MFS California 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 811-9537

 

 

MFS CALIFORNIA INSURED MUNICIPAL FUND

(Exact name of registrant as specified in charter)

 

500 Boylston Street, Boston, Massachusetts 02116

(Address of principal executive offices) (Zip code)

 

Susan S. Newton

Massachusetts Financial Services Company

500 Boylston Street

Boston, Massachusetts 02116

(Name and address of agents for service)

 

Registrant’s telephone number, including area code: (617) 954-5000

 

Date of fiscal year end: November 30

 

Date of reporting period: November 30, 2007


ITEM 1. REPORTS TO STOCKHOLDERS.


LOGO

LOGO

Annual report

MFS® California Insured Municipal Fund

(Formerly Colonial California Insured Municipal Fund)

11/30/07

CCA-ANN


 

MFS® California Insured Municipal Fund

 

LETTER FROM THE CEO    1
PORTFOLIO COMPOSITION    2
MANAGEMENT REVIEW    3
PERFORMANCE SUMMARY    5
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RISKS OF THE FUND    7
PORTFOLIO MANAGERS’ PROFILES    9
DIVIDEND REINVESTMENT PLAN    10
PORTFOLIO OF INVESTMENTS    12
STATEMENT OF ASSETS AND LIABILITIES    17
STATEMENT OF OPERATIONS    18
STATEMENTS OF CHANGES IN NET ASSETS    19
FINANCIAL HIGHLIGHTS    20
NOTES TO FINANCIAL STATEMENTS    22
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
   31
TRUSTEES AND OFFICERS    32
BOARD REVIEW OF INVESTMENT
ADVISORY AGREEMENT
   38
PROXY VOTING POLICIES AND
INFORMATION
   38
QUARTERLY PORTFOLIO DISCLOSURE    38
FEDERAL TAX INFORMATION    38
MFS® PRIVACY NOTICE    39
CONTACT INFORMATION      BACK COVER

American Stock Exchange Symbol:  CCA

 

NOT FDIC INSURED Ÿ MAY LOSE VALUE Ÿ

NO BANK OR CREDIT UNION GUARANTEE Ÿ NOT A DEPOSIT Ÿ

NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY OR

NCUA/NCUSIF


LOGO

 

LETTER FROM THE CEO

Dear Shareholders:

The past year has been a great example of why investors should keep their eyes on the long term.

In 2006 the Dow Jones Industrial Average returned 19% and was fairly stable. This year we have seen a greater level of volatility than has been experienced in recent years. The Dow hit several new highs but also experienced swift drops as a global credit crisis swept through markets, spurred by defaults on U.S. subprime loans and a liquidity crunch. Still, even with this volatility, the Dow ended the first three quarters of 2007 with a return near 13%.

U.S. Treasury bonds gained ground, especially in the third quarter as investors sought less risky asset classes. The spreads of many lower-quality debt investments widened.

In 2007 the U.S. dollar fell against the euro, oil prices hit their highest levels yet, and gold spiked to its steepest price in 28 years. Around the globe, stocks sold off as risk aversion mounted. As we have said before, markets can be volatile, and investors should make sure they have an investment plan that can carry them through the peaks and troughs.

If you are focused on a long-term investment strategy, the short-term ups and downs of the markets should not necessarily dictate portfolio action on your part. In our view, investors who remain committed to a long-term plan are more likely to achieve their financial goals.

In any market environment, we believe individual investors are best served by following a three-pronged investment strategy of allocating their holdings across the major asset classes, diversifying within each class, and regularly rebalancing their portfolios to maintain their desired allocations. Of course, these strategies cannot guarantee a profit or protect against a loss. Investing and planning for the long term require diligence and patience, two traits that in our experience are essential to capitalizing on the many opportunities the financial markets can offer — through both up and down economic cycles.

Respectfully,

LOGO

Robert J. Manning

Chief Executive Officer and Chief Investment Officer

MFS Investment Management®

January 15, 2008

The opinions expressed in this letter are subject to change, may not be relied upon for investment advice, and no forecasts can be guaranteed.

 

1


PORTFOLIO COMPOSITION

 

Portfolio structure (f)(i)

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Top five industries (i)  
General Obligations — Schools   16.2%
Water & Sewer Utility Revenue   15.8%
State & Local Agencies   14.2%
Tax Assessment   7.9%
Universities — Colleges   6.0%

 

Credit quality of bonds (r)  
AAA   84.0%
AA   2.5%
A   6.2%
BBB   6.1%
Not Rated   1.2%
Portfolio facts  
Average Duration (d)(i)   7.4
Average Life (i)(m)   12.1 yrs.
Average Maturity (i)(m)   13.7 yrs.
Average Credit Quality of Rated Securities (long-term) (a)   AA+
Average Credit Quality of Rated Securities (short-term) (a)   A-1

 

(a) The average credit quality of rated securities is based upon a market weighted average of portfolio holdings that are rated by public rating agencies.

 

(d) Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value.

 

(f) For purposes of this presentation, the cash component includes the total market value of any derivative holdings and may result in negative cash.

 

(i) For purposes of this presentation, the bond component includes accrued interest amounts.

 

(m) The average maturity shown is calculated using the final stated maturity on the portfolio’s holdings without taking into account any holdings which have been pre-refunded or pre-paid to an earlier date or which have a mandatory put date prior to the stated maturity. The average life shown takes into account these earlier dates.

 

(r) Each security is assigned a rating from Moody’s Investors Service. If not rated by Moody’s, the rating will be that assigned by Standard & Poor’s. Likewise, if not assigned a rating by Standard & Poor’s, it will be based on the rating assigned by Fitch, Inc. For those portfolios that hold a security which is not rated by any of the three agencies, the security is considered Not Rated. Holdings in U.S. Treasuries and government agency mortgage-backed securities, if any, are included in the “AAA”-rating category. Percentages are based on the total market value of investments as of 11/30/07.

 

* The fund holds short treasury futures with equivalent bond exposure of (63.1)% for the purpose of managing the fund’s duration.

Percentages are based on net assets, including preferred shares, as of 11/30/07, unless otherwise noted.

The portfolio is actively managed and current holdings may be different.

 

2


 

MANAGEMENT REVIEW

The MFS California Insured Municipal Fund (the “fund”) is a closed-end fund investing primarily in investment-grade municipal debt. Effective close of business June 29, 2007, Massachusetts Financial Services Company, Inc. (“MFS Investment Management”) became the investment adviser to the fund. Prior to June 30, 2007, Columbia Management Advisors, LLC was the fund’s investment adviser.

For the twelve months ended November 30, 2007, shares of the MFS California Insured Municipal Fund provided a total return of -8.27%, at net asset value. This compares with a return of 2.71% for the fund’s benchmark, the Lehman Brothers Municipal Bond Index. Total return for the fund is also calculated using the American Stock Exchange price which can differ from the net asset value and accordingly the total return that is calculated based on the net asset value and the American Stock Exchange price can be different. See the Performance Summary for additional information.

Market environment

Despite seemingly robust growth rates during the second and third quarters of 2007, underlying economic activity in the U.S. remained muted relative to other major economies. Overall, global economies witnessed moderate to strong growth during the reporting period as domestic demand improved and world trade accelerated.

With the strong global growth, however, concerns emerged about rising global inflation, especially as capacity became more constrained, wages rose, and energy and food prices advanced. During the reporting period, global central banks tightened monetary conditions, which in turn pushed global bond yields to their highest levels during this economic expansion.

However, financial markets – particularly in the mortgage and structured-products areas – experienced substantial volatility in recent months. Beginning in late July, heightened uncertainty and distress concerning the subprime mortgage market caused several global credit markets to tighten up, forcing central banks to inject liquidity and to reassess their tightening biases as sovereign bond yields declined and credit spreads widened. While credit conditions improved somewhat by late October as the Federal Reserve Board cut interest rates, the level of market turbulence remained significant into November. Increased market turmoil was also exacerbated by U.S. home foreclosures and uncertainties surrounding falling housing prices. Despite increased volatility across all asset classes and the widening in credit spreads, U.S. labor markets were resilient and wages rose modestly. More broadly, global equity markets rebounded following summer losses and generally held those gains through the end of the reporting period.

 

3


Management review – continued

 

Factors affecting performance

The fund’s longer duration(d) stance held back relative results as interest rates on municipal bonds with maturities beyond ten years generally increased during the reporting period. This rise in the municipal bond rates was in contrast to what took place in the U.S. Treasury market, where rates declined across the maturity spectrum. Therefore, our strategy to shorten duration using U.S. Treasury futures proved to be another negative factor in relative performance as Treasury prices rose.

Our positioning along the yield curve(y) was another area of relative weakness. The fund was overweight in its holdings of bonds with longer maturities over the investment period. As the municipal yield curve steepened, the value of longer maturity bonds decreased in value.

The decreased demand for municipal debt during the period also hampered investment results. This lack of demand for municipal debt was a primary reason behind the increase in interest rates on longer-dated municipal bonds. In recent years, non-traditional buyers of municipal bonds, such as arbitragers and leveraged accounts, became important investors in the municipal markets. These investors, in many instances, became net sellers of municipal debt over the investment period. This selling pressure tipped the balance between supply and demand causing rates to rise on the long end of the curve.

Additionally, concerns surrounding insurance companies who guarantee municipal debt came into question. This was caused by a spillover from the subprime area. During the investment period, the value of collateralized debt obligations (CDOs) guaranteed by many of the bond insurers decreased substantially in value. This necessitated increases in reserves by the insurers, and a wholesale repricing of insured municipal debt by the markets.

Respectfully,

 

Michael Dawson   Geoffrey Schechter
Portfolio Manager   Portfolio Manager

Note to Shareholders: Effective June 2007, Michael Dawson and Geoffrey Schechter became portfolio managers of the fund.

 

(d) Duration is a measure of how much a bond’s price is likely to fluctuate with general changes in interest rates, e.g., if rates rise 1.00%, a bond with a 5-year duration is likely to lose about 5.00% of its value.

 

(y) A yield curve graphically depicts the yields of different maturity bonds of the same credit quality and type; a normal yield curve is upward sloping, with short-term rates lower than long-term rates.

The views expressed in this report are those of the portfolio managers only through the end of the period of the report as stated on the cover and do not necessarily reflect the views of MFS or any other person in the MFS organization. These views are subject to change at any time based on market or other conditions, and MFS disclaims any responsibility to update such views. These views may not be relied upon as investment advice or an indication of trading intent on behalf of any MFS portfolio. References to specific securities are not recommendations of such securities, and may not be representative of any MFS portfolio’s current or future investments.

 

4


 

PERFORMANCE SUMMARY THROUGH 11/30/07

The following chart represents the fund’s historical performance in comparison to its benchmark(s). Investment return and principal value will fluctuate, and shares, when sold, may be worth more or less than their original cost; current performance may be lower or higher than quoted. The performance shown does not reflect the deduction of taxes, if any, that a shareholder would pay on fund distributions or the sale of fund shares.

 

Price Summary Year Ended 11/30/07                  
        Date      Price     
     Net Asset Value      11/30/07      $13.53  
            11/30/06      $15.43  
     American Stock Exchange Price      11/30/07      $11.65  
              5/14/07 (high) (t)      $14.94  
            11/29/07 (low) (t)      $11.56  
                11/30/06      $14.30    

Total Returns vs Index

Year Ended 11/30/07

       
     American Stock Exchange Price (r)      (14.78)%  
   Net Asset Value (r)      (8.27)%  
   Lehman Brothers Municipal Bond Index (f)      2.71%  
   Lipper California Insured Municipal Debt Funds Average (b)      0.42%    

 

(b) Effective June 30, 2007, MFS no longer compares the fund’s performance to a Lipper average as the benchmark(s) listed above more closely correspond to the fund’s investment policies and objectives.

 

(f) Source: FactSet Research Systems, Inc.

 

(r) Includes reinvestment of dividends and capital gain distributions.

 

(t) For the period December 1, 2006 through November 30, 2007.

Index Definition

Lehman Brothers Municipal Bond Index – a market capitalization-weighted index that measures the performance of the tax-exempt bond market.

Lipper California Insured Municipal Debt Funds Average – Funds that invest primarily in those securities that are exempt from taxation in California and are insured as to timely payment.

It is not possible to invest directly in an index.

5


Performance summary – continued

 

Notes to Performance Summary

The fund’s shares may trade at a discount or premium to net asset value. Shareholders do not have the right to cause the fund to repurchase their shares at net asset value. When fund shares trade at a premium, buyers pay more than the net asset value underlying fund shares, and shares purchased at a premium would receive less than the amount paid for them in the event of the fund’s liquidation. As a result, the total return that is calculated based on the net asset value and American Stock Exchange price can be different.

From time to time the fund may receive proceeds from litigation settlements, without which performance would be lower.

 

In accordance with Section 23(c) of the Investment Company Act of 1940, the fund hereby gives notice that it may from time to time repurchase shares of the fund in the open market at the option of the Board of Trustees and on such terms as the Trustees shall determine.

 

6


 

INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RISKS OF THE FUND

Investment Objective

The fund’s objective is to seek high current income exempt from federal income tax and California state personal income tax, but may also consider capital appreciation. The fund’s objective may be changed without shareholder approval.

Principal Investment Strategies

MFS normally invests at least 80% of the fund’s net assets in municipal instruments covered by insurance guaranteeing the timely payment of principal and interest.

The fund invests, under normal market conditions, at least 80% of its net assets in debt securities the interest of which in the opinion of issuer counsel (or other reputable authority) is exempt from federal regular income tax and California personal income tax. This policy may not be changed without shareholder approval. Interest from the fund’s investments may be subject to the federal alternative minimum tax.

MFS invests a high percentage of the fund’s assets in municipal issuers of California.

MFS primarily invests the fund’s assets in investment grade debt instruments, but may also invest in lower quality debt instruments.

MFS may invest 25% or more of each fund’s total assets in municipal instruments that finance similar projects, such as those relating to education, healthcare, housing, utilities, water or sewers. Municipal instruments whose interest is exempt from federal and state personal income tax include instruments issued by U.S. territories and possessions (such as Puerto Rico) and their political subdivisions and public corporations. Although MFS seeks to invest the fund’s assets in municipal instruments whose interest is exempt from federal and state personal income tax, MFS may also invest in taxable instruments.

MFS may use derivatives for different purposes, including to earn income and enhance returns, to increase or decrease exposure to a particular market, to manage or adjust the risk profile of the fund, or as alternatives to direct investments.

MFS uses a bottom-up investment approach in buying and selling investments for the fund. Investments are selected primarily based on fundamental analysis of instruments and their issuers in light of current market, economic, political, and regulatory conditions. Factors considered may include the instrument’s

 

7


Investment Objective, Principal Investment Strategies and Risks of the Fund – continued

 

credit quality, collateral characteristics, and indenture provisions, and the issuer’s management ability, capital structure, leverage, and ability to meet its current obligations. Quantitative analysis of the structure of the instrument and its features may also be considered.

The fund uses leverage through the issuance of preferred shares and investing the proceeds pursuant to its investment strategies.

Principal Risks

The portfolio’s yield and share prices change daily based on the credit quality of its investments and changes in interest rates. In general, the value of debt securities will decline when interest rates rise and will increase when interest rates fall. Debt securities with longer maturity dates will generally be subject to greater price fluctuations than those with shorter maturities. Municipal instruments can be volatile and significantly affected by adverse tax or court rulings, legislative or political changes and the financial condition of the issuers and/or insurers of municipal instruments. Changes in the financial condition of an individual municipal insurer can significantly affect the fund’s share price. If the Internal Revenue Service determines an issuer of a municipal security has not complied with applicable tax requirements, interest from the security could become taxable and the security could decline significantly in value. Derivatives can be highly volatile and involve risks in addition to those of the underlying indicator’s in whose value the derivative is based. Gains or losses from derivatives can be substantially greater than the derivatives’ original cost. The portfolio’s performance will be closely tied to the economic and political conditions in California and will be more volatile than the performance of a more geographically diversified portfolio. Lower quality debt securities involve substantially greater risk of default and their value can decline significantly over time. To the extent that investments are purchased with the proceeds from the issuance of preferred shares, the fund’s net asset value will increase or decrease at a greater rate than a comparable unleveraged fund. When you sell your shares, they may be worth more or less than the amount you paid for them. Please see the prospectus for further information regarding these and other risk considerations. A copy of the fund’s prospectus is available on the EDGAR database on the Securities and Exchange Commission’s Internet Web site at http://www.sec.gov.

 

8


 

PORTFOLIO MANAGERS’ PROFILES

 

Michael Dawson     Investment Officer of MFS; employed in the investment management area of MFS since 1998. Portfolio manager of the Fund since June 2007.
Geoffrey Schechter     Investment Officer of MFS; employed in the investment management area of MFS since 1993. Portfolio manager of the Fund since June 2007.

Note to Shareholders: Effective June 2007, Michael Dawson and Geoffrey Schechter became portfolio managers of the fund.

 

9


 

DIVIDEND REINVESTMENT PLAN

Pursuant to the Fund’s Dividend Reinvestment Plan (the “Plan”), all Common Shareholders whose shares are registered in their own names will have all distributions reinvested automatically in additional Common Shares of the Fund by Computershare (the “Plan Agent”), as agent under the Plan, unless a Common Shareholder elects to receive cash. An election to receive cash may be revoked or reinstated at the option of the Common Shareholder. Shareholders whose shares are held in the name of a broker or nominee will have distributions reinvested automatically by the broker or nominee in additional shares under the Plan, unless the service is not provided by the broker or nominee, or unless the shareholder elects to receive distributions in cash. If the service is not available, such distributions will be paid in cash. Shareholders whose shares are held in the name of a broker or nominee should contact the broker or nominee for details. All distributions to investors who elect not to participate (or whose broker or nominee elects not to participate) in the Plan will be paid by check mailed directly to the record holder by the Plan Agent, as dividend paying agent.

The Plan Agent will furnish each person who buys shares in the offering with written information relating to the Plan. Included in such information will be procedures for electing to receive distributions in cash (or, in the case of shares held in the name of a broker or nominee who does not participate in the Plan, procedures for having such shares registered in the name of the shareholder so that such shareholder may participate in the Plan).

If the Trustees of the Fund declare a dividend (including a capital gain dividend) payable either in shares or in cash, as holders of shares may have elected, then non participants in the Plan will receive cash and participants in the Plan will receive the equivalent in shares valued as set forth below. Whenever a market price is equal to or exceeds net asset value at the time shares are valued for the purpose of determining the number of shares equivalent to the distribution, participants will be issued shares at the net asset value most recently determined as provided under “Net Asset Value” in the Fund’s prospectus and its Statement of Additional Information, but in no event less than 95% of the market price. If the net asset value of the shares at such time exceeds the market price of shares at such time, or if the Fund should declare a dividend (including a capital gain dividend) payable only in cash, the Plan Agent will, as agent for the participants, use the cash that the shareholders would have received as a dividend to buy shares in the open market, the American Stock Exchange or elsewhere, for the participants’ accounts. If, before the Plan Agent has completed its purchases, the market price exceeds the net asset value of the shares, the average per share purchase price paid by the Plan Agent may exceed the net asset value of the shares,

 

10


Dividend Reinvestment Plan– continued

 

resulting in the acquisition of fewer shares than if the dividend (including a capital gain dividend) had been paid in shares issued by the Fund. The Plan Agent will apply all cash received as a dividend (including a capital gain dividend) to purchase shares on the open market as soon as practicable after the payment date of such dividend, but in no event later than 30 days after such date, except where necessary to comply with applicable provisions of the federal securities laws.

There is no charge to participants for reinvesting dividends (including capital gain dividends). The Plan Agent’s fees for handling the reinvestment of dividends (including capital gain dividends) will be paid by the Fund. There will be no brokerage charges with respect to shares issued directly by the Fund as a result of dividends or capital gains distributions payable either in stock or in cash. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent’s open market purchases in connection with the reinvestment of dividends (including capital gain dividends).

The automatic reinvestment of dividends (including capital gain dividends) will not relieve participants of any income tax which may be payable on such dividends. The amount of the dividend for tax purposes may vary depending on whether the Fund issues new Common Shares or purchases them on the open market.

The Plan may be amended or terminated on 30 days’ written notice to Plan participants. Contact the Plan Agent for additional information regarding the Plan. All correspondence concerning the Plan should be directed to Computershare Trust Company, N.A. by mail at P.O. Box 43078, Providence, RI 02940-3078, or by phone at 1-800-637-2304.

 

11


 

PORTFOLIO OF INVESTMENTS

11/30/07

The Portfolio of Investments is a complete list of all securities owned by your fund. It is categorized by broad-based asset classes.

 

Municipal Bonds - 162.3%             
Issuer    Shares/Par   Value ($)
    
Airport & Port Revenue - 7.6%             
Port of Oakland, CA, “K”, FGIC, 5.75%, 2029    $ 1,000,000   $ 1,033,910
San Diego County, CA, Regional Airport Authority, AMBAC, 5.25%, 2020      500,000     542,705
San Diego, CA, Port District Rev., “B”, MBIA, 5%, 2029      1,250,000     1,296,938
        
           $ 2,873,553
General Obligations - General Purpose - 8.6%             
State of California, 5%, 2022    $ 1,000,000   $ 1,030,360
State of California, 5%, 2031      1,000,000     1,016,220
State of California, AMBAC, 6%, 2017      1,000,000     1,173,790
        
           $ 3,220,370
General Obligations - Schools - 26.5%             
Allan Hancock, CA, Joint Community College (Election of 2006), “A”, FSA, 4.375%, 2031    $ 500,000   $ 498,150
Culver City, CA, School Facilities Financing Authority Rev. (Culver City Unified School District), FSA, 5.5%, 2025      1,000,000     1,164,980
Dublin, CA, Unified School District (Election of 2004), “C”, MBIA, 0%, 2032      3,000,000     854,280
Pomona, CA, Unified School District, “A”, MBIA, 6.55%, 2029      1,000,000     1,287,370
Rancho Santiago, CA, Community College District, FSA, 5.125%, 2029      1,000,000     1,130,950
Rescue, CA, Unified School District (Election of 1998), MBIA, 0%, 2026      1,125,000     451,654
San Diego, CA, Unified School District (Election of 1998), “B”, MBIA, 6%, 2019      1,000,000     1,180,740
Union, CA, Elementary School District, “A”, FGIC, 0%, 2018      1,630,000     1,027,878
Vallejo City, CA, Unified School District, “A”, MBIA, 5.9%, 2025      500,000     591,210
West Contra Costa, CA, Unified School District, “A”, MBIA, 5.7%, 2023      500,000     568,925
West Covina, CA, Unified School District, “A”, MBIA, 5.8%, 2021      500,000     575,270
Yuba City, CA, Unified School District, FGIC, 0%, 2018      1,000,000     630,600
        
           $ 9,962,007
Healthcare Revenue - Hospitals - 5.2%             
California Statewide Communities Development Authority Rev. (Catholic West), 6.5%, 2010 (c)    $ 145,000   $ 157,790
California Statewide Communities Development Authority Rev. (Daughters of Charity Health), “A”, 5.25%, 2030      500,000     488,350
Oakland, CA, Rev. (Harrison Foundation), “A”, AMBAC, 6%, 2010 (c)      1,000,000     1,056,300
Turlock, CA, Health Facilities Rev. (Emanuel Medical Center), 5.5%, 2037      260,000     259,982
        
           $ 1,962,422

 

12


Portfolio of Investments – continued

Issuer    Shares/Par   Value ($)
    
Municipal Bonds - continued             
Healthcare Revenue - Long Term Care - 6.1%             
ABAG Finance Authority for Non-Profit Corps. (Odd Fellows Home), MBIA, 6%, 2024    $ 2,000,000   $ 2,023,500
California Statewide Communities Development Authority Rev. (Eskaton Properties, Inc.), 8.25%, 2010 (c)      250,000     285,170
        
           $ 2,308,670
Human Services - 0.4%             
California Statewide Communities Development Authority Rev. (Inland Regional Center), 5.375%, 2037    $ 140,000   $ 137,844
Industrial Revenue - Other - 1.2%             
California Statewide Communities Development Authority Rev. (Anheuser Busch), 4.8%, 2046    $ 500,000   $ 452,200
Miscellaneous Revenue - Other - 2.7%             
San Francisco, CA, City & County Redevelopment Agency, Hotel Tax Rev., FSA, 6.75%, 2025    $ 1,000,000   $ 1,001,310
Single Family Housing - Local - 2.7%             
California Housing Finance Agency Rev., “A”, 4.95%, 2036    $ 1,000,000   $ 962,900
California Rural Home Mortgage Finance Authority Rev., Mortgage Backed Securities Program, “A”, GNMA, 6.35%, 2029      25,000     25,490
California Rural Home Mortgage Finance Authority Rev., Mortgage Backed Securities Program, “B4”, GNMA, 6.35%, 2029      25,000     25,195
        
           $ 1,013,585
Single Family Housing - State - 2.6%             
California Housing Finance Agency Rev., Home Mortgage, “N”, FGIC, 5.05%, 2026    $ 995,000   $ 991,418
Solid Waste Revenue - 1.4%             
Salinas Valley, CA, Solid Waste Authority Rev., AMBAC, 5.125%, 2022    $ 500,000   $ 513,385
State & Local Agencies - 23.1%             
California Public Works Board Lease Rev., Department of Mental Health (Coalinga), “A”, 5.5%, 2019    $ 500,000   $ 539,230
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., Enhanced, “A”, FGIC, 5%, 2035      1,000,000     1,005,580
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., Enhanced, “A”, FGIC, 5%, 2038      1,000,000     1,004,330
Huntington Park, CA, Public Financing Authority Rev., “A”, FSA, 5.25%, 2019      1,000,000     1,097,810

 

13


Portfolio of Investments – continued

Issuer    Shares/Par   Value ($)
    
Municipal Bonds - continued             
State & Local Agencies - continued             
Los Angeles County, CA, Schools Regionalized Business Service Corp., Capital Appreciation Pooled Financing, “A”, AMBAC, 0%, 2018    $ 2,020,000   $ 1,273,062
Los Angeles County, CA, Schools Regionalized Business Service Corp., Capital Appreciation Pooled Financing, “A”, AMBAC, 0%, 2023      2,220,000     1,051,614
Pacifica, CA, Certificates of Participation (Street Improvement Project), AMBAC, 5.875%, 2009 (c)      1,500,000     1,603,530
Sacramento, CA, City Financing Authority (Master Lease Program Facilities), “E”, AMBAC, 5.25%, 2026      1,000,000     1,114,130
        
           $ 8,689,286
Tax - Other - 4.9%             
Fontana, CA, Public Finance Authority, Tax Allocation Rev. (Sub Lien North Fontana Redevelopment), “A”, AMBAC, 5%, 2029    $ 1,000,000   $ 1,029,280
Southern California Logistics Airport Authority (Southern California Authority Project), XLCA, 5%, 2043      820,000     823,936
        
           $ 1,853,216
Tax Assessment - 12.9%             
Huntington Beach, CA, Community Facilities District, Special Tax (Grand Coast Resort), “2000-1”, 6.45%, 2031    $ 100,000   $ 104,018
Lancaster, CA, Financing Authority, Tax Allocation Rev. (Projects No. 5 & 6 Redevelopment Projects), MBIA, 5.25%, 2020      1,075,000     1,194,540
Long Beach, CA, Bond Finance Authority, Tax Allocation Rev., “C”, AMBAC, 5.5%, 2031      750,000     838,800
Oceanside, CA, Community Development Commission, Tax Allocation (Downtown Redevelopment Project Escrow Bonds), 5.7%, 2025      500,000     520,010
Orange County, CA, Community Facilities District, Special Tax (Ladera Ranch), “A”, 6.7%, 2009 (c)      200,000     215,200
San Jose, CA, Redevelopment Agency, Tax Allocation (Merged Area Redevelopment Project), “C”, MBIA, 4.25%, 2030      1,000,000     920,590
San Jose, CA, Redevelopment Agency, Tax Allocation (Merged Area Redevelopment Project), “D”, AMBAC, 5%, 2021      1,000,000     1,057,210
        
           $ 4,850,368
Tobacco - 5.8%             
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., “A-1”, 5.75%, 2047    $ 500,000   $ 468,425
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., Asset Backed, “A-1”, 5%, 2033      1,000,000     874,900
Golden State, CA, Tobacco Securitization Corp., Tobacco Settlement Rev., Asset Backed, “A-1”, 5.125%, 2047      1,000,000     848,390
        
           $ 2,191,715

 

14


Portfolio of Investments – continued

Issuer    Shares/Par   Value ($)
    
Municipal Bonds - continued             
Transportation - Special Tax - 4.9%             
Puerto Rico Highway & Transportation Authority, Highway Rev., “Y”, FSA, 5.5%, 2016 (c)    $ 1,000,000   $ 1,143,010
San Francisco, CA, Bay Area Rapid Transit District, Sales Tax Rev., “A”, MBIA, 5%, 2030 (f)      685,000     710,311
        
           $ 1,853,321
Universities - Colleges - 9.9%             
California Educational Facilities Authority Rev. (Pepperdine University), “A”, AMBAC, 5%, 2035    $ 1,000,000   $ 1,029,180
California Educational Facilities Authority Rev., Pooled College & University Projects, “B”, ETM, 6.625%, 2020 (c)      250,000     270,453
California University Rev., “C”, MBIA, 5%, 2029      1,500,000     1,554,420
Chabot Las Positas, CA, Community College (Election of 2004), “B”, AMBAC, 0%, 2026      970,000     377,718
University Enterprises, Inc. (Auxiliary Organization), “A”, FGIC, 4.375%, 2030      500,000     476,700
        
           $ 3,708,471
Utilities - Investor Owned - 8.5%             
California Pollution Control Financing Authority, Pollution Control Rev. (Pacific Gas & Electric Co.), MBIA, 5.35%, 2016    $ 1,000,000   $ 1,053,630
California Pollution Control Financing Authority, Pollution Control Rev. (San Diego Gas & Electric Co.), “A”, 6.8%, 2015      500,000     577,925
California Pollution Control Financing Authority, Pollution Control Rev. (Southern CA Edison Co.), “B”, MBIA, 5.45%, 2029      1,500,000     1,560,120
        
           $ 3,191,675
Utilities - Municipal Owned - 1.5%             
Southern California Public Power Authority (Natural Gas Project No. 1), “A”, 5%, 2033    $ 585,000   $ 560,401
Water & Sewer Utility Revenue - 25.8%             
Culver City, CA, Wastewater Facilities Rev., “A”, FGIC, 5.7%, 2029    $ 1,500,000   $ 1,585,980
Elsinore Valley, CA, Municipal Water District, Certificates of Participation, FGIC, 5.375%, 2018      1,160,000     1,297,437
Los Angeles County, CA, Sanitation Districts Financing Authority (Capital Projects District No. 20), “A”, AMBAC, 4.5%, 2032      1,000,000     973,680
Los Angeles, CA, Department of Water & Power, Waterworks Rev., “A-2”, AMBAC, 5%, 2027      400,000     418,136
Los Angeles, CA, Department of Water & Power, Waterworks Rev., “C”, MBIA, 5%, 2022      1,000,000     1,052,540
Metropolitan Water District of Southern California Waterworks Rev., “A”, FSA, 5%, 2030      1,000,000     1,042,180

 

15


Portfolio of Investments - continued

 

Issuer    Shares/Par   Value ($)  
    
Municipal Bonds - continued               
Water & Sewer Utility Revenue - continued               
Pico Rivera, CA, Water Authority Rev. (Water Systems Project), “A”, MBIA, 5.5%, 2029    $ 2,000,000   $ 2,312,460  
Westlands, CA, Water District Rev., Certificates of Participation, “A”, MBIA, 5%, 2030      1,000,000     1,023,080  
          
           $ 9,705,493  
Total Municipal Bonds (Identified Cost, $58,891,250)          $ 61,040,710  
Floating Rate Demand Notes - 1.3%               
East Baton Rouge, LA, Pollution Control Rev. (Exxon Mobil Corp.), 3.48%, due 12/03/07    $ 100,000   $ 100,000  
Illinois Health Facilities Authority Rev. (University of Chicago Hospital), 3.6%, due 12/03/07      200,000     200,000  
New York, NY, 3.43%, due 12/03/07      200,000     200,000  
Total Floating Rate Demand Notes, at Identified Cost and Value          $ 500,000  
Total Investments (Identified Cost, $59,391,250) (k)          $ 61,540,710  
Other Assets, Less Liabilities - 1.4%            542,463  
Preferred Shares (Issued by the Fund) - (65.0)%            (24,450,000 )
Net Assets applicable to common shares - 100.0%          $ 37,633,173  

 

(c) Refunded bond.

 

(f) All or a portion of the security has been segregated as collateral for an open futures contract.

 

(k) As of November 30, 2007, the fund held securities fair valued in accordance with the policies adopted by the Board of Trustees, aggregating $61,040,710 and 99.19% of market value. All of these security values were provided by an independent pricing service using an evaluated bid.

Futures contracts outstanding at 11/30/07

 

Description    Contracts    Value    Expiration
Date
   Unrealized
Appreciation/
(Depreciation)
 
U.S. Treasury Note (Short)    115    $13,476,563    Mar-08    $(24,660 )
U.S. Treasury Note 10 yr (Short)    227    25,697,109    Mar-08    13,393  
            $(11,267 )
               

At November 30, 2007, the fund had sufficient cash and/or other liquid securities to cover any commitments under these derivative contracts.

The following abbreviations are used in this report and are defined:

 

ETM   Escrowed to Maturity

 

Insurers          
AMBAC    AMBAC Indemnity Corp.      
FGIC    Financial Guaranty Insurance Co.      
FSA    Financial Security Assurance Inc.      
GNMA    Government National Mortgage Assn.      
MBIA    MBIA Insurance Corp.      
XLCA    XL Capital Insurance Co.      

See Notes to Financial Statements

 

16


Financial Statements

 

STATEMENT OF ASSETS AND LIABILITIES

At 11/30/07

This statement represents your fund’s balance sheet, which details the assets and liabilities comprising the total value of the fund.

 

Assets            
Investments, at value (identified cost, $59,391,250)    $61,540,710     
Cash    90,213     
Receivable for daily variation margin on open futures contracts    86,063     
Receivable for investments sold    479,518     
Interest receivable    901,581     
Receivable from investment adviser    47,534     
Other assets    15,687       
Total assets           $63,161,306
Liabilities            
Distributions payable on common shares    $1,595     
Distributions payable on preferred shares    1,975     
Payable for investments purchased    982,703     
Payable to affiliates      

Management fee

   1,698     

Transfer agent and dividend disbursing costs

   24     

Administrative services fee

   106     
Payable for independent trustees’ compensation    13,108     
Accrued expenses and other liabilities    76,924       
Total liabilities           $1,078,133
Preferred shares            
Preferred shares (978 shares issued and outstanding at $25,000 per share) at liquidation value           $24,450,000
Net assets applicable to common shares           $37,633,173
Net assets consist of:            
Paid-in capital – common shares    $39,376,142     
Unrealized appreciation (depreciation) on investments    2,138,193     
Accumulated net realized gain (loss) on investments    (3,931,236 )   
Undistributed net investment income    50,074       
Net assets applicable to common shares           $37,633,173
Preferred shares, at value (978 shares issued and outstanding at $25,000 per share)           $24,450,000
Net assets including preferred shares           $62,083,173
Common shares of beneficial interest outstanding           2,780,771
Net asset value per common share (net assets of $37,633,173 / 2,780,771 shares of beneficial interest outstanding)           $13.53

See Notes to Financial Statements

 

17


Financial Statements

 

STATEMENT OF OPERATIONS

Year ended 11/30/07

This statement describes how much your fund earned in investment income and accrued in expenses. It also describes any gains and/or losses generated by fund operations.

 

Net investment income              
Interest income           $3,311,706  
Expenses      

Management fee

   $423,194     

Transfer agent and dividend disbursing costs

   19,755     

Administrative services fee

   8,291     

Independent trustees’ compensation

   12,216     

Stock exchange fee

   5,060     

Preferred shares remarketing agent fee

   61,195     

Custodian fee

   47,627     

Shareholder communications

   14,559     

Auditing fees

   71,018     

Legal fees

   5,729     

Miscellaneous

   24,700         
Total expenses           $693,344  

Fees paid indirectly

   (1,409 )   

Reduction of expenses by investment adviser

   (235,613 )       
Net expenses           $456,322  
Net investment income           $2,855,384  
Realized and unrealized gain (loss) on investments              
Realized gain (loss) (identified cost basis)      

Investment transactions

   $585,155     

Futures contracts

   (3,211,142 )       
Net realized gain (loss) on investments           $(2,625,987 )
Change in unrealized appreciation (depreciation)      

Investments

   $(2,920,975 )   

Futures contracts

   (11,267 )       
Net unrealized gain (loss) on investments           $(2,932,242 )
Net realized and unrealized gain (loss) on investments           $(5,558,229 )
Distributions declared to preferred shareholders           $(855,432 )
Change in net assets from operations           $(3,558,277 )

See Notes to Financial Statements

 

18


Financial Statements

 

STATEMENTS OF CHANGES IN NET ASSETS

These statements describe the increases and/or decreases in net assets resulting from operations, any distributions, and any shareholder transactions.

 

    Years ended 11/30  
    2007      2006  
Change in net assets             
From operations             
Net investment income   $2,855,384      $2,722,129  
Net realized gain (loss) on investments   (2,625,987 )    385,376  
Net unrealized gain (loss) on investments   (2,932,242 )    1,465,773  
Distributions declared to preferred shareholders   (855,432 )    (754,735 )
Change in net assets from operations   $(3,558,277 )    $3,818,543  
Distributions declared to common shareholders             
From net investment income   $(1,724,078 )    $(1,979,909 )
Total change in net assets   $(5,282,355 )    $1,838,634  
Net assets applicable to common shares             
At beginning of period   42,915,528      41,076,894  
At end of period (including undistributed net investment income of $50,074 and $35,346, respectively)   $37,633,173      $42,915,528  

See Notes to Financial Statements

 

19


Financial Statements

 

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the fund’s financial performance for the past 5 years. Certain information reflects financial results for a single fund share. The total returns in the table represent the rate by which an investor would have earned (or lost) on an investment in the fund share class (assuming reinvestment of all distributions) held for the entire period.

 

     Years ended 11/30  
     2007     2006      2005      2004      2003  
Net asset value, beginning of period    $15.43     $14.77      $14.97      $15.21      $15.30  
Income (loss) from investment operations                             

Net investment income (d)

   $1.03 (z)   $0.98      $1.02      $1.03      $1.10  

Net realized and unrealized gain (loss) on investments

   (2.00 )(z)   0.66      (0.21 )    (0.26 )    (0.09 )

Distributions declared to preferred shareholders

   (0.31 )   (0.27 )    (0.17 )    (0.09 )    (0.08 )
Total from investment operations    $(1.28 )   $1.37      $0.64      $0.68      $0.93  
Less distributions declared to common shareholders                       

From net investment income

   $(0.62 )   $(0.71 )    $(0.84 )    $(0.92 )    $(1.02 )
Net asset value, end of period    $13.53     $15.43      $14.77      $14.97      $15.21  
Common share market value, end of period    $11.65     $14.30      $14.20      $13.61      $15.60  
Total return at common share market value (%)    (14.78 )   5.93      10.63      (6.99 )    1.65  
Ratios (%) (to average net assets applicable to common shares) and Supplemental data:                                  
Expenses before expense reductions (f)(v)    1.71     1.46      1.26      1.08      1.14  
Expenses after expense reductions (f)    1.12     1.04      0.95      0.87      0.88  
Net investment income (p)    7.03 (z)   6.58      6.72      6.89      7.17  
Portfolio turnover    21     16      29      16      10  
Net assets at end of period (000 Omitted)    $37,633     $42,916      $41,077      $41,631      $42,260  

 

20


Financial Highlights – continued

 

     Years ended 11/30
     2007     2006    2005    2004    2003
Supplemental Ratios (%):                     
Ratio of expenses to average net assets including preferred shares    0.70     0.65    0.60    0.55    0.55
Net investment income available to common shares    4.92     4.76    5.57    6.30    6.63
Senior Securities:                     
Total preferred shares outstanding    978     978    978    978    978
Asset coverage per preferred share (k)    $63,480     $68,881    $67,001    $67,567    $68,211
Involuntary liquidation preference per preferred share    $25,000 (o)   $25,014    $25,012    $25,003    $25,002
Average market value per preferred share    $25,000     $25,000    $25,000    $25,000    $25,000
(d) Per share data are based on average shares outstanding.
(f) Ratios do not reflect reductions from fees paid indirectly.
(k) Calculated by subtracting the fund’s total liabilities from the fund’s total assets and dividing this number by the number of preferred shares outstanding.
(o) Amount excludes accrued unpaid distributions to preferred shareholders.
(p) Ratio excludes dividend payment on preferred shares.
(v) For the year ended November 30, 2007, the ratio includes the management fee before reduction of 0.15% of the fund’s average daily net assets including preferred shares. This results in an increase to the ratio, applicable to common shares, of 0.24% for the year ended November 30, 2007. Prior periods reflect management fee after any such reductions.
(z) The fund applied a change in estimate for amortization of premium on certain debt securities that resulted in an increase of $0.08 per share to net investment income, a decrease of $0.08 per share to net realized and unrealized gain (loss) on investments, and an increase of 0.51% to the net investment income ratio for the year ended November, 30, 2007. The change in estimate had no impact on net assets, net asset value per share or total return.

See Notes to Financial Statements

 

21


 

NOTES TO FINANCIAL STATEMENTS

 

(1)   Business and Organization

MFS California Insured Municipal Fund (the fund) is organized as a Massachusetts business trust and is registered under the Investment Company Act of 1940, as amended, as a closed-end management investment company. At the annual meeting of the shareholders of the fund held in June 2007, the shareholders, among other things, approved a new advisory agreement between MFS and the fund and elected new Trustees. Effective the close of business June 29, 2007, the existing advisory agreement between Columbia Management Advisors LLC and the fund was terminated, the fund was removed from existing service agreements among the fund, Columbia and certain affiliated funds, and new agreements became effective between MFS and the fund for investment advisory and administrative services; State Street Bank and the fund for custody, fund accounting, and securities lending services; and Computershare Trust Company, N.A. and the fund for transfer agency services. At the same time, the fund changed its name to MFS California Insured Municipal Fund and the then serving Trustees and officers of the fund resigned, and the newly elected Trustees and newly appointed officers took office.

 

(2)   Significant Accounting Policies

General – The preparation of financial statements in conformity with U.S. 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. Municipal securities backed by current or anticipated revenues from a specific project or specific assets can be negatively affected by the discontinuance of the taxation supporting the projects or assets or the inability to collect revenues for the project or from the assets. If the Internal Revenue Service determines an issuer of a municipal security has not complied with applicable tax requirements, the security could decline in value, interest from the security could become taxable and the fund may be required to issue Forms 1099-DIV.

Investment Valuations – Debt instruments (other than short-term instruments), including restricted debt instruments, are generally valued at an evaluated or composite bid as reported by an independent pricing service. Short-term instruments with a maturity at issuance of 60 days or less may be valued at amortized cost, which approximates market value. Futures contracts are generally valued at last posted settlement price as reported by an independent pricing service on the market on which they are primarily traded. Futures contracts for which there were no trades that day for a particular

 

22


Notes to Financial Statements – continued

 

position are generally valued at the closing bid quotation as reported by an independent pricing service on the market on which such futures contracts are primarily traded. Securities and other assets generally valued on the basis of information from an independent pricing service may also be valued at a broker-dealer bid quotation. Values obtained from pricing services can utilize both dealer-supplied valuations and electronic data processing techniques, which take into account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data.

The Board of Trustees has delegated primary responsibility for determining or causing to be determined the value of the fund’s investments (including any fair valuation) to the adviser pursuant to valuation policies and procedures approved by the Board. If the adviser determines that reliable market quotations are not readily available, investments are valued at fair value as determined in good faith by the adviser in accordance with such procedures under the oversight of the Board of Trustees. Under the fund’s valuation policies and procedures, market quotations are not considered to be readily available for many types of debt instruments and certain types of derivatives. These investments are generally valued at fair value based on information from independent pricing services. In addition, investments may be valued at fair value if the adviser determines that an investment’s value has been materially affected by events occurring after the close of the exchange or market on which the investment is principally traded (such as foreign exchange or market) and prior to the determination of the fund’s net asset value, or after the halting of trading of a specific security where trading does not resume prior to the close of the exchange or market on which the security is principally traded. The adviser may rely on independent pricing services or other information (such as the correlation with price movements of similar securities in the same or other markets; the type, cost and investment characteristics of the security; the business and financial condition of the issuer; and trading and other market data) to assist in determining whether to fair value and at what value to fair value an investment. The value of an investment for purposes of calculating the fund’s net asset value can differ depending on the source and method used to determine value. When fair valuation is used, the value of investments used to determine the fund’s net asset value may differ from quoted or published prices for the same investments.

In September 2006, FASB Statement No. 157, Fair Value Measurements (the “Statement”) was issued, and is effective for fiscal years beginning after November 15, 2007 and for all interim periods within those fiscal years. This Statement provides a single definition of fair value, a hierarchy for measuring

 

23


Notes to Financial Statements – continued

 

fair value and expanded disclosures about fair value measurements. Management is evaluating the application of the Statement to the fund, and believes the impact will be limited to expanded disclosures resulting from the adoption of this Statement in the fund’s financial statements.

Derivative Risk – The fund may invest in derivatives for hedging or non-hedging purposes. While hedging can reduce or eliminate losses, it can also reduce or eliminate gains. When the fund uses derivatives as an investment to gain market exposure, or for hedging purposes, gains and losses from derivative instruments may be substantially greater than the derivative’s original cost. Derivative instruments include futures contracts.

Futures Contracts – The fund may enter into futures contracts for the delayed delivery of securities or currency, or contracts based on financial indices at a fixed price on a future date. In entering such contracts, the fund is required to deposit with the broker either in cash or securities an amount equal to a certain percentage of the contract amount. Subsequent payments are made or received by the fund each day, depending on the daily fluctuations in the value of the contract, and are recorded for financial statement purposes as unrealized gains or losses by the fund. Upon entering into such contracts, the fund bears the risk of interest or exchange rates or securities prices moving unexpectedly, in which case, the fund may not achieve the anticipated benefits of the futures contracts and may realize a loss.

Indemnifications – Under the fund’s organizational documents, its officers and trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the fund. Additionally, in the normal course of business, the fund enters into agreements with service providers that may contain indemnification clauses. The fund’s maximum exposure under these agreements is unknown as this would involve future claims that may be made against the fund that have not yet occurred.

Investment Transactions and Income – Investment transactions are recorded on the trade date. Interest income is recorded on the accrual basis. All premium and discount is amortized or accreted for financial statement purposes in accordance with U.S. generally accepted accounting principles. All premium and original issue discount is amortized or accreted for tax reporting purposes as required by federal income tax regulations.

The fund may receive proceeds from litigation settlements. Any proceeds received from litigation involving portfolio holdings are reflected in the Statement of Operations in realized gain/loss if the security has been disposed of by the fund or in unrealized gain/loss if the security is still held by the fund. Any other proceeds from litigation not related to portfolio holdings are reflected as other income in the Statement of Operations.

 

24


Notes to Financial Statements – continued

 

As a result of a change in estimate for the amortization of premium and accretion of discount on certain debt securities, interest income has been increased by $208,958, with a corresponding reduction to net unrealized appreciation (depreciation).

Fees Paid Indirectly – The fund’s custody fee may be reduced according to an arrangement that measures the value of cash deposited with the custodian by the fund. This amount, for the year ended November 30, 2007, is shown as a reduction of total expenses on the Statement of Operations.

Tax Matters and Distributions – The fund intends to qualify as a regulated investment company, as defined under Subchapter M of the Internal Revenue Code, and to distribute all of its taxable and tax-exempt income, including realized capital gains. Accordingly, no provision for federal income tax is required in the financial statements.

Distributions to shareholders are recorded on the ex-dividend date. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from U.S. generally accepted accounting principles. Certain capital accounts in the financial statements are periodically adjusted for permanent differences in order to reflect their tax character. These adjustments have no impact on net assets or net asset value per share. Temporary differences which arise from recognizing certain items of income, expense, gain or loss in different periods for financial statement and tax purposes will reverse at some time in the future. Distributions in excess of net investment income or net realized gains are temporary overdistributions for financial statement purposes resulting from differences in the recognition or classification of income or distributions for financial statement and tax purposes.

Book/tax differences primarily relate to amortization and accretion of debt securities.

The tax character of distributions declared to shareholders is as follows:

 

     11/30/07    11/30/06
Tax-exempt income    $2,579,510    $2,734,644

 

25


Notes to Financial Statements – continued

 

The federal tax cost and the tax basis components of distributable earnings were as follows:

 

As of 11/30/07       
Cost of investments    $59,220,942  
Gross appreciation    2,825,336  
Gross depreciation    (505,568 )
Net unrealized appreciation (depreciation)    $2,319,768  
Undistributed tax-exempt income    $51,669  
Capital loss carryforwards    (1,352,320 )
Post-October capital loss deferral    (2,760,491 )
Other temporary differences    (1,595 )

As of November 30, 2007, the fund had capital loss carryforwards available to offset future realized gains. Such losses expire as follows:

 

11/30/11    $(176,833 )
11/30/12    (70,908 )
11/30/15    (1,104,579 )
   $(1,352,320 )

In June 2006, FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (the “Interpretation”) was issued, and is effective for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. On December 22, 2006, the SEC delayed the implementation of the Interpretation for regulated investment companies for an additional six months. This Interpretation prescribes a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return, and requires certain expanded disclosures. Management has evaluated the application of the Interpretation to the fund, and has determined that there is no impact resulting from the adoption of this Interpretation on the fund’s financial statements.

 

(3)   Transactions with Affiliates

Information in the fund’s financial statements regarding expenses includes expenses paid by the Colonial California Insured Municipal Fund prior to June 30, 2007.

Investment Adviser – The fund has an investment advisory agreement with Massachusetts Financial Services Company (MFS) to provide overall investment management and related administrative services and facilities to the fund. The management fee is computed daily and paid monthly at an annual rate of 0.65% of the fund’s average daily net assets (including the value of auction preferred shares).

MFS has agreed in writing to reduce its management fee to 0.50%, 0.55%, and 0.60% of the average daily net assets (including the value of auction preferred

 

26


Notes to Financial Statements – continued

 

shares), for the years ending November 30, 2007, 2008 and 2009, respectively. This written agreement will continue through November 30, 2009 unless changed or rescinded by the fund’s Board of Trustees. This management fee reduction amounted to $40,176, which is shown as a reduction of total expenses in the Statement of Operations. The management fee incurred for the year ended November 30, 2007 was equivalent to an annual effective rate of 0.50% of the fund’s average daily net assets, (including the value of auction preferred shares).

Prior to June 30, 2007, the fund had an investment advisory agreement with Columbia Management Advisors, LLC (“Columbia”), an indirect, wholly-owned subsidiary of the Bank of America Corporation. Under this agreement, Columbia received a monthly investment advisory fee at the annual rate of 0.65% of the fund’s average weekly net assets, (including the value of auction preferred shares).

Prior to June 30, 2007, Columbia as investment adviser to the fund had agreed to reduce its management fee to 0.50% of the fund’s average weekly net assets, (including the value of auction preferred shares). This management fee reduction amounted to $57,470, which is shown as a reduction of total expenses in the Statement of Operations.

MFS has agreed in writing to pay a portion of the fund’s operating expenses, exclusive of certain other fees and expenses, such that total annual fund operating expenses (including remarketing fees) do not exceed 0.70% and 0.75% of the fund’s average daily net assets including auction preferred shares, for the years ending November 30, 2007 and 2008, respectively. This written agreement will continue through November 30, 2008 unless changed or rescinded by the fund’s Board of Trustees. For the period June 30, 2007 through November 30, 2007, this reduction amounted to $47,534 and is reflected as a reduction of total expenses in the Statement of Operations.

Prior to June 30, 2007, Columbia as investment adviser to the fund had agreed to pay a portion of the fund’s operating expenses, exclusive of certain other fees and expenses, such that total annual operating expenses did not exceed 0.70% of the fund’s average weekly net assets including auction preferred shares. For the period December 1, 2006 through June 29, 2007, this reduction amounted to $90,354 and is reflected as a reduction of total expenses in the Statement of Operations.

Transfer Agent – Computershare Trust Company, N.A. (“Computershare”) is the transfer agent for the fund. Effective June 30, 2007, MFS Service Center, Inc. (MFSC) monitors and supervises the activities of Computershare for an agreed upon fee approved by the Board of Trustees. For the period from June 30, 2007 through November 30, 2007, these fees paid to MFSC amounted to $75. MFSC may also receive payment from the fund for out-of-pocket expenses

 

27


Notes to Financial Statements – continued

 

paid by MFSC on behalf of the fund. For the year ended November 30, 2007, no out-of-pocket costs were incurred by the fund.

Pricing and Bookkeeping Fees – For the period December 15, 2006 through June 29, 2007 the fund entered into a Financial Reporting Services Agreement with State Street Bank & Trust Company (“State Street”) and Columbia (the “Financial Reporting Services Agreement”) pursuant to which State Street provided financial reporting services to the fund. Also effective December 15, 2006 through June 29, 2007, the fund entered into an Accounting Services Agreement with State Street and Columbia (collectively with the Financial Reporting Services Agreement, the “State Street Agreements”) pursuant to which State Street provided accounting services to the fund. Under these former agreements with State Street the fund paid State Street an annual fee of $38,000 paid monthly. In addition, the fund paid State Street a monthly fee based on an annualized percentage rate of average daily net assets of the fund for the month. The fund also reimbursed State Street for certain out-of-pocket expenses and charges.

For the period December 15, 2006 through June 29, 2007, the fund entered into a Pricing and Bookkeeping Oversight and Services Agreement (the “Services Agreement”) with Columbia. Under the Services Agreement, Columbia provided services related to the fund’s expenses and the requirements of the Sarbanes-Oxley Act of 2002, and provided oversight of the accounting and financial reporting services provided by State Street. Under the Services Agreement, the fund reimbursed Columbia for out-of-pocket expenses and direct internal costs relating to accounting oversight and for services relating to the fund’s expenses and the requirements of the Sarbanes-Oxley Act of 2002.

Prior to December 15, 2006, Columbia was responsible for providing pricing and bookkeeping services to the fund under a pricing and bookkeeping agreement and was entitled to receive an annual fee at the same fee structure described above under the State Street Agreements. Under separate agreements between Columbia and State Street, Columbia delegated certain functions to State Street. The fund also reimbursed Columbia and State Street for out-of-pocket expenses and charges, including fees payable to third parties for pricing the fund’s portfolio securities and direct internal costs incurred by Columbia in connection with providing fund accounting oversight and monitoring and certain other services.

For the period from December 1, 2006 through June 29, 2007, the total amount paid to affiliates by the fund, under these agreements, inclusive of out-of-pocket expenses, was $13,300, which was equivalent to an annual effective rate of 0.0353% of the fund’s average daily net assets (including the value of auction preferred shares). This amount is included in the custodian fee in the Statement of Operations.

 

28


Notes to Financial Statements – continued

 

Administrator Effective June 30, 2007, MFS provides certain financial, legal, shareholder communications, compliance, and other administrative services to the fund. Under an administrative services agreement, the fund partially reimburses MFS the costs incurred to provide these services. The fund is charged a fixed amount plus a fee based on average daily net assets (including the value of auction preferred shares). The fund’s annual fixed amount is $17,500.

The administrative services fee incurred for the period from June 30, 2007 through November 30, 2007 was equivalent to an annual effective rate of 0.0302% of the fund average daily net assets (including the value of auction preferred shares).

Trustees’ and Officers’ Compensation – The fund pays compensation to independent trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The fund does not pay compensation directly to trustees or officers of the fund who are also officers of the investment adviser, all of whom receive remuneration for their services to the fund from MFS. Certain officers and trustees of the fund are officers or directors of MFS and MFSC.

Prior to June 30, 2007, all former officers of the fund were employees of Columbia or its affiliates and, with the exception of the fund’s Chief Compliance Officer, received no compensation from the fund. The former Board of Trustees had appointed a Chief Compliance Officer to the fund in accordance with federal securities regulations. The fund, along with other funds managed by Columbia, paid its pro-rata share of the expenses associated with the Chief Compliance Officer. The fund’s expenses for the Chief Compliance Officer did not exceed $15,000 per year. The trustees, officers, and Chief Compliance Officer resigned effective the close of business June 29, 2007.

Deferred Trustee Compensation – The fund’s former independent trustees participated in a Deferred Compensation Plan (the Plan). The fund’s current independent trustees are not allowed to defer compensation under the Plan. Deferred amounts represent an unsecured obligation of the fund until distributed in accordance with the Plan. Included in other assets and payable for independent trustees’ compensation is $13,108 of deferred trustees’ compensation.

Other – This fund and certain other MFS funds (the funds) have entered into a services agreement (the Agreement) which provides for payment of fees by the funds to Tarantino LLC in return for the provision of services of an Independent Chief Compliance Officer (ICCO) for the funds. The ICCO is an officer of the funds and the sole member of Tarantino LLC. The funds can terminate the Agreement with Tarantino LLC at any time under the terms of the Agreement. For the period from June 30, 2007 through November 30, 2007, the fee paid to Tarantino LLC was $80. MFS has agreed to reimburse the fund

 

29


Notes to Financial Statements – continued

 

for a portion of the payments made by the funds to Tarantino LLC in the amount of $79, which is shown as a reduction of total expenses in the Statement of Operations. Additionally, MFS has agreed to bear all expenses associated with office space, other administrative support, and supplies provided to the ICCO.

 

(4)   Portfolio Securities

Purchases and sales of investments, other than U.S. government securities, purchased option transactions, and short-term obligations, aggregated $13,696,795 and $17,350,810, respectively.

 

(5)   Shares of Beneficial Interest

The fund’s Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest. There were no transactions in fund shares for the year ended November 30, 2007.

 

(6)   Line of Credit

The fund is permitted to have bank borrowings for temporary or emergency purposes to fund shareholder redemptions. The fund has established borrowing arrangements with certain banks. The interest rate on the borrowings is equal to the Federal Reserve funds rate plus 0.30%. The fund had no significant borrowings during the year ended November 30, 2007.

 

(7)   Auction Preferred Shares

The fund currently has outstanding 978 shares of Auction Preferred Shares (APS). Dividends are cumulative at a rate that is reset every seven days through an auction process. During the year ended November 30, 2007, the dividend rates ranged from 2.90% to 4.05%. The fund pays an annual fee equivalent to 0.25% of the preferred share liquidation value for remarketing efforts associated with the preferred auction. The APS are redeemable at the option of the fund in whole or in part at the redemption price equal to $25,000 per share, plus accumulated and unpaid dividends. The APS are also subject to mandatory redemption if certain requirements relating to its asset maintenance coverage are not satisfied. The fund is required to maintain certain asset coverage with respect to the APS as defined in the fund’s By-Laws and the Investment Company Act of 1940. 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, 2007, there were no such restrictions on the fund.

 

30


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Trustees and Shareholders of MFS California Insured Municipal Fund:

We have audited the accompanying statement of assets and liabilities of MFS California Insured Municipal Fund (formerly Colonial California Insured Municipal Fund) (the Fund), including the portfolio of investments, as of November 30, 2007, and the related statement of operations, the statement of changes in net assets and the financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the year ended November 30, 2006 and the financial highlights for each of the four years in the period then ended were audited by another independent registered public accounting firm whose report, dated January 25, 2007, expressed an unqualified opinion on that statement of changes in net assets and those financial highlights.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of November 30, 2007, by correspondence with the Fund’s custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of MFS California Insured Municipal Fund at November 30, 2007, the results of its operations, the changes in its net assets and its financial highlights for the year then ended, in conformity with U.S. generally accepted accounting principles.

LOGO

Boston, Massachusetts

January 16, 2008

 

31


 

TRUSTEES AND OFFICERS — IDENTIFICATION AND BACKGROUND

The Trustees and officers of the Trust, as of January 1, 2008, are listed below, together with their principal occupations during the past five years. (Their titles may have varied during that period.) The address of each Trustee and officer is 500 Boylston Street, Boston, Massachusetts 02116.

 

Name, Date of Birth

 

Position(s) Held
with Fund

   Trustee/Officer
Since(h)
  

Principal Occupations During
the Past Five Years & Other
Directorships(j)

INTERESTED TRUSTEES      
Robert J. Manning(k)
(born 10/20/63)
  Trustee    February 2004    Massachusetts Financial Services Company, Chief Executive Officer, President, Chief Investment Officer and Director
Robert C. Pozen(k)
(born 8/08/46)
  Trustee    February 2004    Massachusetts Financial Services Company, Chairman (since February 2004); MIT Sloan School (education), Senior Lecturer (since 2006); Secretary of Economic Affairs, The Commonwealth of Massachusetts (January 2002 to December 2002); Fidelity Investments, Vice Chairman (June 2000 to December 2001); Fidelity Management & Research Company (investment adviser), President (March 1997 to July 2001); Bell Canada Enterprises (telecommunications), Director; Medtronic, Inc. (medical technology), Director; Telesat (satellite communications), Director
INDEPENDENT TRUSTEES      
J. Atwood Ives
(born 5/01/36)
  Trustee and Chair of Trustees    February 1992    Private investor; Eastern Enterprises (diversified services company), Chairman, Trustee and Chief Executive Officer (until November 2000)
Robert E. Butler(n)
(born 11/29/41)
  Trustee    January 2006    Consultant – regulatory and compliance matters (since July 2002); PricewaterhouseCoopers LLP (professional services firm), Partner (until 2002)

 

32


Name, Date of Birth

 

Position(s) Held
with Fund

   Trustee/Officer
Since(h)
  

Principal Occupations During
the Past Five Years & Other
Directorships(j)

Lawrence H. Cohn, M.D.
(born 3/11/37)
  Trustee    August 1993    Brigham and Women’s Hospital, Chief of Cardiac Surgery (2005); Harvard Medical School, Professor of Cardiac Surgery; Physician Director of Medical Device Technology for Partners HealthCare
David H. Gunning
(born 5/30/42)
  Trustee    January 2004    Retired; Cleveland-Cliffs Inc. (mining products and service provider), Vice Chairman/Director (until May 2007); Portman Limited (mining), Director (since 2005); Encinitos Ventures (private investment company), Principal (1997 to April 2001); Lincoln Electric Holdings, Inc. (welding equipment manufacturer), Director
William R. Gutow
(born 9/27/41)
  Trustee    December 1993    Private investor and real estate consultant; Capitol Entertainment Management Company (video franchise), Vice Chairman; Atlantic Coast Tan (tanning salons), Vice Chairman (since 2002)
Michael Hegarty
(born 12/21/44)
  Trustee    December 2004    Retired; AXA Financial (financial services and insurance), Vice Chairman and Chief Operating Officer (until May 2001); The Equitable Life Assurance Society (insurance), President and Chief Operating Officer (until May 2001)
Lawrence T. Perera
(born 6/23/35)
  Trustee    July 1981    Hemenway & Barnes (attorneys), Partner
J. Dale Sherratt
(born 9/23/38)
  Trustee    August 1993    Insight Resources, Inc. (acquisition planning specialists), President; Wellfleet Investments (investor in health care companies), Managing General Partner (since 1993); Cambridge Nutraceuticals (professional nutritional products), Chief Executive Officer (until May 2001)

 

33


Name, Date of Birth

 

Position(s) Held
with Fund

   Trustee/Officer
Since(h)
  

Principal Occupations During
the Past Five Years & Other
Directorships(j)

Laurie J. Thomsen
(born 8/05/57)
  Trustee    March 2005    New Profit, Inc. (venture philanthropy), Partner (since 2006); Private investor; Prism Venture Partners (venture capital), Co-founder and General Partner (until June 2004); The Travelers Companies (commercial property liability insurance), Director
Robert W. Uek
(born 5/18/41)
  Trustee    January 2006    Retired (since 1999); PricewaterhouseCoopers LLP (professional services firm), Partner (until 1999); Consultant to investment company industry (since 2000); TT International Funds (mutual fund complex), Trustee (2000 until 2005); Hillview Investment Trust II Funds (mutual fund complex), Trustee (2000 until 2005)
OFFICERS        
Maria F. Dwyer(k)
(born 12/01/58)
  President    November 2005    Massachusetts Financial Services Company, Executive Vice President and Chief Regulatory Officer (since March 2004) Chief Compliance Officer (since December 2006); Fidelity Management & Research Company, Vice President (prior to March 2004); Fidelity Group of Funds, President and Treasurer (prior to March 2004)
Tracy Atkinson(k)
(born 12/30/64)
  Treasurer    September 2005    Massachusetts Financial Services Company, Senior Vice President (since September 2004); PricewaterhouseCoopers LLP, Partner (prior to September 2004)
Christopher R. Bohane(k)
(born 1/18/74)
  Assistant Secretary and Assistant Clerk    July 2005    Massachusetts Financial Services Company, Vice President and Senior Counsel (since April 2003); Kirkpatrick & Lockhart LLP (law firm), Associate (prior to April 2003)
Ethan D. Corey(k)
(born 11/21/63)
  Assistant Secretary and Assistant Clerk    July 2005    Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel (since April 2006); Special Counsel (prior to April 2006); Dechert LLP (law firm), Counsel (prior to December 2004)

 

34


Name, Date of Birth

 

Position(s) Held
with Fund

   Trustee/Officer
Since(h)
  

Principal Occupations During
the Past Five Years & Other
Directorships(j)

David L. DiLorenzo(k)
(born 8/10/68)
  Assistant Treasurer    July 2005    Massachusetts Financial Services Company, Vice President (since June 2005); JP Morgan Investor Services, Vice President (prior to June 2005)
Timothy M. Fagan(k)
(born 7/10/68)
  Assistant Secretary and Assistant Clerk    September 2005    Massachusetts Financial Services Company, Vice President and Senior Counsel (since September 2005); John Hancock Advisers, LLC, Vice President and Chief Compliance Officer (September 2004 to August 2005), Senior Attorney (prior to September 2004); John Hancock Group of Funds, Vice President and Chief Compliance Officer (September 2004 to December 2004)
Mark D. Fischer(k)
(born 10/27/70)
  Assistant Treasurer    July 2005    Massachusetts Financial Services Company, Vice President (since May 2005); JP Morgan Investment Management Company, Vice President (prior to May 2005)
Brian E. Langenfeld(k)
(born 3/07/73)
  Assistant Secretary and Assistant Clerk    June 2006    Massachusetts Financial Services Company, Assistant Vice President and Counsel (since May 2006); John Hancock Advisers, LLC, Assistant Vice President and Counsel (May 2005 to April 2006); John Hancock Advisers, LLC, Attorney and Assistant Secretary (prior to May 2005)
Ellen Moynihan(k)
(born 11/13/57)
  Assistant Treasurer    April 1997    Massachusetts Financial Services Company, Senior Vice President
Susan S. Newton(k)
(born 3/07/50)
  Assistant Secretary and Assistant Clerk    May 2005    Massachusetts Financial Services Company, Senior Vice President and Associate General Counsel (since April 2005); John Hancock Advisers, LLC, Senior Vice President, Secretary and Chief Legal Officer (prior to April 2005); John Hancock Group of Funds, Senior Vice President, Secretary and Chief Legal Officer (prior to April 2005)

 

35


 

Name, Date of Birth

 

Position(s) Held
with Fund

   Trustee/Officer
Since(h)
  

Principal Occupations During
the Past Five Years & Other
Directorships(j)

Susan A. Pereira(k)
(born 11/05/70)
  Assistant Secretary and Assistant Clerk    July 2005    Massachusetts Financial Services Company, Vice President and Senior Counsel (since June 2004); Bingham McCutchen LLP (law firm), Associate (prior to June 2004)
Mark N. Polebaum(k)
(born 5/01/52)
  Secretary and Clerk    January 2006    Massachusetts Financial Services Company, Executive Vice President, General Counsel and Secretary (since January 2006); Wilmer Cutler Pickering Hale and Dorr LLP (law firm), Partner (prior to January 2006)
Frank L. Tarantino
(born 3/07/44)
  Independent Chief Compliance Officer    June 2004    Tarantino LLC (provider of compliance services), Principal (since June 2004); CRA Business Strategies Group (consulting services), Executive Vice President (April 2003 to June 2004); David L. Babson & Co. (investment adviser), Managing Director, Chief Administrative Officer and Director (prior to March 2003)
Richard S. Weitzel(k)
(born 7/16/70)
  Assistant Secretary and Assistant Clerk    October 2007    Massachusetts Financial Services Company, Vice President and Assistant General Counsel (since 2007); Vice President and Senior Counsel (since May 2004); Massachusetts Department of Business and Technology, General Counsel (February 2003 to April 2004); Massachusetts Office of the Attorney General, Assistant Attorney General (April 2001 to February 2003); Ropes and Gray, Associate (prior to April 2001)
James O. Yost(k)
(born 6/12/60)
  Assistant Treasurer    September 1990    Massachusetts Financial Services Company, Senior Vice President

(h) Date first appointed to serve as Trustee/officer of an MFS fund. Each Trustee has served continuously since appointment unless indicated otherwise.
(j) Directorships or trusteeships of companies required to report to the Securities and Exchange Commission (i.e., “public companies”).
(k) “Interested person” of the Trust within the meaning of the Investment Company Act of 1940 (referred to as the 1940 Act), which is the principal federal law governing investment companies like the fund, as a result of position with MFS. The address of MFS is 500 Boylston Street, Boston, Massachusetts 02116.
(n)

In 2004 and 2005, Mr. Butler provided consulting services to the independent compliance consultant retained by MFS pursuant to its settlement with the SEC concerning market timing and related matters. The

 

36


 

 

terms of that settlement required that compensation and expenses related to the independent compliance consultant be borne exclusively by MFS and, therefore, MFS paid Mr. Butler for the services he rendered to the independent compliance consultant. In 2004 and 2005, MFS paid Mr. Butler a total of $351,119.29.

The Fund holds annual shareholder meetings for the purpose of electing Trustees, and Trustees are elected for fixed terms. The Board of Trustees is currently divided into three classes, each having a term of three years.

Each year the term of one class expires. Each Trustee’s term of office expires on the date of the third annual meeting following the election to office of the Trustee’s class. Each Trustee and officer will serve until next elected or his or her earlier death, resignation, retirement or removal.

Messrs. Butler, Gutow, Sherratt and Uek and Ms. Thomsen are members of the Fund’s Audit Committee.

Each of the Fund’s Trustees and officers holds comparable positions with certain other funds of which MFS or a subsidiary is the investment adviser or distributor, and, in the case of the officers, with certain affiliates of MFS. As of January 1, 2008, the Trustees served as board members of 100 funds within the MFS Family of Funds.

The Statement of Additional Information for the Fund and further information about the Trustees are available without charge upon request by calling 1-800-225-2606.

The Fund filed with the Securities and Exchange Commission the certifications of its principal executive officer and principal financial officer under Section 302 of the Sarbanes-Oxley Act of 2003 as an exhibit to the Fund’s Form N-CSR for the period covered by this report.


 

Investment Adviser   Custodian
Massachusetts Financial Services Company   State Street Bank and Trust Company
500 Boylston Street, Boston, MA 02116-3741   225 Franklin Street, Boston, MA 02110
Portfolio Manager   Independent Registered Public Accounting Firm

Michael Dawson

  Ernst & Young LLP
Geoffrey Schechter   200 Clarendon Street, Boston, MA 02116

 

37


 

BOARD REVIEW OF INVESTMENT ADVISORY AGREEMENT

A discussion regarding the Board’s most recent review and renewal of the Fund’s investment advisory agreement is available by clicking on the fund’s name under “Products and Performance — Closed-End Funds” on the MFS Web site (mfs.com).

PROXY VOTING POLICIES AND INFORMATION

A general description of the MFS funds’ proxy voting policies and procedures is available without charge, upon request, by calling 1-800-225-2606, by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

Information regarding how the fund voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available without charge by visiting the Proxy Voting section of mfs.com or by visiting the SEC’s Web site at http://www.sec.gov.

QUARTERLY PORTFOLIO DISCLOSURE

The fund will file a complete schedule of portfolio holdings with the Securities and Exchange Commission (the Commission) for the first and third quarters of each fiscal year on Form N-Q. The fund’s Form N-Q may be reviewed and copied at the:

Public Reference Room

Securities and Exchange Commission

100 F Street, NE, Room 1580

Washington, D.C. 20549

Information on the operation of the Public Reference Room may be obtained by calling the Commission at 1-800-SEC-0330. The fund’s Form N-Q is available on the EDGAR database on the Commission’s Internet Web site at http://www.sec.gov, and copies of this information may be obtained, upon payment of a duplicating fee, by electronic request at the following e-mail address: publicinfo@sec.gov or by writing the Public Reference Section at the above address.

A shareholder can also obtain the quarterly portfolio holdings report at mfs.com.

FEDERAL TAX INFORMATION (unaudited)

The fund will notify shareholders of amounts for use in preparing 2007 income tax forms in January 2008. The following information is provided pursuant to provisions of the Internal Revenue Code.

Of the dividends paid from net investment income during the fiscal year, 100% is designated as exempt interest dividends for federal income tax purposes. If the fund has earned income on private activity bonds, a portion of the dividends paid may be considered a tax preference item for purposes of computing a shareholder’s alternative minimum tax.

 

38


 

MFS® PRIVACY NOTICE

Privacy is a concern for every investor today. At MFS Investment Management® and the MFS funds, we take this concern very seriously. We want you to understand our policies about the investment products and services that we offer, and how we protect the nonpublic personal information of investors who have a direct relationship with us and our wholly owned subsidiaries.

Throughout our business relationship, you provide us with personal information. We maintain information and records about you, your investments, and the services you use. Examples of the nonpublic personal information we maintain include

 

  Ÿ  

data from investment applications and other forms

  Ÿ  

share balances and transactional history with us, our affiliates, or others

  Ÿ  

facts from a consumer reporting agency

We do not disclose any nonpublic personal information about our customers or former customers to anyone, except as permitted by law. We may share nonpublic personal information with third parties or certain of our affiliates in connection with servicing your account or processing your transactions. We may share information with companies or financial institutions that perform marketing services on our behalf or with other financial institutions with which we have joint marketing arrangements, subject to any legal requirements.

Authorization to access your nonpublic personal information is limited to appropriate personnel who provide products, services, or information to you. We maintain physical, electronic, and procedural safeguards to help protect the personal information we collect about you.

If you have any questions about the MFS privacy policy, please call 1-800-225-2606 any business day between 8 a.m. and 8 p.m. Eastern time.

Note: If you own MFS products or receive MFS services in the name of a third party such as a bank or broker-dealer, their privacy policy may apply to you instead of ours.

 

39


 

CONTACT INFORMATION AND NUMBER OF SHAREHOLDERS

Investor Information

Transfer Agent, Registrar and Dividend Disbursing Agent

 

Call    1-800-637-2304 any business day from 9 a.m. to 5 p.m. Eastern time
Write to:   

Computershare Trust Company, N.A.

P.O. Box 43078

Providence, RI 02940-3078

Number of Shareholders

As of November 30, 2007, our records indicate that there are 19 registered shareholders and approximately 1,175 shareholders owning fund shares in “street” name, such as through brokers, banks, and other financial intermediaries.

If you are a “street” name shareholder and wish to directly receive our reports, which contain certain important information about the fund, please write or call:

Computershare Trust Company, N.A.

P.O. Box 43078

Providence, RI 02940-3078

1-800-637-2304

LOGO

500 Boylson Street, Boston, MA 02116


ITEM 2. CODE OF ETHICS.

The Registrant has adopted a Code of Ethics pursuant to Section 406 of the Sarbanes-Oxley Act and as defined in Form N-CSR that applies to the Registrant’s principal executive officer and principal financial and accounting officer. On June 29, 2007, the Registrant amended and restated its Code of Ethics as that term is defined in paragraph (b) of Item 2 of Form N-CSR.

 

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.

Messrs. Robert E. Butler and Robert W. Uek and Ms. Laurie J. Thomsen, members of the Audit Committee, have been determined by the Board of Trustees in their reasonable business judgment to meet the definition of “audit committee financial expert” as such term is defined in Form N-CSR. In addition, Messrs. Butler, and Uek and Ms. Thomsen are “independent” members of the Audit Committee (as such term has been defined by the Securities and Exchange Commission in regulations implementing Section 407 of the Sarbanes-Oxley Act of 2002). The Securities and Exchange Commission has stated that the designation of a person as an audit committee financial expert pursuant to this Item 3 on the Form N-CSR does not impose on such a person any duties, obligations or liability that are greater than the duties, obligations or liability imposed on such person as a member of the Audit Committee and the Board of Trustees in the absence of such designation or identification.

 

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Items 4(a) through 4(d) and 4(g):

Prior to June 29, 2007, the Board of Trustees had appointed PricewaterhouseCoopers (“PWC”) to serve as independent accountants to the Registrant (hereinafter the “Registrant” or the “Fund”). The tables below set forth the audit fees billed to the Fund as well as fees for non-audit services provided to the Fund and/or to the Fund’s former investment adviser, Columbia Management Advisors, LLC (“Columbia”), and to various entities either controlling, controlled by, or under common control with Columbia that provide ongoing services to the Fund (“Columbia Related Entities”). On June 29, 2007, the Board of Trustees appointed Ernst & Young LLP (“E&Y”) to serve as independent accountants to the Registrant. The tables below set forth the audit fees billed to the Fund as well as fees for non-audit services provided to the Fund and/or to the Fund’s investment adviser as of June 29, 2007, Massachusetts Financial Services Company (“MFS”), and to various entities either controlling, controlled by, or under common control with MFS that provide ongoing services to the Fund (“MFS Related Entities”).


For the fiscal years ended November 30, 2007 and 2006, audit fees billed to the Fund by PWC and E&Y, as the case may be, were as follows:

Fees billed by PWC:

 

     Audit Fees
     2007    2006

MFS California Insured Municipal Fund

   0    26,900

Fees billed by E&Y:

 

     2007    2006

MFS California Insured Municipal Fund

   45,200    N/A

For the fiscal years ended November 30, 2007 and 2006, fees billed by PWC for audit-related, tax and other services provided to the Fund and for audit-related, tax and other services provided to Columbia and Columbia Related Entities were as follows:

Fees billed by PWC:

 

     Audit-Related Fees1    Tax Fees2    All Other Fees3
     2007    2006    2007    2006    2007    2006

To MFS California Insured Municipal Fund

   5,600    13,730    3,500    4,104    0    0

To Columbia and Columbia Related Entities of MFS California Insured Municipal Fund*

   0    0    0    0    357,970    505,490

Aggregate fees for non-audit services:

 

     2007    2006

To MFS California Insured Municipal Fund, Columbia and Columbia Related Entities#

   367,070    523,324


For the fiscal years ended November 30, 2007 and 2006, billed by E&Y for audit-related, tax and other services provided to the Fund and for audit-related, tax and other services provided to MFS and MFS Related Entities were as follows:

Fees billed by E&Y:

 

     Audit-Related Fees1    Tax Fees2    All Other Fees3
     2007    2006    2007    2006    2007    2006

To MFS California Insured Municipal Fund

   0    N/A    8,550    N/A    0    N/A

To MFS and MFS Related Entities of MFS California Insured Municipal Fund**

   0    N/A    0    N/A    0    N/A

Aggregate fees for non-audit services:

 

     2007    2006

To MFS California Insured Municipal Fund, MFS and MFS Related Entities##

   123,959    N/A

 

*

This amount reflects the fees billed to Columbia and Columbia Related Entities for non-audit services relating directly to the operations and financial reporting of the Fund.

 

# This amount reflects the aggregate fees billed by PWC for non-audit services rendered to the Fund and for non-audit services rendered to Columbia and the Columbia Related Entities.

 

**

This amount reflects the fees billed to MFS and MFS Related Entities for non-audit services relating directly to the operations and financial reporting of the Fund (portions of which services also related to the operations and financial reporting of other funds within the MFS Funds complex).

 

## This amount reflects the aggregate fees billed by E&Y for non-audit services rendered to the Fund and for non-audit services rendered to MFS and the MFS Related Entities.

 

1

The fees included under “Audit-Related Fees” for products and services provided by PWC or E&Y are fees related to assurance and related services that are reasonably related to the performance of the audit or review of financial statements, but not reported under “Audit Fees,” including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters, rating agency reviews, and internal control reviews.

 

2

The fees included under “Tax Fees” are fees for products and services provided by PWC or E&Y associated with tax compliance, tax advice and tax planning, including services relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews and tax distribution and analysis.

 

3

The fees included under “All Other Fees” are fees for products and services provided by PWC or E&Y other than those reported under “Audit Fees,” “Audit-Related Fees” and “Tax Fees,” including fees for the subscription to tax treatise and for services related to analysis of fund administrative expenses, compliance program and records management projects.

 

Item 4(e)(1):

Set forth below are the policies and procedures established by the Audit Committee of the Board of Trustees on June 29, 2007 relating to the pre-approval of audit and non-audit related services:

To the extent required by applicable law, pre-approval by the Audit Committee of the Board is needed for all audit and permissible non-audit services rendered to the Fund and all permissible non-audit services rendered to MFS or MFS Related Entities if the services relate directly to the operations and financial reporting of the Registrant. Pre-approval is currently on an engagement-by-engagement basis. In the event pre-approval of such


services is necessary between regular meetings of the Audit Committee and it is not practical to wait to seek pre-approval at the next regular meeting of the Audit Committee, pre-approval of such services may be referred to the Chair of the Audit Committee for approval; provided that the Chair may not pre-approve any individual engagement for such services exceeding $50,000 or multiple engagements for such services in the aggregate exceeding $100,000 between such regular meetings of the Audit Committee. Any engagement pre-approved by the Chair between regular meetings of the Audit Committee shall be presented for ratification by the entire Audit Committee at its next regularly scheduled meeting.

Item 4(e)(2):

For any period covered by this Form N-CSR and prior to June 29, 2007, none or 0%, of the services relating to the Audit-Related Fees, Tax Fees and All Other Fees paid by the Fund and Columbia and Columbia Related Entities relating directly to the operations and financial reporting of the Registrant disclosed above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C) of Rule 2-01 of Regulation S-X (which permits audit committee approval after the start of the engagement with respect to services other than audit, review or attest services, if certain conditions are satisfied). For any period covered by this Form N-CSR on or after June 29, 2007, none, or 0%, of the services relating to the Audit-Related Fees, Tax Fees and All Other Fees paid by the Fund and MFS and MFS Related Entities relating directly to the operations and financial reporting of the Registrant disclosed above were approved by the audit committee pursuant to paragraphs (c)(7)(i)(C) of Rule 2-01 of Regulation S-X (which permits audit committee approval after the start of the engagement with respect to services other than audit, review or attest services, if certain conditions are satisfied).

Item 4(f): Not applicable.

Item 4(h): For any period covered by this Form N-CSR and prior to June 29, 2007, the Registrant’s Audit Committee considered whether the provision by PWC of non-audit services to Columbia and Columbia Related Entities that were not pre-approved by the Committee (because such services were provided prior to the effectiveness of SEC rules requiring pre-approval or because such services did not relate directly to the operations and financial reporting of the Registrant) was compatible with maintaining the independence of PWC as the Registrant’s principal auditors. For any period covered by this Form N-CSR on or after June 29, 2007, the Registrant’s Audit Committee considered whether the provision by a E&Y of non-audit services to MFS and MFS Related Entities that were not pre-approved by the Committee (because such services were provided prior to the effectiveness of SEC rules requiring pre-approval or because such services did not relate directly to the operations and financial reporting of the Registrant) was compatible with maintaining the independence of the independent registered public accounting firm as the Registrant’s principal auditors.


ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.

The Registrant has an Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the Audit Committee are Messrs. Robert E. Butler, William R. Gutow, J. Dale Sherratt and Robert W. Uek and Ms. Laurie J. Thomsen.

 

ITEM 6. SCHEDULE OF INVESTMENTS

A schedule of investments of the Registrant is included as part of the report to shareholders of the Registrant under Item 1 of this Form N-CSR.

 

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

On June 29, 2007, Massachusetts Financial Services Company (“MFS”) became the investment adviser to the Registrant. The Board of Trustees and the Board of Managers of the investment companies (the “MFS Funds”) advised by MFS have delegated to MFS the right and obligation to vote proxies for shares that are owned by the MFS Funds, in accordance with MFS’ proxy voting policies and procedures (the “MFS Proxy Policies”). The MFS Proxy Policies are set forth below:

MASSACHUSETTS FINANCIAL SERVICES COMPANY

PROXY VOTING POLICIES AND PROCEDURES

March 1, 2007

Massachusetts Financial Services Company, MFS Institutional Advisors, Inc. and MFS’ other investment adviser subsidiaries (collectively, “MFS”) have adopted proxy voting policies and procedures, as set forth below (“MFS Proxy Voting Policies and Procedures”), with respect to securities owned by the clients for which MFS serves as investment adviser and has the power to vote proxies, including the registered investment companies sponsored by MFS, other than the MFS Union Standard Equity Fund (the “MFS Funds”). References to “clients” in these policies and procedures include the MFS Funds and other clients of MFS, such as funds organized offshore, sub-advised funds and separate account clients, to the extent these clients have delegated to MFS the responsibility to vote proxies on their behalf under the MFS Proxy Voting Policies and Procedures.

The MFS Proxy Voting Policies and Procedures include:

 

  A. Voting Guidelines;

 

  B. Administrative Procedures;

 

  C. Monitoring System;

 

  D. Records Retention; and

 

  E. Reports.


A. VOTING GUIDELINES

 

1. General Policy; Potential Conflicts of Interest

MFS’ policy is that proxy voting decisions are made in what MFS believes to be the best long-term economic interests of MFS’ clients, and not in the interests of any other party or in MFS’ corporate interests, including interests such as the distribution of MFS Fund shares, administration of 401(k) plans, and institutional relationships.

MFS periodically reviews matters that are presented for shareholder vote by either management or shareholders of public companies. Based on the overall principle that all votes cast by MFS on behalf of its clients must be in what MFS believes to be the best long-term economic interests of such clients, MFS has adopted proxy voting guidelines, set forth below, that govern how MFS generally will vote on specific matters presented for shareholder vote. In all cases, MFS will exercise its discretion in voting on these matters in accordance with this overall principle. In other words, the underlying guidelines are simply that – guidelines. Proxy items of significance are often considered on a case-by-case basis, in light of all relevant facts and circumstances, and in certain cases MFS may vote proxies in a manner different from these guidelines.

As a general matter, MFS maintains a consistent voting position on similar proxy proposals with respect to various issuers. In addition, MFS generally votes consistently on the same matter when securities of an issuer are held by multiple client accounts. However, MFS recognizes that there are gradations in certain types of proposals that might result in different voting positions being taken with respect to different proxy statements. There also may be situations involving matters presented for shareholder vote that are not governed by the guidelines. Some items that otherwise would be acceptable will be voted against the proponent when it is seeking extremely broad flexibility without offering a valid explanation. MFS reserves the right to override the guidelines with respect to a particular shareholder vote when such an override is, in MFS’ best judgment, consistent with the overall principle of voting proxies in the best long-term economic interests of MFS’ clients.

From time to time, MFS receives comments on these guidelines as well as regarding particular voting issues from its clients. These comments are carefully considered by MFS when it reviews these guidelines each year and revises them as appropriate.

These policies and procedures are intended to address any potential material conflicts of interest on the part of MFS or its affiliates that are likely to arise in connection with the voting of proxies on behalf of MFS’ clients. If such potential material conflicts of interest do arise, MFS will analyze, document and report on such potential material conflicts of interest (see Sections B.2 and E below), and shall ultimately vote the relevant proxies in


what MFS believes to be the best long-term economic interests of its clients. The MFS Proxy Voting Committee is responsible for monitoring and reporting with respect to such potential material conflicts of interest.

 

2. MFS’ Policy on Specific Issues

Election of Directors

MFS believes that good governance should be based on a board with at least a simple majority of directors who are “independent” of management, and whose key committees (e.g., compensation, nominating, and audit committees) are comprised entirely of “independent” directors. While MFS generally supports the board’s nominees in uncontested elections, we will withhold our vote for, or vote against, as applicable, a nominee to a board of a U.S. issuer if, as a result of such nominee being elected to the board, the board would be comprised of a majority of members who are not “independent” or, alternatively, the compensation, nominating or audit committees would include members who are not “independent.”

MFS will also withhold its vote for, or vote against, as applicable, a nominee to a board if we can determine that he or she failed to attend at least 75% of the board and/or relevant committee meetings in the previous year without a valid reason stated in the proxy materials. In addition, MFS will withhold its vote for, or vote against, as applicable, all nominees standing for re-election to a board if we can determine: (1) since the last annual meeting of shareholders and without shareholder approval, the board or its compensation committee has re-priced underwater stock options; or (2) since the last annual meeting, the board has either implemented a poison pill without shareholder approval or has not taken responsive action to a majority shareholder approved resolution recommending that the “poison pill” be rescinded. Responsive action would include the rescission of the “poison pill”(without a broad reservation to reinstate the “poison pill” in the event of a hostile tender offer), or assurance in the proxy materials that the terms of the “poison pill” would be put to a binding shareholder vote within the next five to seven years.

MFS will also withhold its vote for, or vote against, as applicable, a nominee (other than a nominee who serves as the issuer’s Chief Executive Officer) standing for re-election if such nominee participated (as a director or committee member) in the approval of a senior executive compensation package MFS deems to be “excessive.” In the event that MFS determines that an issuer has adopted an “excessive” executive compensation package, MFS will withhold its vote for, or vote against, as applicable, the re-election of the issuer’s Chief Executive Officer as director regardless of whether the Chief Executive Officer participated in the approval of the package. MFS will determine whether a senior executive compensation package is excessive on a case by case basis. Examples of “excessive” executive compensation packages include packages that contain egregious employment contract terms or pension payouts, backdated stock options, overly generous hiring bonuses for chief executive officers or packages which include excessive perks.


MFS evaluates a contested election of directors on a case-by-case basis considering the long-term financial performance of the company relative to its industry, management’s track record, the qualifications of the nominees for both slates and an evaluation of what each side is offering shareholders.

MFS votes for reasonably crafted proposals calling for directors to be elected with an affirmative majority of votes cast and/or the elimination of the plurality standard for electing directors (including binding resolutions requesting that the board amend the company’s bylaws), provided the proposal includes a carve-out for a plurality voting standard when there are more director nominees than board seats (e.g., contested elections) (“Majority Vote Proposals”).

MFS considers voting against Majority Vote Proposals if the company has adopted, or has proposed to adopt in the proxy statement, formal corporate governance principles that present a meaningful alternative to the majority voting standard and provide an adequate response to both new nominees as well as incumbent nominees who fail to receive a majority of votes cast.

MFS believes that a company’s election policy should address the specific circumstances at that company. MFS considers whether a company’s election policy articulates the following elements to address each director nominee who fails to receive an affirmative majority of votes cast in an election:

 

   

Establish guidelines for the process by which the company determines the status of nominees who fail to receive an affirmative majority of votes cast and disclose the guidelines in the annual proxy statement;

 

   

Guidelines should include a reasonable timetable for resolution of the nominee’s status and a requirement that the resolution be disclosed together with the reasons for the resolution;

 

   

Vest management of the process in the company’s independent directors, other than the nominee in question; and

 

   

Outline the range of remedies that the independent directors may consider concerning the nominee.

Classified Boards

MFS opposes proposals to classify a board (e.g., a board in which only one-third of board members are elected each year). MFS supports proposals to declassify a board.

Non-Salary Compensation Programs

MFS votes against stock option programs for officers, employees or non-employee directors that do not require an investment by the optionee, that give “free rides” on the stock price, or that permit grants of stock options with an exercise price below fair market value on the date the options are granted.


MFS also opposes stock option programs that allow the board or the compensation committee, without shareholder approval, to reprice underwater options or to automatically replenish shares (i.e., evergreen plans). MFS will consider on a case-by-case basis proposals to exchange existing options for newly issued options (taking into account such factors as whether there is a reasonable value-for-value exchange).

MFS opposes stock option programs and restricted stock plans that provide unduly generous compensation for officers, directors or employees, or could result in excessive dilution to other shareholders. As a general guideline, MFS votes against restricted stock plans, stock option, non-employee director, omnibus stock plans and any other stock plan if all such plans for a particular company involve potential dilution, in the aggregate, of more than 15%. However, MFS may accept a higher percentage (up to 20%) in the case of startup or small companies which cannot afford to pay large salaries to executives, or in the case where MFS, based upon the issuer’s public disclosures, believes that the issuer has been responsible with respect to its recent compensation practices, including the mix of the issuance of restricted stock and options.

Expensing of Stock Options

MFS supports shareholder proposals to expense stock options because we believe that the expensing of options presents a more accurate picture of the company’s financial results to investors. We also believe that companies are likely to be more disciplined when granting options if the value of stock options were treated as an expense item on the company’s income statements.

Executive Compensation

MFS believes that competitive compensation packages are necessary to attract, motivate and retain executives. Therefore, except as provided in paragraph 2 above with respect to “excessive compensation” and the election of directors, MFS opposes shareholder proposals that seek to set restrictions on executive compensation. MFS also opposes shareholder requests for disclosure on executive compensation beyond regulatory requirements because we believe that current regulatory requirements for disclosure of executive compensation are appropriate and that additional disclosure is often unwarranted and costly. Although we support linking executive stock option grants to a company’s performance, MFS opposes shareholder proposals that mandate a link of performance-based options to a specific industry or peer group stock index. MFS believes that compensation committees should retain the flexibility to propose the appropriate index or other criteria by which performance-based options should be measured.

MFS supports reasonably crafted shareholder proposals that (i) require the issuer to adopt a policy to recover the portion of performance-based bonuses and awards paid to senior executives that were not earned based upon a significant negative restatement of earnings unless the company already has adopted a clearly satisfactory policy on the matter, or (ii) expressly prohibit any future backdating of stock options.


Employee Stock Purchase Plans

MFS supports the use of a broad-based employee stock purchase plans to increase company stock ownership by employees, provided that shares purchased under the plan are acquired for no less than 85% of their market value and do not result in excessive dilution.

“Golden Parachutes”

From time to time, shareholders of companies have submitted proxy proposals that would require shareholder approval of severance packages for executive officers that exceed certain predetermined thresholds. MFS votes in favor of such shareholder proposals when they would require shareholder approval of any severance package for an executive officer that exceeds a certain multiple of such officer’s annual compensation that is not determined in MFS’ judgment to be excessive.

Anti-Takeover Measures

In general, MFS votes against any measure that inhibits capital appreciation in a stock, including proposals that protect management from action by shareholders. These types of proposals take many forms, ranging from “poison pills” and “shark repellents” to super-majority requirements.

MFS will vote for proposals to rescind existing “poison pills” and proposals that would require shareholder approval to adopt prospective “poison pills.” Nevertheless, MFS will consider supporting the adoption of a prospective “poison pill” or the continuation of an existing “poison pill” if we can determine that the following two conditions are met: (1) the “poison pill” allows MFS clients to hold an aggregate position of up to 15% of a company’s total voting securities (and of any class of voting securities); and (2) either (a) the “poison pill” has a term of not longer than five years, provided that MFS will consider voting in favor of the “poison pill” if the term does not exceed seven years and the “poison pill” is linked to a business strategy or purpose that MFS believes is likely to result in greater value for shareholders; or (b) the terms of the “poison pill” allow MFS clients the opportunity to accept a fairly structured and attractively priced tender offer (e.g., a “chewable poison pill” that automatically dissolves in the event of an all cash, all shares tender offer at a premium price).

MFS will consider on a case-by-case basis proposals designed to prevent tenders which are disadvantageous to shareholders such as tenders at below market prices and tenders for substantially less than all shares of an issuer.

Reincorporation and Reorganization Proposals

When presented with a proposal to reincorporate a company under the laws of a different state, or to effect some other type of corporate reorganization, MFS considers the underlying purpose and ultimate effect of such a proposal in determining whether or not to


support such a measure. While MFS generally votes in favor of management proposals that it believes are in the best long-term economic interests of its clients, MFS may oppose such a measure if, for example, the intent or effect would be to create additional inappropriate impediments to possible acquisitions or takeovers.

Issuance of Stock

There are many legitimate reasons for the issuance of stock. Nevertheless, as noted above under “Non-Salary Compensation Programs,” when a stock option plan (either individually or when aggregated with other plans of the same company) would substantially dilute the existing equity (e.g. by approximately 15% or more), MFS generally votes against the plan. In addition, MFS votes against proposals where management is asking for authorization to issue common or preferred stock with no reason stated (a “blank check”) because the unexplained authorization could work as a potential anti-takeover device. MFS may also vote against the authorization or issuance of common or preferred stock if MFS determines that the requested authorization is not warranted.

Repurchase Programs

MFS supports proposals to institute share repurchase plans in which all shareholders have the opportunity to participate on an equal basis. Such plans may include a company acquiring its own shares on the open market, or a company making a tender offer to its own shareholders.

Confidential Voting

MFS votes in favor of proposals to ensure that shareholder voting results are kept confidential. For example, MFS supports proposals that would prevent management from having access to shareholder voting information that is compiled by an independent proxy tabulation firm.

Cumulative Voting

MFS opposes proposals that seek to introduce cumulative voting and for proposals that seek to eliminate cumulative voting. In either case, MFS will consider whether cumulative voting is likely to enhance the interests of MFS’ clients as minority shareholders. In our view, shareholders should provide names of qualified candidates to a company’s nominating committee, which (for U.S. listed companies) must be comprised solely of “independent” directors.

Written Consent and Special Meetings

Because the shareholder right to act by written consent (without calling a formal meeting of shareholders) can be a powerful tool for shareholders, MFS generally opposes proposals that would prevent shareholders from taking action without a formal meeting or would take away a shareholder’s right to call a special meeting of company shareholders.


Independent Auditors

MFS believes that the appointment of auditors for U.S. issuers is best left to the board of directors of the company and therefore supports the ratification of the board’s selection of an auditor for the company. Some shareholder groups have submitted proposals to limit the non-audit activities of a company’s audit firm or prohibit any non-audit services by a company’s auditors to that company. MFS opposes proposals recommending the prohibition or limitation of the performance of non-audit services by an auditor, and proposals recommending the removal of a company’s auditor due to the performance of non-audit work for the company by its auditor. MFS believes that the board, or its audit committee, should have the discretion to hire the company’s auditor for specific pieces of non-audit work in the limited situations permitted under current law.

Other Corporate Governance, Corporate Responsibility and Social Issues

There are many groups advocating social change or changes to corporate governance or corporate responsibility standards, and many have chosen the publicly-held corporation as a vehicle for advancing their agenda. Generally, MFS votes with management on such proposals unless MFS can determine that the benefit to shareholders will outweigh any costs or disruptions to the business if the proposal were adopted. Common among the shareholder proposals that MFS generally votes against are proposals requiring the company to use corporate resources to further a particular social objective outside the business of the company, to refrain from investing or conducting business in certain countries, to adhere to some list of goals or principles (e.g., environmental standards), to disclose political contributions made by the issuer, to separate the Chairman and Chief Executive Officer positions, or to promulgate special reports on various activities or proposals for which no discernible shareholder economic advantage is evident.

The laws of various states may regulate how the interests of certain clients subject to those laws (e.g., state pension plans) are voted with respect to social issues. Thus, it may be necessary to cast ballots differently for certain clients than MFS might normally do for other clients.

Foreign Issuers

Many of the items on foreign proxies involve repetitive, non-controversial matters that are mandated by local law. Accordingly, the items that are generally deemed routine and which do not require the exercise of judgment under these guidelines (and therefore voted in favor) for foreign issuers include the following: (i) receiving financial statements or other reports from the board; (ii) approval of declarations of dividends; (iii) appointment of shareholders to sign board meeting minutes; (iv) discharge of management and supervisory boards; and (v) approval of share repurchase programs.

MFS generally supports the election of a director nominee standing for re-election in uncontested elections unless it can be determined that (1) he or she failed to attend at least 75% of the board and/or relevant committee meetings in the previous year without a


valid reason given in the proxy materials; (2) since the last annual meeting of shareholders and without shareholder approval, the board or its compensation committee has re-priced underwater stock options; or (3) since the last annual meeting, the board has either implemented a poison pill without shareholder approval or has not taken responsive action to a majority shareholder approved resolution recommending that the “poison pill” be rescinded. MFS will also withhold its vote for, or vote against, as applicable, a director nominee standing for re-election of an issuer that has adopted an excessive compensation package for its senior executives as described above in the section entitled “Voting Guidelines-MFS’ Policy on Specific Issues-Election of Directors.”

MFS generally supports the election of auditors, but may determine to vote against the election of a statutory auditor in certain markets if MFS reasonably believes that the statutory auditor is not truly independent. MFS will evaluate all other items on proxies for foreign companies in the context of the guidelines described above, but will generally vote against an item if there is not sufficient information disclosed in order to make an informed voting decision.

In accordance with local law or business practices, many foreign companies prevent the sales of shares that have been voted for a certain period beginning prior to the shareholder meeting and ending on the day following the meeting (“share blocking”). Depending on the country in which a company is domiciled, the blocking period may begin a stated number of days prior to the meeting (e.g., one, three or five days) or on a date established by the company. While practices vary, in many countries the block period can be continued for a longer period if the shareholder meeting is adjourned and postponed to a later date. Similarly, practices vary widely as to the ability of a shareholder to have the “block” restriction lifted early (e.g., in some countries shares generally can be “unblocked” up to two days prior to the meeting whereas in other countries the removal of the block appears to be discretionary with the issuer’s transfer agent). Due to these restrictions, MFS must balance the benefits to its clients of voting proxies against the potentially serious portfolio management consequences of a reduced flexibility to sell the underlying shares at the most advantageous time. For companies in countries with share blocking periods, the disadvantage of being unable to sell the stock regardless of changing conditions generally outweighs the advantages of voting at the shareholder meeting for routine items. Accordingly, MFS will not vote those proxies in the absence of an unusual, significant vote.

 

B. ADMINISTRATIVE PROCEDURES

 

1. MFS Proxy Voting Committee

The administration of these MFS Proxy Voting Policies and Procedures is overseen by the MFS Proxy Voting Committee, which includes senior personnel from the MFS Legal and Global Investment Support Departments. The MFS Proxy Voting Committee:

 

  a. Reviews these MFS Proxy Voting Policies and Procedures at least annually and recommends any amendments considered to be necessary or advisable;


  b. Determines whether any potential material conflicts of interest exist with respect to instances in which (i) MFS seeks to override these MFS Proxy Voting Policies and Procedures and (ii) votes on ballot items not clearly governed by these MFS Proxy Voting Policies and Procedures; and

 

  c. Considers special proxy issues as they may arise from time to time.

 

2. Potential Conflicts of Interest

The MFS Proxy Voting Committee is responsible for monitoring potential material conflicts of interest on the part of MFS or its affiliates that could arise in connection with the voting of proxies on behalf of MFS’ clients. Any significant attempt to influence MFS’ voting on a particular proxy matter should be reported to the MFS Proxy Voting Committee.

In cases where proxies are voted in accordance with these MFS Proxy Voting Policies and Procedures, no material conflict of interest will be deemed to exist. In cases where (i) MFS is considering overriding these MFS Proxy Voting Policies and Procedures, or (ii) matters presented for vote are not governed by these MFS Proxy Voting Policies and Procedures, the MFS Proxy Voting Committee, or delegees, will follow these procedures:

 

  a. Compare the name of the issuer of such proxy against a list of significant current and potential (i) distributors of MFS Fund shares, (ii) retirement plans administered by MFS or its affiliate MFS Retirement Services, Inc. (“RSI”), and (iii) MFS institutional clients (the “MFS Significant Client List”);

 

  b. If the name of the issuer does not appear on the MFS Significant Client List, then no material conflict of interest will be deemed to exist, and the proxy will be voted as otherwise determined by the MFS Proxy Voting Committee;

 

  c. If the name of the issuer appears on the MFS Significant Client List, then the MFS Proxy Voting Committee will be apprised of that fact and each member of the MFS Proxy Voting Committee will carefully evaluate the proposed vote in order to ensure that the proxy ultimately is voted in what MFS believes to be the best long-term economic interests of MFS’ clients, and not in MFS’ corporate interests; and

 

  d. For all potential material conflicts of interest identified under clause (c) above, the MFS Proxy Voting Committee will document: the name of the issuer, the issuer’s relationship to MFS, the analysis of the matters submitted for proxy vote, the votes as to be cast and the reasons why the MFS Proxy Voting Committee determined that the votes were cast in the best long-term economic interests of MFS’ clients, and not in MFS’ corporate interests. A copy of the foregoing documentation will be provided to MFS’ Conflicts Officer.


The members of the MFS Proxy Voting Committee are responsible for creating and maintaining the MFS Significant Client List, in consultation with MFS’ distribution, institutional business units and RSI. The MFS Significant Client List will be reviewed and updated periodically, as appropriate.

 

3. Gathering Proxies

Most proxies received by MFS and its clients originate at Automatic Data Processing Corp. (“ADP”) although a few proxies are transmitted to investors by corporate issuers through their custodians or depositories. ADP and issuers send proxies and related material directly to the record holders of the shares beneficially owned by MFS’ clients, usually to the client’s custodian or, less commonly, to the client itself. This material will include proxy cards, reflecting the shareholdings of Funds and of clients on the record dates for such shareholder meetings, as well as proxy statements with the issuer’s explanation of the items to be voted upon.

MFS, on behalf of itself and the Funds, has entered into an agreement with an independent proxy administration firm, Institutional Shareholder Services, Inc. (the “Proxy Administrator”), pursuant to which the Proxy Administrator performs various proxy vote related administrative services, such as vote processing and recordkeeping functions for MFS’ Funds and institutional client accounts. The Proxy Administrator receives proxy statements and proxy cards directly or indirectly from various custodians, logs these materials into its database and matches upcoming meetings with MFS Fund and client portfolio holdings, which are input into the Proxy Administrator’s system by an MFS holdings datafeed. Through the use of the Proxy Administrator system, ballots and proxy material summaries for all upcoming shareholders’ meetings are available on-line to certain MFS employees and the MFS Proxy Voting Committee.

 

4. Analyzing Proxies

Proxies are voted in accordance with these MFS Proxy Voting Policies and Procedures. The Proxy Administrator at the prior direction of MFS automatically votes all proxy matters that do not require the particular exercise of discretion or judgment with respect to these MFS Proxy Voting Policies and Procedures as determined by the MFS Proxy Voting Committee. With respect to proxy matters that require the particular exercise of discretion or judgment, MFS considers and votes on those proxy matters. MFS receives research from ISS which it may take into account in deciding how to vote. In addition, MFS expects to rely on ISS to identify circumstances in which a board may have approved excessive executive compensation. Representatives of the MFS Proxy Voting Committee review, as appropriate, votes cast to ensure conformity with these MFS Proxy Voting Policies and Procedures.

As a general matter, portfolio managers and investment analysts have little or no involvement in specific votes taken by MFS. This is designed to promote consistency in


the application of MFS’ voting guidelines, to promote consistency in voting on the same or similar issues (for the same or for multiple issuers) across all client accounts, and to minimize the potential that proxy solicitors, issuers, or third parties might attempt to exert inappropriate influence on the vote. In limited types of votes (e.g., corporate actions, such as mergers and acquisitions), a representative of MFS Proxy Voting Committee may consult with or seek recommendations from portfolio managers or analysts.1 However, the MFS Proxy Voting Committee would ultimately determine the manner in which all proxies are voted.

As noted above, MFS reserves the right to override the guidelines when such an override is, in MFS’ best judgment, consistent with the overall principle of voting proxies in the best long-term economic interests of MFS’ clients. Any such override of the guidelines shall be analyzed, documented and reported in accordance with the procedures set forth in these policies.

 

5. Voting Proxies

In accordance with its contract with MFS, the Proxy Administrator also generates a variety of reports for the MFS Proxy Voting Committee, and makes available on-line various other types of information so that the MFS Proxy Voting Committee may review and monitor the votes cast by the Proxy Administrator on behalf of MFS’ clients.

 

C. MONITORING SYSTEM

It is the responsibility of the Proxy Administrator and MFS’ Proxy Voting Committee to monitor the proxy voting process. When proxy materials for clients are received, they are forwarded to the Proxy Administrator and are input into the Proxy Administrator’s system. Through an interface with the portfolio holdings database of MFS, the Proxy Administrator matches a list of all MFS Funds and clients who hold shares of a company’s stock and the number of shares held on the record date with the Proxy Administrator’s listing of any upcoming shareholder’s meeting of that company.

When the Proxy Administrator’s system “tickler” shows that the voting cut-off date of a shareholders’ meeting is approaching, a Proxy Administrator representative checks that the vote for MFS Funds and clients holding that security has been recorded in the computer system. If a proxy card has not been received from the client’s custodian, the Proxy Administrator calls the custodian requesting that the materials be forwarded immediately. If it is not possible to receive the proxy card from the custodian in time to be voted at the meeting, MFS may instruct the custodian to cast the vote in the manner specified and to mail the proxy directly to the issuer.

 

1

From time to time, due to travel schedules and other commitments, an appropriate portfolio manager or research analyst is not available to provide a recommendation on a merger or acquisition proposal. If such a recommendation cannot be obtained prior to the cut-off date of the shareholder meeting, certain members of the MFS Proxy Voting Committee may determine to abstain from voting.


D. RECORDS RETENTION

MFS will retain copies of these MFS Proxy Voting Policies and Procedures in effect from time to time and will retain all proxy voting reports submitted to the Board of Trustees, Board of Directors and Board of Managers of the MFS Funds for the period required by applicable law. Proxy solicitation materials, including electronic versions of the proxy cards completed by representatives of the MFS Proxy Voting Committee, together with their respective notes and comments, are maintained in an electronic format by the Proxy Administrator and are accessible on-line by the MFS Proxy Voting Committee. All proxy voting materials and supporting documentation, including records generated by the Proxy Administrator’s system as to proxies processed, including the dates when proxy ballots were received and submitted, and the votes on each company’s proxy issues, are retained as required by applicable law.

 

E. REPORTS

MFS Funds

MFS will report the results of its voting to the Board of Trustees, Board of Directors and Board of Managers of the MFS Funds. These reports will include: (i) a summary of how votes were cast; (ii) a review of situations where MFS did not vote in accordance with the guidelines and the rationale therefore; (iii) a review of the procedures used by MFS to identify material conflicts of interest; and (iv) a review of these policies and the guidelines and, as necessary or appropriate, any proposed modifications thereto to reflect new developments in corporate governance and other issues. Based on these reviews, the Trustees, Directors and Managers of the MFS Funds will consider possible modifications to these policies to the extent necessary or advisable.

All MFS Advisory Clients

At any time, a report can be printed by MFS for each client who has requested that MFS furnish a record of votes cast. The report specifies the proxy issues which have been voted for the client during the year and the position taken with respect to each issue.

Generally, MFS will not divulge actual voting practices to any party other than the client or its representatives (unless required by applicable law) because we consider that information to be confidential and proprietary to the client.

 

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.

General. Information regarding the portfolio manager(s) of the MFS California Insured Municipal Fund (the “Fund”) is set forth below.


Portfolio Manager

  

Primary Role

   Since   

Title and Five Year History

Geoffrey L. Schechter

   Portfolio Manager    June 29, 2007    Investment Officer of MFS; employed in the investment management area of MFS since 1993.

Michael L. Dawson

   Portfolio Manager    June 29, 2007    Investment Officer of MFS; employed in the investment management area of MFS since 1998.

Compensation. Portfolio manager total cash compensation is a combination of base salary and performance bonus:

 

   

Base Salary – Base salary represents a smaller percentage of portfolio manager total cash compensation (generally below 33%) than incentive compensation.

 

   

Performance Bonus – Performance bonus is based on a combination of quantitative and qualitative factors, with more weight given to the former (generally over 60 %) and less weight given to the latter.

 

   

The quantitative portion is based on pre-tax performance of all of the accounts managed by the portfolio manager (which includes the Fund and any other accounts managed by the portfolio manager) over a one-, three- and five-year period relative to the appropriate Lipper peer group universe and/or benchmark index with respect to each account. (Generally the benchmark index used is a benchmark index set forth in the Fund’s annual report to shareholders to which the Fund’s performance is compared. With respect to funds with multiple portfolio managers, the index used may differ for each portfolio manager, and may not be a benchmark index set forth in the Fund’s annual report to shareholders, but will be an appropriate benchmark index based on the respective portfolio manager’s role in managing the fund.) Additional or different appropriate peer group or benchmark indices may also be used. Primary weight is given to portfolio performance over three-year and five-year time periods with lesser consideration given to portfolio performance over a one-year period (adjusted as appropriate if the portfolio manager has served for less than five years).

 

   

The qualitative portion is based on the results of an annual internal peer review process (conducted by other portfolio managers, analysts and traders) and management’s assessment of overall portfolio manager contributions to investor relations and the investment process (distinct from fund and other account performance).


Portfolio managers also typically benefit from the opportunity to participate in the MFS Equity Plan. Equity interests and/or options to acquire equity interests in MFS or its parent company are awarded by management, on a discretionary basis, taking into account tenure at MFS, contribution to the investment process, and other factors.

Finally, portfolio managers are provided with a benefits package including a defined contribution plan, health coverage and other insurance, which are available to other employees of MFS on substantially similar terms. The percentage such benefits represent of any portfolio manager’s compensation depends upon the length of the individual’s tenure at MFS and salary level, as well as other factors.

Ownership of Fund Shares. The following table shows the dollar range of equity securities of the Fund beneficially owned by the Fund’s portfolio manager as of the Fund’s fiscal year ended November 30, 2007. The following dollar ranges apply:

N. None

A. $1 - $10,000

B. $10,001 - $50,000

C. $50,001 - $100,000

D. $100,001 - $500,000

E. $500,001 - $1,000,000

F. Over $1,000,000

 

Name of Portfolio Manager

  

Dollar Range of Equity Securities in Fund

Geoffrey L. Schechter    N
Michael L. Dawson    N

Other Accounts. In addition to the Fund, the Fund’s portfolio manager is responsible (either individually or jointly) for the day-to-day management of certain other accounts, the number and total assets of which as of the Fund’s fiscal year ended November 30, 2007 were as follows:

 

     Registered Investment
Companies
   Other Pooled Investment
Vehicles
   Other Accounts

Name

   Number of
Accounts*
   Total Assets*    Number of
Accounts
   Total Assets    Number of
Accounts
   Total
Assets

Geoffrey L. Schechter

   13    $ 6.83 billiion    1    $ 245.1 million    0    N/A

Michael L. Dawson

   17    $ 2.68 billion    0      N/A    0    N/A

 

* Includes the Fund.


Advisory fees are not based upon performance of any of the accounts identified in the table above.

Potential Conflicts of Interest. MFS seeks to identify potential conflicts of interest resulting from a portfolio manager’s management of both the Fund and other accounts, and has adopted policies and procedures designed to address such potential conflicts.

The management of multiple funds and accounts (including proprietary accounts) may give rise to potential conflicts of interest if the funds and accounts have different objectives and strategies, benchmarks, time horizons and fees as a portfolio manager must allocate his or her time and investment ideas across multiple funds and accounts. In certain instances there may be securities which are suitable for the Fund’s portfolio as well as for accounts of MFS or its subsidiaries with similar investment objectives. A Fund’s trade allocation policies may give rise to conflicts of interest if the Fund’s orders do not get fully executed or are delayed in getting executed due to being aggregated with those of other accounts of MFS or its subsidiaries. A portfolio manager may execute transactions for another fund or account that may adversely impact the value of the Fund’s investments. Investments selected for funds or accounts other than the Fund may outperform investments selected for the Fund.

When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed by MFS to be fair and equitable to each. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as the Fund is concerned. In most cases, however, MFS believes that the Fund’s ability to participate in volume transactions will produce better executions for the Fund.

MFS does not receive a performance fee for its management of the Fund. As a result, MFS and/or a portfolio manager may have a financial incentive to allocate favorable or limited opportunity investments or structure the timing of investments to favor accounts other than the Fund - for instance, those that pay a higher advisory fee and/or have a performance fee.


ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS.

MFS California Insured Municipal Fund

 

Period

   (a) Total number
of Shares
Purchased
   (b)
Average
Price
Paid per
Share
   (c) Total
Number of
Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
   (d) Maximum
Number (or
Approximate
Dollar Value) of
Shares that May
Yet Be Purchased
under the Plans
or Programs

12/1/06-12/31/06

   0    N/A    0    0

1/1/07-1/31/07

   0    N/A    0    0

2/1/07-2/28/07

   0    N/A    0    0

3/1/07-3/31/07

   0    N/A    0    0

4/1/07-4/30/07

   0    N/A    0    0

5/1/07-5/31/07

   0    N/A    0    0

6/1/07-6/30/07

   0    N/A    0    0

7/1/07-7/31/07

   0    N/A    0    0

8/1/07-8/31/07

   0    N/A    0    0

9/1/07-9/30/07

   0    N/A    0    0

10/1/07-10/31/07

   0    N/A    0    0

11/1/07-11/30/07

   0    N/A    0    0

Total

   0       0   

Note: The Board of Trustees approves procedures to repurchase shares annually. The notification to shareholders of the program is part of the semi-annual and annual reports sent to shareholders. These annual programs begin on March 1st of each year. The programs conform to the conditions of Rule 10b-18 of the securities Exchange Act of 1934 and limit the aggregate number of shares that may be purchased in each annual period (March 1 through the following February 28) to 10% of the Registrant’s outstanding shares as of the first day of the plan year (March 1). The aggregate number of shares available for purchase for the March 1, 2007 plan year is 0.

 

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There were no material changes to the procedures by which shareholders may send recommendations to the Board for nominees to the Registrant’s Board since the Registrant last provided disclosure as to such procedures in response to the requirements of this Item.

 

ITEM 11. CONTROLS AND PROCEDURES.

 

(a) Based upon their evaluation of the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as conducted within 90 days of the filing date of this Form N-CSR, the registrant’s principal financial officer and principal executive officer have concluded that those disclosure controls and procedures provide reasonable assurance that the material information required to be disclosed by the registrant on this report is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

(b)

Except as set forth below, there were no changes in the Registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the Registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Registrant’s internal control over financial reporting. On June 29, 2007, Massachusetts Financial Services Company (“MFS”) became the investment adviser and fund administrator to the Registrant. As a result of MFS’ appointment as investment adviser and fund administrator to the Registrant, the


 

Registrant amended its internal controls over financial reporting to utilize the internal controls over financial reporting utilized by other investment management companies for which MFS provides investment advisory and fund administration services. Therefore, the internal controls over financial reporting of the Registrant prior to June 29, 2007 may materially differ from those currently utilized for the Registrant.

 

ITEM 12. EXHIBITS.

(a) File the exhibits listed below as part of this form. Letter or number the exhibits in the sequence indicated.

(1) Any code of ethics, or amendment thereto, that is the subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy the Item 2 requirements through filing of an exhibit: Code of Ethics attached hereto.

(2) A separate certification for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2 under the Act (17 CFR 270.30a-2): Attached hereto.

(3)Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the Registrant to 10 or more persons. Not applicable.

(b) If the report is filed under Section 13(a) or 15(d) of the Exchange Act, provide the certifications required by Rule 30a-2(b) under the Act (17 CFR 270.30a-2(b)), Rule 13a-14(b) or Rule 15d-14(b) under the Exchange Act (17 CFR 240.13a-14(b) or 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. 1350) as an exhibit. A certification furnished pursuant to this paragraph will not be deemed “filed” for the purposes of Section 18 of the Exchange Act (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference: Attached hereto.


Notice

A copy of the Agreement and Declaration of Trust, as amended, of the Registrant is on file with the Secretary of State of the Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on behalf of the Registrant by an officer of the Registrant as an officer and not individually and the obligations of or arising out of this instrument are not binding upon any of the Trustees or shareholders individually, but are binding only upon the assets and property of the respective constituent series of the Registrant.

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 MFS CALIFORNIA INSURED                   MUNICIPAL FUND
By (Signature and Title)*   MARIA F. DWYER
  Maria F. Dwyer, President

Date: January 17, 2008

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)*   MARIA F. DWYER
  Maria F. Dwyer, President (Principal Executive Officer)

Date: January 17, 2008

 

By (Signature and Title)*   TRACY ATKINSON
  Tracy Atkinson, Treasurer (Principal Financial Officer and Accounting Officer)

Date: January 17, 2008

 

* Print name and title of each signing officer under his or her signature.