UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-9533
Colonial Insured Municipal Fund
--------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
One Financial Center, Boston, Massachusetts 02111
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(Address of principal executive offices) (Zip code)
James R. Bordewick, Jr., Esq.
Columbia Management Advisors, LLC
One Financial Center
Boston, MA 02111
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(Name and address of agent for service)
Registrant's telephone number, including area code: 1-617-426-3750
Date of fiscal year end: November 30, 2006
Date of reporting period: May 31, 2006
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its
regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
Item 1. Reports to Stockholders
[PHOTO]
COLONIAL INSURED MUNICIPAL FUND
Semiannual Report
May 31, 2006
[LOGO] Not FDIC Insured May Lose Value
No Bank Guarantee
[GRAPHIC]
Dear Shareholder:
The US stock and bond markets delivered positive, but modest, returns during
the six month period ended May 31, 2006. After a weak fourth quarter, economic
growth turned sharply higher in 2006 and job growth was steady, although
somewhat slower at the end of the period. Confident consumers continued to pump
dollars into US retail markets, despite higher energy prices, which boosted
inflation. The housing market continued to cool as mortgage rates moved higher,
but housing-market indicators--such as housing starts, sales of existing homes,
and house prices--remained strong by historical measures.
In this environment, the US fixed income markets faced the challenge of rising
interest rates, especially within the short-and intermediate-maturity ranges
and was generally flat for the period. The Federal Reserve Board, in an effort
to balance economic growth and the forces of inflation, raised short-term
interest rates by one full percentage point during the reporting period. The
yield on the 10-year US Treasury note, a bellwether for the bond market, moved
up from 4.5% to 5.1%. Lower quality bonds did better than higher quality bonds.
In fact, high-yield bonds did better than either stocks or investment-grade
bonds. A strong economy favored corporate high-yield bonds, as default rates
remained low and corporate profits surprised investors with
better-than-expected results. However, that trend showed signs of shifting near
the end of the six-month period. The municipal sector generated respectable
gains as economic growth helped buoy revenues and stabilize budgets in many
states and municipalities. Within the municipal market, high-yield also
outperformed high-grade bonds for the period.
In the pages that follow, your fund's manager discusses key factors that
influenced performance during this six-month reporting period. We urge you to
read this report carefully and to discuss any questions you might have with
your financial advisor.
As always, we thank you for choosing Colonial Funds. We look forward to
continuing to help you build toward your financial goals.
Sincerely,
/s/ Christopher L. Wilson
Christopher L. Wilson
President, Columbia Funds
Past performance is no guarantee of future results.
Investments in high-yield or "junk" bonds offer the potential for higher income
than investments in investment-grade bonds, but also have a higher degree of
risk. Changes in economic conditions or other circumstances may adversely
effect a high-yield bond issuer's ability to make timely principal and interest
payments.
The views expressed in the President's Letter and Portfolio Managers' Report
reflect the current views of the respective parties. These views are not
guarantees of future performance and involve certain risks, uncertainties and
assumptions that are difficult to predict so actual outcomes and results may
differ significantly from the views expressed. These views are subject to
change at any time based upon economic, market or other conditions and the
respective parties disclaim any responsibility to update such views. These
views may not be relied on as investment advice and, because investment
decisions for a Colonial Fund are based on numerous factors, may not be relied
on as an indication of trading intent on behalf of any particular Colonial
Fund. References for specific company securities should not be construed as a
recommendation or investment advice.
[GRAPHIC]
PORTFOLIO MANAGER'S REPORT
Summary
.. For the six-month period ended May 31, 2006, Colonial Insured Municipal Fund
had a return of 2.07%, based on its market price. Changes in the market
price of the fund's shares reflect investor demand and are not necessarily
linked directly to changes in the fund's net asset value. During the period
fund returned 1.85%, based on investment at net asset value. The fund
performed in line with the average return of its peer group, the Lipper
Insured Municipal Debt Funds (Leveraged) Category, which was 1.89% over the
same period/1/. The fund's dividend income declined as higher short-term
interest rates raised the payout rate to preferred shareholders. However,
leveraged positions continued to provide the fund with an income advantage
over its non-leveraged peers.
.. Bonds with longer maturity dates continued to outperform shorter- and
intermediate-maturity bonds as the Federal Reserve Board continued to
oversee a rise in short-term rates during the period. This was a boon to the
fund, which had relatively light exposure to shorter-maturity bonds and a
large position in bonds with maturity dates of 20 years or longer. However,
a concentration in bonds that mature in 10 to 15 years detracted from
relative performance.
.. Ten-year Treasury futures contracts used to help manage the fund's
sensitivity to interest rate changes also aided performance. These hedging
strategies helped to manage volatility in the fund as interest rates first
declined and later rose during the period. In addition, income from housing,
air transportation and airport bonds was generally above prevailing market
rates.
.. With expectations for slower economic growth, slowing consumer demand and
relatively controlled core inflation, we have positioned the fund with an
emphasis on non-callable longer-maturity issues. However, if inflationary
cues are not met with reduced demand for products and services, we stand
ready to alter our investment strategy.
PORTFOLIO MANAGEMENT
Kimberly Campbell has been the portfolio manager of Colonial Insured Municipal
Fund since October 2003.
Shares of closed-end funds frequently trade at a discount to net asset value.
The price of the fund's shares is determined by a number of factors, several of
which are beyond the control of the fund. Therefore, the fund cannot predict
whether its shares will trade at, below or above net asset value.
Investing in fixed-income securities may involve certain risks, including the
credit quality of individual issuers, possible prepayments, market or economic
developments and yield and share price fluctuations due to changes in interest
rates. When interest rates go up, bond prices typically drop, and vice versa.
Investing in high-yield or "junk" bonds offers the potential for higher income
than investments in investment-grade bonds but they also have a higher degree
of risk. Changes in economic conditions or other circumstances may adversely
affect a high-yield bond issuer's ability to make timely principal and interest
payments.
Tax-exempt investing offers current tax-exempt income, but it also involves
special risks. The value of the fund will be affected by interest rate changes
and the creditworthiness of issues held in the fund. Interest income from
certain tax-exempt bonds may be subject to certain state and local taxes and,
if applicable, the alternative minimum tax. Capital gains are not exempt from
income taxes.
-----------
/1/Lipper Inc., a widely respected data provider in the industry, calculates an
average total return (assuming reinvestment of distributions) for mutual
funds with investment objectives similar to those of the fund. Lipper makes
no adjustment for the effect of sales loads.
[GRAPHIC]
Price per share as of 05/31/06 ($)
----------------------------------
Market price 12.93
----------------------------------
Net asset value 14.37
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6-month (cumulative) total return as of 05/31/06 (%) *
Market price 2.07
----------------------------------
Net asset value 1.85
----------------------------------
Lipper Insured Municipal Debt
Funds (Leveraged) Category
average 1.89
----------------------------------
Performance is historical, assumes reinvestment of all dividends and capital
gains, and does not guarantee future results. Investment and return principal
value fluctuate with changing market conditions so that, when sold, shares any
be worth more or less than their original cost. Current performance may be
lower or higher than the performance data quoted. Please call 800-730-6001 for
the Fund's most recent performance.
Total return based on net asset value reflects changes in the fund's net asset
value during the period. Total return based on market value reflects changes in
market value. These figures will differ depending on the level of any discount
from or premium to during the period.
Distributions declared per common share 12/01/05- 05/31/06 ($)
0.37
--------
A portion of the fund's income may be subject to the alternative minimum tax.
The fund may at times purchase tax-exempt securities at a discount from their
original issue price. Some or all of this discount may be included in the
fund's ordinary income, and any market discount is taxable when distributed.
Top 5 sectors as of 05/31/06 (%)
Special non-property tax 17.7
------------------------------
Local general obligations 9.2
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Water & sewer 8.1
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Airport 7.7
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Investor owned utility 7.3
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Quality breakdown as of 05/31/06 (%)
AAA 87.5
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AA 2.6
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A 5.5
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BBB 0.2
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B 0.2
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Non-rated 3.0
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Cash equivalents 1.0
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Sector and quality breakdowns are calculated as a percentage of total
investments and net assets, respectively. Ratings shown in the quality
breakdown represent the rating assigned to a particular bond by one of the
following nationally recognized rating agencies: Standard & Poor's, a division
of The McGraw Hill Companies, Inc., Moody's Investors Service, Inc. or Fitch
Ratings, Ltd. Ratings are relative and subjective and are not absolute
standards of quality. The fund's credit quality does not remove market risk.
1
[GRAPHIC]
INVESTMENT PORTFOLIO
May 31, 2006 (Unaudited)
MUNICIPAL BONDS - 156.7% PAR ($) VALUE ($)
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EDUCATION - 5.9%
EDUCATION - 2.5%
AR University Revenue,
Construction UAMS Campus,
Series 2004 B,
Insured: MBIA
5.000% 11/01/28 1,475,000 1,521,964
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Education Total 1,521,964
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STUDENT LOAN - 3.4%
MT Higher Education Student
Assistance Corp.,
Series 1999 B, AMT,
6.400% 12/01/32 2,000,000 2,102,760
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Student Loan Total 2,102,760
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EDUCATION TOTAL 3,624,724
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HEALTH CARE - 10.3%
CONTINUING CARE RETIREMENT - 1.9%
NY Dormitory Authority,
Miriam Osborn Memorial Home,
Series 2000 B,
Insured: ACA
6.875% 07/01/19 500,000 553,545
NY Suffolk County Industrial
Development Agency,
Jefferson Ferry, Series 1999 A,
7.200% 11/01/19 550,000 611,853
---------
Continuing Care Retirement Total 1,165,398
---------
HEALTH SERVICES - 3.5%
WI Health & Educational Facilities
Authority,
Marshfield Clinic, Series 1999,
Insured: RAD
6.250% 02/15/29 2,000,000 2,152,060
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Health Services Total 2,152,060
---------
HOSPITALS - 4.9%
CO Health Facilities Authority,
Parkview Medical Center, Inc.,
Series 2001,
6.600% 09/01/25 400,000 434,012
NV Henderson,
Catholic Healthcare West,
Series 1999 A,
6.750% 07/01/20 60,000 65,330
OK Industrial Authority Revenue,
Health Systems Obligation Group,
Series 1999 A,
Insured: MBIA
5.750% 08/15/29 1,155,000 1,221,401
PAR ($) VALUE ($)
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WA Health Care Facilities Authority,
Kadlec Medical Center, Series 2001,
Insured: RAD
5.875% 12/01/21 300,000 319,272
WI State Health & Educational
Facilities Authority,
Thedacare, Inc., Series 2005,
Insured: AMBAC
4.500% 12/15/25 1,000,000 960,990
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Hospitals Total 3,001,005
---------
HEALTH CARE TOTAL 6,318,463
---------
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HOUSING - 5.4%
ASSISTED LIVING/SENIOR - 1.2%
DE Kent County,
Heritage at Dover,
Series 1999, AMT,
7.625% 01/01/30 235,000 211,408
NC Medical Care Commission,
DePaul Community Facilities,
Series 1999,
7.625% 11/01/29 475,000 495,691
---------
Assisted Living/Senior Total 707,099
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MULTI-FAMILY - 0.8%
FL Broward County Housing Finance
Authority,
Chaves Lake Apartment Project,
Series 2000 A, AMT,
7.500% 07/01/40 250,000 257,443
FL Clay County Housing Finance
Authority,
Madison Commons Apartments,
Series 2000 A, AMT,
7.450% 07/01/40 245,000 251,938
---------
Multi-Family Total 509,381
---------
SINGLE-FAMILY - 3.4%
AK Housing Finance Corp.,
Series 1999 A-1,
Insured: FHA
6.150% 06/01/39 1,575,000 1,634,189
CA Rural Home Mortgage Finance
Authority,
Series 1998 A, AMT,
Guarantor: GNMA
6.350% 12/01/29 85,000 86,061
CO Housing Finance Authority,
Series 2000 B-2, AMT,
7.250% 10/01/31 70,000 71,950
OK Housing Finance Agency,
Series 2000 C-2, AMT,
7.550% 09/01/28 295,000 297,357
---------
Single-Family Total 2,089,557
---------
HOUSING TOTAL 3,306,037
---------
See Accompanying Notes to Financial Statements.
2
[GRAPHIC]
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($)
------------------------------------------------------
INDUSTRIALS - 3.2%
OIL & GAS - 3.2%
NV Clark County Industrial
Development Authority,
Southwest Gas Corp.,
Series 2005 A, AMT,
Insured: AMBAC
4.850% 10/01/35 2,000,000 1,953,960
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Oil & Gas Total 1,953,960
---------
INDUSTRIALS TOTAL 1,953,960
---------
------------------------------------------------------
OTHER - 7.0%
OTHER - 3.6%
AL Incentives Financing Authority,
Series 1999 A,
Insured: AMBAC
6.000% 10/01/29 2,000,000 2,166,440
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Other Total 2,166,440
---------
POOL/BOND BANK - 1.7%
UT Water Finance Agency,
Series 2002 B,
Insured: AMBAC
5.125% 07/01/23 1,000,000 1,049,490
---------
Pool/Bond Bank Total 1,049,490
---------
REFUNDED/ESCROWED (A) - 1.7%
NV Henderson,
Catholic Healthcare West,
Series 1999 A,
Pre-refunded 07/01/10,
6.750% 07/01/20 440,000 491,889
WV Hospital Finance Authority,
Charleston Area Medical Center,
Series 2000 A,
Pre-refunded 09/01/10,
6.750% 09/01/30 500,000 561,880
---------
Refunded/Escrowed Total 1,053,769
---------
OTHER TOTAL 4,269,699
---------
------------------------------------------------------
RESOURCE RECOVERY - 1.3%
DISPOSAL - 1.3%
CA Salinas Valley Solid Waste
Authority,
Series 2002, AMT,
Insured: AMBAC
5.125% 08/01/22 750,000 769,223
---------
Disposal Total 769,223
---------
RESOURCE RECOVERY TOTAL 769,223
---------
TAX-BACKED - 60.9% PAR ($) VALUE ($)
---------------------------------------------------------
LOCAL APPROPRIATED - 4.2%
IL Chicago Park District,
Series 2004 A,
Insured: AMBAC
5.000% 01/01/25 1,000,000 1,033,530
IN Carmel Industrial School Building
Corp., First Mortgage, Series 2003,
Insured: MBIA
5.000% 07/15/22 1,000,000 1,035,060
OK Grady County Correctional
Facilities, Series 1999,
Insured: MBIA
6.000% 11/01/29 500,000 513,120
---------
Local Appropriated Total 2,581,710
---------
LOCAL GENERAL OBLIGATIONS - 14.6%
CA Centinela Valley Union High
School District, Series 2002 A,
Insured: MBIA
5.250% 02/01/22 730,000 803,153
CA Empire Unified School District,
No. 1987-1-A, Series 2002,
Insured: AMBAC
(b) 10/01/18 1,665,000 940,176
CA Morgan Hill Unified School
District, Series 2002,
Insured: FGIC
(b) 08/01/21 1,000,000 484,880
CA Union Elementary School District,
Series 1999 A,
Insured: FGIC
(b) 09/01/16 1,400,000 886,956
CA Vallejo City Unified School
District, Series 2002 A,
Insured: MBIA
5.900% 02/01/21 500,000 584,540
IL Chicago,
Series 2005 A,
Insured: FSA
5.000% 01/01/26 1,000,000 1,035,240
IL Coles & Cumberland Counties
Unified School District,
Series 2000,
Insured: FSA
(b) 12/01/14 2,080,000 1,435,970
MI Detroit City School District,
Series 2005 A,
Insured: FSA
5.250% 05/01/30 1,500,000 1,649,700
OR Clackamas County School District
Number 007J,
Lake Oswego, Series 2005,
Insured: FSA
5.250% 06/01/25 1,000,000 1,105,950
---------
Local General Obligations Total 8,926,565
---------
See Accompanying Notes to Financial Statements.
3
[GRAPHIC]
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($)
----------------------------------------------------------
TAX-BACKED (CONTINUED)
SPECIAL NON-PROPERTY TAX - 28.2%
LA Ernest N. Moril Exhibition Hall
Authority,
Special Tax, Series 2004,
Insured: AMBAC
5.000% 07/15/23 2,000,000 2,051,460
MA Bay Transportation Authority,
Sales Tax Revenue,
Series 2005 B,
Insured: MBIA
5.500% 07/01/28 1,000,000 1,142,050
MI Trunk Line Department of
Treasury, Series 2004,
Insured: FSA
5.250% 11/01/21 1,000,000 1,102,660
NJ Economic Development Authority,
Motor Vehicle Revenue,
Series 2004 A,
Insured: MBIA
5.250% 07/01/26 (c) 2,000,000 2,208,100
NM County of Bernalillo,
Gross Receipts, Series 2005,
Insured: AMBAC
5.250% 10/01/26 2,000,000 2,206,820
NY Urban Development Corp.,
State Personal Income Tax,
Series 2004 A-2,
Insured: MBIA
5.500% 03/15/22 1,000,000 1,129,060
PR Commonwealth of Puerto Rico
Convention Center Authority,
Hotel Occupancy Tax Revenue,
Series 2006,
Insured: AMBAC
5.000% 07/01/20 1,000,000 1,055,070
PR Commonwealth of Puerto Rico
Highway & Transportation
Authority, Series 2002 E,
Insured: FSA:
5.500% 07/01/21 1,000,000 1,123,820
5.500% 07/01/23 1,000,000 1,128,520
Series 2005 L,
Insured: MBIA
5.250% 07/01/35 1,000,000 1,100,200
PR Commonwealth of Puerto Rico
Infrastructure Financing Authority,
Series 2005 A,
Insured: FGIC
5.500% 07/01/24 1,125,000 1,273,646
Series 2005 C,
Insured: AMBAC
5.500% 07/01/23 1,500,000 1,692,780
----------
Special Non-Property Tax Total 17,214,186
----------
PAR ($) VALUE ($)
--------------------------------------------------------
SPECIAL PROPERTY TAX - 3.9%
CA Huntington Park Public Financing
Authority Revenue, Series 2004,
Insured: FSA
5.250% 09/01/19 1,190,000 1,291,055
CA Pittsburg Redevelopment Agency,
Los Medanos Project, Series 1999,
Insured: AMBAC
(b) 08/01/26 2,500,000 932,575
FL Lexington Oaks Community
Development District,
Series 2000 A,
7.200% 05/01/30 180,000 185,776
----------
Special Property Tax Total 2,409,406
----------
STATE APPROPRIATED - 5.3%
NJ Economic Development Authority,
School Facilities Construction,
Series 2005 N-1,
Insured: FGIC
5.500% 09/01/27 1,000,000 1,138,800
OK Capital Improvement Authority,
Higher Education Projects,
Series 2005 F,
Insured: AMBAC
5.000% 07/01/30 1,000,000 1,033,890
PA Commonwealth Financing
Authority Revenue, Series 2005 A,
Insured: MBIA
5.000% 06/01/25 1,000,000 1,042,680
----------
State Appropriated Total 3,215,370
----------
STATE GENERAL OBLIGATIONS - 4.7%
CA State,
Series 2002,
Insured: AMBAC
6.000% 04/01/16 500,000 575,250
MA State,
Series 2004 C,
Insured: AMBAC
5.500% 12/01/24 2,000,000 2,281,980
----------
State General Obligations Total 2,857,230
----------
TAX-BACKED TOTAL 37,204,467
----------
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TRANSPORTATION - 34.6%
AIR TRANSPORTATION - 6.7%
FL Miami-Dade County Industrial
Development Authority,
Airis Miami II, LLC,
Series 1999 A, AMT,
Insured: AMBAC
6.000% 10/15/25 1,000,000 1,067,610
MA Port Authority,
US Airways, Inc.,
Series 1999, AMT,
Insured: MBIA
6.000% 09/01/21 2,500,000 2,602,075
See Accompanying Notes to Financial Statements.
4
[GRAPHIC]
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($)
------------------------------------------------------
TRANSPORTATION (CONTINUED)
AIR TRANSPORTATION (CONTINUED)
NC Charlotte/Douglas International
Airport,
US Airways, Inc.:
Series 1998, AMT,
5.600% 07/01/27 200,000 185,126
Series 2000, AMT,
7.750% 02/01/28 250,000 263,382
---------
Air Transportation Total 4,118,193
---------
AIRPORTS - 12.3%
DC Metropolitan Washington
Airports Authority,
Series 2003 A, AMT,
Insured: FGIC
5.500% 10/01/19 1,000,000 1,062,450
IN Indianapolis Local Public
Improvement Bond Bank,
Airport Authority Project,
Series 2005 B, AMT,
Insured: MBIA
5.250% 01/01/29 1,000,000 1,038,870
MO St. Louis Airport Revenue,
Lambert-St. Louis International
Airport, Series 2005,
Insured: MBIA
5.500% 07/01/27 1,000,000 1,132,280
NY Niagara Frontier Transportation
Authority,
Series 1999 A, AMT,
Insured: MBIA
5.625% 04/01/29 1,000,000 1,050,080
TN Memphis-Shelby County Airport
Authority,
Series 1999 D, AMT,
Insured: AMBAC
6.000% 03/01/24 3,000,000 3,206,700
---------
Airports Total 7,490,380
---------
PORTS - 3.0%
TX Harris County Port of Houston
Authority, Series 2005 B,
Insured: MBIA
4.125% 10/01/23 2,000,000 1,865,260
---------
Ports Total 1,865,260
---------
TOLL FACILITIES - 7.9%
CO Northwest Parkway Public
Highway Authority,
Series 2001 D,
7.125% 06/15/41 200,000 184,264
NY Thruway Authority,
Second General Highway & Bridge
Trust Fund:
Series 2005 A,
Insured: MBIA
5.000% 04/01/24 1,000,000 1,042,720
PAR ($) VALUE ($)
--------------------------------------------------------
Series 2005 B,
Insured: AMBAC
5.500% 04/01/20 1,000,000 1,127,430
NY Triborough Bridge & Tunnel
Authority, Series 2002,
Insured: MBIA
5.500% 11/15/20 1,200,000 1,355,184
PA Turnpike Commission Registration
Fee Revenue, Series 2005 A,
Insured: FSA
5.250% 07/15/25 1,000,000 1,109,080
----------
Toll Facilities Total 4,818,678
----------
TRANSPORTATION - 4.7%
IN Transportation Finance Authority
Highway Revenue, Series 2004 A,
Insured: FGIC
5.250% 06/01/20 1,000,000 1,063,040
NV Department of Business &
Industry,
Las Vegas Monorail Project,
Series 2000,
7.375% 01/01/40 250,000 256,280
NY Metropolitan Transportation
Authority, Series 2002 A,
Insured: FSA
5.000% 11/15/30 1,500,000 1,536,510
----------
Transportation Total 2,855,830
----------
TRANSPORTATION TOTAL 21,148,341
----------
--------------------------------------------------------
UTILITIES - 28.1%
INVESTOR OWNED - 11.7%
CA Pollution Control Financing
Authority,
San Diego Gas & Electric Co.,
Series 1991 A, AMT,
6.800% 06/01/15 500,000 584,015
CO Adams County Pollution Control
Revenue,
Public Service Co., Colorado
Project, Series 2005 A,
Insured: MBIA
4.375% 09/01/17 1,000,000 996,600
HI Department of Budget & Finance,
Hawaiian Electric Co.,
Series 1999 C, AMT,
Insured: AMBAC
6.200% 11/01/29 2,000,000 2,149,300
KY Boone County Pollution Control
Revenue,
Dayton Power & Light Co.,
Series 2005 A,
Insured: FGIC
4.700% 01/01/28 1,000,000 990,060
See Accompanying Notes to Financial Statements.
5
[GRAPHIC]
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2006 (Unaudited)
MUNICIPAL BONDS (CONTINUED) PAR ($) VALUE ($)
----------------------------------------------------------
UTILITIES (CONTINUED)
INVESTOR OWNED (CONTINUED)
TX Brazos River Authority,
Houston Industries, Inc.,
Series 1998 A,
Insured: AMBAC
5.125% 05/01/19 2,100,000 2,175,306
TXU Energy Co., LLC,
Series 2003 C, AMT,
6.750% 10/01/38 215,000 241,408
----------
Investor Owned Total 7,136,689
----------
JOINT POWER AUTHORITY - 1.7%
SC State Public Service Authority,
Santee Cooper, Series 2006 A,
Insured: MBIA
5.000% 01/01/29 1,000,000 1,034,600
----------
Joint Power Authority Total 1,034,600
----------
MUNICIPAL ELECTRIC - 1.8%
CA Department of Water Resources,
Series 2002 A,
Insured: AMBAC
5.500% 05/01/14 1,000,000 1,093,230
----------
Municipal Electric Total 1,093,230
----------
WATER & SEWER - 12.9%
AZ Water System Revenue,
Phoenix Civic Improvement Corp.,
Series 2001,
Insured: FGIC
5.500% 07/01/21 1,000,000 1,129,750
FL Tallahassee Consolidated Utilities
System, Series 2001,
Insured: FGIC
5.500% 10/01/19 1,360,000 1,528,640
MA Water Resources Authority,
Series 2006 A,
Insured: AMBAC
5.000% 08/01/26 1,000,000 1,049,260
TX Corpus Christi Utility System
Revenue, Series 2005 A,
Insured: AMBAC
5.000% 07/15/22 2,000,000 2,080,120
TX Houston Utility System Revenue,
Series 2004 A,
Insured: FSA
5.250% 05/15/20 2,000,000 2,130,980
----------
Water & Sewer Total 7,918,750
----------
UTILITIES TOTAL 17,183,269
----------
TOTAL MUNICIPAL BONDS
(cost of $92,959,470) 95,778,183
----------
MUNICIPAL PREFERRED
STOCKS - 0.9% SHARES VALUE ($)
------------------------------------------------------------
HOUSING - 0.9%
MULTI-FAMILY - 0.9%
Charter Mac Equity Issue Trust
7.100% 06/30/09 (d) 500,000 534,470
-----------
Multi-Family Total 534,470
-----------
HOUSING TOTAL 534,470
-----------
TOTAL MUNICIPAL PREFERRED STOCKS
(cost of $500,000) 534,470
-----------
INVESTMENT COMPANY - 0.0%
------------------------------------------------------------
Dreyfus Tax-Exempt Cash Management
Fund 452 452
-----------
TOTAL INVESTMENT COMPANY
(cost of $452) 452
-----------
SHORT-TERM OBLIGATIONS - 1.6% PAR ($)
------------------------------------------------------------
VARIABLE RATE DEMAND NOTES (E) - 1.6%
FL Orange County School Board,
Series 2000 B,
3.550% 08/01/25 100,000 100,000
IL Health Facilities Authority,
OSF Healthcare Systems,
Series 2002,
LOC: Fifth Third Bank
3.550% 11/15/27 300,000 300,000
IN Health Facility Financing Authority,
Fayette Memorial Hospital
Association, Inc.,
Series 2002 A,
LOC: U.S. Bank N.A.
3.630% 10/01/32 200,000 200,000
MO Chesterfield Industrial
Development Authority,
Educational Facilities, Gateway
Academy Inc., Series 2003,
LOC: U.S. Bank NA
3.630% 01/01/28 100,000 100,000
MS Jackson County Pollution Control
Revenue,
Chevron Corp., Series 1993,
3.540% 06/01/23 300,000 300,000
-----------
VARIABLE RATE DEMAND NOTES TOTAL 1,000,000
-----------
TOTAL SHORT-TERM OBLIGATIONS
(cost of $1,000,000) 1,000,000
-----------
TOTAL INVESTMENTS - 159.2%
(cost of $94,459,922) (f) 97,313,105
AUCTION PREFERRED SHARES
PLUS CUMULATIVE UNPAID
DISTRIBUTIONS - (61.1)% (37,321,587)
OTHER ASSETS & LIABILITIES, NET - 1.9% 1,142,659
-----------
NET ASSETS APPLICABLE TO COMMON
SHAREHOLDERS - 100.0% 61,134,177
-----------
See Accompanying Notes to Financial Statements.
6
[GRAPHIC]
INVESTMENT PORTFOLIO (CONTINUED)
May 31, 2006 (Unaudited)
NOTES TO INVESTMENT PORTFOLIO:
--------------------------------------------------------------------------------
(a)The Fund has been informed that each issuer has placed direct obligations of
the U.S. Government in an irrevocable trust, solely for the payment of
principal and interest.
(b)Zero coupon bond.
(c)Security pledged as collateral for open futures contracts.
(d)Security exempt from registration pursuant to Rule 144A under the Securities
Act of 1933. This security may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At May 31, 2006,
the value of this security, which is not illiquid, represents 0.9% of net
assets.
(e)Variable rate demand notes. These securities are payable upon demand and are
secured by letters of credit or other credit support agreements from banks.
The interest rates change periodically and the interest rates shown reflect
the rates at May 31, 2006.
(f)Cost for federal income tax purposes is $94,396,834.
Acronym Name
----------------------------------------------
ACA ACA Financial Guaranty Corp.
AMBAC Ambac Assurance Corp.
AMT Alternative Minimum Tax
FGIC Financial Guaranty Insurance Co.
FHA Federal Housing Administration
FSA Financial Security Assurance, Inc.
GNMA Government National Mortgage
Association
LOC Letter of Credit
MBIA MBIA Insurance Corp.
RAD Radian Asset Assurance, Inc.
At May 31, 2006, the composition of the Fund by revenue source is as follows:
% OF
HOLDINGS BY REVENUE SOURCE NET ASSETS
----------------------------------------------------------
Tax-Backed 60.9%
Transportation 34.6
Utilities 28.1
Health Care 10.3
Other 7.0
Housing 6.3
Education 5.9
Industrials 3.2
Resource Recovery 1.3
Short-Term Obligations 1.6
Investment Company --*
Auction Preferred Shares Plus Cumulative Unpaid
Distributions (61.1)
Other Assets & Liabilities, Net 1.9
-----
100.0%
-----
* Rounds to less than 0.1%
At May 31, 2006, the Fund held the following open short futures contracts:
Number
of Aggregate Expiration Unrealized
Type Contracts Value Face Value Date Appreciation
-----------------------------------------------------------------------
10-Year U.S
Treasury Note 94 $9,877,344 $10,055,883 Jun-2006 $178,539
See Accompanying Notes to Financial Statements.
7
[GRAPHIC]
STATEMENT OF ASSETS AND LIABILITIES
May 31, 2006 (Unaudited)
ASSETS:
Investments, at cost $94,459,922
-----------
Investments, at value $97,313,105
Cash 71,774
Receivable for:
Interest 1,347,922
Futures variation margin 29,375
Expense reimbursement due from
Investment Advisor 11,361
Deferred Trustees' compensation plan 8,997
-----------
Total Assets 98,782,534
-----------
LIABILITIES:
Payable for:
Distributions -- common shares 246,665
Distributions -- preferred shares 21,587
Investment advisory fee 37,110
Trustees' fees 720
Transfer agent fee 3,269
Audit fee 11,675
Custody fee 1,447
Chief compliance officer expenses 648
Preferred shares remarketing commissions 1,535
Deferred Trustees' fees 8,997
Other liabilities 14,705
-----------
Total Liabilities 348,358
-----------
AUCTION PREFERRED SHARES (1,492 shares
issued and outstanding at $25,000 per
share) 37,300,000
-----------
COMPOSITION OF NET ASSETS
APPLICABLE TO COMMON SHARES:
Paid-in capital -- common shares $60,281,129
Overdistributed net investment income (45,243)
Accumulated net realized loss (2,133,431)
Net unrealized appreciation on:
Investments 2,853,183
Futures contracts 178,539
-----------
Net assets at value applicable to 4,252,855
common shares of beneficial interest
outstanding $61,134,177
-----------
Net asset value per common share $ 14.37
-----------
[GRAPHIC]
STATEMENT OF OPERATIONS
For the Six Months Ended May 31, 2006
INVESTMENT INCOME:
Interest $2,410,888
Dividends 358
----------
Total Investment Income 2,411,246
EXPENSES:
Investment advisory fee 321,633
Transfer agent fee 16,474
Pricing and bookkeeping fees 45,623
Trustees' fees 5,160
Preferred shares remarketing commissions 46,550
Custody fee 5,030
Chief compliance officer expenses 2,007
Other expenses 44,461
----------
Total Expenses 486,938
Fees and expenses waived or reimbursed by
Investment Advisor (163,763)
Custody earnings credit (1,545)
----------
Net Expenses 321,630
----------
Net Investment Income 2,089,616
----------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS AND FUTURES CONTRACTS:
Net realized gain (loss) on:
Investments 333,227
Futures contracts 125,882
----------
Net realized gain 459,109
----------
Net change in unrealized
appreciation (depreciation) on:
Investments (959,300)
Futures contracts 182,519
----------
Net change in unrealized
appreciation (depreciation) (776,781)
----------
Net Loss (317,672)
----------
Net Increase in Net Assets from Operations 1,771,944
----------
LESS DISTRIBUTIONS DECLARED TO
PREFERRED SHAREHOLDERS:
From net investment income (590,513)
----------
Net Increase in Net Assets from Operations
Applicable to Common Shares $1,181,431
----------
See Accompanying Notes to Financial Statements.
8
[GRAPHIC]
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
INCREASE (DECREASE) IN NET ASSETS: 2006 2005
------------------------------------------------------------
OPERATIONS:
Net investment income $ 2,089,616 $ 4,432,710
Net realized gain on investments
and futures contracts 459,109 2,823,095
Net change in unrealized
appreciation (depreciation) on
investments and futures
contracts (776,781) (3,156,833)
----------- -----------
Net Increase from Operations 1,771,944 4,098,972
----------- -----------
LESS DISTRIBUTIONS DECLARED
TO PREFERRED SHAREHOLDERS:
From net investment income (590,513) (785,610)
----------- -----------
Net Increase in Net Assets
from Operations
Applicable to Common
Shares 1,181,431 3,313,362
----------- -----------
LESS DISTRIBUTIONS DECLARED
TO COMMON SHAREHOLDERS:
From net investment income (1,565,052) (3,659,585)
----------- -----------
Total Decrease in Net Assets
Applicable to Common Shares (383,621) (346,223)
NET ASSETS APPLICABLE TO
COMMON SHARES:
Beginning of period 61,517,798 61,864,021
----------- -----------
End of period (including
undistributed (overdistributed)
net investment income of
$(45,243) and $20,706,
respectively) $61,134,177 $61,517,798
----------- -----------
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
MAY 31, NOVEMBER 30,
NUMBER OF FUND SHARES: 2006 2005
-----------------------------------------------------
Common Shares:
Outstanding at:
End of period 4,252,855 4,252,855
--------- ---------
Preferred Shares:
Outstanding at end of period 1,492 1,492
--------- ---------
See Accompanying Notes to Financial Statements.
9
[GRAPHIC]
FINANCIAL HIGHLIGHTS
Selected data for a share outstanding throughout each period is as follows
(common shares unless otherwise noted):
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED NOVEMBER 30,
MAY 31, --------------------------------------------------------------
2006 2005 2004 2003 2002 2001
--------------------------------------------- --------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.47 $ 14.55 $ 14.86 $ 14.93 $ 15.20 $ 14.68
------- ------- ------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 0.49(b) 1.04(b) 1.10(b) 1.14(b) 1.21(b)(c) 1.24(b)
Net realized and unrealized gain (loss) on
investments, written options and futures
contracts (0.08) (0.08) (0.30) (0.08) (0.25)(c) 0.51
------- ------- ------- ------- ------- -------
Total from Investment Operations 0.41 0.96 0.80 1.06 0.96 1.75
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO
PREFERRED SHAREHOLDERS:
From net investment income (0.14) (0.18) (0.09) (0.08) (0.12) (0.26)
------- ------- ------- ------- ------- -------
Total from Investment Operations
Applicable to Common Shareholders 0.27 0.78 0.71 0.98 0.84 1.49
------- ------- ------- ------- ------- -------
LESS DISTRIBUTIONS DECLARED TO
COMMON SHAREHOLDERS:
From net investment income (0.37) (0.86) (1.02) (1.05) (1.11) (0.97)
------- ------- ------- ------- ------- -------
LESS SHARE TRANSACTIONS:
Offering costs -- common shares -- -- -- -- -- --
Commission and offering costs --preferred
shares -- -- -- -- -- --
------- ------- ------- ------- ------- -------
Total Share Transactions -- -- -- -- -- --
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 14.37 $ 14.47 $ 14.55 $ 14.86 $ 14.93 $ 15.20
------- ------- ------- ------- ------- -------
Market price per share -- common shares $ 12.93 $ 13.02 $ 13.92 $ 15.30 $ 15.09 $ 16.50
------- ------- ------- ------- ------- -------
Total return -- based on market value --
common shares (f) 2.07%(g) (0.52)% (2.45)% 8.77% (1.72)% 39.25%
------- ------- ------- ------- ------- -------
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h)(i) 1.04%(j)(k) 0.96%(k) 0.88%(k) 0.88%(k) 0.87%(k) 0.87%(k)
Net investment income before preferred
stock dividend (h)(i) 6.77%(j) 7.06% 7.48% 7.68% 8.04%(c) 8.11%
Net investment income after preferred stock
dividend (h)(i) 4.85%(j) 5.81% 6.88% 7.12% 7.22%(c) 6.42%
Voluntary waiver/reimbursement (i) 0.21%(j) 0.16% 0.12% 0.18% 0.13% 0.17%
Portfolio turnover rate 7%(g) 32% 21% 4% 13% 8%
Net assets, end of period (000's) -- common
shares $61,134 $61,518 $61,864 $63,120 $63,252 $64,290
PERIOD
ENDED
------------NOVEMBER 30,
2000 1999 (A)
--------------------------------------------------------
NET ASSET VALUE, BEGINNING OF PERIOD $ 14.30 $ 14.33
------- -------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income 1.24(d) 0.06
Net realized and unrealized gain (loss) on
investments, written options and futures
contracts 0.55 (0.06)
------- -------
Total from Investment Operations 1.79 --
------- -------
LESS DISTRIBUTIONS DECLARED TO
PREFERRED SHAREHOLDERS:
From net investment income (0.35) --
------- -------
Total from Investment Operations
Applicable to Common Shareholders 1.44 --
------- -------
LESS DISTRIBUTIONS DECLARED TO
COMMON SHAREHOLDERS:
From net investment income (0.93) --
------- -------
LESS SHARE TRANSACTIONS:
Offering costs -- common shares --(e) (0.03)
Commission and offering costs --preferred
shares (0.13) --
------- -------
Total Share Transactions (0.13) (0.03)
------- -------
NET ASSET VALUE, END OF PERIOD $ 14.68 $ 14.30
------- -------
Market price per share -- common shares $ 12.63 $ 15.00
------- -------
Total return -- based on market value --
common shares (f) (9.77)% 0.00%
------- -------
RATIOS TO AVERAGE NET ASSETS/
SUPPLEMENTAL DATA:
Expenses (h)(i) 0.86%(k) 0.55%(j)
Net investment income before preferred
stock dividend (h)(i) 8.78% 4.38%(j)
Net investment income after preferred stock
dividend (h)(i) 6.34% 4.38%(j)
Voluntary waiver/reimbursement (i) 0.48% 0.61%(j)
Portfolio turnover rate 33% 7%(g)
Net assets, end of period (000's) -- common
shares $62,051 $54,422
(a)The Fund commenced investment operations on October 29, 1999. Per share data
and total return reflect activity from that date.
(b)Per share data was calculated using average shares outstanding during the
period.
(c)Effective December 1, 2001, the Fund adopted the provisions of the AICPA
Audit and Accounting Guide for Investment Companies and began accreting
market discount on all debt securities. The effect of this change for the
year ended November 30, 2002 was to increase the ratio of net investment
income to average net assets from 8.02% to 8.04% and increase the ratio of
net investment income (adjusted for dividend payments to preferred
shareholders) from 7.20% to 7.22%. The impact to the net investment income
and net realized and unrealized loss per share was less than $0.01. Per
share data and ratios for periods prior to November 30, 2002 have not been
restated to reflect this change in presentation.
(d)The per share net investment income amount does not reflect the period's
reclassification of differences between book and tax basis net investment
income.
(e)Rounds to less than $0.01 per share.
(f)Total return at market value assuming all distributions reinvested at prices
calculated in accordance with the Dividend Reinvestment Plan.
(g)Not annualized.
(h)The benefits derived from custody credits had an impact of less than 0.01%.
(i)Ratios reflect average net assets available to common shares only.
(j)Annualized.
(k)Ratios calculated using average net assets including auction preferred
shares of the Fund equal 0.65%, 0.60%, 0.55%, 0.55%, 0.55%, 0.55% and 0.54%
for the period/years ended May 31, 2006, November 30, 2005, November 30,
2004, November 30, 2003, November 30, 2002, November 30, 2001 and November
30, 2000, respectively.
10
See Accompanying Notes to Financial Statements.
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS
May 31, 2006 (Unaudited)
NOTE 1. ORGANIZATION
Colonial Insured Municipal Fund (the "Fund") is a Massachusetts business trust
registered under the Investment Company Act of 1940 (the "Act"), as amended, as
a non-diversified, closed-end management investment company.
INVESTMENT GOAL
The Fund seeks to provide current income generally exempt from ordinary federal
income tax.
FUND SHARES
The Fund may issue an unlimited number of common shares. On December 20, 1999,
the Fund issued 1,492 Auction Preferred Shares ("APS").
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP") requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities, the disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Actual results could differ from those
estimates. The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements.
SECURITY VALUATION
Debt securities generally are valued by pricing services approved by the Fund's
Board of Trustees, based upon market transactions for normal,
institutional-size trading units of similar securities. The services may use
various pricing techniques which take into account appropriate factors such as
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other data, as well as broker quotes. Debt securities for which quotations
are readily available are valued at an over-the-counter or exchange bid
quotation. Certain debt securities, which tend to be more thinly traded and of
lesser quality, are priced based on fundamental analysis of the financial
condition of the issuer and the estimated value of any collateral. Valuations
developed through pricing techniques may vary from the actual amounts realized
upon sale of the securities, and the potential variation may be greater for
those securities valued using fundamental analysis.
Short-term debt obligations maturing within 60 days are valued at amortized
cost, which approximates market value.
Investments in open-end investment companies are valued at net asset value.
Futures contracts are valued at the settlement price established each day by
the board of trade or exchange on which they are traded.
Investments for which market quotations are not readily available, or that have
quotations which management believes are not appropriate, are valued at fair
value as determined in good faith under consistently applied procedures
established by and under the general supervision of the Board of Trustees. If a
security is valued at a "fair value", such value is likely to be different from
the last quoted market price for the security.
SECURITY TRANSACTIONS
Security transactions are accounted for on the trade date. Cost is determined
and gains (losses) are based upon the specific identification method for both
financial statement and federal income tax purposes.
FUTURES CONTRACTS
The Fund may invest in municipal and U.S. Treasury futures contracts. The Fund
will invest in these instruments to hedge against the effects of changes in the
value of portfolio securities due to anticipated changes in interest rates
and/or market conditions, for duration management, or when the transactions are
economically appropriate to the reduction of risk inherent in the management of
the Fund and not for trading purposes. The use of futures contracts involves
certain risks, which include: (1) imperfect correlation between the price
movement of the instruments and the underlying securities, (2) inability to
close out positions due to differing trading hours, or the temporary absence of
a liquid market, for either the instrument or the underlying securities, or (3)
an inaccurate prediction by Columbia Management Advisors, LLC of the future
direction of interest rates. Any of these risks may involve amounts exceeding
the variation margin recorded in the Fund's Statement of Assets and Liabilities
at any given time.
Upon entering into a futures contract, the Fund deposits cash or securities
with the broker in an amount sufficient to meet the initial margin requirement.
Subsequent payments are made or received by the Fund equal to the daily change
in the contract value and are recorded as variation margin receivable or
payable and offset in unrealized gains or losses. The Fund also identifies
portfolio securities as segregated with the custodian in a separate account in
an amount equal to the futures contract. The Fund recognizes a realized gain or
loss when the contract is closed or expires.
11
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS (continued)
May 31, 2006 (Unaudited)
INCOME RECOGNITION
Interest income is recorded on the accrual basis. Original issue discount is
accreted to interest income over the life of the security with a corresponding
increase in the cost basis. Premium and discount are amortized and accreted,
respectively, on all debt securities. Dividend income is recorded on the
ex-date.
FEDERAL INCOME TAX STATUS
The Fund intends to qualify each year as a "regulated investment company" under
Subchapter M of the Internal Revenue Code, as amended, and will distribute
substantially all of its taxable and tax-exempt income, if any, for its tax
year, and as such will not be subject to federal income taxes. In addition, the
Fund intends to distribute in each calendar year substantially all of its net
investment income, capital gains and certain other amounts, if any, such that
the Fund should not be subject to federal excise tax. Therefore, no federal
income or excise tax provision is recorded.
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to common shareholders are recorded on the ex-date. Distributions
to Auction Preferred shareholders are recorded daily and payable at the end of
each dividend period. Each dividend payment period for the APS is generally
seven days. The applicable dividend rate for the APS on May 31, 2006, was
3.52%. For the six months ended May 31, 2006, the Fund declared dividends to
Auction Preferred shareholders amounting to $590,513, representing an average
dividend rate of 3.17% per APS.
NOTE 3. FEDERAL TAX INFORMATION
The tax character of distributions paid during the year ended November 30, 2005
was as follows:
NOVEMBER 30,
2005
------------
Distributions paid from:
Tax-Exempt Income $4,445,195
Ordinary Income --
Long-Term Capital Gains --
Unrealized appreciation and depreciation at May 31, 2006, based on cost of
investments for federal income tax purposes, was:
Unrealized appreciation $3,717,152
Unrealized depreciation (800,881)
----------
Net unrealized appreciation $2,916,271
----------
The following capital loss carryforwards, determined as of November 30, 2005,
may be available to reduce taxable income arising from future net realized
gains on investments, if any, to the extent permitted by the Internal Revenue
Code:
YEAR OF CAPITAL LOSS
EXPIRATION CARRYFORWARD
------------ --------------
2011.... $1,049,996
Capital loss carryforwards of $1,793,902 were utilized during the year ended
November 30, 2005 for the Fund.
NOTE 4. FEES AND COMPENSATION PAID TO AFFILIATES
INVESTMENT ADVISORY FEE
Columbia Management Advisors, LLC ("Columbia"), an indirect, wholly-owned
subsidiary of Bank of America Corporation ("BOA"), is the investment advisor to
the Fund and provides administrative and other services. Columbia receives a
monthly investment advisory fee at the annual rate of 0.65% of the Fund's
average weekly net assets, including assets applicable to the APS.
Columbia contractually agreed to waive a portion of its investment advisory fee
through November 30, 2006, so that such fee will not exceed 0.45% annually.
Columbia has contractually agreed to waive a portion of its investment advisory
fee for the years ending November 30, 2007, 2008 and 2009 so that the Fund's
investment advisory fees will not exceed the annual rates of 0.50%, 0.55% and
0.60%, respectively.
PRICING AND BOOKKEEPING FEES
Columbia is responsible for providing pricing and bookkeeping services to the
Fund under a pricing and bookkeeping agreement. Under a separate agreement (the
"Outsourcing Agreement"), Columbia has delegated those functions to State
Street Corporation ("State Street"). As a result, Columbia pays State Street
the total fees collected under the pricing and bookkeeping agreement.
Under its pricing and bookkeeping agreement with the Fund, Columbia receives an
annual fee of $38,000 paid monthly plus an additional monthly fee based on the
level of average daily net assets for the month; provided that during any
12-month period, the aggregate fee, exclusive of out-of-pocket expenses and
charges, shall not exceed $140,000.
The Fund also reimburses Columbia and State Street for out-of-pocket expenses
and charges, including fees payable to third parties for pricing the Fund's
portfolio securities and direct internal costs incurred by Columbia in
connection with providing fund accounting oversight and monitoring and certain
other services. For the six months ended May 31, 2006, the annualized effective
pricing and bookkeeping fee rate for the Fund, inclusive of out-of-pocket
expenses, was 0.092% of the Fund's average daily net assets.
12
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS (continued)
May 31, 2006 (Unaudited)
FEE WAIVERS
Columbia has voluntarily agreed to reimburse the Fund for certain expenses so
that total expenses (exclusive of investment advisory fees, brokerage
commissions, interest, taxes and extraordinary expenses, if any) will not
exceed 0.20% annually of the Fund's average weekly net assets, including assets
applicable to APS. Columbia, at its discretion, may revise or discontinue this
arrangement any time.
CUSTODY CREDITS
The Fund has an agreement with its custodian bank under which custody fees may
be reduced by balance credits. These credits are recorded as a reduction of
total expenses on the Statement of Operations. The Fund could have invested a
portion of the assets utilized in connection with the expense offset
arrangement in an income-producing asset if it had not entered into such an
agreement.
FEES PAID TO OFFICERS AND TRUSTEES
All officers of the Fund, with the exception of the Fund's Chief Compliance
Officer, are employees of Columbia or its affiliates and receive no
compensation from the Fund. The Board of Trustees has appointed a Chief
Compliance Officer to the Fund in accordance with federal securities
regulations. The Fund, along with other affiliated funds, pays its pro-rata
share of the expenses associated with the Chief Compliance Officer. The Fund's
expenses for the Chief Compliance Officer will not exceed $15,000 per year.
The Fund's Trustees may participate in a deferred compensation plan which may
be terminated at any time. Obligations of the plan will be paid solely out of
the Fund's assets.
OTHER
Columbia provides certain services to the Fund related to Sarbanes-Oxley
compliance. For the six months ended May 31, 2006, the Fund paid $1,200 to
Columbia for such services. This amount is included in "Other expenses" on the
Statement of Operations.
NOTE 5. PORTFOLIO INFORMATION
For the six months ended May 31, 2006, the cost of purchases and proceeds from
sales of securities, excluding short-term obligations, were $7,103,747 and
$6,918,592, respectively.
NOTE 6. PREFERRED SHARES
The Fund currently has outstanding 1,492 APS. The APS are redeemable at the
option of the Fund on any dividend payment date at the redemption price of
$25,000 per share, plus an amount equal to any dividends accumulated on a daily
basis unpaid through the redemption date (whether or not such dividends have
been declared).
Under the Act, the Fund is required to maintain asset coverage of at least 200%
with respect to the APS as of the last business day of each month in which any
APS are outstanding. Additionally, the Fund is required to meet more stringent
asset coverage requirements under the terms of the APS Agreement and in
accordance with the guidelines prescribed by the APS' rating agencies. Should
these requirements not be met, or should dividends accrued on the APS not be
paid, the Fund may be restricted in its ability to declare dividends to common
shareholders or may be required to redeem certain APS. At May 31, 2006, there
were no such restrictions on the Fund.
NOTE 7. DISCLOSURE OF SIGNIFICANT RISKS AND CONTINGENCIES
CONCENTRATION OF CREDIT RISK
The Fund holds investments that are insured by private insurers who guarantee
the payment of principal and interest in the event of default or that are
supported by a letter of credit. Each of the Fund's insurers is rated Aaa by
Moody's Investor Services Inc., except for Radian Asset Assurance, Inc., which
is rated Aa3. At May 31, 2006, private insurers who insure greater than 5% of
the total investments of the Fund were as follows:
% OF TOTAL
INSURER INVESTMENTS
----------------------------------------------
Ambac Assurance Corp. 36.7%
MBIA Insurance Corp. 24.2
Financial Security Assurance, Inc. 14.9
Financial Guaranty Insurance Corp. 10.4
GEOGRAPHIC CONCENTRATION
The Fund has greater than 5% of its total investments at May 31, 2006 invested
in debt obligations issued by the states of California, Massachusetts, New
York, Texas and the Commonwealth of Puerto Rico and their respective political
subdivisions, agencies and public authorities. The Fund is more susceptible to
economic and political factors adversely affecting issuers of the specific
state's municipal securities than are municipal bond funds that are not
concentrated to the same extent in these issuers.
HIGH-YIELD SECURITIES
Investing in high-yield securities may involve greater credit risk and
considerations not typically associated with investing in U.S. government bonds
and other higher quality fixed income securities. These securities are
13
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS (continued)
May 31, 2006 (Unaudited)
non-investment grade securities, often referred to as "junk" bonds. Economic
downturns may disrupt the high yield market and impair the ability of issuers
to repay principal and interest. Also, an increase in interest rates would
likely have an adverse impact on the value of such obligations. Moreover,
high-yield securities may be less liquid to the extent that there is no
established secondary market.
ISSUER FOCUS
As a non-diversified fund, the Fund may invest a greater percentage of its
total assets in the securities of fewer issuers than a diversified fund. The
Fund may, therefore, have a greater risk of loss from a few issuers than a
similar fund that invests more broadly.
LEGAL PROCEEDINGS
On February 9, 2005, Columbia Management Advisors, Inc. (which has since merged
into Banc of America Capital Management, LLC (now named Columbia Management
Advisors, LLC)) ("Columbia") and Columbia Funds Distributor, Inc. (which has
been renamed Columbia Management Distributors, Inc.) (the "Distributor")
(collectively, the "Columbia Group") entered into an Assurance of
Discontinuance with the New York Attorney General ("NYAG") (the "NYAG
Settlement") and consented to the entry of a cease-and-desist order by the
Securities and Exchange Commission ("SEC") (the "SEC Order"). The SEC Order and
the NYAG Settlement are referred to collectively as the "Settlements". The
Settlements contain substantially the same terms and conditions as outlined in
the agreements in principle which Columbia Group entered into with the SEC and
NYAG in March 2004.
Under the terms of the SEC Order, the Columbia Group agreed, among other
things, to pay $70 million in disgorgement and $70 million in civil money
penalties; cease and desist from violations of the antifraud provisions and
certain other provisions of the federal securities laws; maintain certain
compliance and ethics oversight structures; retain an independent consultant to
review the Columbia Group's applicable supervisory, compliance, control and
other policies and procedures; and retain an independent distribution
consultant (see below). The Columbia Funds have also voluntarily undertaken to
implement certain governance
measures designed to maintain the independence of their boards of trustees. The
NYAG Settlement also,
among other things, requires Columbia and its affiliates to reduce management
fees for certain Columbia Funds (including the former Nations Funds) and other
mutual funds collectively by $32 million per year for five years,
for a projected total of $160 million in management fee reductions.
Pursuant to the procedures set forth in the SEC order, the $140 million in
settlement amounts described above will be distributed in accordance with a
distribution plan developed by an independent distribution consultant and
approved by the SEC. The independent distribution consultant has been in
consultation with the staff of the SEC and has submitted a proposed plan of
distribution. The SEC has not yet approved a final plan of distribution.
As a result of these matters or any adverse publicity or other developments
resulting from them, the market price of the shares could decline.
A copy of the SEC Order is available on the SEC website at http://www.sec.gov.
A copy of the NYAG Settlement is available as part of the Bank of America
Corporation Form 8-K filing on February 10, 2005.
In connection with the events described in detail above, various parties have
filed suit against certain funds, the Trustees of the Columbia Funds,
FleetBoston Financial Corporation and its affiliated entities and/or Bank of
America and its affiliated entities.
On February 20, 2004, the Judicial Panel on Multidistrict Litigation
transferred these cases and cases against several other mutual fund companies
based on similar allegations to the United States District Court in Maryland
for consolidated or coordinated pretrial proceedings (the "MDL"). Subsequently,
additional related cases were transferred to the MDL. On September 29, 2004,
the plaintiffs in the MDL filed amended and consolidated complaints. One of
these amended complaints is a purative class action that includes claims under
the federal securities laws and state common law, and that names Columbia, the
Distributor, the Trustees of the Columbia Funds, Bank of America Corporation
and others as defendants. Another of the amended complaints is a derivative
action purportedly on behalf of the Columbia Funds that asserts claims under
federal securities laws and state common law.
On February 25, 2005, Columbia and other defendants filed motions to dismiss
the claims in the pending cases. On March 1, 2006, for reasons stated in the
court's memoranda dated November 3, 2006, the U.S. District Court for the
District of Maryland granted in part and denied in part the defendants' motions
to dismiss. The
court dismissed all of the class action claims pending against the Columbia
Funds Trusts and the Columbia Acorn Trusts. As to Columbia and the Distributor,
the claims under the Securities Act of 1933, the claims under
14
[GRAPHIC]
NOTES TO FINANCIAL STATEMENTS (continued)
May 31, 2006 (Unaudited)
Sections 34(b) and 36(a) of the Investment Company Act of 1940 ("ICA") and the
state law claims were dismissed. The claims under Sections 10(b) and 20(a) of
the Securities Exchange Act of 1934 and claims under Section 36(b) of the ICA
along with related claims under Section 48(a) of the ICA were not dismissed.
On March 21, 2005, a purported class action was filed in Massachusetts state
court alleging that the conduct, including market timing, entitles Class B
shareholders in certain Columbia funds to an exemption from contingent deferred
sales charges upon early redemption ("the CDSC Lawsuit"). The CDSC Lawsuit has
been removed to federal court in Massachusetts and the federal Judicial Panel
has transferred the CDSC Lawsuit to the MDL.
The MDL is ongoing. Accordingly, an estimate of the financial impact of this
litigation on any fund, if any, cannot currently be made.
In 2004, certain Columbia funds, the Trustees of the Columbia Funds, advisers
and affiliated entities were named as defendants in certain purported
shareholder class and derivative actions making claims, including claims under
the Investment Company and the Investment Advisers Acts of 1940 and state law.
The suits allege, inter alia, that the fees and expenses paid by the funds are
excessive and that the advisers and their affiliates inappropriately used fund
assets to distribute the funds and for other improper purpose. On March 2,
2005, the actions were consolidated in the Massachusetts federal court as In re
Columbia Entities Litigation. The plaintiffs filed a consolidated amended
complaint on June 9, 2005. On November 30, 2005, the judge dismissed all claims
by plaintiffs and ordered that the case be closed. The plaintiffs filed a
notice of appeal on December 30, 2005 and this appeal is pending.
15
[GRAPHIC]
ASSET COVERAGE REQUIREMENTS
INVOLUNTARY
ASSET LIQUIDATING AVERAGE
TOTAL AMOUNT COVERAGE PREFERENCE MARKET VALUE
OUTSTANDING PER SHARE* PER SHARE PER SHARE
------------------------------------------------------------
05/31/06 $37,300,000 $65,975 $25,014 $25,000
11/30/05 37,300,000 66,232 25,012 25,000
11/30/04 37,300,000 66,464 25,006 25,000
11/30/03 37,300,000 67,306 25,002 25,000
11/30/02 37,300,000 67,396 25,012 25,000
11/30/01 37,300,000 68,090 25,001 25,000
11/30/00 ** 37,300,000 66,589 25,020 25,000
*Calculated by subtracting the Fund's total liabilities from the Fund's total
assets and dividing the amount by the number of APS outstanding.
**On December 20, 1999, the Fund began offering Auction Preferred Shares.
See Accompanying Notes to Financial Statements.
16
[GRAPHIC]
SHAREHOLDER MEETING RESULTS
RESULTS OF THE ANNUAL MEETING OF SHAREHOLDERS
On May 24, 2006, the Annual Meeting of Shareholders of the Fund was held to
consider re-election of Trustees. On March 10, 2006, the record date for the
Meeting, the Fund had 4,252,859 common shares outstanding and 1,492 preferred
shares outstanding. The votes cast were as follows:
ELECTION OF TRUSTEES:
The shareholders re-elected the following Trustees as follows:
FOR WITHHELD
---------------------------------------
Richard W. Lowry 3,911,112 217,209
William E. Mayer 3,891,586 241,735
Charles R. Nelson 3,921,514 211,807
Richard L. Woolworth 3,921,514 211,807
The holders of preferred shareholders re-elected the following Trustees as
follows:
FOR WITHHELD
-----------------------------------
Richard W. Lowry 1,242 6
Douglas A. Hacker 1,242 6
William E. Mayer 1,242 6
Charles R. Nelson 1,242 6
Thomas E. Stitzel 1,242 6
Richard L. Woolworth 1,242 6
The terms of office of Thomas C. Theobald, John J. Neuhauser, Patrick J.
Simpson, Ann-Lee Verville and Janet Langford Kelly continued after the Meeting.
17
[GRAPHIC]
DIVIDEND REINVESTMENT PLAN
COLONIAL INSURED MUNICIPAL FUND
Pursuant to the Fund's Dividend Reinvestment Plan (the "Plan"), all Common
Shareholders whose shares are registered in their own names will have all
distributions reinvested automatically in additional Common Shares of the Fund
by Computershare (the "Plan Agent"), as agent under the Plan, unless a Common
Shareholder elects to receive cash. An election to receive cash may be revoked
or reinstated at the option of the Common Shareholder. Shareholders whose
shares are held in the name of a broker or nominee will have distributions
reinvested automatically by the broker or nominee in additional shares under
the Plan, unless the service is not provided by the broker or nominee, or
unless the shareholder elects to receive distributions in cash. If the service
is not available, such distributions will be paid in cash. Shareholders whose
shares are held in the name of a broker or nominee should contact the broker or
nominee for details. All distributions to investors who elect not to
participate (or whose broker or nominee elects not to participate) in the Plan
will be paid by check mailed directly to the record holder by the Plan Agent,
as dividend paying agent.
The Plan Agent will furnish each person who buys shares in the offering with
written information relating to the Plan. Included in such information will be
procedures for electing to receive distributions in cash (or, in the case of
shares held in the name of a broker or nominee who does not participate in the
Plan, procedures for having such shares registered in the name of the
shareholder so that such shareholder may participate in the Plan).
If the Trustees of the Fund declare a dividend (including a capital gain
dividend) payable either in shares or in cash, as holders of shares may have
elected, then nonparticipants in the Plan will receive cash and participants in
the Plan will receive the equivalent in shares valued as set forth below.
Whenever a market price is equal to or exceeds net asset value at the time
shares are valued for the purpose of determining the number of shares
equivalent to the distribution, participants will be issued shares at the net
asset value most recently determined as provided under "Net Asset Value" in the
Fund's prospectus and its Statement of Additional Information, but in no event
less than 95% of the market price. If the net asset value of the shares at such
time exceeds the market price of shares at such time, or if the Fund should
declare a dividend (including a capital gain dividend) payable only in cash,
the Plan Agent will, as agent for the participants, use the cash that the
shareholders would have received as a dividend to buy shares in the open
market, the American Stock Exchange or elsewhere, for the participants'
accounts. If, before the Plan Agent has completed its purchases, the market
price exceeds the net asset value of the shares, the average per share purchase
price paid by the Plan Agent may exceed the net asset value of the shares,
resulting in the acquisition of fewer shares than if the dividend (including a
capital gain dividend) had been paid in shares issued by the Fund. The Plan
Agent will apply all cash received as a dividend (including a capital gain
dividend) to purchase shares on the open market as soon as practicable after
the payment date of such dividend, but in no event later than 30 days after
such date, except where necessary to comply with applicable provisions of the
federal securities laws.
There is no charge to participants for reinvesting dividends (including capital
gain dividends). The Plan Agent's fees for handling the reinvestment of
dividends (including capital gain dividends) will be paid by the Fund. There
will be no brokerage charges with respect to shares issued directly by the Fund
as a result of dividends or capital gains distributions payable either in stock
or in cash. However, each participant will pay a pro rata share of brokerage
commissions incurred with respect to the Plan Agent's open market purchases in
connection with the reinvestment of dividends (including capital gain
dividends).
The automatic reinvestment of dividends (including capital gain dividends) will
not relieve participants of any income tax which may be payable on such
dividends. The amount of the dividend for tax purposes may vary depending on
whether the Fund issues new Common Shares or purchases them on the open market.
The Plan may be amended or terminated on 30 days' written notice to Plan
participants. Contact the Plan Agent for additional information regarding the
Plan. All correspondence concerning the Plan should be directed to
Computershare by mail at P.O. Box 43010, Providence, RI 02940-3010, or by phone
at 1-800-730-6001.
18
[LOGO]
Transfer Agent
Important Information About This Report
The Transfer Agent for Colonial Insured Municipal Fund is:
Computershare
P.O. Box 43010
Providence, RI 02940-3010
The fund mails one shareholder report to each shareholder address. Shareholders
can order additional reports by calling 800-730-6001. In addition,
representatives at that number can provide shareholders information about the
fund.
Financial advisors who want additional information about the fund may speak to
a representative at 800-426-3750.
A description of the fund's proxy voting policies and procedures is available
(i) at www.columbiamanagement.com; (ii) on the Securities and Exchange
Commission's website at www.sec.gov, and (iii) without charge, upon request, by
calling 800-730-6001. Information regarding how the fund voted proxies relating
to portfolio securities during the 12-month period ended June 30 is available
from the SEC's website. Information regarding how the fund voted proxies
relating to portfolio securities is also available
at www.columbiamanagement.com.
The fund files a complete schedule of portfolio holdings with the SEC for the
first and third quarters of each fiscal year on Form N-Q. The fund's Form N-Q
is available on the SEC's website at www.sec.gov and may be reviewed and copied
at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the Public Reference Room may be obtained by calling
1-800-SEC-0330.
This report has been prepared for shareholders of Colonial Insured Municipal
Fund.
[GRAPHIC]
COLONIAL INSURED MUNICIPAL FUND
SEMIANNUAL REPORT
SHC-44/111608-0506 (07/06) 06/26843
Item 2. Code of Ethics.
Not applicable at this time.
Item 3. Audit Committee Financial Expert.
Not applicable at this time.
Item 4. Principal Accountant Fees and Services.
Not applicable at this time.
Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Schedule of Investments
The registrant's "Schedule I - Investments in securities of unaffiliated
issuers" (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form
N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Registrant Purchases of Equity Securities*
-----------------------------------------------------------------
(c)
Total Number of (d)
(a) (b) Shares Purchased as Maximum Number of
Total Number Average Part of Publicly Shares that May Yet
of Shares Price Paid Announced Plans Be Purchased Under
Period Purchased Per Share or Programs the Plans or Programs
------ ------------ ---------- ------------------- ---------------------
12/01/05 through 12/31/05... 232 $13.30 232 N/A
01/01/06 through 01/31/06... 225 $13.40 225 N/A
02/01/06 through 02/28/06... 236 $13.64 236 N/A
03/01/06 through 03/31/06... 240 $13.70 240 N/A
04/01/06 through 04/30/06... 251 $13.35 251 N/A
05/01/06 through 05/31/06... 332 $13.08 332 N/A
----- ------ ----- ---
Total....................... 1,516 $13.39 1,516 N/A
----- ------ ----- ---
--------
* Includes shares purchased by the Dividend Reinvestment Agent pursuant to
the Registrant's Dividend Reinvestment Plan.
Item 10. Submission of Matters to a Vote of Security Holders.
There have not been any material changes to the procedures by which
shareholders may recommend nominees to the registrant's board of directors,
since those procedures were last disclosed in response to the requirements of
Item 7(d)(2)(ii)(G) of Schedule 14A or this Item.
Item 11. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial
officers, based on their evaluation of the registrant's disclosure
controls and procedures as of a date within 90 days of the filing of
this report, have concluded that such controls and procedures are
adequately designed to ensure that information required to be
disclosed by the registrant in Form N-CSR is accumulated and
communicated to the registrant's management, including the principal
executive officer and principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
(b) There were no changes in the registrant's internal control over
financial reporting that occurred during the registrant's second
fiscal quarter of the period covered by this report that has
materially affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR: Not
applicable at this time.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company
Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of
1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Colonial Insured Municipal Fund
---------------------------------------------
By (Signature and Title) /S/ Christopher L. Wilson
---------------------------------
Christopher L. Wilson, President
Date July 27, 2006
-----------------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title) /S/ Christopher L. Wilson
---------------------------------
Christopher L. Wilson, President
Date July 27, 2006
-----------------------------------------------------
By (Signature and Title) /S/ J. Kevin Connaughton
---------------------------------
J. Kevin Connaughton, Treasurer
Date July 27, 2006
-----------------------------------------------------