-----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, P1+tfi9mDYuxPuXQFzGlwy5rMTbjUTpTHiolvRJALE2LdWzZ6ZXxK4+r9RArakIy LZ2aX8xHVXEg1+F42eZ1Pg== 0000912057-02-030053.txt : 20020806 0000912057-02-030053.hdr.sgml : 20020806 20020806142736 ACCESSION NUMBER: 0000912057-02-030053 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020531 FILED AS OF DATE: 20020806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLONIAL CALIFORNIA INSURED MUNICIPAL FUND CENTRAL INDEX KEY: 0001092896 STATE OF INCORPORATION: MA FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-09537 FILM NUMBER: 02720526 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 CALIFORNIA MUNICIPAL INCOME FUND DATE OF NAME CHANGE: 19990809 N-30D 1 a2085159zn-30d.txt N-30D [GRAPHIC] COLONIAL CALIFORNIA INSURED MUNICIPAL FUND SEMIANNUAL REPORT MAY 31, 2002 PRESIDENT'S LETTER DEAR SHAREHOLDER: The environment for the municipal bond market has been shaped by economic events and investor uncertainties over the past six months. Although the Federal Reserve halted its string of interest rate cuts in December 2001, its presence on the sidelines was felt by the market as investors tried to guess the timing of its next move. A robust first quarter suggested that the Fed could act early in 2002 to begin to raise short-term interest rates; however, they remained at a 40-year low throughout the period. Indications of more moderate economic growth in the second quarter raised the possibility that the Fed may delay action until later in the year. The municipal bond market was one of the strongest bond market sectors for the six-month period. As cities and states face leaner times and tighter budgets, the volume of new municipal bonds increased somewhat. However, demand also increased as investors favored bonds over stocks, and that has helped support municipal bond returns. The following report will provide you with more detailed information about the fund's performance and the strategies used by portfolio manager Maureen G. Newman. For more information, contact your financial advisor. As always, we thank you for investing in Colonial California Insured Municipal Fund and for giving us the opportunity to help you build a strong financial future. Sincerely, /s/ Keith T. Banks Keith T. Banks President Colonial Management Associates, Inc. Not FDIC Insured May Lose Value No Bank Guarantee Economic and market conditions can frequently change. There is not assurance that the trends described herein will continue or commence. PORTFOLIO MANAGER'S REPORT For the six-month period ended May 31, 2002, Colonial California Insured Municipal Fund which primarily invests in municipal bonds that are exempt from federal and California state ordinary income taxes generated a 1.02% total return, based on net asset value. The fund's peer group, the Lipper California Insured Municipal Debt Funds, averaged a 1.73% return. The fund's airline bonds and its relatively long duration early in the period were primarily responsible for its underperformance. Duration measures a fund's sensitivity to interest rate changes. Generally, a longer duration benefits a fund when interest rates decline and hurts performance when interest rates rise (see sidebar). The fund's leverage, investing the proceeds from the sale of preferred shares in long-term bonds and paying out a short rate, boosted its income. As a result, the income available for distribution to common shareholders was enhanced. As economic growth improved and interest rates rose, we shortened duration. Also, during the period, we began the process of bringing the fund's portfolio in line with a new Securities and Exchange Commission rule requiring mutual funds to invest at least 80% of their net assets (plus any borrowings for investment purposes) in the types of securities suggested by their names. Effective July 1, 2002, the fund's investment strategies were changed to indicate that the fund will, under normal conditions, invest at least 80% of its net assets (plus any borrowings for investment purposes) in California Municipal Obligations that are covered by insurance guaranteeing the timely payment of principal at maturity and interest. "California Municipal Obligations" are bonds and notes that generally are issued by or on behalf of California state and local governmental units whose interest is, in the opinion of issuer's counsel (or on the basis of other reliable authority), exempt from regular federal income tax and California state personal income tax. Prior to July 1, 2002, the fund was required to invest at least 65% of its total assets in California Municipal Obligations that were covered by insurance guaranteeing the timely payment of principal at maturity and interest. In our emphasis on insured bonds, we purchased school district and state general obligation bonds. The fund benefited from the prerefunding of Lodi Electric bonds. When a company prerefunds a bond, it issues new bonds and invests the proceeds from their sale in US Treasury bonds, which are pledged to pay off the older debt, often at its call date. The higher quality of US Treasuries improves the credit quality of the older bonds, which, in addition to shorter effective maturity of the bonds, boosts their prices. [SIDENOTE]
PRICE PER SHARE AS OF 5/31/02 ($) Net asset value 15.41 - ---------------------------------------- Market price 16.95 - ---------------------------------------- SIX-MONTH TOTAL RETURNS (%) Net asset value 1.02 - ---------------------------------------- Market price 5.62 - ---------------------------------------- DISTRIBUTIONS DECLARED PER COMMON SHARE 12/1/01-5/31/02 ($) 0.537 - ----------------------------------------
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.
QUALITY BREAKDOWN AS OF 5/31/02 (%) AAA 86.4 - ---------------------------------------- AA 2.4 - ---------------------------------------- A 6.0 - ---------------------------------------- BBB 4.0 - ---------------------------------------- B 0.4 - ---------------------------------------- Non-Rated 0.8 - ----------------------------------------
Quality breakdowns are calculated as a percentage of total investments. Ratings shown in the quality breakdown represent the highest rating assigned to a 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. Sector breakdowns are calculated as a percentage of net assets representing both common shares and auction preferred shares. 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.
TOP 10 INDUSTRY SECTORS AS OF 5/31/02 (%) Special Property Tax 11.1 - ---------------------------------------- Local General Obligations 10.6 - ---------------------------------------- Water & Sewer 9.9 - ---------------------------------------- Special Non-Property Tax 9.7 - ---------------------------------------- Local Appropriated 9.6 - ---------------------------------------- State General Obligations 6.5 - ---------------------------------------- Municipal Electric 5.3 - ---------------------------------------- Investor Owned 4.6 - ---------------------------------------- Hospitals 4.3 - ---------------------------------------- Assisted Living/Senior 4.0 - ----------------------------------------
ABOUT DURATION Duration is a measure, expressed in years, of interest-rate sensitivity. It's similar to maturity, but because it takes into consideration the entire stream of future principal and interest payments and how long it will take to collect them, it is a more complex and also a more accurate measure of a fund's exposure to changing interest rates. Because we are active duration managers, we tend to use duration as a tactical tool to anticipate or respond to interest rate changes. Because bond prices move in the opposite direction that interest rates are moving, usually we lower duration when we expect interest rates to rise or raise it when we expect interest rates to fall. This adjustment provides the potential to benefit performance. If we are wrong and interest rates rise after we lengthen duration or fall after we shorten duration, fund performance could be hurt. 1 As the California economy continues to struggle, the state is expected to issue about $11 billion worth of bonds in the coming months. We expect to find opportunities in this new issuance. And because we believe interest rates have the potential to stabilize or rise, we expect income to be the biggest contributor to total return in the months ahead. /s/ Maureen G. Newman MAUREEN G. NEWMAN Maureen G. Newman is the portfolio manager of Colonial California Insured Municipal Fund and a senior vice president of Colonial Management Associates, Inc., an affiliate of Columbia Management Group. Ms. Newman received her BA in economics from Boston College and her MBA from Babson College. She is a Chartered Financial Analyst, a member of the Boston Security Analysts Society and former chairman of the National Federation of Municipal Analysts. Past performance is no guarantee of future investment results. The principal value and investment returns will fluctuate, resulting in a gain or loss on sale. Tax-exempt investing offers current tax-exempt 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 funds. Single-state municipal bond funds pose additional risks due to limited geographical diversification. Interest income from certain tax-exempt bonds may be subject to the federal alternative minimum tax for individuals and corporations. 2 INVESTMENT PORTFOLIO May 31, 2002 (Unaudited) (CALIFORNIA UNLESS OTHERWISE STATED)
MUNICIPAL BONDS - 98.5% PAR VALUE - ------------------------------------------------------------------------------ EDUCATION - 3.5% State Community College Financing Authority, West Valley Mission Community College, Series 1997, 5.625% 05/01/22 $ 2,000,000 $ 2,074,600 State Educational Facilities Authority, La Verne University, Series 2000, 6.625% 06/01/20 250,000 266,566 ----------- 2,341,166 ----------- - ------------------------------------------------------------------------------ HEALTH CARE - 4.7% CONGREGATE CARE RETIREMENT - 0.4% Statewide Community Development Authority, Eskaton Village - Grass Valley, Series 2000, 8.250% 11/15/31(a) 250,000 265,000 ----------- HOSPITALS - 4.3% Association of Bay Area Governments Finance Authority for Nonprofit Corps., San Diego Hospital Association, Series 2001 A, 6.125% 08/15/20 250,000 255,455 Oakland, Harrison Foundation, Series 1999 A, 6.000% 01/01/29 1,000,000 1,080,090 State Health Facilities Financing Authority, Cedars-Sinai Medical Center, Series 1999 A, 6.125% 12/01/30 500,000 523,410 Statewide Communities Development Authority, Catholic Healthcare West, Series 1999, 6.500% 07/01/20 500,000 519,585 Whittier Health Facility, Presbyterian Intercommunity Hospital, Series 2002, 5.750% 06/01/31 500,000 499,020 ----------- 2,877,560 ----------- - ------------------------------------------------------------------------------ HOUSING - 11.6% ASSISTED LIVING/SENIOR - 4.0% Association of Bay Area Governments Finance Authority for Nonprofit Corps.: Odd Fellows Home, Series 1999, 6.000% 08/15/24 2,000,000 2,128,640 St. Joe's Housing, 6.200% 11/01/29 500,000 531,235 ----------- 2,659,875 ----------- MULTI-FAMILY - 3.8% Association of Bay Area Governments Finance Authority for Nonprofit Corps., Civic Center Drive Apartments, Series 1999 A, 5.875% 03/01/32 $ 2,500,000 $ 2,555,925 ----------- SINGLE FAMILY - 3.8% State Housing Finance Agency, Series 1997 I, 5.750% 02/01/29 910,000 924,860 State Rural Home Mortgage Finance Authority: Series 1998 A, 6.350% 12/01/29 720,000 782,273 Series 1998 B-4, 6.350% 12/01/29 755,000 816,050 ----------- 2,523,183 ----------- - ------------------------------------------------------------------------------ OTHER - 2.1% Ontario Redevelopment Financing Authority, Ontario Redevelopment Project No. 1, Series 1993, 5.800% 08/01/23 500,000 532,645 Sacramento County Tobacco Securitization Authority, Series 2001 A, 5.375% 06/01/41 1,000,000 904,840 ----------- 1,437,485 ----------- - ------------------------------------------------------------------------------ RESOURCE RECOVERY - 2.7% DISPOSAL - 2.7% Sacramento City Financing Authority, Series 1999, 5.875% 12/01/29 1,250,000 1,342,088 Salinas Valley Solid Waste Authority, Series 2002, 5.125% 08/01/22 500,000 489,200 ----------- 1,831,288 ----------- - ------------------------------------------------------------------------------ TAX-BACKED - 51.4% LOCAL APPROPRIATED - 9.6% Del Norte County, Series 1999, 5.400% 06/01/29 500,000 508,915 Los Angeles County, Series 1999 A: (b) 08/01/18 2,020,000 867,388 (b) 08/01/23 2,220,000 684,870 Pacifica, Series 1999, 5.875% 11/01/29 1,500,000 1,607,550 San Bernardino County, Medical Center Financing Project, 5.500% 08/01/17 2,500,000 2,755,100 ----------- 6,423,823 ----------- See notes to investment portfolio. 3 MUNICIPAL BONDS (CONTINUED) PAR VALUE - ------------------------------------------------------------------------------ TAX-BACKED (CONTINUED) LOCAL GENERAL OBLIGATIONS - 10.6% Brea-Olinda Unified School District, Series 1999 A, 5.600% 08/01/20 $ 1,000,000 $ 1,053,080 Inglewood Unified School District, Series 1999 A, 5.600% 10/01/24 1,185,000 1,235,836 Los Angeles Unified School District, Series 2002, 5.750% 07/01/16 500,000 566,895 Pomona Unified School District, Series 2000, 6.550% 08/01/29 1,000,000 1,215,220 San Jose Unified School District, Series 1999 A, (b) 08/01/19 2,835,000 1,145,340 Union Elementary School District, Series 1999 A, (b) 09/01/18 1,630,000 703,312 Upland Unified School District, (c) 08/01/25 (5.125% 08/01/03) 250,000 238,483 West Covina Unified School District, Series 2002 A, 5.800% 02/01/21 (d) 500,000 555,900 Yuba City Unified School District, Series 2000, (b) 09/01/18 1,000,000 430,930 ----------- 7,144,996 ----------- SPECIAL NON-PROPERTY TAX - 9.7% PR Commonwealth of Puerto Rico Highway & Transportation Authority: Series 1996 Y, 5.500% 07/01/36 2,500,000 2,583,270 Series 2002 E, 5.500% 07/01/23 1,000,000 1,079,650 San Francisco City & County Hotel Tax Agency, Series 1994, 6.750% 07/01/25 1,850,000 2,048,542 VI Virgin Islands Public Finance Authority, Series 1999, 6.500% 10/01/24 750,000 807,428 ----------- 6,518,890 ----------- SPECIAL PROPERTY TAX - 11.1% Fairfield-Suisun Unified School District No. 5, Series 1999, 5.375% 08/15/29 (e) 1,500,000 1,016,160 Huntington Beach Community Facilities District, Grand Coast Resort, Series 2001, 6.450% 09/01/31 $ 100,000 $ 100,875 Orange County Community Facilities District, Ladera Ranch, Series 1999 A, 6.700% 08/15/29 200,000 210,250 Palmdale Elementary School District, Community Facilities District No. 90-1, Series 1999, 5.800% 08/01/29 1,500,000 1,584,885 Pittsburgh Redevelopment Agency, Los Medanos Project, Series 1999, (b) 08/01/21 2,575,000 901,765 Rancho Cucamonga Redevelopment Agency, Series 1999, 5.250% 09/01/20 1,000,000 1,019,360 Ridgecrest, Ridgecrest Civic Center, Series 1999, 6.250% 06/30/26 500,000 526,335 San Jose Redevelopment Agency, Series 1997, 5.625% 08/01/25 1,000,000 1,037,790 Santa Clara Redevelopment Agency, Bayshore North Project, Series 1999 A, 5.500% 06/01/23 1,000,000 1,038,090 ----------- 7,435,510 ----------- STATE APPROPRIATED - 3.9% State Public Works Board, Department of Health Services, Series 1999 A, 5.750% 11/01/24 2,500,000 2,644,950 ----------- STATE GENERAL OBLIGATIONS - 6.5% PR Commonwealth of Puerto Rico, Series 1997, 5.375% 07/01/25 2,100,000 2,131,101 State of California: Series 1999, 5.750% 12/01/29 1,000,000 1,047,610 Series 2002, 6.000% 02/01/17 1,000,000 1,156,200 ----------- 4,334,911 ----------- - ------------------------------------------------------------------------------ TRANSPORTATION - 2.3% AIR TRANSPORTATION - 0.4% Statewide Communities Development Authority: Series 1997 A, 5.700% 10/01/33 250,000 131,875 United Airlines, Inc., Series 2001, 6.250% 10/01/35 250,000 141,250 ----------- 273,125 ----------- See notes to investment portfolio. 4 MUNICIPAL BONDS (CONTINUED) PAR VALUE - ------------------------------------------------------------------------------ TRANSPORTATION (CONTINUED) AIRPORTS - 1.5% Port of Oakland, Series 2000 K, 5.750% 11/01/29 $ 1,000,000 $ 1,035,930 ----------- TRANSPORTATION - 0.4% San Francisco Bay Area Rapid Transit District, Series 1999, 5.500% 07/01/34 250,000 257,313 ----------- - ------------------------------------------------------------------------------ UTILITY - 20.2% INDEPENDENT POWER PRODUCER - 0.4% PR Commonwealth of Puerto Rico Industrial, Educational, Medical & Environmental Cogeneration Facilities, AES Project, Series 2000, 6.625% 06/01/26 250,000 258,987 ----------- INVESTOR OWNED - 4.6% State Pollution Control Financing Authority: Pacific Gas & Electric Co., Series 1996 A, 5.350% 12/01/16 1,000,000 1,021,790 San Diego Gas & Electric Co., Series 1991 A, 6.800% 06/01/15 500,000 567,800 Southern California Edison Co., Series 1999 B, 5.450% 09/01/29 1,500,000 1,511,790 ----------- 3,101,380 ----------- MUNICIPAL ELECTRIC - 5.3% GM Guam Power Authority, Series 1999 A, 5.125% 10/01/29 1,000,000 997,740 PR Puerto Rico Electric Power Authority, Series 1997 AA, 5.375% 07/01/27 2,500,000 2,546,725 ----------- 3,544,465 ----------- WATER & SEWER - 9.9% Culver City, Series 1999 A, 5.700% 09/01/29 1,500,000 1,580,745 Los Angeles Department of Water & Power, Series 1999, 6.100% 10/15/39 750,000 883,125 Pico Rivera Water Authority, Series 1999 A, 5.500% 05/01/29 2,000,000 2,125,460 Placer County Water Agency, Series 1999, 5.500% 07/01/29 1,000,000 1,031,680 Pomona Public Financing Authority, Series 1999 AC, 5.500% 05/01/29 $ 1,000,000 $ 1,029,770 ----------- 6,650,780 ----------- TOTAL MUNICIPAL BONDS (cost of $61,565,713) (f) 66,116,542 ----------- OTHER ASSETS & LIABILITIES, NET - 1.5% 1,019,596 ----------- NET ASSETS* - 100.0% $67,136,138 -----------
- ------------------------------------------------------------------------------ NOTES TO INVESTMENT PORTFOLIO: (a) Denotes a restricted security, which is subject to restrictions on resale under federal securities laws. At May 31, 2002, this security amounted to $265,000, which represents 0.4% of net assets. Additional information on this restricted security is as follows:
ACQUISITION ACQUISITION SECURITY DATE COST --------------------------------------------------------------------------- Statewide Community Development Authority, Eskaton Village - Grass Valley, Series 2000, 8.250% 11/15/31 09/08/00 $ 250,000
(b) Zero coupon bond. (c) Stepped coupon bond. Currently accruing at zero. Shown parenthetically is the next interest rate to be paid and the date the Fund will begin accruing this rate. (d) Settlement of this security is on a delayed delivery basis. (e) This security, or a portion thereof with a total market value of $172,747, is being used to collateralize open futures contracts. (f) Cost for generally accepted accounting principles is $61,565,713. Cost for federal income tax purposes is $61,561,608. The difference between cost for generally accepted accounting principles and cost on a tax basis is related to amortization/accretion tax elections on fixed income securities. Short futures contracts open at May 31, 2002:
PAR UNREALIZED COVERED BY EXPIRATION DEPRECIATION TYPE CONTRACTS MONTH AT 05/31/02 - ------------------------------------------------------------------------------ Municipal Bond Index $ 6,800,000 September $ (21,047) 10 Year U.S. Treasury Note 3,600,000 September (25,688) ------------ $ (46,735)
Summary of Securities by Insurer:
% OF INSURER TOTAL INVESTMENTS - ---------------------------------------------------------------- MBIA Insurance Corp. 34.7% Financial Security Assurance, Inc. 19.2% AMBAC Assurance Corp. 14.8% Financial Guaranty Insurance Corp. 14.4% FNMA Collateralized 2.4% ACA Financial Guaranty Corp. 0.8% ---- 86.3% ----
* Net assets represent both Common Shares and Auction Preferred Shares. See notes to financial statements. 5 STATEMENT OF ASSETS AND LIABILITIES May 31, 2002 (Unaudited) ASSETS: Investments, at cost $61,565,713 ----------- Investments, at value $66,116,542 Cash 486,788 Receivable for: Investments sold 330,116 Interest 1,029,372 Futures variation margin 5,875 Expense reimbursement due from Advisor 10,125 Deferred Trustees' compensation plan 1,520 ----------- Total Assets 67,980,338 ----------- LIABILITIES: Payable for: Investments purchased on a delayed delivery basis 542,717 Distributions -- common shares 249,383 Distributions -- preferred shares 766 Management fee 20,924 Pricing and bookkeeping fees 10,181 Trustees' fee 352 Transfer agent fee 8,051 Deferred Trustees' fee 1,520 Other liabilities 10,306 ----------- Total Liabilities 844,200 ----------- Auction Preferred Shares (978 shares issued and outstanding at $25,000 per share) 24,450,000 ----------- COMPOSITION OF NET ASSETS APPLICABLE TO COMMON SHARES: Paid-in capital -- common shares $39,222,473 Undistributed net investment income 67,712 Accumulated net realized loss (1,108,141) Net unrealized appreciation (depreciation) on: Investments 4,550,829 Futures contracts (46,735) ----------- Net assets at value applicable to 2,770,926 common shares of beneficial interest outstanding $42,686,138 =========== Net asset value per common share $ 15.41 ===========
STATEMENT OF OPERATIONS For the Six Months Ended May 31, 2002 (Unaudited) INVESTMENT INCOME: Interest $ 1,823,596 ----------- EXPENSES: Management fee 117,266 Pricing and bookkeeping fees 30,818 Trustees' fee 3,564 Preferred shares remarketing commissions 30,512 Transfer agent fee 20,206 Audit fee 12,858 Reports to shareholders 13,866 Other expenses 5,630 ----------- Total Expenses 234,720 Fees and expenses waived or reimbursed by the Advisor (49,579) Custody earnings credit (722) ----------- Net Expenses 184,419 ----------- Net Investment Income 1,639,177 ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND FUTURES CONTRACTS: Net realized gain (loss) on: Investments 406,831 Futures contracts (27,293) ----------- Net realized gain 379,538 ----------- Net change in unrealized appreciation/ depreciation on: Investments (1,271,429) Futures contracts (124,729) ----------- Net change in unrealized appreciation/depreciation (1,396,158) ----------- Net Loss (1,016,620) ----------- Net Increase in Net Assets from Operations 622,557 ----------- LESS DISTRIBUTIONS DECLARED TO PREFERRED SHAREHOLDERS: From net investment income (166,256) =========== Increase in Net Assets from Operations Applicable to Common Shares $ 456,301 ===========
See notes to financial statements. 6 STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED) SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30, INCREASE (DECREASE) IN NET ASSETS: 2002 2001 - ------------------------------------------------------------------------------- OPERATIONS: Net investment income $ 1,639,177 $ 3,297,725 Net realized gain (loss) on investments and futures contracts 379,538 (226,430) Net change in unrealized appreciation/ depreciation on investments and futures contracts (1,396,158) 1,855,658 ----------- ------------ Net Increase from Operations 622,557 4,926,953 ----------- ------------ LESS DISTRIBUTIONS DECLARED TO PREFERRED SHAREHOLDERS: From net investment income (166,256) (677,888) ----------- ------------ Increase in Net Assets from Operations Applicable to Common Shares 456,301 4,249,065 ----------- ------------ LESS DISTRIBUTIONS DECLARED TO COMMON SHAREHOLDERS: From net investment income (1,480,555) (2,532,406) ----------- ------------ SHARE TRANSACTIONS: Distributions reinvested -- common shares 32,225 14,144 ----------- ------------ Total Increase (Decrease) in Net Assets Applicable to Common Shares (992,029) 1,730,803 NET ASSETS APPLICABLE TO COMMON SHARES: Beginning of period 43,678,167 41,947,364 ----------- ------------ End of period (including undistributed net investment income of $67,712 and $72,491, respectively) $42,686,138 $ 43,678,167 =========== ============ (UNAUDITED) SIX MONTHS ENDED YEAR ENDED MAY 31, NOVEMBER 30, NUMBER OF FUND SHARES: 2002 2001 - ------------------------------------------------------------------------------- Common Shares: Issued for distributions reinvested 2,486 882 Outstanding at: Beginning of period 2,768,440 2,767,558 ----------- ------------ End of period 2,770,926 2,768,440 ----------- ------------ Preferred Shares: Outstanding at end of period 978 978 ----------- ------------
See notes to financial statements. 7 NOTES TO FINANCIAL STATEMENTS May 31, 2002 (Unaudited) NOTE 1. ACCOUNTING POLICIES ORGANIZATION: Colonial California Insured Municipal Fund (the "Fund") is a Massachusetts business trust registered under the Investment Company Act of 1940 (the "Act") as amended, as a non-diversified, closed-end management investment company. The Fund's investment goal is to provide current income generally exempt from ordinary federal income tax and California state personal income tax. The Fund is authorized to issue an unlimited number of common shares of beneficial interest and 978 Auction Preferred Shares ("APS"). The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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 AND TRANSACTIONS: Debt securities generally are valued by a pricing service based upon market transactions for normal, institutional-size trading units of similar securities. When management deems it appropriate, an over-the-counter or exchange bid quotation is used. Futures contracts are valued based on the difference between the last sale price and the opening price of the contract. Short-term obligations with a maturity of 60 days or less are valued at amortized cost. Investments for which market quotations are not readily available are valued at fair value under procedures approved by the Board of Trustees. Security transactions are accounted for on the date the securities are purchased, sold or mature. Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes. The Fund may trade securities on other than normal settlement terms. This may increase the risk if the other party to the transaction fails to deliver and causes the Fund to subsequently invest at less advantageous prices. FEDERAL INCOME TAXES: Consistent with the Fund's policy to qualify as a regulated investment company and to distribute all of its taxable and tax-exempt income, no federal income tax has been accrued. At November 30, 2001, capital loss carryforwards available (to the extent provided in regulations) to offset future realized gains were as follows:
YEAR OF EXPIRATION CAPITAL LOSS CARRYFORWARD ------------------ ------------------------- 2008 $5,151
Expired capital loss carryforwards, if any, are recorded as a reduction of paid-in capital. INTEREST INCOME, DEBT DISCOUNT AND PREMIUM: Interest income is recorded on the accrual basis. Original issue discount is accreted to interest income over the life of the security with a corresponding increase in the cost basis. Premium is amortized against interest income with a corresponding decrease in the cost basis. Effective December 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount on all debt securities. The cumulative effect of this accounting change did not impact total net assets, but resulted in a $2,855 increase in cost of securities and a corresponding $2,855 decrease in net unrealized appreciation, based on securities held by the Fund on December 1, 2001. The effect of this change for the six months ended May 31, 2002 was to increase net investment income by $2,121, increase net unrealized depreciation by $1,218 and decrease net realized gains by $903. The Statement of Changes in Net Assets and the Financial Highlights for prior periods have not been restated to reflect this change. DISTRIBUTIONS TO SHAREHOLDERS: Distributions to common shareholders are recorded on the ex-date. The amount and character of income and gains to be distributed are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution (or available capital loss carryforwards) under income tax regulations. Distributions to preferred shareholders are recorded daily and are payable at the end of each dividend period. Each dividend payment period for the APS is generally seven days. The applicable dividend rate for the APS on May 31, 2002 was 1.50%. For the six months ended May 31, 2002, the Fund declared dividends to Auction Preferred shareholders amounting to $166,256 representing an average APS dividend rate of 1.35%. 8 NOTE 2. FEES AND COMPENSATION PAID TO AFFILIATES MANAGEMENT FEE: Colonial Management Associates, Inc. (the "Advisor") is the investment advisor of the Fund and furnishes accounting and other services and office facilities for a monthly fee equal to 0.65% annually of the Fund's average weekly net assets. Through November 30, 2004, the Advisor has contractually agreed to waive a portion of the fee so that it will not exceed 0.35% annually. BOOKKEEPING FEE: The Advisor is responsible for providing pricing and bookkeeping services to the Fund under a Pricing and Bookkeeping Agreement. Under a separate agreement (the "Outsourcing Agreement"), the Advisor has delegated those functions to State Street Bank and Trust Company ("State Street"). The Advisor pays fees to State Street under the Outsourcing Agreement. Under its pricing and bookkeeping agreement with the Fund, the Advisor 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 are more than $50 million, a monthly fee equal to the average weekly net assets of the Fund for that month multiplied by a fee rate that is calculated by taking into account the fees payable to State Street under the Outsourcing Agreement. EXPENSE LIMITS: The Advisor has voluntarily agreed to waive fees and bear certain Fund expenses to the extent that total expenses (exclusive of management fees, brokerage commissions, interest, taxes and extraordinary expenses, if any) exceed 0.20% annually of the Fund's average weekly net assets. This arrangement may be modified or terminated by the Advisor at any time. OTHER: The Fund pays no compensation to its officers, all of whom are employees of the Advisor or its affiliates. The Fund's Independent 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. The Fund has an agreement with its custodian bank under which $722 of custody fees were reduced by balance credits for the six months ended May 31, 2002. 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. NOTE 3. PREFERRED SHARE OFFERING The Fund currently has outstanding 978 APS. The APS are redeemable at the option of the Fund on any dividend payment date at the redemption price of $25,000 per share, plus an amount equal to any dividends accumulated on a daily basis unpaid through the redemption date (whether or not such dividends have been declared). Under the Act, the Fund is required to maintain asset coverage of at least 200% with respect to the APS as of the last business day of each month in which any APS are outstanding. Additionally, the Fund is required to meet more stringent asset coverage requirements under the terms of the APS and in accordance with the guidelines prescribed by the 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 of the APS. At May 31, 2002, there were no such restrictions on the Fund. Certain reclassifications have been made relating to the presentation of the APS in the Statement of Changes in Net Assets for the year ending November 30, 2001 and the financial highlights for the year ending November 30, 2001 and 2000 to conform to current requirements. NOTE 4. PORTFOLIO INFORMATION INVESTMENT ACTIVITY: During the six months ended May 31, 2002, purchases and sales of investments, other than short-term obligations, were $5,507,292 and $5,826,390, respectively. Unrealized appreciation (depreciation) at May 31, 2002, based on cost of investments for federal income tax purposes, was: Gross unrealized appreciation $4,827,538 Gross unrealized depreciation (272,604) ---------- Net unrealized appreciation $4,554,934 ----------
OTHER: There are certain risks arising from geographic concentration in any state. Certain revenue or tax related events in a state may impair the ability of certain issuers of municipal securities to pay principal and interest on their obligations. The Fund may focus its investments in certain industries, subjecting it to greater risk than a fund that is more diversified. The Fund may invest in municipal and Treasury bond futures contracts and purchase and write options on futures. The Fund may 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 and options 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 different trading hours, or the temporary absence of a liquid market, for either the instrument or the underlying securities or (3) an inaccurate prediction by the Advisor of the future direction of interest rates. Any of these risks may involve amounts exceeding the amount recognized in the Fund's Statement of Assets and Liabilities at any given time. 9 Upon entering into a futures contract, the Fund deposits cash or securities with its custodian 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 recognizes a realized gain or loss when the contract is closed or expires. Refer to the Fund's Investment Portfolio for a summary of open futures contracts at May 31, 2002. Restricted securities are securities that may only be resold upon registration under federal securities laws or in transactions exempt from such registration. In some cases, the issuer of restricted securities has agreed to register such securities for resale, at the issuer's expense either upon demand by the Fund or in connection with another registered offering of the securities. Many restricted securities may be resold in the secondary market in transactions exempt from registration. Such restricted securities may be determined to be liquid under criteria established by the Board of Trustees. The Fund will not incur any registration costs upon such resales. The Fund's restricted securities are valued at the price provided by dealers in the secondary market or, if no market prices are available, at the fair value as determined in good faith using methods approved by the Board of Trustees. 10 FINANCIAL HIGHLIGHTS Selected data for a share outstanding throughout each period is as follows (common shares unless otherwise noted):
(UNAUDITED) SIX MONTHS ENDED YEAR ENDED NOVEMBER 30, MAY 31, ---------------------------------- 2002 2001 2000 1999 (a) - --------------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 15.78 $ 15.16 $ 14.29 $ 14.33 ------- ------- -------- ------- INCOME FROM INVESTMENT OPERATIONS: Net investment income 0.59(b)(c) 1.19(c) 1.18(d) 0.05 Net realized and unrealized gain (loss) on investments and futures contracts (0.36)(b) 0.59 1.07 (0.06) ------- ------- -------- ------- Total from Investment Operations 0.23 1.78 2.25 (0.01) ------- ------- -------- ------- LESS DISTRIBUTIONS DECLARED TO PREFERRED SHAREHOLDERS: From net investment income (0.06) (0.24) (0.34) -- ------- ------- -------- ------- Total from Investment Operations Applicable to Common Shareholders 0.17 1.54 1.91 (0.01) ------- ------- -------- ------- LESS DISTRIBUTIONS DECLARED TO COMMON SHAREHOLDERS: From net investment income (0.54) (0.92) (0.90) -- ------- ------- -------- ------- LESS CAPITAL TRANSACTIONS: Offering costs -- common shares -- -- --(e) (0.03) Commissions and offering costs -- preferred shares -- -- (0.14) -- ------- ------- -------- ------- Total Share Transactions -- -- (0.14) (0.03) ------- ------- -------- ------- NET ASSET VALUE, END OF PERIOD $ 15.41 $ 15.78 $ 15.16 $ 14.29 ======= ======= ======== ======= Market price per share -- common shares $ 16.95 $ 16.60 $ 12.69 $ 15.00 ======= ======= ======== ======= Total return-- based on market value -- common shares (f)(g) 5.62%(h) 38.91% (9.86)% 0.00%(h) ======= ======= ======== ======= RATIOS TO AVERAGE NET ASSETS: Expenses (i)(j) 0.87%(k)(l) 0.86%(l) 0.87%(l) 0.55%(k) Net investment income (i)(j) 7.68%(b)(k) 7.58% 8.27% 4.12%(k) Net investment income (i)(j) 6.90%(b)(k)(m) 6.02%(m) 5.93%(m) 4.12%(k) Waiver/reimbursement (j) 0.23%(k) 0.22% 0.27% 1.08%(k) Portfolio turnover rate 8%(h) 7% 22% 0%(h) Net assets, end of period (000's) -- common shares $42,686 $43,678 $ 41,947 $34,382
(a) The Fund commenced investment operations on October 29, 1999. (b) Effective December 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies and began accreting discount on all debt securities. The effect of this change, for the six months ended May 31, 2002, was to increase the ratio of net investment income to average net assets from 7.67% to 7.68% and increase the ratio of net investment income (adjusted for dividend payments to preferred shareholders) from 6.89% to 6.90%. The impact to net investment income and net realized and unrealized loss per share was less than $0.01. Per share data and ratios for periods prior to May 31, 2002 have not been restated to reflect this change in presentation. (c) Per share data was calculated using average shares outstanding during the period. (d) The per share net investment income amount does not reflect the period's reclassifications of differences between book and tax basis net investment income. (e) Represents 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 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 no impact. (j) Ratios reflect average net assets available to common shares only. (k) Annualized. (l) Ratios calculated using average net assets of the Fund equals 0.55%. (m) Ratios reflect reduction for dividend payments to preferred shareholders. ASSET COVERAGE REQUIREMENTS
INVOLUNTARY ASSET LIQUIDATING AVERAGE TOTAL AMOUNT COVERAGE PREFERENCE MARKET VALUE OUTSTANDING PER SHARE PER SHARE PER SHARE - ----------------------------------------------------------------------------------------------------------------------------- 05/31/02* $24,450,000 $68,646 $25,001 $25,000 11/30/01 24,450,000 69,661 25,001 25,000 11/30/00** 24,450,000 67,891 25,019 25,000
* Unaudited. ** On August 26, 1999, the Fund began offering Auction Preferred Shares. 11 SHAREHOLDER MEETING RESULTS RESULTS OF ANNUAL MEETING OF SHAREHOLDERS On May 22, 2002, the Annual Meeting of Shareholders of the Fund was held to conduct a vote for or against the approval of the following Items listed on the Fund's Proxy Statement for said Meeting. On March 1, 2002, the record date for the Meeting, the Fund had 2,769,697 common shares outstanding. The votes cast were as follows:
FOR WITHHELD --------- -------- PROPOSAL 1: ELECTION OF TRUSTEES: Douglas A. Hacker 2,684,818 19,406 Janet Langford Kelly 2,684,818 19,406 Joseph R. Palombo 2,676,518 27,706
On March 1, 2002, the record date of the Meeting, the Fund had 978 preferred shares outstanding. The votes cast were as follows:
FOR WITHHELD --- -------- PROPOSAL 1: ELECTION OF TRUSTEES: Douglas A. Hacker 916 0 Janet Langford Kelly 916 0 Salvatore Macera 916 0 Joseph R. Palombo 916 0 Thomas E. Stizel 916 0
12 DIVIDEND REINVESTMENT PLAN 1. You, BankBoston, NA*, will act as Agent for me, and will open an account for me under the Dividend Reinvestment Plan with the same registration as my shares of the Fund are currently registered. You will effect the dividend reinvestment option on my behalf as of the first record date for an income dividend or capital gain distribution ("distribution"), separately or collectively, after you receive the authorization duly executed by me. 2. Whenever the Fund declares a distribution payable in the Fund's shares of beneficial interest ("shares") or cash at the option of the shareholder, I hereby elect to take such distribution entirely in shares, subject to the terms of this Plan. If on the valuation date the Fund's net asset value per share is less than the market price (including estimated brokerage commissions), you shall on the payable date automatically receive for my account from the Fund that number of newly-issued shares that the cash otherwise receivable by me would purchase if the purchase price per share equaled the higher of: (a) net asset value per share on the valuation date, or (b) 95% of market price (not including estimated brokerage commission) on the payable date; except if the market price (not including estimated brokerage commissions) on the payable date is less than 95% of the net asset value per share on the valuation date, you shall receive a distribution of cash from the Fund and shall apply the amount of such distribution to the purchase in the open market of shares of my account, commencing on the business day after the payable date, subject to the condition that such purchases must be made at a "discount" during the remainder of the "buying period." "Discount" is defined as a market price per share (including estimated brokerage commissions) which is lower than the most recently determined net asset value per share (as calculated from time to time). "Buying period" shall mean the period commencing the first business day after the valuation date and ending at the close of business on the business day preceding the "ex" date for the next distribution. The valuation date will be the last business day of the week preceding the week of the payable date. 3. Should the Fund's net asset value per share exceed the market price (including estimated brokerage commissions) on the valuation date for a distribution, you shall receive for my account a distribution in cash from the Fund and shall apply the amount of such distribution on my shares to the purchase in the open market of shares for my account commencing on the first business day after the valuation date, subject to the condition that such purchases must be made at a discount during the buying period. 4. In the event you are instructed to purchase shares in the open market pursuant to paragraph 2 or 3 hereof, and you are unable for any reason to invest the full amount of the distribution in shares acquired in open-market purchases at a discount during the buying period, you will invest the uninvested portion of such distribution in newly-issued shares at the close of business at the end of such buying period at the higher of: (a) net asset value determined at such close, or (b) 95% of the market price (not including estimated brokerage commissions) at such close. 5. You may not acquire newly-issued shares after the valuation date unless you have received a legal opinion that registration of such shares is not required under the Securities Act of 1933, as amended, or unless the shares to be issued are registered under such an Act. 6. For all purposes of the Plan: (a) the market price of the shares on a particular date shall be the last sales price on the New York Stock Exchange on that date, or if there is no sale on such Exchange on that date, then the mean between the closing bid and asked quotations for such shares on such Exchange on such date (in either case including or not including estimated brokerage commissions as provided above) and (b) net asset value per share of the shares on a particular date shall be as determined by or on behalf of the Fund. 7. Open-market purchases provided for above may be made on any securities exchange where the shares are traded, in the over-the-counter market or in negotiated transactions and may be on such terms as to price, delivery and otherwise as you shall determine. My cash funds held by you uninvested will not bear interest and it is understood that, in any event, you shall have no liability in connection with any inability to purchase shares within 30 days after the initial date of such purchase as herein provided, or with the timing of any purchases effected. You shall nave no responsibility as to the value of the shares acquired for my account. For the purposes of open-market purchases with respect to the Plan you may commingle my funds with those of other shareholders of the Fund for whom you similarly act as Agent, and the average price (including brokerage commissions) of all shares purchased by you as Agent shall be the price per share allocated to me in connection therewith. 8. You may hold my shares acquired pursuant to my authorization, together with the shares of other shareholders of the Fund acquired pursuant to similar authorizations, in non-certificate form in your name or that of your nominee. You will forward to me any proxy solicitation material and will vote any shares so held for me only in accordance with the proxy returned by me to the Fund. Upon my written request, you will deliver to me, without charge, a certificate, or certificates for the full shares. 9. You will confirm to me each investment made for my account as soon as practicable but not later than 60 days after the date thereof. Although I may from time to time have an undivided fractional interest (computed to three decimal places) in a share, no certificates for a fractional share will be issued. However, distributions on fractional shares will be credited to my account. In the event of termination of my account under the Plan, you will sell such undivided fractional interests at the market value of the shares at the time of termination and send the net proceeds to me. 10. Any stock dividends or split shares distributed by the Fund on shares held by you for me will be credited to my account. In the event that the Fund makes available to its shareholders rights to purchase additional shares or other securities, the shares held for me under the Plan will be added to other shares held by me in calculating the number of rights to be issued to me. 11. Your fee for service described in this Plan will be paid by the Fund. I will be charged a pro rata share of brokerage commission on all open-market purchases. * EquiServe Trust Company, N.A. currently serves as Agent under the Dividend Reinvestment Plan. 13 12. I may terminate my account under the Plan by notifying you in writing. Such termination will be effective immediately if my notice is received by you prior to the record date of subsequent distributions. The Plan may be terminated by you or the Fund upon notice in writing mailed to me at least 30 days prior to any record date for the payment of any distribution of the Fund. Upon any termination you will cause a certificate or certificates for the full shares held for me under the Plan and the proceeds from the sales of any fractional shares to be delivered to me without charge. If I elect by notice to you in writing in advance of such termination to have you sell part or all of my shares and remit the proceeds to me, you are authorized to deduct brokerage commission for this transaction from the proceeds. If I decide to terminate my account under the Plan, I may request that all my Plan shares, both full and fractional, be sold. The per share price may fall during the period between my request for sale and the sale in the open market which will be made within ten trading days after the Agent receives my request. The proceeds of the sale less a $2.50 service fee, plus any brokerage commission will be mailed to me after the settlement of funds from the brokerage firm. The settlement is three business days after the sale of shares. 13. These Terms and Conditions may be amended or supplemented by you or the Fund at any time or times but, except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority, only by mailing to me appropriate written notice at least 30 days prior to the effective date thereof. The amendment or supplement shall be deemed to be accepted by me unless, prior to the effective date thereof, you receive written notice of the termination of my account under the Plan. Any such amendment may include an appointment by you in your place and stead of successor Agent under these Terms and Conditions, with full power and authority to perform all or any of the acts to be performed by the Agent under these Terms and Conditions. Upon any such appointment of any Agent for the purpose of receiving distributions, the Fund will be authorized to pay to such successor Agent, for my account, all distributions payable on shares held in my name or under the Plan for retention or application by such successor Agent as provided in these Terms and Conditions. 14. You shall at all times act in good faith and agree to use your best efforts within reasonable limits to insure the accuracy of all services performed under this Agreement and to comply with applicable law, but assume no responsibility and shall not be liable for loss or damage due to errors unless such error is caused by your negligence, bad faith or willful misconduct, or that of your employees. 15. These Terms and Conditions shall be governed by the laws of the Commonwealth of Massachusetts. 14 THIS PAGE INTENTIONALLY LEFT BLANK. TRANSFER AGENT IMPORTANT INFORMATION ABOUT THIS REPORT The Transfer Agent for Colonial California Insured Municipal Fund is: EquiServe Trust Company, N.A. 150 Royall Street Canton, MA 02021 1-800-730-6001 The Fund mails one shareholder report to each shareholder address. Shareholders can order additional reports by calling 800-345-6611. 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. This report has been prepared for shareholders of Colonial California Insured Municipal Fund. COLONIAL CALIFORNIA INSURED MUNICIPAL FUND SEMIANNUAL REPORT IC-03/964J-0502 (07/02) 02/1216 -----END PRIVACY-ENHANCED MESSAGE-----