-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JYMndJ2w8AAYkpKzCI4I2lIHjJjDcdx6tsr3ScLlJMhQuQnX6kNIMiA+pKYd31dk R5ZjEC0uEU4Z0RY/aopJ0Q== 0000891804-04-000315.txt : 20040205 0000891804-04-000315.hdr.sgml : 20040205 20040205134447 ACCESSION NUMBER: 0000891804-04-000315 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20031130 FILED AS OF DATE: 20040205 EFFECTIVENESS DATE: 20040205 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLONIAL INSURED MUNICIPAL FUND CENTRAL INDEX KEY: 0001092895 IRS NUMBER: 043483816 STATE OF INCORPORATION: MA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-09533 FILM NUMBER: 04569512 BUSINESS ADDRESS: STREET 1: C/O ROPES & GRAY STREET 2: ONE INTERNATIONAL PLACE CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6179517000 MAIL ADDRESS: STREET 1: C/O ROPES & GRAY STREET 2: ONE INTERNATIONAL PLACE CITY: BOSTON STATE: MA ZIP: 02110 FORMER COMPANY: FORMER CONFORMED NAME: PREMIER MUNICIPAL INCOME FUND DATE OF NAME CHANGE: 19990809 N-CSR 1 file001.txt COLONIAL INSURED MUNICIPAL FUND UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number 811-9533 --------------------- Colonial Insured Municipal Fund ------------------------------------------------------------------------------ (Exact name of registrant as specified in charter) One Financial Center, Boston, Massachusetts 02111 - ------------------------------------------------------------------------------ (Address of principal executive offices) (Zip code) Russell Kane, Esq. Columbia Management Group, Inc. One Financial Center Boston, MA 02111 - ------------------------------------------------------------------------------ (Name and address of agent for service) Registrant's telephone number, including area code: 1-617-772-3363 ------------------- Date of fiscal year end: 11/30/2003 ------------------ Date of reporting period: 11/30/2003 ----------------- Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. REPORTS TO STOCKHOLDERS. [photo of bridge] COLONIAL INSURED MUNICIPAL FUND ANNUAL REPORT NOVEMBER 30, 2003 Not FDIC Insured May Lose Value No Bank Guarantee COLONIAL FUNDS One Financial Center Boston, MA 02111-2621 January 14, 2004 Dear Shareholder: I am writing to you as the independent chairman of the board of trustees of your Colonial fund. I have been privileged to serve on the board of the Colonial funds for more than three years and on the board of many of the affiliated Columbia funds for more than seven years. On December 8, 2003 the board of trustees elected me the chairman. Over those seven years I have gained a deep sense of responsibility for the continued success of our funds. Needless to say, the entire board shares that commitment to you. These have been troubling times in the fund industry, with newspapers reporting widely on trading and governance failings. Your board has been energetic over the past year in strengthening our organization and our capacity to effectively oversee the Colonial funds. First, as already indicated, the trustees in December elected an independent trustee to chair our twelve person board. All of the trustees are completely independent of the advisor and its affiliates except for the president of the funds, Joseph Palombo. Each committee of the board is comprised only of independent trustees. Second, last year we reconfigured the membership of the four person audit committee to include only persons qualifying as "audit committee financial experts" under the demanding standards of the Sarbanes-Oxley legislation. Few audit committees are fortunate to possess such a breadth and depth of financial experience. Third, we strengthened our oversight capacity by appointing Martha Fox as chief compliance officer of the Colonial funds, reporting directly to your fund's audit committee. We also assigned board members to four separate investment oversight committees, each better able to monitor performance of individual funds. Fourth, with guidance from our board the investment advisor last year increased its vigilance to identify and discourage trading in open end mutual fund shares by speculators. Monitoring personnel have attempted to identify and reject frequent traders, but frankly that effort by itself cannot be 100% effective. Accordingly, in February 2003 we implemented 2% redemption penalties in the open end international funds most subject to market timing, and we are considering still broader application of redemption fees to curb further attempts to profit from the open end funds by short-term trading. We are also closely monitoring legislative and regulatory initiatives that would aid in preventing abuses of open end funds that currently cannot be detected directly by management or our transfer agent. Finally, to further align the interests of the trustees with those of our shareholders, the board late last year voted to double the required investment by each trustee in the funds that we oversee. At the same time, new policies were instituted requiring all investment personnel and trustees to hold any mutual fund shares for a minimum of one year (unless extraordinary circumstances warrant an exception to be granted by a board committee). Undoubtedly, more improvements will be made in the period ahead, but the board wants you to know that we take our responsibilities very seriously and we commit to you our continued efforts to serve your interests. Sincerely, /s/ Thomas C. Theobald Thomas C. Theobald Chairman PRESIDENT'S MESSAGE DEAR SHAREHOLDER: It was another solid year for the US bond market. However, the positive gains reported from all major sectors masked an extremely volatile environment. Most of the gains were actually earned in the first half of the reporting period and they were sufficient to offset losses or declining performance in the second half. From December through mid-June, interest rates generally declined and bond prices rose as the economy struggled to gain a solid footing and the nation prepared to go to war. In June, the yield on the 10-year Treasury note fell to a 45-year low of just over 3.1%. High-yield bonds were the primary beneficiaries of this trend as investors seemed willing to put their fears aside and look to better times ahead. However, after the major military battles of the war were declared over and the economy showed clear signs of picking up, interest rates began to rise and bond prices came down in most sectors. The 10-year yield reached a high of 4.4% in August, then moved within a tight range around 4.0% to 4.2% for the remainder of the period. As the environment changed, high-yield and mortgage bonds held up better than other sectors while Treasury bonds lagged. This reversal of fortune for bonds and a shift of investor enthusiasm back to stocks, which drove equity returns back into double digit territory, serve as a reminder that a diversified portfolio may offer the best opportunity for long-term investment success. Talk to your financial advisor if you're uncertain about the level of diversification of your portfolio. Your advisor can help you keep your investments on track. As always, thank you for investing in Colonial Funds. We look forward to continuing to serve you in the years ahead. Sincerely, /s/ Joseph R. Palombo Joseph R. Palombo President January 12, 2004 Economic and market conditions change frequently. There is no assurance that the trends described in this report will continue or commence. 1 PORTFOLIO MANAGER'S REPORT PRICE PER SHARE AS OF 11/30/03 ($) Net asset value 14.86 - ------------------------------ Market price 15.30 - ------------------------------ 1-YEAR TOTAL RETURN AS OF 11/30/03 (%) Net asset value 6.78 - ------------------------------ Market price 8.77 - ------------------------------ Lipper Insured Municipal Debt Funds (Leveraged) Category average 9.45 - ------------------------------ All results shown assume reinvestment of distributions. DISTRIBUTIONS DECLARED PER COMMON SHARE 12/1/02-11/30/03 ($) 1.05 - ------------------------------ 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 11/30/03 (%) Local general obligations 12.8 - ------------------------------ Airports 9.0 - ------------------------------ Hospitals 8.8 - ------------------------------ Refunded/escrowed 8.3 - ------------------------------ Water & sewer 7.7 - ------------------------------ QUALITY BREAKDOWN AS OF 11/30/03 (%) AAA 80.8 - ------------------------------ AA 5.4 - ------------------------------ A 4.4 - ------------------------------ BBB 3.3 - ------------------------------ BB 1.2 - ------------------------------ CCC 0.2 - ------------------------------ CC 0.1 - ------------------------------ Non-rated 3.9 - ------------------------------ Cash equivalents 0.7 - ------------------------------ Sector breakdowns are calculated as a percentage of net assets (including auction preferred shares). Quality breakdowns are calculated as a percentage of total investments, including short-term obligations. Ratings shown in the quality breakdown represent the highest rating assigned to a particular bond by one of the following nationally-recognized rating agencies: Standard & Poor's Corporation, Moody's Investors Service, Inc. or Fitch Investors Service, Inc. Because the fund is actively managed, there can be no guarantee that the fund will continue to maintain this quality breakdown or invest in these sectors in the future. For the 12-month period ended November 30, 2003, Colonial Insured Municipal Fund generated a total return of 6.78%, based on investment at net asset value. That was less than the 9.45% average return of the fund's peer group, the Lipper Insured Municipal Debt Funds (Leveraged) Category average.1 The fund's investments performed satisfactorily during the period, as interest rates on insured municipal bonds, generally, trended lower and bond prices moved higher. However, hedging strategies initiated during the year hurt overall performance. Hedging is a strategy for reducing some of the risk involved in holding an investment. However, there are costs associated with hedging, hedging can limit potential returns and there is no guarantee that the strategy will be successful. Leveraged positions provided the trust with additional income during the period. We have, in effect, "borrowed against" the trust's investment positions by issuing preferred shares, which payout a short-term variable rate. When those preferred shares were issued in 1999, we invested the proceeds in bonds with longer maturities. During this reporting period, the payout rate of preferred shares was much lower than the yield the trust earned from those longer-maturity bonds. The trust issued preferred shares because the leverage they provided made it possible to enhance yield and improve performance. These preferred shares also gave us added flexibility to take advantage of timely market opportunities. However, the use of leverage increases the likelihood of share price volatility and market risk. The fund implemented hedging techniques in an attempt to protect it from an increase in interest rates, as well as to preserve the ability to profit from further declines. Unfortunately, when July's upbeat economic forecasts spurred fears of inflation, interest rates rose dramatically across all maturities. The yield change was well outside the usual variability of the 10-year Treasury note, which serves as a benchmark for interest rates, and also outside the range of protection offered by the hedging strategy. The result was a loss for the portfolio. - ---------------- 1 Lipper, Inc., a widely respected data provider in the industry, calculates an average return for mutual funds with similar investment objectives as the fund. 2 PORTFOLIO MANAGER'S REPORT (CONTINUED) By contrast, the fund benefited from owning non-callable bonds, including some zero coupon bonds, which accrue interest as they appreciate to face value at maturity and thrive when rates are declining. Airline revenue bonds, which lagged the market during the first half of the year, also contributed to the fund's return. They rebounded strongly as the economy rallied in the third quarter, justifying the fund's decision to stick with this struggling industry. Going forward, we anticipate that the unions will press their case for higher wages and other benefits, but we continue to believe that airline bonds should perform well as economic conditions improve. On the other hand, we expect hospital bonds to be candidates for sale should their prices rise in response to the new Medicare reimbursement package. Although the economy is back on a growth track, we anticipate muted inflationary pressures going forward, and relatively low interest rates for an extended period of time. We are looking to purchase bonds with intermediate to longer maturities, typically around 20 years, and preferably high-quality insured bonds with no call features, or at minimum, current call protection. Sale candidates will include bonds priced at a slight premium to face value and bonds with relatively low replacement yields that are callable within three or four years. /s/ Kimberly Campbell Kimberly Campbell has been the portfolio manager of Colonial Insured Municipal Fund since October 2003. In addition to serving as portfolio manager of the fund, Ms. Campbell was chief trader for municipal investments of Columbia Management Advisors, Inc. or its predecessors since 1995. Past performance is no guarantee of future investment results. Current performance may be higher or lower than the performance data quoted. Tax-exempt investing offers current tax-free income, but it also involves certain risks. The value of the fund shares will be affected by interest rate changes and the creditworthiness of issues held in the fund. Investing in high yield securities offers the potential for high current income and attractive total return, but involves certain risks. Lower-rated bond risks include default of the issuer and rising interest rates. Interest income from certain tax-exempt bonds may be subject to the federal alternative minimum tax for individuals and corporations. 3 INVESTMENT PORTFOLIO November 30, 2003 MUNICIPAL BONDS - 97.6% PAR VALUE - ----------------------------------------------------------- EDUCATION - 3.7% EDUCATION - 1.1% DC Catholic University of America, Series 1999, 5.625% 10/01/29 $1,000,000 $ 1,082,410 ----------- STUDENT LOAN - 2.6% MA Educational Loan Authority, Issue G, Series 2000 A, 5.950% 12/01/15 430,000 490,359 MT Higher Education Student Assistance Corp., Series 1999 B, 6.400% 12/01/32 2,000,000 2,100,520 ----------- 2,590,879 ----------- - ----------------------------------------------------------- HEALTH CARE - 12.2% CONGREGATE CARE RETIREMENT - 1.1% NY Dormitory Authority, Miriam Osborn Memorial Home, Series 2000 B, 6.875% 07/01/19 500,000 570,205 NY Suffolk County Industrial Development Agency, Jeffersons Ferry, Series 1999 A, 7.200% 11/01/19 550,000 579,750 ----------- 1,149,955 ----------- HEALTH SERVICES - 2.3% WI Health & Educational Facilities Authority, Marshfield Clinic, Series 1999, 6.250% 02/15/29 2,000,000 2,259,400 ----------- HOSPITALS - 8.8% CO Health Facilities Authority, Parkview Medical Center, Inc., Series 2001, 6.600% 09/01/25 400,000 419,668 IA Finance Authority, Mercy Medical Center, Series 1999, 5.750% 08/15/29 1,000,000 1,100,080 IL Health Facilities Authority, Swedish American Hospital, Series 2000, 6.875% 11/15/30 500,000 544,605 ME Health & Higher Educational Facilities Authority, Series 1999 B, 6.000% 07/01/29 1,500,000 1,680,105 MI Flint Hospital Building Authority, Hurley Medical Center, Series 1998 B, 5.375% 07/01/28 400,000 328,036 NV Henderson, Catholic Healthcare West, Series 1999 A, 6.750% 07/01/20 500,000 539,065 OH Jackson, Consolidated Health Systems, Series 1999, 6.250% 10/01/29 1,500,000 1,706,070 PAR VALUE - ----------------------------------------------------------- OK Industrial Authority, Series 1999 A, 5.750% 08/15/29 $2,000,000 $ 2,172,820 WA Health Care Facilities Authority, Kadlec Medical Center, Series 2001, 5.875% 12/01/21 300,000 323,250 ----------- 8,813,699 ----------- - ----------------------------------------------------------- HOUSING - 5.0% ASSISTED LIVING/SENIOR - 0.7% DE Kent County, Heritage at Dover, Series 1999, 7.625% 01/01/30 250,000 211,075 NC Medical Care Commission, DePaul Community Facilities Project, Series 1999, 7.625% 11/01/29 490,000 504,396 ----------- 715,471 ----------- MULTI-FAMILY - 0.5% FL Broward County Housing Finance Authority, Chaves Lake Apartment Project, Series 2000 A, 7.500% 07/01/40 250,000 252,490 FL Clay County Housing Finance Authority, Madison Commons Apartments, Series 2000 A, 7.450% 07/01/40 250,000 252,495 ----------- 504,985 ----------- SINGLE FAMILY - 3.8% AK Housing Finance Corp., Series 1999 A-1, 6.150% 06/01/39 1,575,000 1,669,091 CA Rural Home Mortgage Finance Authority, Series 1998 A, 6.350% 12/01/29 370,000 389,081 CO Housing Finance Authority: Series 1998 D-2, 6.350% 11/01/29 900,000 930,438 Series 2000 B-2, 7.250% 10/01/31 165,000 171,113 OK Housing Finance Agency, Series 2000 C-2, 7.550% 09/01/28 600,000 651,978 ----------- 3,811,701 ----------- - ----------------------------------------------------------- INDUSTRIAL - 0.5% FOREST PRODUCTS - 0.5% MN International Falls, Boise Cascade Corp., Series 1999, 6.850% 12/01/29 500,000 501,185 ----------- - ----------------------------------------------------------- OTHER - 11.7% OTHER - 2.4% AL Incentives Financing Authority, Series 1999 A, 6.000% 10/01/29 2,000,000 2,259,840 See notes to investment portfolio. 4 INVESTMENT PORTFOLIO (CONTINUED) November 30, 2003 MUNICIPAL BONDS (CONTINUED) PAR VALUE - ----------------------------------------------------------- OTHER (CONTINUED) OTHER (CONTINUED) NJ Tobacco Settlement Financing Corp., Series 2003, 6.750% 06/01/39 $ 150,000 $ 144,538 ----------- 2,404,378 ----------- POOL/BOND BANK - 1.0% UT Water Finance Agency, Series 2002 B, 5.125% 07/01/23 1,000,000 1,035,720 ----------- REFUNDED/ESCROWED (A) - 8.3% AL Jefferson County Sewer Authority, Series 1999 A, 5.750% 02/01/38 2,000,000 2,325,480 NY Dormitory Authority, Series 1999 C, 5.500% 07/01/29 2,055,000 2,233,621 NY Metropolitan Transportation Authority, Series 1998 A, 5.250% 07/01/28 (b) 1,500,000 1,716,630 PA Pittsburgh, Series 1999 A, 5.750% 09/01/21 1,250,000 1,446,950 WV Hospital Finance Authority, Charleston Area Medical Center, Series 2000, 6.750% 09/01/30 500,000 619,130 ----------- 8,341,811 ----------- - ----------------------------------------------------------- OTHER REVENUE - 0.1% RECREATION - 0.1% CT Gaming Authority, Mohegan Tribe Indians, Series 2001, 6.250% 01/01/31 100,000 105,843 ----------- - ----------------------------------------------------------- RESOURCE RECOVERY - 0.8% DISPOSAL - 0.8% CA Solid Waste Authority, Salinas Valley, Series 2002, 5.125% 08/01/22 750,000 770,242 ----------- - ----------------------------------------------------------- TAX-BACKED - 23.4% LOCAL APPROPRIATED - 2.7% CA Sacramento City Financing Authority, City Hall & Redevelopment, Series 2002 A, 5.000% 12/01/32 1,000,000 1,019,610 OK Grady County Correctional Facility, Series 1999, 6.000% 11/01/29 500,000 548,485 TX Houston, Series 2000, 6.400% 06/01/27 1,000,000 1,138,070 ----------- 2,706,165 ----------- PAR VALUE - ----------------------------------------------------------- LOCAL GENERAL OBLIGATIONS - 12.8% CA Centinela Valley Unified School District, Series 2002 A, 5.250% 02/01/22 $ 730,000 $ 804,139 CA Empire Unified School District, No. 1987-1-A, Series 2002, (c) 10/01/18 1,665,000 822,327 CA Morgan Hill Unified School District, Series 2002, (c) 08/01/21 1,000,000 413,450 CA Union Elementary School District, Series 1999 A, (c) 09/01/16 1,400,000 786,604 CA Vallejo Unified School District, Series 2002 A, 5.900% 02/01/21 500,000 589,700 CA West Covina Unified School District, Series 2002 A, 5.800% 02/01/21 320,000 374,429 CT East Hartford, Series 2003, 5.000% 05/01/11 1,000,000 1,125,840 IL Chicago, Series 1998, 5.250% 01/01/28 165,000 172,151 IL Coles & Cumberland Counties Unified School District, Series 2000, (c) 12/01/14 2,080,000 1,306,386 MI Jonesville Community Schools, Series 1999, 5.750% 05/01/20 2,000,000 2,240,460 PA Philadelphia, Series 1999 C, 5.750% 03/01/29 1,750,000 1,942,325 RI North Kingstown, Series 1999, 5.875% 10/01/25 2,000,000 2,239,400 ----------- 12,817,211 ----------- SPECIAL NON-PROPERTY TAX - 4.1% IL Metropolitan Pier & Exposition Authority, McCormick Place Expansion Project, Series 1999, 5.500% 12/15/24 (b) 2,000,000 2,148,220 PR Commonwealth of Puerto Rico Highway & Transportation Authority, Series 2002 E: 5.500% 07/01/21 250,000 287,755 5.500% 07/01/23 1,000,000 1,139,120 VI Virgin Islands Public Finance Authority, Series 1999, 6.500% 10/01/24 500,000 552,645 ----------- 4,127,740 ----------- SPECIAL PROPERTY TAX - 0.9% CA Pittsburg Redevelopment Agency, Los Medanos Project, Series 1999, (c) 08/01/26 2,500,000 746,175 FL Lexington Oaks Community Development District, Series 2000 A, 7.200% 05/01/30 185,000 194,714 ----------- 940,889 ----------- See notes to investment portfolio. 5 INVESTMENT PORTFOLIO (CONTINUED) November 30, 2003 MUNICIPAL BONDS (CONTINUED) PAR VALUE - ----------------------------------------------------------- TAX-BACKED (CONTINUED) STATE APPROPRIATED - 2.3% IL Department of Central Management Services, Series 1999, 5.850% 07/01/19 $2,000,000 $ 2,259,280 ----------- STATE GENERAL OBLIGATION - 0.6% CA California, Series 2002, 6.000% 04/01/16 500,000 597,165 ----------- - ----------------------------------------------------------- TRANSPORTATION - 22.5% AIR TRANSPORTATION - 4.7% FL Miami-Dade County Industrial Development Authority, Airis Miami II, LLC, Series 1999 A, 6.000% 10/15/25 1,000,000 1,110,730 IL Chicago O'Hare International Airport, United Airlines, Inc., Series 2000 A, 6.750% 11/01/11 (d) 500,000 109,480 KY Kenton County Airport Board, Delta Airlines, Inc., Series 1992 A, 7.500% 02/01/20 100,000 99,800 MA Port Authority, US Airways, Inc., Series 1999, 6.000% 09/01/21 2,500,000 2,626,300 MN Minneapolis & St. Paul Metropolitan Airport Commission, Northwest Airlines Corp., Series 2001 A, 7.000% 04/01/25 250,000 233,622 NC Charlotte/Douglas International Airport, US Airways, Inc.: Series 1998, 5.600% 07/01/27 200,000 144,792 Series 2000, 7.750% 02/01/28 250,000 225,983 TX Dallas-Fort Worth International Airport, American Airlines, Inc., Series 1999, 6.375% 05/01/35 250,000 157,815 ----------- 4,708,522 ----------- AIRPORTS - 9.0% DC Metropolitan Washington Airports Authority, Series 2003 A, 5.500% 10/01/19 1,000,000 1,078,750 NY Niagara Frontier Transportation Authority, Series 1999 A, 5.625% 04/01/29 2,000,000 2,178,340 TN Memphis-Shelby County, Airport Authority, Series 1999 D, 6.000% 03/01/24 5,280,000 5,818,718 ----------- 9,075,808 ----------- PAR VALUE - ----------------------------------------------------------- PORTS - 6.6% AL Docks Department, Series 1998, 5.500% 10/01/22 $3,000,000 $ 3,270,030 WA Seattle Special Port Authority, Terminal 18, Series 1999 A, 6.000% 09/01/29 3,000,000 3,398,490 ----------- 6,668,520 ----------- TOLL FACILITIES - 0.4% CO Northwest Parkway Public Highway Authority, Series 2001 D, 7.125% 06/15/41 200,000 201,764 NY Triborough Bridge & Tunnel Authority, Series 2002, 5.500% 11/15/20 200,000 229,998 ----------- 431,762 ----------- TRANSPORTATION - 1.8% NV Department of Business & Industry, Las Vegas Monorail Project, Series 2000, 7.375% 01/01/40 250,000 248,570 NY Metropolitan Transportation Authority, Series 2002 A, 5.000% 11/15/30 1,500,000 1,529,280 ----------- 1,777,850 ----------- - ----------------------------------------------------------- UTILITY - 17.7% INDEPENDENT POWER PRODUCER - 1.3% MI Midland County Economic Development Corp., Series 2000, 6.875% 07/23/09 500,000 514,470 PR Commonwealth of Puerto Rico Industrial, Educational, Medical & Environmental Cogeneration Facilities, AES Project, Series 2000, 6.625% 06/01/26 300,000 311,253 VA Pittsylvania County Industrial Development Authority, Multi-trade of Pittsylvania, L.P., Series 1994 A, 7.500% 01/01/14 500,000 496,960 ----------- 1,322,683 ----------- INVESTOR OWNED - 5.4% CA Pollution Control Finance Authority, San Diego Gas & Electric Co., Series 1991 A, 6.800% 06/01/15 500,000 569,840 HI Department of Budget & Finance, Hawaiian Electric Co., Series 1999 C, 6.200% 11/01/29 2,000,000 2,279,760 TX Brazos River Authority: Houston Industries, Inc., Series 1998 A, 5.125% 05/01/19 2,100,000 2,225,538 TXU Electric Co., Series 2003 C, 6.750% 10/01/38 300,000 315,222 ----------- 5,390,360 ----------- See notes to investment portfolio. 6 INVESTMENT PORTFOLIO (CONTINUED) November 30, 2003 MUNICIPAL BONDS (CONTINUED) PAR VALUE - ----------------------------------------------------------- UTILITY (CONTINUED) JOINT POWER AUTHORITY - 0.6% NC Eastern Municipal Power Agency, Series 1999 D, 6.700% 01/01/19 $ 500,000 $ 561,770 ----------- MUNICIPAL ELECTRIC - 2.7% CA Department of Water & Power Supply, Series 2002 A, 5.500% 05/01/14 1,000,000 1,131,930 TX Lower Colorado River Authority, Series 1999 A, 5.500% 05/15/21 1,500,000 1,634,355 ----------- 2,766,285 ----------- WATER & SEWER - 7.7% AZ Water System Revenue, Phoenix Civic Improvement Corp., Series 2001, 5.500% 07/01/21 1,000,000 1,141,650 SC Lugoff-Elgin Water Authority, Series 1999, 6.050% 11/01/31 1,500,000 1,720,710 TX Houston: Series 1997 A, 5.375% 12/01/27 3,000,000 3,173,580 Series 1999 A, 4.750% 12/01/24 1,750,000 1,743,087 ----------- 7,779,027 ----------- TOTAL MUNICIPAL BONDS (cost of $88,059,451) 98,018,716 ----------- MUNICIPAL PREFERRED STOCK - 0.5% SHARES - ----------------------------------------------------------- HOUSING - 0.5% MULTI-FAMILY - 0.5% Charter Mac Equity Issue Trust, 7.100% 06/30/09 (e) (cost of $500,000) 500,000 539,895 ----------- SHORT-TERM OBLIGATIONS - 0.7% PAR - ----------------------------------------------------------- VARIABLE RATE DEMAND NOTES (F) - 0.7% FL Alachua County Health Facilities Authority, Oak Hammock at the University of Florida, Series 2002 A, 1.100% 10/01/32 $ 300,000 300,000 MO State Health & Educational Facilities Authority, Washington University, Series 1996 C, 1.050% 09/01/30 100,000 100,000 WI State Health & Educational Facilities Authority, Riverview Hospital Association, Series 2001, 1.150% 10/01/30 100,000 100,000 PAR VALUE - ----------------------------------------------------------- WY Uinta County Pollution Control Revenue, Chevron USA, Inc.: Series 1993, 1.080% 08/15/20 $ 100,000 $ 100,000 Series 1997, 1.080% 04/01/10 100,000 100,000 ----------- TOTAL SHORT-TERM OBLIGATIONS (cost of $700,000) 700,000 ----------- TOTAL INVESTMENTS - 98.8% (cost of $89,259,451) (g) 99,258,611 ----------- OTHER ASSETS & LIABILITIES, NET - 1.2% 1,161,741 - ----------------------------------------------------------- NET ASSETS* - 100.0% $100,420,352 ----------- NOTES TO INVESTMENT PORTFOLIO: - -------------------------------------------------------------------------------- * Net assets represent both Common Shares and Auction Preferred Shares. (a) The Fund has been informed that each issuer has placed direct obligations of the U.S. Government in an irrevocable trust, solely for the payment of principal and interest. (b) These securities, or a portion thereof, with a market value of $2,955,036, are being used to collateralize open futures contracts. (c) Zero coupon bond. (d) As of November 30, 2003, the Fund held a bond of United Airlines, Inc., that filed for bankruptcy protection under Chapter 11, representing 0.1% of net assets. This issuer is in default of certain debt covenants. Income is not being accrued. (e) This security is exempt from registration under Rule 144A of the Securities Act of 1933 and may be resold in transactions exempt from registration, normally to qualified institutional buyers. At November 30, 2003, the value of this security amounted to $539,895, which represents 0.5% of net assets. (f) Variable rate demand notes are considered short-term obligations. Interest rates change periodically on specified dates. These securities are payable on demand and are secured by either letters of credit or other credit support agreements from banks. The rates listed are as of November 30, 2003. (g) Cost for federal income tax purposes is $89,159,877. Short futures contracts open at November 30, 2003: Par Value Unrealized Covered by Expiration Appreciation Type Contracts Month at 11/30/03 - ------------------------------------------------------------ 10 Year U.S. Treasury Note $11,700,000 Mar-04 $17,638 20 Year U.S. Treasury Bond 1,400,000 Mar-04 1,016 ----------- $18,654 ----------- See notes to financial statements. 7 INVESTMENT PORTFOLIO (CONTINUED) November 30, 2003 NOTES TO INVESTMENT PORTFOLIO (CONTINUED): - -------------------------------------------------------------------------------- For the year ended November 30, 2003, transactions in written options were as follows: NUMBER OF PREMIUMS CONTRACTS RECEIVED ----------- -------------- Options outstanding at November 30, 2002 -- $ -- Options written - call 2,806 1,990,864 Options written - put 3,111 1,495,498 Options closed (5,917) (3,486,362) Options expired -- -- Options exercised -- -- ------ ---------- Options outstanding at November 30, 2003 -- $ -- ------ ---------- 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. A list of these insurers is as follows: % OF TOTAL INSURER INVESTMENTS - ------------------------------------------------------------ MBIA Insurance Corp. 27.9% Ambac Assurance Corp. 21.7 Financial Guaranty Insurance Corp. 20.2 Financial Security Assurance, Inc. 8.2 Radian Asset Assurance, Inc. 4.3 Federal Housing Administration 1.7 ACA Financial Guaranty Corp. 0.6 FNMA Collateralized 0.4 ------- 85.0% ------- See notes to financial statements. 8 STATEMENT OF ASSETS AND LIABILITIES November 30, 2003 ASSETS: Investments, at cost $ 89,259,451 ------------ Investments, at value $ 99,258,611 Cash 83,415 Receivable for: Interest 1,422,075 Futures variation margin 103,141 Expense reimbursement due from Investment Advisor 11,568 Deferred Trustees' compensation plan 2,882 ------------ Total Assets 100,881,692 ------------ LIABILITIES: Payable for: Distributions - common shares 367,401 Distributions - preferred shares 2,855 Preferred shares remarketing commissions 767 Investment advisory fee 28,183 Pricing and bookkeeping fees 10,753 Trustees' fees 344 Audit fee 32,510 Custody fee 1,170 Reports to shareholders 9,000 Deferred Trustees' fees 2,882 Other liabilities 5,475 ------------ Total Liabilities 461,340 ------------ Auction Preferred Shares (1,492 shares issued and outstanding at $25,000 per share) $ 37,300,000 ------------ COMPOSITION OF NET ASSETS APPLICABLE TO COMMON SHARES: Paid-in capital - common shares $ 60,202,400 Undistributed net investment income 132,113 Accumulated net realized loss (7,231,975) Net unrealized appreciation on: Investments 9,999,160 Futures contracts 18,654 ------------ Net assets at value applicable to 4,247,480 common shares of beneficial interest outstanding $ 63,120,352 ============ Net asset value per common share $ 14.86 ============ STATEMENT OF OPERATIONS For the Year Ended November 30, 2003 INVESTMENT INCOME: Interest $ 5,405,214 Dividends 897 ------------ Total Investment Income 5,406,111 ------------ EXPENSES: Investment advisory fee 653,722 Pricing and bookkeeping fees 70,404 Trustees' fees 9,144 Preferred shares remarketing commissions 93,356 Transfer agent fee 33,852 Custody fee 8,916 Audit fee 44,181 Other expenses 55,094 ------------ Total Expenses 968,669 Fees and expenses waived or reimbursed by Investment Advisor (415,013) Custody earnings credit (446) ------------ Net Expenses 553,210 ------------ Net Investment Income 4,852,901 ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS, WRITTEN OPTIONS AND FUTURES CONTRACTS: Net realized gain (loss) on: Investments 524,705 Written options (396,805) Futures contracts (3,055,056) ------------ Net realized loss (2,927,156) ------------ Net change in unrealized appreciation/depreciation on: Investments 2,701,253 Futures contracts (122,477) ------------ Net change in unrealized appreciation/depreciation 2,578,776 ------------ Net Loss (348,380) ------------ Net Increase in Net Assets from Operations 4,504,521 ------------ LESS DISTRIBUTIONS DECLARED TO PREFERRED SHAREHOLDERS: From net investment income (354,708) ------------ Net Increase in Net Assets from Operations Applicable to Common Shares $ 4,149,813 ------------ See notes to financial statements. 9 STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED NOVEMBER 30, --------------------------- INCREASE (DECREASE) IN NET ASSETS: 2003 2002 - ----------------------------------------------------------- OPERATIONS: Net investment income $ 4,852,901 $ 5,127,680 Net realized loss on investments, written options and futures contracts (2,927,156) (1,205,544) Net change in unrealized appreciation/depreciation on investments and futures contracts 2,578,776 148,321 ------------ ------------ Net Increase from Operations 4,504,521 4,070,457 ------------ ------------ LESS DISTRIBUTIONS DECLARED TO PREFERRED SHAREHOLDERS: From net investment income (354,708) (520,629) ------------ ------------ Increase in Net Assets from Operations Applicable to Common Shares 4,149,813 3,549,828 ------------ ------------ LESS DISTRIBUTIONS DECLARED TO COMMON SHAREHOLDERS: From net investment income (4,448,141) (4,706,303) ------------ ------------ SHARE TRANSACTIONS: Distribution reinvested - common shares 167,020 117,785 ------------ ------------ Total Decrease in Net Assets Applicable to Common Shares (131,308) (1,038,690) NET ASSETS APPLICABLE TO COMMON SHARES: Beginning of period 63,251,660 64,290,350 ------------ ------------ End of period (including undistributed net investment income of $132,113 and $86,231, respectively) $ 63,120,352 $ 63,251,660 ============ ============ YEAR ENDED NOVEMBER 30, -------------------------- NUMBER OF FUND SHARES: 2003 2002 - ----------------------------------------------------------- Common Shares: Issued for distributions reinvested 11,181 7,904 Outstanding at: Beginning of period 4,236,299 4,228,395 ------------ ------------ End of period 4,247,480 4,236,299 ------------ ------------ Preferred Shares: Outstanding at end of period 1,492 1,492 ------------ ------------ See notes to financial statements. 10 NOTES TO FINANCIAL STATEMENTS November 30, 2003 NOTE 1. ORGANIZATION Colonial Insured Municipal Fund (the "Fund") is a Massachusetts business trust registered under the Investment Company Act of 1940 (the "Act"), as amended, as a non-diversified, closed-end management investment company. INVESTMENT GOAL The Fund seeks to provide current income generally exempt from ordinary federal income tax. FUND SHARES The Fund may issue an unlimited number of common shares. On December 20, 1999 the Fund issued 1,492 Auction Preferred Shares ("APS"). NOTE 2. SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. SECURITY VALUATION Debt securities generally are valued by a pricing service 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. Certain securities, which tend to be more thinly traded and of lesser quality, are priced based on fundamental analysis of the financial condition of the issuer and the estimated value of any collateral. Valuations developed through pricing techniques may vary from the actual amounts realized upon sale of the securities, and the potential variation may be greater for those securities valued using fundamental analysis. Debt securities for which quotations are readily available are valued at an over-the-counter or exchange bid quotation. Short-term obligations maturing within 60 days are valued at amortized cost, which approximates market value. Investments in other investment companies are valued at net asset value. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Options are valued at the last reported sale price, or in the absence of a sale, the mean between the last quoted bid and ask price. Investments for which market quotations are not readily available are valued at fair value as determined in good faith under consistently applied procedures established by and under the general supervision of the Board of Trustees. SECURITY TRANSACTIONS Security transactions are accounted for on the trade date. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes. FUTURES CONTRACTS The Fund may invest in municipal and U.S. Treasury futures contracts. The Fund will invest in these instruments to hedge against the effects of changes in the value of portfolio securities due to anticipated changes in interest rates and/or market conditions, for duration management, or when the transactions are economically appropriate to the reduction of risk inherent in the management of the Fund and not for trading purposes. The use of futures contracts involves certain risks, which include: (1) imperfect correlation between the price movement of the instruments and the underlying securities, (2) inability to close out positions due to differing trading hours, or the temporary absence of a liquid market, for either the instrument or the underlying securities, or (3) an inaccurate prediction by Columbia Management Advisors, Inc. of the future direction of interest rates. Any of these risks may involve amounts exceeding the variation margin recorded in the Fund's Statement of Assets and Liabilities at any given time. Upon entering into a futures contract, the Fund deposits cash or securities with the broker in an amount sufficient to meet the initial margin requirement. Subsequent payments are made or received by the Fund equal to the daily change in the contract value and are recorded as variation margin payable or receivable 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 contract. The Fund recognizes a realized gain or loss when the contract is closed or expires. OPTIONS The Fund may write call and put options on futures it owns or in which it may invest. Writing put options 11 NOTES TO FINANCIAL STATEMENTS (CONTINUED) November 30, 2003 tends to increase the Fund's exposure to the underlying instrument. Writing call options tends to decrease the Fund's exposure to the underlying instrument. When the Fund writes a call or put option, an amount equal to the premium received is recorded as a liability and subsequently marked-to-market to reflect the current value of the option written. Premiums received from writing options which expire are treated as realized gains. Premiums received from writing options which are exercised or closed are added to the proceeds or offset against the amounts paid on the underlying future transaction to determine the realized gain or loss. The Fund as a writer of an option has no control over whether the underlying future may be sold (call) or purchased (put) and as a result bears the market risk of an unfavorable change in the price of the future underlying the written option. There is the risk the Fund may not be able to enter into a closing transaction because of an illiquid market. The Fund may also purchase put and call options. Purchasing call options tends to increase the Fund's exposure to the underlying instrument. Purchasing put options tends to decrease the Fund's exposure to the underlying instrument. The Fund pays a premium, which is included in the Fund's Statement of Assets and Liabilities as an investment and subsequently marked-to-market to reflect the current value of the option. The risk associated with purchasing put and call options is limited to the premium paid. Premiums paid for purchasing options which expire are treated as realized losses. Premiums paid for purchasing options which are exercised or closed are added to the amounts paid or offset against the proceeds on the underlying future transaction to determine the realized gain or loss. The Fund's custodian will set aside cash or liquid portfolio securities equal to the amount of the written options contract commitment in a separate account. INCOME RECOGNITION Interest income is recorded on the accrual basis. Premium and discount are amortized and accreted, respectively, on all debt securities. Dividend income is recorded on the ex-date. FEDERAL INCOME TAX STATUS The Fund intends to qualify each year as a "regulated investment company" under Subchapter M of the Internal Revenue Code, as amended, by distributing substantially all of its taxable or tax-exempt income, if any, for its tax year, and as such will not be subject to federal income taxes. In addition, by distributing in each calendar year substantially all of its net investment income, capital gains and certain other amounts, if any, the Fund will not be subject to federal excise tax. Therefore, no federal income or excise tax provision is recorded. DISTRIBUTIONS TO SHAREHOLDERS Distributions to common shareholders are recorded on ex-date. Distributions to Auction Preferred shareholders are recorded daily and payable at the end of each dividend period. Each dividend payment period for the APS is generally seven days. The applicable dividend rate for the APS on November 30, 2003 was 1.00%. For the year ended November 30, 2003, the Fund declared dividends to Auction Preferred shareholders amounting to $354,708, representing an average APS dividend rate of 0.95%. 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, 2003, permanent differences resulting primarily from differing treatments for market discount reclassifications and discount accretion/premium amortization on debt securities were identified and reclassified among the components of the Fund's net assets as follows: UNDISTRIBUTED ACCUMULATED NET INVESTMENT NET REALIZED PAID-IN INCOME LOSS CAPITAL ------------ ------------ ------ $(4,170) $4,170 $-- 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, 2003 and November 30, 2002 was as follows: NOVEMBER 30, NOVEMBER 30, 2003 2002 ------------ ------------ Distributions paid from: Tax-Exempt Income $4,802,018 $5,219,657 Ordinary Income* 831 7,275 Long-Term Capital Gains -- -- * For tax purposes short-term capital gains distributions, if any, are considered ordinary income distributions. 12 NOTES TO FINANCIAL STATEMENTS (CONTINUED) November 30, 2003 As of November 30, 2003, the components of distributable earnings on a tax basis were as follows: UNDISTRIBUTED UNDISTRIBUTED UNDISTRIBUTED TAX-EXEMPT ORDINARY LONG-TERM NET UNREALIZED INCOME INCOME CAPITAL GAINS APPRECIATION* ------------ ------------ ------------ ------------- $406,518 $-- $-- $10,098,734 * The difference between book-basis and tax-basis net unrealized appreciation is primarily due to discount accretion/premium amortization on debt securities. Unrealized appreciation (depreciation) at November 30, 2003, based on cost of investments for federal income tax purposes was: Unrealized appreciation $10,647,118 Unrealized depreciation (548,384) ----------- Net unrealized appreciation $10,098,734 ----------- The following capital loss carryforwards are available to reduce taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code: YEAR OF CAPITAL LOSS EXPIRATION CARRYFORWARD -------- ------------ 2008 $ 936,392 2010 1,200,810 2011 2,232,409 ------------ $4,369,611 ------------ No capital loss carryforwards were utilized and/or expired during the year ended November 30, 2003 for the fund. Expired capital loss carryforwards are recorded as a reduction of paid-in capital. NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES On April 1, 2003, Colonial Management Associates, Inc., the previous investment advisor to the Fund, merged into Columbia Management Advisors, Inc. ("Columbia"), formerly known as Columbia Management Co., an indirect, wholly-owned subsidiary of FleetBoston Financial Corporation. As a result of the merger, Columbia now serves as the Fund's investment advisor. The merger did not change the way the Fund is managed, the investment personnel assigned to manage the Fund or the fees paid by the Fund. INVESTMENT ADVISORY FEE Columbia is the investment advisor to the Fund and provides administrative and other services. Columbia receives a monthly fee at the annual rate of 0.65% of the Fund's average weekly net assets, including assets applicable to the APS. Through November 30, 2004, Columbia has contractually agreed to waive a portion of its investment advisory fee so that such fees will not exceed 0.35% annually. 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"). Under its pricing and bookkeeping agreement with the Fund, Columbia receives from the Fund an annual flat fee of $10,000 paid monthly, and in any month that the Fund's average weekly net assets, including assets applicable to the APS, exceed $50 million, an additional monthly fee. The additional fee rate is calculated by taking into account the fees payable to State Street under the Outsourcing Agreement. This rate is applied to the average weekly net assets, including assets applicable to the APS, of the Fund for that month. The Fund also pays additional fees for pricing services. For the year ended November 30, 2003, the effective pricing and bookkeeping fee rate was 0.070%. Columbia pays the total fees collected to State Street under the Outsourcing Agreement. EXPENSE LIMITS AND 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) would 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 at any time. CUSTODY CREDITS The Fund has an agreement with its custodian bank under which custody fees may be reduced by balance credits. 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 The Fund pays no compensation to its officers, all of whom are employees of Columbia or its affiliates. The Fund's Trustees may participate in a deferred compensation plan which may be terminated at any time. Obligations of the plan will be paid solely out of the Fund's assets. 13 NOTES TO FINANCIAL STATEMENTS (CONTINUED) November 30, 2003 NOTE 5. PREFERRED SHARES The Fund currently has outstanding 1,492 APS. The APS are redeemable at the option of the Fund on any dividend payment date at the redemption price of $25,000 per share, plus an amount equal to any dividends accumulated on a daily basis unpaid through the redemption date (whether or not such dividends have been declared). Under the Act, the Fund is required to maintain asset coverage of at least 200% with respect to the APS as of the last business day of each month in which any APS are outstanding. Additionally, the Fund is required to meet more stringent asset coverage requirements under the terms of the APS Agreement and in accordance with the guidelines prescribed by the APS' rating agencies. Should these requirements not be met, or should dividends accrued on the APS not be paid, the Fund may be restricted in its ability to declare dividends to common shareholders or may be required to redeem certain APS. At November 30, 2003, there were no restrictions on the Fund. NOTE 6. PORTFOLIO INFORMATION PURCHASES AND SALES OF SECURITIES For the year ended November 30, 2003, the cost of purchases and proceeds from sales of securities, excluding short-term obligations, were $3,822,646 and $7,157,619, respectively. NOTE 7. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES INDUSTRY FOCUS The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified. 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. At November 30, 2003, investments supported by private insurers or by a letter of credit from institutions that represent greater than 5% of the total investments of the Fund were as follows: % OF TOTAL INSURER INVESTMENTS - ------------------------------------------------------------ MBIA Insurance Corp. 27.9% Ambac Assurance Corp. 21.7 Financial Guaranty Insurance Corp. 20.2 Financial Security Assurance, Inc. 8.2 GEOGRAPHIC CONCENTRATION The Fund had greater than 5% of its net assets at November 30, 2003, invested in debt obligations issued by the states of Alabama, California, Illinois, Oklahoma, New York, Tennessee and Texas and their respective political subdivisions, agencies and public authorities to obtain funds for various purposes. The Fund is more susceptible to economic and political factors adversely affecting issuers of each respective state's specific municipal securities than are municipal bond funds that are not concentrated to the same extent in these issuers. 14 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, 2003 2002 2001 2000 1999 (a) - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 14.93 $ 15.20 $ 14.68 $ 14.30 $ 14.33 ------------ ----------- ----------- ----------- ----------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 1.14(b) 1.21(b)(c) 1.24(b) 1.24(d) 0.06 Net realized and unrealized gain (loss) on investments, written options and futures contracts (0.08) (0.25)(c) 0.51 0.55 (0.06) ------------ ----------- ----------- ----------- ----------- Total from Investment Operations 1.06 0.96 1.75 1.79 -- ------------ ----------- ----------- ----------- ----------- LESS DISTRIBUTIONS DECLARED TO PREFERRED SHAREHOLDERS From net investment income (0.08) (0.12) (0.26) (0.35) -- ------------ ----------- ----------- ----------- ----------- Total from Investment Operations Applicable to Common Shareholders 0.98 0.84 1.49 1.44 -- ------------ ----------- ----------- ----------- ----------- LESS DISTRIBUTIONS DECLARED TO COMMON SHAREHOLDERS: From net investment income (1.05) (1.11) (0.97) (0.93) -- ------------ ----------- ----------- ----------- ----------- LESS SHARE TRANSACTIONS: Offering costs-- common shares -- -- -- --(e) (0.03) Commission and offering costs-- preferred shares -- -- -- (0.13) -- ------------ ----------- ----------- ----------- ----------- Total Share Transactions -- -- -- (0.13) (0.03) ------------ ----------- ----------- ----------- ----------- NET ASSET VALUE, END OF PERIOD $ 14.86 $ 14.93 $ 15.20 $ 14.68 $ 14.30 ============ =========== =========== =========== =========== Market price per share--common shares $ 15.30 $ 15.09 $ 16.50 $ 12.63 $ 15.00 ============ =========== =========== =========== =========== Total return--based on market value--common shares (f)(g) 8.77% (1.72)% 39.25% (9.77)% 0.00%(h) ============ =========== =========== =========== =========== RATIOS TO AVERAGE NET ASSETS/SUPPLEMENTAL DATA: Expenses (i)(j) 0.88%(k) 0.87%(k) 0.87%(k) 0.86%(k) 0.55%(l) Net investment income before preferred stock dividend (i)(j) 7.68% 8.04%(c) 8.11% 8.78% 4.38%(l) Net investment income after preferred stock dividend (i)(j) 7.12% 7.22%(c) 6.42% 6.34% 4.38%(l) Voluntary waiver/reimbursement (j) 0.18% 0.13% 0.17% 0.48% 0.61%(l) Portfolio turnover rate 4% 13% 8% 33% 7%(h) Net assets, end of period (000's)-- common shares $ 63,120 $ 63,252 $ 64,290 $ 62,051 $ 54,422
(a) The Fund commenced investment operations on October 29, 1999. Per share data and total return reflect activity from that date. (b) Per share data was calculated using average shares outstanding during the period. (c) Effective December 1, 2001, the Fund adopted the provision of the AICPA Audit and Accounting Guide for Investment Companies and began accreting market discount on all debt securities. The effect of this change for the year ended November 30, 2002, was to increase the ratio of net investment income to average net assets from 8.02% to 8.04% and increase the ratio of net investment income (adjusted for dividend payments to preferred shareholders) from 7.20% to 7.22%. The impact to the net investment income and realized and unrealized loss per share was less than $0.01. Per share data and ratios for periods prior to November 30, 2002 have not been restated to reflect this change in presentation. (d) The per share net investment income amount does not reflect the period's reclassification of differences between book and tax basis net investment income. (e) Rounds to less than $0.01 per share. (f) Total return at market value assuming all distributions reinvested at prices calculated in accordance with the Dividend Reinvestment Plan. (g) Had the Investment Advisor not waived or reimbursed a portion of expenses, total return would have been reduced. (h) Not annualized. (i) The benefits derived from custody credits and directed brokerage arrangements, if applicable, had an impact of less than 0.01%. (j) Ratios reflect average net assets available to common shares only. (k) Ratios calculated using average net assets of the Fund equals 0.55%, 0.55%, 0.55% and 0.54% for the years ended November 30, 2003, November 30, 2002, November 30, 2001 and November 30, 2000, respectively. (l) Annualized. 15 FINANCIAL HIGHLIGHTS (CONTINUED) ASSET COVERAGE REQUIREMENTS INVOLUNTARY ASSET LIQUIDATING AVERAGE TOTAL AMOUNT COVERAGE PREFERENCE MARKET VALUE OUTSTANDING PER SHARE PER SHARE PER SHARE - -------------------------------------------------------------------------- 11/30/03 $37,300,000 $67,306 $25,002 $25,000 11/30/02 37,300,000 67,396 25,012 25,000 11/30/01 37,300,000 68,090 25,001 25,000 11/30/00 * 37,300,000 66,589 25,020 25,000 * On December 20, 1999, the Fund began offering Auction Preferred Shares. 16 REPORT OF INDEPENDENT AUDITORS TO THE TRUSTEES AND THE SHAREHOLDERS OF COLONIAL INSURED MUNICIPAL FUND In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Colonial Insured Municipal Fund (the "Fund") at November 30, 2003, and the results of its operations, the changes in its net assets and its financial highlights for the periods indicated, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the 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 auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at November 30, 2003 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP Boston, Massachusetts January 12, 2004 17 UNAUDITED INFORMATION FEDERAL INCOME TAX INFORMATION 99.98% of the distributions from net investment income will be treated as exempt income for federal income tax purposes. 18 DIVIDEND REINVESTMENT PLAN COLONIAL INSURED MUNICIPAL FUND Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), all Common Shareholders whose shares are registered in their own names will have all distributions reinvested automatically in additional Common Shares of the Fund by EquiServe Trust Company, N.A. (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 New York 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 EquiServe Trust Company, N.A., by mail at P.O. Box 43010, Providence, RI 02940-3010, or by phone at 1-800-730-6001. 19 TRUSTEES Effective October 8, 2003, Patrick J. Simpson and Richard L. Woolworth were appointed to the Board of Trustees of the Fund. Messrs. Simpson and Woolworth had been directors of 15 Columbia Funds and 20 funds in the CMG Fund Trust. Also effective October 8, 2003, the incumbent trustees of the Fund were elected as directors of the 15 Columbia Funds and as trustees of the 20 funds in the CMG Fund Trust. The new combined Board of Trustees/Directors of the Fund now oversees 119 funds in the Columbia Funds Complex (including the former Liberty Funds, former Stein Roe Funds, Columbia Funds and CMG Funds). Several of these trustees/directors also serve on the Boards of other funds in the Columbia Funds Complex. The Trustees/Directors serve terms of indefinite duration. The names, addresses and ages of the Trustees/Directors and officers of the Funds in the Columbia Funds complex, the year each was first elected or appointed to office, their principal business occupations during at least the last five years, the number of portfolios overseen by each Trustee/Director and other directorships they hold are shown below. Each officer listed below serves as an officer of each Fund in the Columbia Funds Complex.
Number of portfolios in Year first Columbia Funds elected or Complex Other Position appointed Principal occupation(s) overseen by directorships Name, address and age with Funds to office1 during past five years Trustee/Director held - --------------------------------------------------------------------------------------------------------------------------------- Disinterested Trustees - ---------------------- Douglas A. Hacker Trustee 1996 Executive Vice President-Strategy of United Airlines 119 Orbitz (age 48) (airline) since December, 2002 (formerly President (online P.O. Box 66100 of UAL Loyalty Services (airline) from September, travel Chicago, IL 60666 2001 to December, 2002; Executive Vice President company) and Chief Financial Officer of United Airlines from March, 1993 to September, 2001). Janet Langford Kelly Trustee 1996 Chief Administrative Officer and Senior Vice 119 None (age 45) President, Kmart Holding Corporation (consumer 3100 West Beaver Road goods) since September, 2003 (formerly Executive Troy, MI 48084-3163 Vice President-Corporate Development and Administration, General Counsel and Secretary, Kellogg Company (food manufacturer), from September, 1999 to August, 2003; Senior Vice President, Secretary and General Counsel, Sara Lee Corporation (branded, packaged, consumer- products manufacturer) from January, 1995 to September, 1999). Richard W. Lowry Trustee 1995 Private Investor since August, 1987 (formerly 121 3 None (age 67) Chairman and Chief Executive Officer, U.S. Plywood 10701 Charleston Drive Corporation (building products manufacturer)). Vero Beach, FL 32963 Charles R. Nelson Trustee 1981 Professor of Economics, University of Washington, 119 None (age 61) since January, 1976; Ford and Louisa Van Voorhis Department of Economics Professor of Political Economy, University of University of Washington Washington, since September, 1993; Director, Seattle, WA 98195 Institute for Economic Research, University of Washington, since September, 2001; Adjunct Professor of Statistics, University of Washington, since September, 1980; Associate Editor, Journal of Money Credit and Banking, since September, 1993; consultant on econometric and statistical matters. John J. Neuhauser Trustee 1985 Academic Vice President and Dean of Faculties 122 3,4 Saucony, Inc. (age 60) since August, 1999, Boston College (formerly (athletic 84 College Road Dean, Boston College School of Management from footwear); Chestnut Hill, MA 02467-3838 September, 1977 to September, 1999). SkillSoft Corp. (e-learning) Patrick J. Simpson Trustee 2000 Partner, Perkins Coie L.L.P. (law firm). 119 None (age 58) 1211 S.W. 5th Avenue Suite 1500 Portland, OR 97204 20 TRUSTEES (CONTINUED) Number of portfolios in Year first Columbia Funds elected or Complex Other Position appointed Principal occupation(s) overseen by directorships Name, address and age with Funds to office1 during past five years Trustee/Director held - --------------------------------------------------------------------------------------------------------------------------------- Disinterested Trustees (continued) - ---------------------------------- Thomas E. Stitzel Trustee 1998 Business Consultant since 1999 (formerly Professor 119 None (age 67) of Finance from 1975 to 1999, College of Business, 2208 Tawny Woods Place Boise State University); Chartered Financial Analyst. Boise, ID 83706 Thomas C. Theobald Trustee 1996 Managing Director, William Blair Capital Partners 119 Anixter (age 66) and (private equity investing) since September, 1994. International 27 West Monroe Street, Chairman of (network Suite 3500 the Board6 support Chicago, IL 60606 equipment distributor), Jones Lang LaSalle (real estate management services) and MONY Group (life insurance) Anne-Lee Verville Trustee 1998 Author and speaker on educational systems needs 120 4 Chairman of (age 58) (formerly General Manager, Global Education the Board of 359 Stickney Hill Road Industry, IBM Corporation (computer and Directors, Hopkinton, NH 03229 technology) from 1994 to 1997). Enesco Group, Inc. (designer, importer and distributor of giftware and collectibles) Richard L. Woolworth Trustee 1991 Retired since December 2003 (formerly Chairman 119 NW Natural (age 62) and Chief Executive Officer, The Regence Group (a natural gas 100 S.W. Market Street (regional health insurer); Chairman and Chief service provider) #1500 Executive Officer, BlueCross BlueShield of Oregon; Portland, OR 97207 Certified Public Accountant, Arthur Young & Company). 21 TRUSTEES (CONTINUED) Number of portfolios in Year first Columbia Funds elected or Complex Other Position appointed Principal occupation(s) overseen by directorships Name, address and age with Funds to office1 during past five years Trustee/Director held - --------------------------------------------------------------------------------------------------------------------------------- Interested Trustees - ------------------- William E. Mayer2 Trustee 1994 Managing Partner, Park Avenue Equity Partners 121 3 Lee Enterprises (age 63) (private equity) since February, 1999 (formerly (print media), 399 Park Avenue Founding Partner, Development Capital LLC from WR Hambrecht Suite 3204 November 1996 to February, 1999). + Co. (financial New York, NY 10022 service provider) and First Health (healthcare) Joseph R. Palombo2 Trustee 2000 Executive Vice President and Chief Operating 120 5 None (age 50) and Officer of Columbia Management Group, Inc. since One Financial Center President December, 2001 and Director, Executive Vice Boston, MA 02111 President and Chief Operating Officer of Columbia Management Advisors, Inc. (Advisor) since April, 2003 (formerly Chief Operations Officer of Mutual Funds, Liberty Financial Companies, Inc. from August, 2000 to November, 2001; Executive Vice President of Stein Roe & Farnham Incorporated (Stein Roe) from April, 1999 to April, 2003; Director of Colonial Management Associates, Inc. (Colonial) from April, 1999 to April, 2003; Director of Stein Roe from September, 2000 to April, 2003) President of Columbia Funds and Galaxy Funds since February, 2003 (formerly Vice President from September 2002 to February 2003); Manager of Columbia Floating Rate Limited Liability Company since October, 2000; (formerly Vice President of the Columbia Funds from April, 1999 to August, 2000; Chief Operating Officer and Chief Compliance Officer, Putnam Mutual Funds from December, 1993 to March, 1999).
1 In December 2000, the boards of each of the former Liberty Funds and former Stein Roe Funds were combined into one board of trustees responsible for the oversight of both fund groups (collectively, the "Liberty Board"). In October 2003, the trustees on the Liberty Board were elected to the boards of the Columbia Funds (the "Columbia Board") and of the CMG Fund Trust (the "CMG Funds Board"); simultaneous with that election, Patrick J. Simpson and Richard L. Woolworth, who had been directors on the Columbia Board and trustees on the CMG Funds Board, were appointed to serve as trustees of the Liberty Board. The date shown is the earliest date on which a trustee/director was elected or appointed to the board of a Fund in the Columbia Funds complex. 2 Mr. Mayer is an "interested person" (as defined in the Investment Company Act of 1940 (1940 Act)) by reason of his affiliation with WR Hambrecht + Co. Mr. Palombo is an interested person as an employee of the Advisor. 3 Messrs. Lowry, Neuhauser and Mayer each also serve as a director/trustee of the All-Star Funds, currently consisting of 2 funds, which are advised by an affiliate of the Advisor. 4 Mr. Neuhauser and Ms. Verville also serve as disinterested directors of Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor. 5 Mr. Palombo also serves as an interested director of Columbia Management Multi-Strategy Hedge Fund, LLC, which is advised by the Advisor. 6 Mr. Theobald was appointed as Chairman of the Board effective December 10, 2003. Prior to that date, Mr. Palombo was Chairman of the Board. 22
OFFICERS Year first Position with elected or Columbia appointed Name, address and age funds to office Principal occupation(s) during past five years - ------------------------------------------------------------------------------------------------------------------------------------ Officers - -------- Vicki L. Benjamin Chief 2001 Controller of the Columbia Funds and of the Liberty All-Star Funds since May, 2002; (Age 42) Accounting Chief Accounting Officer of the Columbia Funds and Liberty All-Star Funds since One Financial Center Officer and June, 2001; Controller and Chief Accounting Officer of the Galaxy Funds since Boston, MA 02111 Controller September, 2002 (formerly Vice President, Corporate Audit, State Street Bank and Trust Company from May, 1998 to April, 2001). J. Kevin Connaughton Treasurer 2000 Treasurer of the Columbia Funds and of the Liberty All-Star Funds since December, (Age 39) 2000; Vice President of the Advisor since April, 2003 (formerly Controller of the One Financial Center Liberty Funds and of the Liberty All-Star Funds from February, 1998 to October, Boston, MA 02111 2000); Treasurer of the Galaxy Funds since September 2002; Treasurer, Columbia Management Multi-Strategy Hedge Fund, LLC since December, 2002 (formerly Vice President of Colonial from February, 1998 to October, 2000). David A. Rozenson Secretary 2003 Secretary of the Columbia Funds and of the Liberty All-Star Funds since December, (Age 49) 2003; Senior Counsel, Fleet Boston Financial Corporation since January, 1996; One Financial Center Associate General Counsel, Columbia Management Group since November, 2002. Boston, MA 02111
23 This page intentionally left blank. TRANSFER AGENT - -------------------------------------------------------------------------------- IMPORTANT INFORMATION ABOUT THIS REPORT The Transfer Agent for Colonial Insured Municipal Fund is: EquiServe Trust Company, N.A. 150 Royall Street Canton, MA 02021 The trust mails one shareholder report to each shareholder address. Shareholders can order additional reports by calling 800-730-6001. In addition, representatives at that number can provide shareholders information about the fund. Financial advisors who want additional information about the fund may speak to a representative at 800-426-3750. A description of the policies and procedures that the fund uses to determine how to vote proxies relating to its portfolio securities is available (i) without charge, upon request, by calling 800-730-6001 and (ii) on the Securities and Exchange Commissionwebsite at http://www.sec.gov. This report has been prepared for shareholders of Colonial Insured Municipal Fund. COLONIAL INSURED MUNICIPAL FUND ANNUAL REPORT ID-02/576Q-1103 (01/04) 03/3854 Item 2. Code of Ethics. (a) The registrant has, as of the end of the period covered by this report, adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. (b) During the period covered by this report, there were not any amendments to a provision of the code of ethics adopted in 2(a) above. (c) During the period covered by this report, there were not any waivers or implicit waivers to a provision of the code of ethics adopted in 2(a) above. Item 3. Audit Committee Financial Expert. The registrant's Board of Trustees has determined that Douglas A. Hacker, Thomas E. Stitzel, Anne-Lee Verville and Richard L. Woolworth, each of whom are members of the registrant's Board of Trustees and Audit Committee, each qualify as an audit committee financial expert. Mr. Hacker, Mr. Stitzel, Ms. Verville and Mr. Woolworth are each independent trustees, as defined in paragraph (a)(2) of this item's instructions and collectively constitute the entire Audit Committee. Item 4. Principal Accountant Fees and Services. Not applicable at this time. Item 5. Audit Committee of Listed Registrants. Not applicable at this time. Item 6. Reserved. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. The Fund has delegated to Columbia Management Advisors, Inc. (the "Advisor") the responsibility to vote proxies relating to portfolio securities held by the Fund. In deciding to delegate this responsibility to the Advisor, the Board of Trustees of the Trust reviewed and approved the policies and procedures adopted by the Advisor. These included the procedures that the Advisor follows when a vote presents a conflict between the interests of the Fund and its shareholders and the Advisor, its affiliates, its other clients or other persons. The Advisor's policy is to vote all proxies for Fund securities in a manner considered by the Advisor to be in the best interest of the Fund and its shareholders without regard to any benefit to the Advisor, its affiliates, its other clients or other persons. The Advisor examines each proposal and votes against the proposal, if, in its judgment, approval or adoption of the proposal would be expected to impact adversely the current or potential market value of the issuer's securities. The Advisor also examines each proposal and votes the proxies against the proposal, if, in its judgment, the proposal would be expected to affect adversely the best interest of the Fund. The Advisor determines the best interest of the Fund in light of the potential economic return on the Fund's investment. The Advisor addresses potential material conflicts of interest by having predetermined voting guidelines. For those proposals that require special consideration or in instances where special circumstances may require varying from the predetermined guideline, the Advisor's Proxy Committee determines the vote in the best interest of the Fund, without consideration of any benefit to the Advisor, its affiliates, its other clients or other persons. A member of the Proxy Committee is prohibited from voting on any proposal for which he or she has a conflict of interest by reason of a direct relationship with the issuer or other party affected by a given proposal. Persons making recommendations to the Proxy Committee or its members are required to disclose to the Committee any relationship with a party making a proposal or other matter known to the person that would create a potential conflict of interest. The Advisor has three classes of proxy proposals. The first two classes are predetermined guidelines to vote for or against specific proposals, unless otherwise directed by the Proxy Committee. The third class is for proposals given special consideration by the Proxy Committee. In addition, the Proxy Committee considers requests to vote on proposals in the first two classes other than according to the predetermined guidelines. The Advisor generally votes in favor of proposals related to the following matters: selection of auditors (unless the auditor receives more than 50% of its revenues from non-audit activities from the company and its affiliates), election of directors (unless the proposal gives management the ability to alter the size of the board without shareholder approval), different persons for chairman of the board /chief executive officer (unless, in light of the size of the company and the nature of its shareholder base, the role of chairman and CEO are not held by different persons), compensation (if provisions are consistent with standard business practices), debt limits (unless proposed specifically as an anti-takeover action), indemnifications (unless for negligence and or breaches of fiduciary duty), meetings, name of company, principal office (unless the purpose is to reduce regulatory or financial supervision), reports and accounts (if the certifications required by Sarbanes-Oxley Act of 2002 have been provided), par value, shares (unless proposed as an anti-takeover action), share repurchase programs, independent committees, and equal opportunity employment. The Advisor generally votes against proposals related to the following matters: super majority voting, cumulative voting, preferred stock, warrants, rights, poison pills, reclassification of common stock and meetings held by written consent. The Advisor gives the following matters special consideration: new proposals, proxies of investment company shares (other than those covered by the predetermined guidelines), mergers/acquisitions (proposals where a hostile merger/acquisition is apparent or where the Advisor represents ownership in more than one of the companies involved), shareholder proposals (other than those covered by the predetermined guidelines), executive/director compensation (other than those covered by the predetermined guidelines), pre-emptive rights and proxies of international issuers which block securities sales between submission of a proxy and the meeting (proposals for these securities are voted only on the specific instruction of the Proxy Committee and to the extent practicable in accordance with predetermined guidelines). In addition, if a portfolio manager or other party involved with a client of the Advisor or Fund account concludes that the interest of the client or Fund requires that a proxy be voted on a proposal other than according to the predetermined guidelines, he or she may request that the Proxy Committee consider voting the proxy differently. If any person (or entity) requests the Proxy Committee (or any of its members) to vote a proxy other than according to a predetermined guideline, that person must furnish to the Proxy Committee a written explanation of the reasons for the request and a description of the person's (or entity's) relationship with the party proposing the matter to shareholders or any other matter known to the person (or entity) that would create a potential conflict of interest. The Proxy Committee may vary from the predetermined guideline if it determines that voting on the proposal according to the predetermined guideline would be expected to impact adversely the current or potential market value of the issuer's securities or to affect adversely the best interest of the client. References to the best interest of a client refer to the interest of the client in terms of the potential economic return on the client's investment. In determining the vote on any proposal, the Proxy Committee does not consider any benefit other than benefits to the owner of the securities to be voted. The Advisor's Proxy Committee is composed of operational and investment representatives of its regional offices as well as senior representatives of the Advisor's equity investments, equity research, compliance and legal functions. During the first quarter of each year, the Proxy Committee reviews all guidelines and establishes guidelines for expected new proposals. In addition to these reviews and its other responsibilities described above, its functions include annual review of its Proxy Voting Policy and Procedures to ensure consistency with internal policies and regulatory agency policies, and development and modification of voting guidelines and procedures as it deems appropriate or necessary. The Advisor uses Institutional Shareholder Services ("ISS"), a third party vendor, to implement its proxy voting process. ISS provides proxy analysis, record keeping services and vote disclosure services. Item 8. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers. Not applicable at this time. Item 9. Submission of Matters to a Vote of Security Holders. Not applicable at this time. Item 10. Controls and Procedures. (a) The registrant's principal executive officer and principal financial officer, based on their evaluation of the registrant's disclosure controls and procedures as of a date within 90 days of the filing of this report, have concluded that such controls and procedures are adequately designed to ensure that information required to be disclosed by the registrant in Form N-CSR is accumulated and communicated to the registrant's management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. (b) There were no changes in the registrant's internal control over financial reporting that occurred during the registrant's last fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 11. Exhibits. (a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR attached hereto as Exhibit 99.CODE ETH (a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT. (a)(3) Not applicable. (b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (registrant) Colonial Insured Municipal Fund ------------------------------------------------------------------ By (Signature and Title) /s/ Joseph R. Palombo ------------------------------------------------------ Joseph R. Palombo, President Date February 4, 2004 -------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title) /s/ Joseph R. Palombo ------------------------------------------------------ Joseph R. Palombo, President Date February 4, 2004 -------------------------------------------------------------------------- By (Signature and Title) /s/ J. Kevin Connaughton ------------------------------------------------------ J. Kevin Connaughton, Treasurer Date February 4, 2004 -------------------------------------------------------------------------- EX-99.CODE ETH 3 file002.txt CODE OF ETHICS COLUMBIA MANAGEMENT GROUP FAMILY OF FUNDS CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND SENIOR FINANCIAL OFFICERS I. COVERED OFFICERS/PURPOSE OF THE CODE This Code of Ethics (the "Code") for the investment companies within the Columbia Management Group fund complex (collectively the "Funds" and each, a "Fund") applies to the Funds' Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, and Director of Trustee Administration (the "Covered Officers") for the purpose of promoting: o honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; o full, fair, accurate, timely and understandable disclosure in reports and documents that a Fund files with, or submits to, the Securities and Exchange Commission ("SEC"), and in other public communications made by a Fund; o compliance with applicable laws and governmental rules and regulations; o the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code; and o accountability for adherence to the Code. Each Covered Officer shall adhere to a high standard of business ethics and shall be sensitive to situations that may give rise to actual or apparent conflicts of interest. II. ADMINISTRATION OF THE CODE The Boards of Trustees and Boards of Directors of the Funds (collectively, the "Board") shall designate an individual to be primarily responsible for the administration of the Code (the "Code Officer"). The Code shall be administered by the Columbia Management Group Compliance Department. In the absence of the Code Officer, his or her designee shall serve as the Code Officer, but only on a temporary basis. Each Fund has designated a chief legal officer (the "Chief Legal Officer") for purposes of the Sarbanes-Oxley Act of 2002 and the rules promulgated thereunder. The Chief Legal Officer of a Fund shall assist the Fund's Code Officer in administration of this Code. The Chief Legal Officer shall be responsible for applying this Code to specific situations in which questions are presented under it (in consultation with Fund counsel, where appropriate) and has the authority to interpret this Code in any particular situation. However, any waivers sought by a Covered Officer must be approved by each Audit Committee of the Funds (collectively, the "Audit Committee"). III. MANAGING CONFLICTS OF INTEREST OVERVIEW. A "conflict of interest" occurs when a Covered Officer's private interest interferes with the interests of, or his/her service to, a Fund. For example, a conflict of interest would arise if a Covered Officer, or a family member, receives improper personal benefits as a result of the Covered Officer's position with a Fund. Certain conflicts of interest arise out of the relationships between Covered Officers and a Fund and already are subject to conflict of interest provisions in the Investment Company Act of 1940 (the "Company Act") and the Investment Advisers Act of 1940 (the "Advisers Act"). For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with a Fund because of their status as "affiliated persons" of the Fund. A Fund's and its investment adviser's compliance programs and procedures are designed to prevent, or identify and correct, violations of those provisions. This Code does not, and is not intended to, repeat or replace those programs and procedures, and such conflicts fall outside of the parameters of this Code. Although typically not presenting an opportunity for improper personal benefit, conflicts may arise from, or as a result of, the contractual relationship between a Fund and its investment adviser, administrator, principal underwriter, pricing and bookkeeping agent and/or transfer agent (each, a "Service Provider") of which the Covered Officers are also officers or employees. As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for a Fund or for a Service Provider, or for both), be involved in establishing policies and implementing decisions that will have different effects on the Service Provider and a Fund. The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Fund and the Service Provider and is consistent with the performance by the Covered Officers of their duties as officers of a Fund. In addition, it is recognized by the Board that the Covered Officers may also be officers or employees of one or more other investment companies covered by this or other codes. Other conflicts of interest are covered by the Code, even if such conflicts of interest are not subject to provisions of the Company Act and the Advisers Act. The following list provides examples of conflicts of interest under the Code, but Covered Officers should keep in mind that these examples are not exhaustive. The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of a Fund. Each Covered Officer must: o not use personal influence or personal relationships improperly to influence investment decisions or financial reporting by a Fund whereby the Covered Officer or an immediate family member would benefit personally to the detriment of a Fund; and o not cause a Fund to take action, or fail to take action, for the individual personal benefit of the Covered Officer or an immediate family member rather than the benefit of the Fund.1. There are some conflict of interest situations that must be approved by the Code Officer, after consultation with the Chief Legal Officer. Those situations include, but are not limited to,: o service as director on the board of any public or private company; o the receipt of any gifts in excess of $100 in the aggregate from a third party that does or seeks to do business with the Funds during any 12-month period; o the receipt of any entertainment from any company with which a Fund has current or prospective business dealings, unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; o any material ownership interest in, or any consulting or employment relationship with, any Fund service providers, other than its investment adviser, principal underwriter, administrator or any affiliated person thereof; o a direct or indirect material financial interest in commissions, transaction charges or spreads paid by a Fund for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer's employment, such as compensation or equity ownership. IV. DISCLOSURE AND COMPLIANCE Each Covered Officer shall: o be familiar with the disclosure requirements generally applicable to the Funds; - ---------------------- 1 For purposes of this Code, personal trading activity of the Covered Officers shall be monitored in accordance with the Columbia Management Group Code of Ethics. Each Covered Officer shall be considered an "Access Person" under such Code. The term "immediate family" shall have the same meaning as provided in such Code. o not knowingly misrepresent, or cause others to misrepresent, facts about any Fund to others, whether within or outside the Fund, including to the Fund's trustees and auditors, and to governmental regulators and self-regulatory organizations; o to the extent appropriate within his/her area of responsibility, consult with other officers and employees of the Funds and the adviser with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; and o promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. V. REPORTING AND ACCOUNTABILITY Each Covered Officer must: o upon adoption of the Code (or after becoming a Covered Officer), affirm in writing to the Board that he/she has received, read and understands the Code; o annually affirm to the Board compliance with the requirements of the Code; o not retaliate against any other Covered Officer or any employee of the Funds or their affiliated persons for reports of potential violations that are made in good faith; o notify the Chief Legal Officer and the Code Officer promptly if he/she knows of any violation of this Code; and o respond to the trustee and officer questionnaires circulated periodically in connection with the preparation of disclosure documents for the Funds. The Code Officer shall maintain records of all activities related to this Code. The Funds will follow the procedures set forth below in investigating and enforcing this Code: o The Chief Legal Officer and/or the Code Officer will take all appropriate action to investigate any potential violation reported to him/her; o If, after such investigation, the Chief Legal Officer and the Code Officer believes that no violation has occurred, the Code Officer will notify the person(s) reporting the potential violation, and no further action is required; o Any matter that the Chief Legal Officer and/or the Code Officer believes is a violation will be reported to the Audit Committee; o If the Audit Committee concurs that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures; notification to the Chief Executive Officer of Columbia Management Group; or a recommendation to sanction or dismiss the Covered Officer; o The Audit Committee will be responsible for granting waivers in its sole discretion; o Any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules. The Chief Legal Officer shall: o report to the Audit Committee quarterly any approvals provided in accordance with Section III of this Code; and o report to the Audit Committee quarterly any violations of, or material issues arising under, this Code. VI. OTHER POLICIES AND PROCEDURES This Code shall be the sole code of ethics adopted by the Funds for the purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder. Insofar as other polices or procedures of the Funds or the Funds' Service Providers govern or purport to govern the behavior or activities (including, but not limited to, personal trading activities) of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds' and their investment advisers' and principal underwriter's codes of ethics under Rule 17j-1 under the Company Act and any policies and procedures of the Service Providers are separate requirements applicable to the Covered Officers and are not part of this Code. VII. AMENDMENTS All material amendments to this Code must be approved or ratified by the Board, including a majority of independent directors. VIII. CONFIDENTIALITY All reports and records prepared or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise required by law or this Code, such matters shall not be disclosed to anyone other than the Board, the Covered Officers, the Chief Legal Officer, the Code Officer, outside audit firms and legal counsel to the Funds, and senior management of Columbia Management Group. IX. INTERNAL USE The Code is intended solely for the internal use by the Funds and does not constitute an admission, by or on behalf of any Fund, as to any fact, circumstance, or legal conclusion. EX-99.CERT 4 file003.txt CERTIFICATIONS I, Joseph R. Palombo, certify that: 1. I have reviewed this report on Form N-CSR of Colonial Insured Municipal Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 4, 2004 /s/ Joseph R. Palombo ---------------------------- Joseph R. Palombo, President I, J. Kevin Connaughton, certify that: 1. I have reviewed this report on Form N-CSR of Colonial Insured Municipal Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal half-year (the registrant's second fiscal half-year in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: February 4, 2004 /s/ J. Kevin Connaughton ---------------------------------- J. Kevin Connaughton, Treasurer EX-99.906CERT 5 file004.txt CERTIFICATIONS CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Certified Shareholder Report of Colonial Insured Municipal Fund (the "Trust") on Form N-CSR for the period ending November 30, 2003, as filed with the Securities and Exchange Commission on the date hereof ("the Report"), each of the undersigned hereby certifies that, to his knowledge: 1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Trust. Date: February 4, 2004 /s/ Joseph R. Palombo --------------------------------- Joseph R. Palombo, President Date: February 4, 2004 /s/ J. Kevin Connaughton --------------------------------- J. Kevin Connaughton, Treasurer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Registrant and will be retained by the Registrant and furnished to the Securities and Exchange Commission (the "Commission") or its staff upon request. This certification is being furnished to the Commission solely pursuant to 18 U.S.C. ss.1350 and is not being filed as part of the Form N-CSR with the Commission. -----END PRIVACY-ENHANCED MESSAGE-----