $ 15.78 $ 15.16 $ 14.29
------- ------- ------- ------- ------- ------- -------
Market price per share -- common shares $ 14.20 $ 13.61 $ 15.60 $ 16.40 $ 16.60 $ 12.69 $ 15.00
------- ------- ------- ------- ------- ------- -------
Total return -- based on market value --
common shares (f)(g) 10.63% (6.99)% 1.65% 5.67% 38.91% (9.86)% 0.00%(h)
------- ------- ------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (i)(j) 0.95%(k) 0.87%(k) 0.88%(k) 0.86%(k) 0.86%(k) 0.87%(k) 0.55%(l)
Net investment income before preferred
stock dividends (i)(j) 6.72% 6.89% 7.17% 7.57%(c) 7.58% 8.27% 4.12%(l)
Net investment income after preferred stock
dividends (i)(j) 5.57% 6.30% 6.63% 6.81%(c) 6.02% 5.93% 4.12%(l)
Voluntary waiver/reimbursement (j) 0.31% 0.21% 0.26% 0.23% 0.22% 0.27% 1.08%(l)
Portfolio turnover rate 29% 16% 10% 11% 7% 22% 0%(h)
Net assets, end of period (000's) -- common
shares $41,077 $41,631 $42,260 $42,432 $43,678 $41,947 $34,382
(a)The Fund commenced investment operations on October 29, 1999. Per share data
and total return reflect activity from that date.
(b)Per share data was calculated using average shares outstanding during the
period.
(c)Effective December 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended November 30, 2002 was to increase the ratio of net investment
income to average net assets from 7.51% to 7.57% and increase the ratio of
net investment income (adjusted for dividend payments to preferred
shareholders) from 6.75% to 6.81%. The impact to the net investment income
and net realized and unrealized loss per share was less than $0.01. Per
share data and ratios for periods prior to November 30, 2002 have not been
restated to reflect this change in presentation.
(d)The per share net investment income amount does not reflect the period's
reclassifications of differences between book and tax basis net investment
income.
(e)Rounds to less than $0.01 per share.
(f)Total return at market value assuming all distributions reinvested at prices
calculated in accordance with the Dividend Reinvestment Plan.
(g)Had the Investment Advisor not waived or reimbursed a portion of expenses,
total return would have been reduced.
(h)Not annualized.
(i)The benefits derived from custody credits had an impact of less than 0.01%,
except for year ended November 30, 2004 which had an impact of 0.01% and the
year ended November 30, 2003 which had an impact of 0.02%.
(j)Ratios reflect average net assets available to common shares only.
(k)Ratios calculated using average net assets including auction preferred
shares of the Fund, including the effect of custody credits equals 0.60%,
0.55%, 0.55%, 0.55%, 0.55% and 0.55% for the years ended November 30, 2005,
November 30, 2004, November 30, 2003, November 30, 2002, November 30, 2001
and November 30, 2000, respectively.
(l)Annualized.
15
[GRAPHIC]
ASSET COVERAGE REQUIREMENTS
INVOLUNTARY
ASSET LIQUIDATING AVERAGE
TOTAL AMOUNT COVERAGE PREFERENCE MARKET VALUE
OUTSTANDING PER SHARE* PER SHARE PER SHARE
------------------------------------------------------------
11/30/05 $24,450,000 $67,001 $25,012 $25,000
11/30/04 24,450,000 67,567 25,003 25,000
11/30/03 24,450,000 68,211 25,002 25,000
11/30/02 24,450,000 68,387 25,002 25,000
11/30/01 24,450,000 69,661 25,001 25,000
11/30/00 ** 24,450,000 67,891 25,019 25,000
* Calculated by subtracting the Fund's total liabilities from the Fund's total
assets and dividing the amount by the number of APS outstanding.
**On December 10, 1999, the Fund began offering Auction Preferred Shares.
16
[GRAPHIC]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE TRUSTEES AND THE SHAREHOLDERS OF COLONIAL CALIFORNIA 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 California Insured
Municipal Fund (the "Fund") at November 30, 2005, and the results of its
operations, the changes in its net assets and its financial highlights for the
periods indicated, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at November 30, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
January 24, 2006
17
[GRAPHIC]
UNAUDITED INFORMATION
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, 2005, 7.71% of distributions from net
investment income is subject to the alternative minimum tax.
18
[GRAPHIC]
DIVIDEND REINVESTMENT PLAN
COLONIAL CALIFORNIA INSURED MUNICIPAL FUND
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), all Common
Shareholders whose shares are registered in their own names will have all
distributions reinvested automatically in additional Common Shares of the Fund
by Computershare (the "Plan Agent"), as agent under the Plan, unless a Common
Shareholder elects to receive cash. An election to receive cash may be revoked
or reinstated at the option of the Common Shareholder. Shareholders whose
shares are held in the name of a broker or nominee will have distributions
reinvested automatically by the broker or nominee in additional shares under
the Plan, unless the service is not provided by the broker or nominee, or
unless the shareholder elects to receive distributions in cash. If the service
is not available, such distributions will be paid in cash. Shareholders whose
shares are held in the name of a broker or nominee should contact the broker or
nominee for details. All distributions to investors who elect not to
participate (or whose broker or nominee elects not to participate) in the Plan
will be paid by check mailed directly to the record holder by the Plan Agent,
as dividend paying agent.
The Plan Agent will furnish each person who buys shares in the offering with
written information relating to the Plan. Included in such information will be
procedures for electing to receive distributions in cash (or, in the case of
shares held in the name of a broker or nominee who does not participate in the
Plan, procedures for having such shares registered in the name of the
shareholder so that such shareholder may participate in the Plan).
If the Trustees of the Fund declare a dividend (including a capital gain
dividend) payable either in shares or in cash, as holders of shares may have
elected, then nonparticipants in the Plan will receive cash and participants in
the Plan will receive the equivalent in shares valued as set forth below.
Whenever a market price is equal to or exceeds net asset value at the time
shares are valued for the purpose of determining the number of shares
equivalent to the distribution, participants will be issued shares at the net
asset value most recently determined as provided under "Net Asset Value" in the
Fund's prospectus and its Statement of Additional Information, but in no event
less than 95% of the market price. If the net asset value of the shares at such
time exceeds the market price of shares at such time, or if the Fund should
declare a dividend (including a capital gain dividend) payable only in cash,
the Plan Agent will, as agent for the participants, use the cash that the
shareholders would have received as a dividend to buy shares in the open
market, the American Stock Exchange or elsewhere, for the participants'
accounts. If, before the Plan Agent has completed its purchases, the market
price exceeds the net asset value of the shares, the average per share purchase
price paid by the Plan Agent may exceed the net asset value of the shares,
resulting in the acquisition of fewer shares than if the dividend (including a
capital gain dividend) had been paid in shares issued by the Fund. The Plan
Agent will apply all cash received as a dividend (including a capital gain
dividend) to purchase shares on the open market as soon as practicable after
the payment date of such dividend, but in no event later than 30 days after
such date, except where necessary to comply with applicable provisions of the
federal securities laws.
There is no charge to participants for reinvesting dividends (including capital
gain dividends). The Plan Agent's fees for handling the reinvestment of
dividends (including capital gain dividends) will be paid by the Fund. There
will be no brokerage charges with respect to shares issued directly by the Fund
as a result of dividends or capital gains distributions payable either in stock
or in cash. However, each participant will pay a pro rata share of brokerage
commissions incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of dividends (including capital gain
dividends).
The automatic reinvestment of dividends (including capital gain dividends) will
not relieve participants of any income tax which may be payable on such
dividends. The amount of the dividend for tax purposes may vary depending on
whether the Fund issues new Common Shares or purchases them on the open market.
The Plan may be amended or terminated on 30 days' written notice to Plan
participants. All correspondence concerning the Plan should be directed to
Computershare by mail at P.O. Box 43010, Providence, RI 02940-3010, or by phone
at 1-800-730-6001.
19
[GRAPHIC]
TRUSTEES
The Trustees/Directors serve terms of indefinite duration. The names, addresses
and ages of the Trustees/Directors and officers of the Funds in the Columbia
Funds Complex, the year each was first elected or appointed to office, their
principal business occupations during at least the last five years, the number
of portfolios overseen by each Trustee/Director and other directorships they
hold are shown below. Each officer listed below serves as an officer of each
Fund in the Columbia Funds Complex.
Name, address and age, Position with funds, Principal occupation(s) during past five years, Number of portfolios in
Year first elected or appointed to office/1/ Columbia Funds Complex overseen by trustee/director, Other directorships
held
Disinterested Trustees
DOUGLAS A. HACKER (Age 50) Executive Vice President-Strategy of United Airlines (airline) since
c/o Columbia Management Advisors, LLC December, 2002 (formerly President of UAL Loyalty Services (airline) from
One Financial Center September, 2001 to December, 2002; Executive Vice President and Chief
Boston, MA 02111 Financial Officer of United Airlines from July, 1999 to September, 2001;
Trustee (since 1996) Senior Vice President-Finance from March, 1993 to July, 1999). Oversees
83, Nash Finch Company (food distributor)
---------------------------------------------------------------------------
JANET LANGFORD KELLY (Age 48) Partner, Zelle, Hofmann, Voelbel, Mason & Gette LLP (law firm) since
c/o Columbia Management Advisors, LLC March, 2005; Adjunct Professor of Law, Northwestern University, since
One Financial Center September, 2004 (formerly Chief Administrative Officer and Senior Vice
Boston, MA 02111 President, Kmart Holding Corporation (consumer goods) from September, 2003
Trustee (since 1996) to March, 2004; Executive Vice President-Corporate Development and
Administration, General Counsel and Secretary, Kellogg Company (food
manufacturer), from September, 1999 to August, 2003; Senior Vice
President, Secretary and General Counsel, Sara Lee Corporation (branded,
packaged, consumer-products manufacturer) from January, 1995 to September,
1999). Oversees 83, None
---------------------------------------------------------------------------
RICHARD W. LOWRY (Age 69) Private Investor since August, 1987 (formerly Chairman and Chief Executive
c/o Columbia Management Advisors, LLC Officer, U.S. Plywood Corporation (building products manufacturer)).
One Financial Center Oversees 89/(3)/, None
Boston, MA 02111
Trustee (since 1995)
---------------------------------------------------------------------------
CHARLES R. NELSON (Age 62) Professor of Economics, University of Washington, since January, 1976;
c/o Columbia Management Advisors, LLC Ford and Louisa Van Voorhis Professor of Political Economy, University of
One Financial Center Washington, since September, 1993 (formerly Director, Institute for
Boston, MA 02111 Economic Research, University of Washington from September, 2001 to June,
Trustee (since 1981) 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 83, 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 and Richard L. Woolworth,
who had been directors on the Columbia Board
and trustees on the CMG Funds Board, were
appointed to serve as trustees of the
Liberty Board. The date shown is the
earliest date on which a trustee/director
was elected or appointed to the board of a
Fund in the Columbia Funds Complex.
20
[GRAPHIC]
TRUSTEES (CONTINUED)
Name, address and age, Position with funds, Principal occupation(s) during past five years, Number of portfolios in
Year first elected or appointed to office/1/ Columbia Funds Complex overseen by trustee/director, Other directorships
held
Disinterested Trustees
JOHN J. NEUHAUSER (Age 63) Academic Vice President and Dean of Faculties since August, 1999, Boston
c/o Columbia Management Advisors, LLC College (formerly Dean, Boston College School of Management from
One Financial Center September, 1977 to August, 1999). Oversees 89/(3)/, Saucony, Inc.
Boston, MA 02111 (athletic footwear)
Trustee (since 1985)
---------------------------------------------------------------------------
PATRICK J. SIMPSON (Age 61) Partner, Perkins Coie LLP (law firm). Oversees 83, None
c/o Columbia Management Advisors, LLC
One Financial Center
Boston, MA 02111
Trustee (since 2000)
---------------------------------------------------------------------------
THOMAS E. STITZEL (Age 69) Business Consultant since 1999 (formerly Professor of Finance from 1975 to
c/o Columbia Management Advisors, LLC 1999, College of Business, Boise State University); Chartered Financial
One Financial Center Analyst. Oversees 83, None
Boston, MA 02111
Trustee (since 1998)
---------------------------------------------------------------------------
THOMAS C. THEOBALD (Age 68) Partner and Senior Advisor, Chicago Growth Partners (private equity
c/o Columbia Management Advisors, LLC investing) since September, 2004 (formerly Managing Director, William
One Financial Center Blair Capital Partners (private equity investing) from September, 1994 to
Boston, MA 02111 September, 2004). Oversees 83, Anixter International (network support
Trustee and Chairman equipment distributor); Ventas, Inc. (real estate investment trust); Jones
of the Board/4/ (since 1996) Lang LaSalle (real estate management services) and Ambac Financial Group
(financial guaranty insurance)
---------------------------------------------------------------------------
ANNE-LEE VERVILLE (Age 60) Retired since 1997 (formerly General Manager, Global Education Industry,
c/o Columbia Management Advisors, LLC IBM Corporation (computer and technology) from 1994 to 1997). Oversees 83,
One Financial Center Chairman of the Board of Directors, Enesco Group, Inc. (designer, importer
Boston, MA 02111 and distributor of giftware and collectibles)
Trustee (since 1998)
---------------------------------------------------------------------------
RICHARD L. WOOLWORTH (Age 64) Retired since December, 2003 (formerly Chairman and Chief Executive
c/o Columbia Management Advisors, LLC Officer, The Regence Group (regional health insurer); Chairman and Chief
One Financial Center Executive Officer, BlueCross BlueShield of Oregon; Certified Public
Boston, MA 02111 Accountant, Arthur Young & Company). Oversees 83, Northwest Natural Gas
Trustee (since 1991) Co. (natural gas service provider)
---------------------------------------------------------------------------
Interested Trustee
WILLIAM E. MAYER/2/ (Age 65) Partner, Park Avenue Equity Partners (private equity) since February, 1999
c/o Columbia Management Advisors, LLC (formerly Partner, Development Capital LLC from November, 1996 to
One Financial Center February, 1999). Oversees 89/3/, Lee Enterprises (print media), WR
Boston, MA 02111 Hambrecht + Co. (financial service provider); Reader's Digest
Trustee (since 1994) (publishing); OPENFIELD Solutions (retail industry technology provider)
---------------------------------------------------------------------------
/2/Mr. Mayer is an "interested person" (as
defined in the Investment Company Act of
1940 (1940 Act)) by reason of his
affiliation with WR Hambrecht + Co.
/3/Messrs. Lowry, Neuhauser and Mayer also
serve as directors/trustees of the Liberty
All-Star Funds, currently consisting of 2
funds, which are advised by an affiliate of
the Advisor.
/4/Mr. Theobald was appointed as Chairman of
the Board effective December 10, 2003.
The Statement of Additional Information
Includes additional information about the
Trustees of the Funds and is available,
without charge, upon request by calling
800-426-3750.
21
[GRAPHIC]
OFFICERS
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.
Name, address and age, Position with Columbia
Funds, Year first elected or appointed to office Principal occupation(s) during past five years
CHRISTOPHER L. WILSON (Age 48) Head of Mutual Funds since August, 2004 and Managing Director of the
One Financial Center Advisor since September, 2005; President of the Columbia Funds, Liberty
Boston, MA 02111 Funds and Stein Roe Funds since October, 2004; President and Chief
President (since 2004) Executive Officer of the Nations Funds since January, 2005; President of
the Galaxy Funds since April, 2005; Director of Bank of America Global
Liquidity Funds, plc since May, 2005; Director of Banc of America Capital
Management (Ireland), Limited since May, 2005; Director of FIM Funding,
Inc. since January, 2005; Senior Vice President of Columbia Management
Distributors, Inc. since January, 2005; Director of Columbia Management
Services, Inc. since January, 2005 (formerly Senior Vice President of
Columbia Management from January, 2005 to August, 2005; Senior Vice
President of BACAP Distributors LLC from January, 2005 to July, 2005;
President and Chief Executive Officer, CDC IXIS Asset Management Services,
Inc. from September, 1998 to August, 2004).
---------------------------------------------------------------------------
J. KEVIN CONNAUGHTON (Age 41) Treasurer of the Columbia Funds since October, 2003 and of the Liberty
One Financial Center Funds, Stein Roe Funds and All-Star Funds since December, 2000; Managing
Boston, MA 02111 Director of the Advisor since September, 2005 (formerly Vice President of
Treasurer (since 2000) Columbia Management from April, 2003 to August, 2005; President of the
Columbia Funds, Liberty Funds and Stein Roe Funds from February, 2004 to
October, 2004; Chief Accounting Officer and Controller of the Liberty
Funds and All-Star Funds from February, 1998 to October, 2000); Treasurer
of the Galaxy Funds from September, 2002 to November, 2005 (formerly
Treasurer from December, 2002 to December, 2004 and President from
February, 2004 to December, 2004 of the Columbia Management Multi-Strategy
Hedge Fund, LLC; Vice President of Colonial Management Associates, Inc.
from February, 1998 to October, 2000).
---------------------------------------------------------------------------
MARY JOAN HOENE (Age 56) Senior Vice President and Chief Compliance Officer of the Columbia Funds,
100 Federal Street Liberty Funds, Stein Roe Funds and All-Star Funds since August, 2004;
Boston, MA 02110 Chief Compliance Officer of the Columbia Management Multi-Strategy Hedge
Senior Vice President and Fund, LLC since August; 2004. Chief Compliance Officer of the BACAP
Chief Compliance Officer (since 2004) Alternative Multi-Strategy Hedge Fund LLC since October 2004 (formerly
Partner, Carter, Ledyard & Milburn LLP from January, 2001 to August, 2004;
Counsel, Carter, Ledyard & Milburn LLP from November, 1999 to December,
2000; Vice President and Counsel, Equitable Life Assurance Society of the
United States from April, 1998 to November, 1999).
---------------------------------------------------------------------------
MICHAEL G. CLARKE (Age 36) Chief Accounting Officer of the Columbia Funds, Liberty Funds, Stein Roe
One Financial Center Funds and All-Star Funds since October, 2004; Managing Director of the
Boston, MA 02111 Advisor since September, 2005 (formerly Controller of the Columbia Funds,
Chief Accounting Officer (since 2004) Liberty Funds, Stein Roe Funds and All-Star Funds from May, 2004 to
October, 2004; Assistant Treasurer from June, 2002 to May, 2004; Vice
President, Product Strategy & Development of the Liberty Funds and Stein
Roe Funds from February, 2001 to June, 2002; Assistant Treasurer of the
Liberty Funds, Stein Roe Funds and the All- Star Funds from August, 1999
to February, 2001; Audit Manager, Deloitte & Touche LLP from May, 1997 to
August, 1999).
---------------------------------------------------------------------------
JEFFREY R. COLEMAN (Age 36) Controller of the Columbia Funds, Liberty Funds, Stein Roe Funds and
One Financial Center All-Star Funds since October, 2004 (formerly Vice President of CDC IXIS
Boston, MA 02111 Asset Management Services, Inc. and Deputy Treasurer of the CDC Nvest
Controller (since 2004) Funds and Loomis Sayles Funds from February, 2003 to September, 2004;
Assistant Vice President of CDC IXIS Asset Management Services, Inc. and
Assistant Treasurer of the CDC Nvest Funds from August, 2000 to February,
2003; Tax Manager of PFPC, Inc. from November, 1996 to August, 2000).
---------------------------------------------------------------------------
R. SCOTT HENDERSON (Age 46) Secretary of the Columbia Funds, Liberty Funds and Stein Roe Funds since
One Financial Center December, 2004 (formerly Of Counsel, Bingham McCutchen from April, 2001 to
Boston, MA 02111 September, 2004; Executive Director and General Counsel, Massachusetts
Secretary (since 2004) Pension Reserves Investment Management Board from September, 1997 to
March, 2001).
---------------------------------------------------------------------------
22
[GRAPHIC]
BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
The Advisory Fees and Expenses Committee of the Board of Trustees meets one or
more times annually, usually in late summer, to review the advisory agreements
(collectively, the "Agreements") of the funds for which the Trustees serve as
trustees or directors (each a "fund") and determine whether to recommend that
the full Board approve the continuation of the Agreements for an additional
one-year period. After the Committee has made its recommendation, the full
Board, including the Independent Trustees, determines whether to approve the
continuation of the Agreements. In addition, the Board, including the
Independent Trustees, considers matters bearing on the Agreements at most of
its other meetings throughout the year and meets regularly with the heads of
each investment area within Columbia. The Trustees also meet with selected fund
portfolio managers at various times throughout the year. The Trustees receive
and review all materials that they, their legal counsel or Columbia, the funds'
investment adviser, believe to be reasonably necessary for the Trustees to
evaluate the Agreements and determine whether to approve the continuation of
the Agreements. Those materials generally include, among other items, (i)
information on the investment performance of each fund relative to the
performance of peer groups of mutual funds and the fund's performance
benchmarks, (ii) information on each fund's advisory fees and other expenses,
including information comparing the fund's expenses to those of peer groups of
mutual funds and information about any applicable expense caps and fee
"breakpoints," (iii) sales and redemption data, (iv) information about the
profitability of the Agreements to Columbia, and potential "fall-out" or
ancillary benefits that Columbia and its affiliates may receive as a result of
their relationships with the funds and (v) information obtained through
Columbia's response to a questionnaire prepared at the request of the Trustees
by counsel to the funds and independent legal counsel to the Independent
Trustees. The Trustees also consider other information such as (vi) Columbia's
financial results and financial condition, (vii) each fund's investment
objective and strategies and the size, education and experience of Columbia's
investment staffs and their use of technology, external research and trading
cost measurement tools, (viii) the allocation of the funds' brokerage, if any,
including allocations to brokers affiliated with Columbia and the use of "soft"
commission dollars to pay fund expenses and to pay for research products and
services, (ix) Columbia's resources devoted to, and its record of compliance
with, the funds' investment policies and restrictions, policies on personal
securities transactions and other compliance policies, (x) Columbia's response
to various legal and regulatory proceedings since 2003 and (xi) the economic
outlook generally and for the mutual fund industry in particular. In addition,
the Trustees confer with their independent fee consultant and review materials
relating to the Agreements that the independent fee consultant provides.
Throughout the process, the Trustees have the opportunity to ask questions of
and request additional materials from Columbia and to consult independent legal
counsel to the Independent Trustees.
The Board of Trustees most recently approved the continuation of the Agreements
at its October, 2005 meeting, following meetings of the Advisory Fees and
Expenses Committee held in August, September, and October, 2005. In considering
whether to approve the continuation of the Agreements, the Trustees, including
the Independent Trustees, did not identify any single factor as determinative,
and each weighed various factors as he or she deemed appropriate. The Trustees
considered the following matters in connection with their approval of the
continuation of the Agreements: The nature, extent and quality of the services
provided to the funds under the Agreements. The Trustees considered the nature,
extent and quality of the services provided by Columbia and its affiliates to
the funds and the resources dedicated to the funds by Columbia and its
affiliates. Among other things, the Trustees considered (i) Columbia's ability,
including its resources, compensation programs for personnel involved in fund
management, reputation and other attributes, to attract and retain highly
qualified research, advisory and supervisory investment professionals; (ii) the
portfolio management services provided by those investment professionals; and
(iii) the trade execution services provided on behalf of the funds. For each
fund, the Trustees also considered the benefits to shareholders of investing in
a mutual fund that is part of a family of funds offering exposure to a variety
of asset classes and investment disciplines and providing for a variety of fund
and shareholder services. After reviewing those and related factors, the
Trustees concluded, within the context of their overall conclusions regarding
each of the Agreements, that the nature, extent and quality of services
provided supported the continuation of the Agreements. Investment performance
of the funds and Columbia. The Trustees reviewed information about the
performance of each fund over various time periods, including information
prepared by an independent third party that compared the performance of each
fund to the performance of peer groups of mutual funds and performance
benchmarks. The Trustees also reviewed a description of the third party's
methodology for identifying each fund's peer group for purposes of performance
and expense comparisons. The Trustees also considered additional information
that the
23
[GRAPHIC]
BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENTS (CONTINUED)
Advisory Fees and Expenses Committee requested from Columbia relating to funds
that presented relatively weaker performance and/or relatively higher expenses.
In the case of each fund that had performance that lagged that of a relevant
peer group for certain (although not necessarily all) periods, the Trustees
concluded that other factors relevant to performance were sufficient, in light
of other considerations, to warrant continuation of the fund's Agreements.
Those factors varied from fund to fund, but included one or more of the
following: (i) that the fund's performance, although lagging in certain recent
periods, was stronger over the longer term; (ii) that the underperformance was
attributable, to a significant extent, to investment decisions that were
reasonable and consistent with the fund's investment strategy and policies and
that the fund was performing as expected, given market conditions and the
fund's investment strategy; (iii) that the fund's performance was competitive
when compared to other relevant performance benchmarks or peer groups; (iv)
that Columbia had taken or was taking steps designed to help improve the fund's
investment performance, including, but not limited to, replacing portfolio
managers or modifying investment strategies; (v) that the fund's advisory fee
had recently been, or was proposed to be, reduced, with the goal of helping the
fund's net return to shareholders become more competitive; and (vi) that other
fund expenses, such as transfer agency or fund accounting fees, have recently
been reduced, with the goal of helping the fund's net return to shareholders
become more competitive. The Trustees also considered Columbia's performance
and reputation generally, the funds' performance as a fund family generally,
and Columbia's historical responsiveness to Trustee concerns about performance
and Columbia's willingness to take steps intended to improve performance. After
reviewing those and related factors, the Trustees concluded, within the context
of their overall conclusions regarding each of the Agreements, that the
performance of each fund and Columbia was sufficient, in light of other
considerations, to warrant the continuation of the Agreements. The costs of the
services provided and profits realized by Columbia and its affiliates from
their relationships with the funds. The Trustees considered the fees charged to
the funds for advisory services as well as the total expense levels of the
funds. That information included comparisons (provided both by management and
by an independent third party) of the funds' advisory fees and total expense
levels to those of their peer groups and information about the advisory fees
charged by Columbia to comparable accounts. In considering the fees charged to
comparable accounts, the Trustees took into account, among other things,
management's representations about the differences between managing mutual
funds as compared to other types of accounts, including the additional
resources required to effectively manage mutual funds and distribute mutual
fund shares. In evaluating each fund's advisory fees, the Trustees also took
into account the demands, complexity and quality of the investment management
of the fund. The Trustees considered reductions in advisory fee rates,
implementation of advisory fee breakpoints, institution of advisory fee
waivers, and changes to expense caps, which benefited a number of the funds.
Furthermore, the Trustees considered the projected impact on expenses resulting
from the overall cost reductions that management anticipated would result from
the shift to a common group of service providers for transfer agency, fund
accounting and custody services for mutual funds advised by Bank of America
affiliates. The Trustees also noted management's stated justification for the
fees charged to the funds, which included information about the performance of
the funds, the services provided to the funds and management's view as to why
it was appropriate that some funds bear advisory fees or total expenses greater
than their peer group medians. The Trustees also considered the compensation
directly or indirectly received by Columbia and its affiliates from their
relationships with the funds. The Trustees reviewed information provided by
management as to the profitability to Columbia and its affiliates of their
relationships with the funds, and information about the allocation of expenses
used to calculate profitability. When reviewing profitability, the Trustees
also considered court cases in which adviser profitability was an issue in
whole or in part, the performance of the relevant funds, the expense levels of
the funds, and whether Columbia had implemented breakpoints and/or expense caps
with respect to the funds.
After reviewing those and related factors, the Trustees concluded, within the
context of their overall conclusions regarding each of the Agreements, that the
advisory fees charged to each of the funds were fair and reasonable, and that
the costs of the advisory services generally, and the related profitability to
Columbia and its affiliates of their relationships with the funds, supported
the continuation of the Agreements.
Economies of Scale. The Trustees considered the existence of any economies of
scale in the provision of services by Columbia to each fund and whether those
economies were shared with the fund through breakpoints in the investment
advisory fees or other means, such as expense waivers. The Trustees noted that
many of the funds benefited from breakpoints, expense caps, or both. In
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
24
[GRAPHIC]
BOARD CONSIDERATION AND APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
(CONTINUED)
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 its record of compliance with its investment restrictions, and
the compliance programs of the funds and Columbia. They also considered the
compliance-related resources that Columbia and its affiliates were providing
to the funds.
.. 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, 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.
.. the draft report provided by the independent fee consultant, which included
information about and analysis of the funds' fees, expenses and performance.
Based on their evaluation of all factors that they deemed to be material,
including those factors described above, and assisted by the advice of
independent counsel and the independent fee consultant, the Trustees, including
the Independent Trustees, approved the continuance of each of the Agreements
through November 30, 2006.
25
[GRAPHIC]
SUMMARY OF MANAGEMENT FEE EVALUATION BY INDEPENDENT FEE CONSULTANT
Prepared Pursuant to the February 9, 2005
Assurance of Discontinuance
between the Office of
Attorney General of New York State and
Columbia Management Advisors, Inc. and
Columbia Funds Distributor, Inc.
October 11, 2005
I. OVERVIEW
Columbia Management Advisors, Inc. ("CMA") and Columbia Funds Distributors,
Inc. ("CFD") (CFD together with CMA referred to herein as Columbia Management
Group or "CMG/1/"), entered into an agreement with the New York Attorney
General's Office in the form of an Assurance of Discontinuance (the "AOD"). The
AOD stipulated that CMA would be permitted to manage or advise the Columbia
Funds only if the Independent Members (as such term is defined in the AOD) of
the Columbia Funds' Board of Trustees/Directors (collectively the "Trustees")
appointed a Senior Officer or an Independent Fee Consultant ("IFC") who, among
other things, is to manage the process by which management fees are negotiated.
On May 15, 2005, the Independent Members of the Board appointed me as the IFC
for the Columbia Funds. This report is the annual written evaluation of the
Columbia Funds for 2005 that I have prepared in my capacity as IFC, as required
by the AOD.
A. DUTIES OF THE INDEPENDENT FEE CONSULTANT
As part of the AOD, the Independent Members of the Columbia Funds' Board of
Trustees/Directors agreed to retain an independent fee consultant who was to
participate in the management fee negotiation process. The IFC is charged with
"... duties and responsibilities [that] include managing the process by which
proposed management fees (including, but not limited to, advisory fees) to be
charged the Columbia Fund[s] are negotiated so that they are negotiated in a
manner which is at arms length and reasonable and consistent with this
Assurance of Discontinuance." However, the IFC does not replace the Trustees in
their role of negotiating management and other fees with CMG and its
affiliates. In particular, the AOD states that "Columbia Advisors may manage or
advise a Columbia Fund only if the reasonableness of the proposed management
fees is determined by the Board of Trustees of the Columbia Fund using ... an
annual independent written evaluation prepared by or under the direction of the
.... Independent Fee Consultant...." This report, pursuant to the AOD,
constitutes the "annual independent written evaluation prepared by or under the
direction of the... Independent Fee Consultant."
The AOD requires the IFC report to consider at least the following:
a) Management fees (including any components thereof) charged by other mutual
fund companies for like services;
b) Management fees (including any components thereof) charged to institutional
and other clients of CMA for like services;
c) Costs to CMA and its affiliates of supplying services pursuant to the
management fee agreements, excluding any intra-corporate profit;
d) Profit margins of CMA and its affiliates from supplying such services;
e) Possible economies of scale as the CMA fund grows larger; and
f) The nature and quality of CMA services, including Columbia Funds'
performance.
This report is designed to assist the Board in evaluating the 2005 contract
renewal for Columbia Funds. In addition, this report points out areas where the
Board may deem additional information and analysis to be appropriate over time.
/1 /Prior to the date of this report, CMA merged into an affiliated entity,
Banc of America Capital Management, LLC ("BACAP"), and BACAP then changed
its name to Columbia Management Advisors, LLC which carries on the business
of CMA, and CFD changed its name to Columbia Management Distributors, Inc.
26
[GRAPHIC]
SUMMARY OF MANAGEMENT FEE EVALUATION BY INDEPENDENT FEE CONSULTANT (CONTINUED)
B. SOURCES OF INFORMATION USED IN MY EVALUATION
I have requested data from CMG and various third party industry data sources or
independent research companies that work in the mutual fund arena. The
following list generally describes the types of information I requested.
1. I collected data on performance, management fees, and expense ratios of both
Columbia Funds and comparable non-Columbia Funds. The sources of this
information were CMG, Lipper Inc. ("Lipper") and Morningstar Inc.
("Morningstar"). While Lipper and Morningstar each selected a different group
of peer funds it deemed appropriate against which to measure the relative
performance and fees of Columbia Funds, I conducted an independent review of
the appropriateness of each peer group.
2. I reviewed data on CMG's expense and profitability that I obtained from CMA
directly.
3. I have reviewed data on the organizational structure of CMG in general.
4. I collected information on profitability from Strategic Insight Mutual Fund
Research and Consulting, LLC ("Strategic Insight"). I used this third-party
independent research as an additional method to gauge the accuracy of the data
collected in (2) above.
5. I conducted interviews with various CMG staff, including members of the
senior management team, legal staff, heads of affiliates, portfolio managers,
and financial personnel.
6. I reviewed current 2005 Section 15(c) material provided to the Board and
material presented to the Board in the 2004 fee and performance evaluation.
7. I have reviewed various academic research papers, industry publications, and
other available literature dealing with mutual fund operations, profitability,
and other issues. In addition, I have reviewed SEC releases and studies of
mutual fund expenses.
8. I have reviewed documents pertaining to recent mutual fund litigation in
general and publicly available information about litigation where CMG has been
involved.
In addition, I have engaged NERA Economic Consulting ("NERA") and independent
consultant Dr. John Rea to assist me in data management and analysis. Both NERA
and Dr. Rea have extensive experience in the mutual fund industry through
consulting, government positions, or industry trade groups that provide unique
insights and special knowledge pertaining to my independent analysis of fees,
performance, and profitability. I have also retained Shearman & Sterling LLP as
outside counsel to advise me in connection with my review.
C. QUALIFICATIONS AND INDEPENDENCE
I am the Walter H. Carpenter Chair and Professor of Finance at Babson College.
Before this I was the Chief Economist of the U.S. Securities and Exchange
Commission. I have no material relationship with Bank of America or CMG aside
from acting as IFC, and am aware of no relationship with any of their
affiliates. [Resume omitted]
II. EVALUATION OF THE GENERAL PROCESS USED TO NEGOTIATE THE ADVISORY CONTRACT
A. GENERAL CONSIDERATIONS
My analysis considered all factors and information I reviewed on the finances
and operations of Columbia Funds. I gave each factor an appropriate weight in
my overall findings, and no single factor was in itself the sole criterion for
a finding or conclusion. My objective was to assess all of the information
provided and conduct a robust evaluation of Columbia Funds' operations, fees,
and performance.
My analysis and thought processes will and, I believe, should, differ in
certain ways from the processes used by Trustees in their evaluation of the
management agreements. In particular, because of my technical and quantitative
background, I may use techniques and data that Trustees have not previously
felt would be useful. I view this supplemental analysis as appropriate because
my role is to assist Trustees in their decisions, and to the extent that I
bring new ideas or analysis to the evaluation, I believe this improves the
process by which management fees for the Columbia Funds may be negotiated in
accordance with the AOD.
Finally, as part of my role as IFC, I have, from time to time, sent to Trustees
additional papers and reports produced by third parties that I felt had bearing
on the fee negotiation process. I viewed these materials as educational in
nature and felt they would aid Trustees in placing their work in context.
27
[GRAPHIC]
SUMMARY OF MANAGEMENT FEE EVALUATION BY INDEPENDENT FEE CONSULTANT (CONTINUED)
B. CMG MANAGEMENT INTERVIEWS
As a starting point of my analysis, I have met with members of CMG staff to
gain an understanding of the organizational structure and personnel involved in
running the Columbia fund family.
I have had general discussions and have received information about the
management structure of CMG. My conversations with management have been
informative. In addition, I have participated in Board meetings where Trustees
and management have discussed issues relating to management agreements and
performance of Columbia Funds. When I felt it was appropriate, I added my
opinions on particular matters, such as fund performance or fee levels, to the
discussion.
C. TRUSTEES' FEE AND PERFORMANCE EVALUATION PROCESS
After making initial requests for information, members of the Trustees of the
Columbia Funds met in advance of the October Section 15(c) contract approval
meeting to review certain fee, performance and other data for the Columbia
Funds and to ask questions and make requests of management. Trustees have
developed a process to evaluate the fee and expense levels and performance of
Columbia Funds.
This process is used to highlight those funds that have been performing poorly,
may have had higher management fees or expense ratios, or both.
The process involves providing instructions to Lipper to prepare specific data
analyses tailored to the Trustees review framework. These instructions include
highlighting funds that hit one or more fee performance "screens." The six
screens the Trustees use are as follows:
a. 5th Lipper quintile in actual management fee;
b. 5th Lipper quintile in total expense ratio;
c. Three or more 5th Lipper quintile rankings in the 1-, 3-, 5- or 10-year
performance rankings;
d. Sum of the Lipper Quintile Rank (1-year performance) and the Lipper Quintile
Rank (actual management fee) totals a number equal to or higher than 8;
e. Sum of the Lipper Quintile Rank (1-year performance) and the Lipper Quintile
Rank (total expense ratio) totals a number equal to or higher than 8; and
f. Sum of the Lipper Quintile Rank (3-year performance) and the Lipper Quintile
Rank (total expense ratio) totals a number equal to or higher than 8.
If a fund hits one or more of these screens, it is highlighted for additional
review by the Trustees. This method is only used as an aid for Trustees to
highlight funds and is not the sole test of whether the Board will determine to
take particular actions concerning fees or performance. Funds that have not
been flagged by this screen also may be singled out for fee and performance
reasons, and the Trustees may determine not to take action with respect to the
fees or performance of funds that have been flagged by the screen. These
screens contribute to the basis for discussions on Trustees' views on the
Columbia Funds.
III. FINDINGS
My findings based on my work as IFC are as follows:
1. The Trustees have the relevant information necessary to form an opinion on
the reasonableness of fees and evaluate the performance of the Columbia Funds.
The process the Trustees used in preparing to reach their determination has
been open and informative. In my view, the 2005 process by which the management
fees of the Columbia Funds have been negotiated thus far has been, to the
extent practicable, at arm's length and reasonable and consistent with the AOD.
2. Columbia Funds demonstrated a range of performance relative to their peers.
I find that across the fund complex, 54.26 percent of Columbia Funds have
performance higher than the median of their respective Lipper performance
universe, and
28
[GRAPHIC]
SUMMARY OF MANAGEMENT FEE EVALUATION BY INDEPENDENT FEE CONSULTANT (CONTINUED)
42.55 percent of Columbia Funds have performance higher than the median of
their respective Lipper performance group. In addition, Lipper performance
universe and group comparison showed that Columbia Funds were distributed
roughly evenly across these quintiles. The Trustees have worked with management
to address issues of funds that have demonstrated consistent or significant
underperformance.
3. Columbia Funds demonstrate a range of management fees and expense ratios
relative to their peers. I find that across the fund complex, 58.51 percent of
Columbia Funds have expenses below the median of their Lipper expense universe,
and 53.19 percent of Columbia Funds have expenses below the median of their
Lipper expense group. In addition, Lipper expense universe and group
comparisons show that Columbia Funds are distributed roughly evenly across
these quintiles. The Trustees have taken steps to limit shareholder expenses
for certain funds having management fees significantly above their peers, often
though the use of fee waivers to which CMG has agreed.
Consolidation of various funds and fund families managed by CMG has resulted in
substantial savings in non-advisory expenses.
4. Profitability to CMG of the individual funds ranges widely, but the overall
profitability to CMG of its relationship with the Columbia Funds appears to
fall within a reasonable range. The method of cost allocation to funds is
addressed in the material provided by CMG to the Trustees, but additional
information may be necessary to make a judgment on fund level profitability. My
review of profitability and cost allocation is ongoing, and I plan to continue
to develop my views with regard to fund level profitability.
5. Columbia Funds have instituted fee schedules with breakpoints designed to
enable investors to benefit from fund economies of scale, although 71% of the
funds have not yet reached their first breakpoint. My analysis of the
appropriateness of the breakpoint levels, which I expect will take into account
the cost and profitability of the individual funds, is ongoing.
My work is ongoing and my views may develop over time in light of new
information and analysis.
Respectfully submitted,
Erik R. Sirri
29
[LOGO]
Transfer Agent
Important Information About This Report
The Transfer Agent for Colonial California Insured Municipal Fund is:
Computershare
P.O. Box 43010
Providence, RI 02940-3010
The fund mails one shareholder report to each shareholder address. Shareholders
can order additional reports by calling 800-730-6001. In addition,
representatives at that number can provide shareholders information about the
fund.
Financial advisors who want additional information about the fund may speak to
a representative at 800-426-3750.
A description of the fund's proxy voting policies and procedures is available
(i) at www.columbiamanagement.com; (ii) on the Securities and Exchange
Commission's website at www.sec.gov, and (iii) without charge, upon request, by
calling 800-730-6001. Information regarding how the fund voted proxies relating
to portfolio securities during the 12-month period ended June 30 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 California Insured
Municipal Fund.
[GRAPHIC]
COLONIAL CALIFORNIA INSURED MUNICIPAL FUND
ANNUAL REPORT
SHC-42/92592-1105 (01/06) 05/9245
Item 2. Code of Ethics.
(a)The registrant has, as of the end of the period covered by this report,
adopted a code of ethics that applies to the registrant's principal
executive officer, principal financial officer, principal accounting
officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant
or a third party.
(b)During the period covered by this report, there were not any amendments
to a provision of the code of ethics adopted in 2(a) above.
(c)During the period covered by this report, there were not any waivers or
implicit waivers to a provision of the code of ethics adopted in 2(a)
above.
Item 3. Audit Committee Financial Expert.
The registrant's Board of Trustees has determined that Douglas A. Hacker,
Thomas E. Stitzel, Anne-Lee Verville and Richard L. Woolworth, each of whom are
members of the registrant's Board of Trustees and Audit Committee, each qualify
as an audit committee financial expert. Mr. Hacker, Mr. Stitzel, Ms. Verville
and Mr. Woolworth are each independent trustees, as defined in paragraph (a)(2)
of this item's instructions and collectively constitute the entire Audit
Committee.
Item 4. Principal Accountant Fees and Services.
(a) Aggregate Audit Fees billed by the principal accountant for professional
services rendered during the fiscal years ended November 30, 2005 and
November 30, 2004 are approximately as follows:
2005 2004
---- -------
$24,100 $22,100
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) Aggregate Audit-Related Fees billed by the principal accountant for
professional services rendered during the fiscal years ended November 30, 2005
and November 30, 2004 are approximately as follows:
2005 2004
---- ------
$8,400 $7,100
Audit-Related Fees include amounts for assurance and related services by the
principal accountant that are reasonably related to the performance of the
audit of the registrant's financial statements and are not reported in Audit
Fees above. In both fiscal years 2005 and 2004, Audit-Related Fees include
certain agreed-upon procedures performed for semi-annual shareholder reports
and a rating agency review.
(c) Aggregate Tax Fees billed by the principal accountant for professional
services rendered during the fiscal years ended November 30, 2005 and
November 30, 2004 are approximately as follows:
2005 2004
---- ------
$3,500 $3,400
Tax Fees in both fiscal years 2005 and 2004 consist primarily of the review of
annual tax returns. Tax fees include amounts for professional services by the
principal accountant for tax compliance, tax advice and tax planning.
(d) Aggregate All Other Fees billed by the principal accountant for
professional services rendered during the fiscal years ended November 30, 2005
and November 30, 2004 are approximately as follows:
2005 2004
---- ----
$0 $0
All Other Fees include amounts for products and services provided by the
principal accountant, other than the services reported in paragraphs
(a) through (c) above.
None of the amounts described in paragraphs (a) through (d) above were approved
pursuant to the "de minimis" exception under paragraph (c)(7)(i)(C) of Rule
2-01 of Regulation S-X.
(e)(1) Audit Committee Pre-Approval Policies and Procedures
I. General Overview
The Audit Committee of the registrant has adopted a formal policy (the
"Policy") which sets forth the procedures and the conditions pursuant to which
the Audit Committee will pre-approve (i) all audit and non-audit (including
audit related, tax and all other) services provided by the registrant's
independent auditor to the registrant and individual funds
(collectively "Fund Services"), and (ii) all non-audit services provided by the
registrant's independent auditor to the funds' adviser or a control affiliate
of the adviser, that relate directly to the funds' operations and financial
reporting (collectively "Fund-related Adviser Services"). A "control affiliate"
is an entity controlling, controlled by, or under common control with the
adviser that provides ongoing services to the funds, and the term "adviser" is
deemed to exclude any unaffiliated sub-adviser whose role is primarily
portfolio management and is sub-contracted or overseen by another investment
adviser. The adviser and control affiliates are collectively referred to as
"Adviser Entities."
The Audit Committee uses a combination of specific (on a case-by-case basis as
potential services are contemplated) and general (pre-determined list of
permitted services) pre-approvals. Unless a type of service has received
general pre-approval, it will require specific pre-approval by the Audit
Committee if it is to be provided by the independent auditor.
The Policy does not delegate the Audit Committee's responsibilities to
pre-approve services performed by the independent auditor to management.
II. General Procedures
On an annual basis, the Fund Treasurer and/or Director of Trustee
Administration shall submit to the Audit Committee a schedule of the types of
Fund Services and Fund-related Adviser Services that are subject to general
pre-approval.
These schedules will provide a description of each type of service that is
subject to general pre-approval and, where possible, will provide estimated
fees for each instance of providing each service. This general pre-approval and
related fees (where provided) will generally cover a one-year period (for
example, from June 1 through May 31 of the following year). The Audit Committee
will review and approve the types of services and review the projected fees for
the next one-year period and may add to, or subtract from, the list of general
pre-approved services from time to time, based on subsequent determinations.
This approval acknowledges that the Audit Committee is in agreement with the
specific types of services that the independent auditor will be permitted to
perform. The fee amounts will be updated to the extent necessary at other
regularly scheduled meetings of the Audit Committee.
In addition to the fees for each individual service, the Audit Committee has
the authority to implement a fee cap on the aggregate amount of non-audit
services provided to an individual fund.
If, subsequent to general pre-approval, a fund, its investment adviser or a
control affiliate determines that it would like to engage the independent
auditor to perform a service that requires pre-approval and that is not
included in the general pre-approval list, the specific pre-approval procedure
shall be as follows:
. A brief written request shall be prepared by management detailing the
proposed engagement with explanation as to why the work is proposed to be
performed by the independent auditor;
. The request should be addressed to the Audit Committee with copies to the
Fund Treasurer and/or Director of Trustee Administration;
. The Fund Treasurer and/or Director of Trustee Administration will arrange
for a discussion of the service to be included on the agenda for the next
regularly scheduled Audit Committee meeting, when the Committee will
discuss the proposed engagement and approve or deny the request.
. If the timing of the project is critical and the project needs to
commence before the next regularly scheduled meeting, the Chairperson of
the Audit Committee may approve or deny the request on behalf of the
Audit Committee, or, in the Chairperson's discretion, determine to call a
special meeting of the Audit Committee for the purpose of considering the
proposal. Should the Chairperson of the Audit Committee be unavailable,
any other member of the Audit Committee may serve as an alternate for the
purpose of approving or denying the request. Discussion with the
Chairperson (or alternate, if necessary) will be arranged by the Fund
Treasurer and/or Director of Trustee Administration. The independent
auditor will not commence any such project unless and until specific
approval has been given.
III. Certain Other Services Provided to Adviser Entities
The Audit Committee recognizes that there are cases where services proposed to
be provided by the independent auditor to the adviser or control affiliates are
not Fund-related Adviser Services within the meaning of the Policy, but
nonetheless may be relevant to the Audit Committee's ongoing evaluation of the
auditor's independence and objectivity with respect to its audit services to
the funds. As a result, in all cases where an Adviser Entity engages the
independent auditor to provide audit or non-audit services that are not Fund
Services or Fund-related Adviser Services, were not subject to pre-approval by
the Audit Committee, and the projected fees for any such engagement (or the
aggregate of all such engagements during the period covered by the Policy)
exceeds a pre-determined threshold established by the Audit Committee; the
independent auditor, Fund Treasurer and/or Director of Trustee Administration
will notify the Audit Committee not later than its next meeting. Such
notification shall include a general description of the services provided, the
entity that is to be the recipient of such services, the timing of the
engagement, the entity's reasons for selecting the independent auditor, and the
projected fees. Such information will allow the Audit Committee to consider
whether non-audit services provided to the adviser and Adviser Entities, which
were not subject to Audit Committee pre-approval, are compatible with
maintaining the auditor's independence with respect to the Funds.
IV. Reporting to the Audit Committee
The Fund Treasurer or Director of Trustee Administration shall report to the
Audit Committee at each of its regular meetings regarding all Fund Services or
Fund-related Adviser Services initiated since the last such report was
rendered, including:
. A general description of the services, and
. 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.
In addition, the independent auditor shall report to the Audit Committee
annually, and no more than 90 days prior to the filing of audit reports with
the SEC, all non-audit services provided to entities in the funds' "investment
company complex," as defined by SEC rules, that did not require pre-approval
under the Policy.
V. Amendments; Annual Approval by Audit Committee
The Policy may be amended from time to time by the Audit Committee. Prompt
notice of any amendments will be provided to the independent auditor, Fund
Treasurer and Director of Trustee Administration. The Policy shall be reviewed
and approved at least annually by the Audit Committee.
*****
(e)(2) The percentage of services described in paragraphs (b) through (d) of
this Item approved pursuant to the "de minimis" exception under paragraph
(c)(7)(i)(C) of Rule 2-01 of Regulation S-X during both fiscal years ended
November 30, 2005 and November 30, 2004 was zero.
(f) Not applicable.
(g) All non-audit fees billed by the registrant's accountant for services
rendered to the registrant for the fiscal years ended November 30, 2005 and
November 30, 2004 are disclosed in (b) through (d) of this Item.
During the fiscal years ended November 30, 2005 and November 30, 2004, there
were no Audit-Related Fees, Tax Fees or All Other Fees that were approved for
services to the investment adviser (not including any sub-adviser whose role is
primarily portfolio management and is subcontracted with or overseen by another
investment adviser) and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant under
paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X.
The percentage of Audit-Related Fees, Tax Fees and All Other Fees required to
be approved under paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X that were
approved under the "de minimis" exception during both fiscal years ended
November 30, 2005 and November 30, 2004 was zero.
(h) The registrant's Audit Committee of the Board of Directors has considered
whether the provision of non-audit services that were rendered to the
registrant's adviser (not including any sub-adviser whose role is primarily
portfolio management and is subcontracted with or overseen by another
investment adviser), and any entity controlling, controlled by, or under common
control with the investment adviser that provides ongoing services to the
registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule
2-01 of Regulation S-X, is compatible with maintaining the principal
accountant's independence. The Audit Committee determined that the provision of
such services is compatible with maintaining the principal accountant's
independence.
Item 5. Audit Committee of Listed Registrants.
The registrant has a separately-designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C.
78c(a)(58)(A)). Douglas A. Hacker, Thomas E. Stitzel, Anne-Lee Verville and
Richard L. Woolworth are each independent trustees and collectively constitute
the entire Audit Committee.
Item 6. Schedule of Investments
The registrant's "Schedule I - Investments in securities of unaffiliated
issuers" (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form
N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
The Fund has delegated to Columbia Management Advisors, LLC (the "Advisor") the
responsibility to vote proxies relating to portfolio securities held by the
Fund. In deciding to delegate this responsibility to the Advisor, the Board of
Trustees of the Trust reviewed and approved the policies and procedures adopted
by the Advisor. These included the procedures that the Advisor follows when a
vote presents a conflict between the interests of the Fund and its shareholders
and the Advisor, its affiliates, its other clients or other persons.
The Advisor's policy is to vote all proxies for Fund securities in a manner
considered by the Advisor to be in the best interest of the Fund and its
shareholders without regard to any benefit to the Advisor, its affiliates, its
other clients or other persons. The Advisor examines each proposal and votes
against the proposal, if, in its judgment, approval or adoption of the proposal
would be expected to impact adversely the current or potential market value of
the issuer's securities. The Advisor also examines each proposal and votes the
proxies against the proposal, if, in its judgment, the proposal would be
expected to affect adversely the best interest of the Fund. The Advisor
determines the best interest of the Fund in light of the potential economic
return on the Fund's investment.
The Advisor addresses potential material conflicts of interest by having
predetermined voting guidelines. For those proposals that require special
consideration or in instances where special circumstances may require varying
from the predetermined guideline, the Advisor's Proxy Committee determines the
vote in the best interest of the Fund, without consideration of any benefit to
the Advisor, its affiliates, its other clients or other persons. The Advisor's
Proxy Committee is composed of representatives of the Advisor's equity
investments, equity research, compliance, legal and fund administration
functions. In addition to the responsibilities described above, the Proxy
Committee has the responsibility to review, on a semi-annual basis, the
Advisor's proxy voting policies to ensure consistency with internal and
regulatory agency policies and to develop additional predetermined voting
guidelines to assist in the review of proxy proposals.
The Proxy Committee may vary from a predetermined guideline if it determines
that voting on the proposal according to the predetermined guideline would be
expected to impact adversely the current or potential market value of the
issuer's securities or to affect adversely the best interest of the client.
References to the best interest of a client refer to the interest of the client
in terms of the potential economic return on the client's investment. In
determining the vote on any proposal, the Proxy Committee does not consider any
benefit other than benefits to the owner of the securities to be voted. A
member of the Proxy Committee is prohibited from voting on any proposal for
which he or she has a conflict of interest by reason of a direct relationship
with the issuer or other party affected by a given proposal. Persons making
recommendations to the Proxy Committee or its members are required to disclose
to the Committee any relationship with a party making a proposal or other
matter known to the person that would create a potential conflict of interest.
The Advisor has retained Institutional Shareholder Services ("ISS"), a third
party vendor, to implement its proxy voting process. ISS provides proxy
analysis, record keeping services and vote disclosure services.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not yet applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Registrant Purchases of Equity Securities*
---------------------------------------------------------------------
(a) (b) (c) (d)
Total Number of Maximum Number of
Shares Purchased as Shares that May Yet
Total Number Average Price Part of Publically Be Purchased Under
Period of Shares Paid Per Share Announced Plans the Plans or Programs
------ ------------ -------------- ------------------- ---------------------
06/01/05 through 06/30/05 99 $14.46 99 N/A
07/01/05 through 07/31/05 97 $14.62 97 N/A
08/01/05 through 08/31/05 96 $14.79 96 N/A
09/01/05 through 09/30/05 98 $14.55 98 N/A
10/01/05 through 10/31/05 95 $14.50 95 N/A
11/01/05 through 11/30/05 87 $14.25 87 N/A
--- ------ --- ---
Total 572 $14.53 572 N/A
--- ------ --- ---
--------
* Includes shares purchased by the Dividend Reinvestment Agent pursuant to the
Registrant's Dividend Reinvestment Plan.
Item 10. Submission of Matters to a Vote of Security Holders.
There have not been any material changes to the procedures by which
shareholders may recommend nominees to the registrant's board of directors,
since those procedures were last disclosed in response to requirements of
Item 7(d)(2)(ii)(G) of Schedule 14A or this Item.
Item 11. Controls and Procedures.
(a)The registrant's principal executive officer and principal financial
officers, based on their evaluation of the registrant's disclosure
controls and procedures as of a date within 90 days of the filing of
this report, has concluded that such controls and procedures are
adequately designed to ensure that information required to be disclosed
by the registrant in Form N-CSR is accumulated and communicated to the
registrant's management, including the principal executive officer and
principal financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required disclosure.
(b)There were no changes in the registrant's internal control over
financial reporting that occurred during the registrant's second fiscal
quarter of the period covered by this report that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR
attached hereto as Exhibit 99.CODE ETH.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of
1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Colonial California Insured Municipal Fund
By (Signature and Title) /S/ Christopher L. Wilson
-------------------------------
Christopher L. Wilson, President
Date January 25, 2006
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, 2006
By (Signature and Title) /S/ J. Kevin Connaughton
-------------------------------
J. Kevin Connaughton, Treasurer
Date January 25, 2006