-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Gw42w39MyPm7FcZiyPKG36s2eTnNC73zLMqtVun0KZ1NMN16cqzPqctox7Z7pfSU m5CRHbIT/h1GftbK/v8YIQ== 0000950116-02-001253.txt : 20020530 0000950116-02-001253.hdr.sgml : 20020530 20020530104733 ACCESSION NUMBER: 0000950116-02-001253 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020530 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND INC CENTRAL INDEX KEY: 0000884174 IRS NUMBER: 411718337 STATE OF INCORPORATION: MN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06568 FILM NUMBER: 02665666 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2152552127 MAIL ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND INC DATE OF NAME CHANGE: 19920826 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELAWARE INV COLORADO INSURED MUNICIPAL INCOME FUND INC CENTRAL INDEX KEY: 0000907573 IRS NUMBER: 411751991 STATE OF INCORPORATION: MN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07810 FILM NUMBER: 02665667 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103-3682 BUSINESS PHONE: 2152552127 MAIL ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103-3682 FORMER COMPANY: FORMER CONFORMED NAME: VOYAGEUR COLORADO INSURED MUNICIPAL INCOME FUND INC DATE OF NAME CHANGE: 19930621 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELAWARE INVESTMENTS FLORIDA INSURED MUNICIPAL INCOME FUND CENTRAL INDEX KEY: 0000895574 IRS NUMBER: 411737161 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07410 FILM NUMBER: 02665668 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2152552127 MAIL ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: VOYAGEUR FLORIDA INSURD MUNICIPAL INCOME FUND DATE OF NAME CHANGE: 19930122 FORMER COMPANY: FORMER CONFORMED NAME: VOYAGEUR FLORIDA INSURED MUNICIPAL INCOME FUND DATE OF NAME CHANGE: 19930519 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELAWARE INVESTMENTS ARIZONA MUNICIPAL INCOME FUND INC CENTRAL INDEX KEY: 0000895577 IRS NUMBER: 411737155 STATE OF INCORPORATION: MN FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07412 FILM NUMBER: 02665669 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2152552127 MAIL ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: VOYAGEUR ARIZONA MUNICIPAL INCOME FUND INC DATE OF NAME CHANGE: 19930519 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND III INC CENTRAL INDEX KEY: 0000910347 IRS NUMBER: 411761999 STATE OF INCORPORATION: MN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07938 FILM NUMBER: 02665670 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2152552127 MAIL ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND III INC DATE OF NAME CHANGE: 19930806 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND II INC CENTRAL INDEX KEY: 0000895658 IRS NUMBER: 411737158 STATE OF INCORPORATION: MN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07420 FILM NUMBER: 02665671 BUSINESS ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2152552127 MAIL ADDRESS: STREET 1: ONE COMMERCE SQUARE STREET 2: 2005 MARKET STREET CITY: PHILADELPHIA STATE: PA ZIP: 19103 FORMER COMPANY: FORMER CONFORMED NAME: VOYAGEUR MINNESOTA MUNICIPAL INCOME FUND II INC DATE OF NAME CHANGE: 19930519 N-30D 1 n30d.txt N-30D Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) [GRAPHIC OMITTED] CLOSED END Annual Report 2002 DELAWARE INVESTMENTS Closed-End Municipal Bond Funds (formerly Voyageur Closed-End Municipal Bond Funds) [GRAPHIC OMITTED]POWERED BY RESEARCH.(SM) A Commitment to Our Investors Investment Objectives and Strategies Each of the six funds in this report is a closed-end management investment company whose shares trade on the American Stock Exchange (ASE) in New York. Each fund seeks to provide high current income exempt from federal income tax and from the personal income tax of its state, if any, consistent with the preservation of capital. In addition, Florida Insured Municipal Income Fund seeks investments that enable its shares to be exempt from Florida's intangible personal property tax. Each fund seeks to achieve its objective by investing at least 80% of its net assets in investment-grade, tax-exempt municipal obligations. Investment Advisor Delaware Management Company (Delaware Management), a series of Delaware Management Business Trust, has been the funds' investment advisor since May 1, 1997. Delaware Management is a part of Lincoln Financial Group, one of America's largest publicly held diversified financial services companies, with global insurance operations and more than $126 billion in assets under management as of March 31, 2002. As of March 31, 2002, Delaware Management and its affiliates manage more than $85 billion for mutual fund shareholders and institutional investors, such as pension plans and foundations. In addition to the six closed-end funds in this report, Delaware Management also manages other closed-end funds traded on the New York Stock Exchange. Leveraging Each of the six funds in this report uses leveraging, a tool that is not usually used by open-ended mutual funds and one that can be an important contributor to each fund's income and capital appreciation potential. Of course, there is no guarantee that leveraging will benefit any of the funds. Leveraging could result in a higher degree of volatility because a fund's net asset value could be more sensitive to fluctuations in short-term interest rates and equity prices. Delaware Management believes this volatility risk is reasonable given the benefits of higher income potential. Table of Contents Letter to Shareholders 1 Portfolio Management Review 3 Performance Summaries Minnesota Municipal Income Funds I, II, III 7 Arizona Municipal Income Fund 8 Florida Insured Municipal Income Fund 8 Colorado Insured Municipal Income Fund 9 Important Fund Information 10 Financial Statements: Statements of Net Assets 11 Statements of Operations 24 Statements of Changes in Net Assets 26 Financial Highlights 28 Notes to Financial Statements 34 Report of Independent Auditors 39 Proxy Results 40 Board of Directors/Trustees and Officers 42 Letter Delaware Investments Closed-End Municipal Bond Funds to Shareholders April 9, 2002 Recap of Events The fiscal year ended March 31, 2002 formed a complex period for investors in fixed-income securities. Throughout the period, yield and price swings on bonds were unusually wide, as investors grappled with an extremely varied set of economic forecasts. The events of September 11 and its aftermath also generated concerns about bond credit quality--especially among corporate issuers--leading to increased volatility throughout the fixed-income marketplace. Amid these concerns, municipal bond credit ratings generally held up well compared to those of other fixed-income investments. According to credit ratings agency Standard & Poor's, 211 corporate bond issuers defaulted on a record $115.4 billion of debt during 2001. Yet aside from several city agency bonds and airport bonds in New York that were directly affected by the events of September 11, municipal bond credit remained relatively unaffected throughout much of the recent recession. Volatility also was relatively muted among municipals during the year. An increase of greater than 35% in municipal supply during 2001 helped keep municipal yields from swinging as widely as those in some other fixed-income asset classes (Source: Salomon Smith Barney). The fact that demand in the municipal markets is generated largely by individual investors also may have helped keep yields relatively stable. Demand from individual investors is known to drop off as yields fall across the fixed-income markets, and vice versa. This tends to create a stabilizing force on yields in the individual investor-dominated municipal markets. "A FULL SIX MONTHS AFTER THE TRAGIC EVENTS OF SEPTEMBER 11, WE NOW HAVE A CLEARER PICTURE OF THAT DAY'S IMPACT ON THE U.S. ECONOMY AND OUR CAPITAL MARKETS." Despite a growing consensus that the recession may now be ending, other concerns have recently stifled confidence regarding an end to the broader, global economic slowdown. With news of accounting irregularities dominating business headlines, many investors showed concern that similar problems could affect other large issuers as well. The strength of any U.S. economic recovery is a burning issue for the fixed-income markets in general. Delaware Investments' Closed-End Municipal Bond Funds provided positive performance that was competitive versus corresponding Lipper peer group returns during the year ended March 31, 2002. On the pages that follow, the funds' portfolio managers discuss performance for the individual funds and their outlook for the remainder of 2002 in the municipal bond market.
Total Return Total Return Premium (+)/ Total Return at Net at Market Discount (-) ASE For the year ended March 31, 2002 Asset Value Value as of 3/31/02 Symbol Minnesota Municipal Income Fund I +4.81% +7.00% -1.30% VMN Minnesota Municipal Income Fund II +4.73% +5.75% -1.61% VMM Minnesota Municipal Income Fund III +4.43% +5.93% -1.74% VYM Lipper Minnesota Closed-End Municipal Debt Funds Average (6 funds) +4.29% Arizona Municipal Income Fund +4.21% +10.22% +0.68% VAZ Colorado Insured Municipal Income Fund +3.15% +7.52% -0.54% VCF Lipper Other States Closed-End Municipal Debt Funds Average (31 funds) +3.85% Florida Insured Municipal Income Fund +4.16% +12.63% -7.46% VFL Lipper Florida Closed-End Municipal Debt Funds Average (13 funds) +3.62% Lehman Brothers Municipal Bond Index +3.81% Lehman Brothers Insured Municipal Bond Index +3.76%
Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund's dividend reinvestment plan. The Lipper categories represent the average return of municipal bond funds with similar investment objectives tracked by Lipper (Source: Lipper Inc.). The Lehman Brothers Municipal Bond Index is an unmanaged index that generally tracks the performance of municipal bonds. The Lehman Brothers Insured Municipal Bond Index is an unmanaged index that generally tracks the performance of insured municipal bonds. You cannot invest directly in an index. Past performance is not a guarantee of future results. Unlike U.S. Treasuries, the U.S. Government does not guarantee the payment of principal and interest on municipal bonds. 1 Market Outlook A full six months after the tragic events of September 11, we now have a clearer picture of that day's impact on the U.S. economy and our capital markets. September 11 clearly prolonged a year-long economic slide, but also became a catalyst for recovery, as the economy obviously reached bottom sometime during the fall and winter and now appears to be rebounding somewhat more strongly than expected. Longer municipal bond yields are currently offering significant premiums, allowing investors to pick up yield as they extend their maturity. Given this fact, and the current low interest rate environment, we think Delaware Investments Closed-End Municipal Bond Funds are currently an attractive fixed-income investment vehicle. The after-tax yield on cash equivalents such as taxable and tax-exempt money market funds and bank CDs continued to plummet during the fiscal year covered in this report. As a result, we believe that many investors in moderate to high tax brackets would do well to consider municipals. For more information on whether one of Delaware Investments Closed-End Municipal Bond Funds is suitable for you, please contact your financial advisor. Unlike Delaware Investments Closed-End Municipal Bond Funds, money market funds seek to maintain a stable share price. Return and share value for Delaware Investments Closed-End Municipal Bond Funds will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Also unlike Delaware Investments Closed-End Municipal Bond Funds, certificates of deposit are FDIC-insured and U.S. Treasuries are backed by the full faith and credit of the U.S. government. Sincerely, /s/ Charles E. Haldeman, Jr. - -------------------------------------- Charles E. Haldeman, Jr. Chairman, Delaware Investments Family of Funds /s/ David K. Downes - -------------------------------------- David K. Downes President and Chief Executive Officer, Delaware Investments Family of Funds 2 Portfolio Delaware Investments Closed-End Municipal Bond Funds Management Review April 9, 2002 Fund Managers Andrew M. McCullagh Senior Portfolio Manager Arizona Municipal Income Fund, Colorado Insured Municipal Income Fund Mitchell L. Conery Patrick P. Coyne Senior Portfolio Managers Minnesota Municipal Income Funds I,II,III, Florida Insured Municipal Income Fund The Funds' Results Municipal bonds continued their recent strong performance during the past fiscal year. It was a year characterized by a weak economy that became even weaker following the September 11 terrorist attacks. To reduce the economy's vulnerability and spur economic growth, the Fed continued its strategy of reducing interest rates. During 2001, the Fed lowered the federal funds rate 11 times to its lowest level in the last 40 years. Despite these low interest rates, inflation, a source of great concern for bond investors because it decreases the value of coupon payments, remained modest. "WITH INTEREST RATES FALLING STEADILY DURING 2001, OLDER BONDS OFFERING HIGHER RATES BECAME MORE VALUABLE AND INCREASED IN PRICE" For much of the year, investors generally took part in a "flight to quality," avoiding riskier securities and opting instead for higher-quality investment opportunities. Municipal bond funds benefited greatly from this sentiment. With interest rates falling steadily in 2001, older bonds offering higher rates became more valuable and increased in price (their yields--which move inversely to price--fell accordingly). This was especially true of long-term bonds, which are particularly sensitive to interest-rate movements. Beginning late in the fiscal year, however, municipal bond prices began to retreat from their highs. The market reversal stemmed from increased optimism about the economy, suggesting the Fed would be more likely to raise than lower interest rates in the future. The year was characterized by strong demand for municipal bonds and ample supply to meet that demand. Total municipal bond issuance in 2001 reached a record $283.6 billion in 2001, up 42 percent over the previous year's total, according to the Bond Market Association. That trend has continued at the start of 2002. Issuers of municipal securities have continued to display surprising financial strength, despite the recent recession. During our fiscal year, this enabled states and municipalities to obtain more favorable lending terms and find willing buyers for their bonds. At the same time, economic weakness often forced municipalities to tighten their budgets because of a decline in available revenues. This helped contribute to the overall supply of municipal bonds, since a number of projects that might once have been funded on a pay-as-you-go basis now needed to be financed by issuing debt in public markets. Portfolio Highlights Delaware Investments Minnesota Municipal Income Funds I, II and III The pace of issuance of Minnesota municipal bonds has been growing, but less rapidly than the national average. One characteristic of the Minnesota municipal market is that many new issues come to market backed by an insurance guarantee. While insured bonds can add valuable stability to a portfolio, investing entirely in them does limit the amount of yield that portfolio managers can add to a mutual fund. Thus, part of our management approach during the year was to strike a balance between adding high-quality bond issues and lower-quality, higher-yielding securities as they became available. For any such higher-yielding bonds, we scrutinized them to make sure that we were comfortable with the amount of risk they offered relative to their potential reward. 3 For the fiscal year ended March 31, 2002, the Funds' benchmark index -- the Lehman Brothers Municipal Bond Index -- rose +3.81%. Municipal bond performance in the state was strong during the year, and the Funds' peer group, the 6-fund Lipper Minnesota Closed-End Municipal Debt Funds Average, returned +4.29%. Returns for all three funds surpassed both their benchmarks and peer group average. Minnesota Municipal Income Fund I returned +4.81% for the fiscal year ended March 31, 2002 (Shares at net asset value with all distributions reinvested), Minnesota Municipal Income Fund II returned +4.73% for the year (Shares at net asset value with all distributions reinvested), and Minnesota Municipal Income Fund III turned in a +4.43% return (Shares at net asset value with all distributions reinvested). As always, we closely monitored each fund's duration, an indicator of a bond or bond fund's sensitivity to changes in interest rates. The longer the duration, the more sensitive a bond or bond fund is to changes in interest rates. As we reported at mid-fiscal year, Minnesota Municipal Income Fund I has continued to have the lowest duration of the three Minnesota funds, as it holds some shorter maturity bonds. Throughout the course of the year, the three Funds' durations declined, indicating a decreased sensitivity to changes in interest rates. This reflected our belief that future interest rates were likely to begin rising in the face of a potentially improving economy. Generally, however, our outperformance in the Funds can be attributed in part to durations that, although declining with lower interest rates, were somewhat longer than the peer group average during much of the year. All three funds also have continued to hold a significant portion of their assets in pre-refunded and escrowed-to-maturity bonds. As of March 31, 2002, pre-refunded and escrowed-to-maturity bonds accounted for 29.1% of net assets in Minnesota Municipal Income Fund I, 43.7% of net assets in Minnesota Municipal Income Fund II, and 38.6% of net assets in Minnesota Municipal Income Fund III. Delaware Investments Arizona Municipal Income Fund The Arizona economy in general has fared better than the rest of the country during the recent recession. As a result, Arizona municipal securities continue to offer a combination of attractive yields and high-quality credit ratings. The Fund rewarded shareholders with solid performance for the fiscal year ended March 31, 2002. The Fund's return of +4.21% (Shares at net asset value with all distributions reinvested) compares favorably to the +3.85% return of the Lipper Other States Closed-End Municipal Debt Funds Average for the same one-year period. After beginning the year with a more aggressive posture with regard to portfolio duration, we began to assume a more conservative approach during 2001, shortening the Fund's duration to be more consistent with that of our peers. Later in the fiscal year, we extended duration again to take advantage of market movements. Duration measures a bond or bond fund's sensitivity to interest rate changes. The longer the duration, the more the bond or bond fund's price will change for a given increase or decrease in interest rates. As of March 31, 2002, the Fund's average effective duration was 8.9 years, up from 6.0 years at the start of the fiscal year. Because interest rates were generally declining during the year, extending duration relative to our peers generally contributed to price appreciation in the portfolio. During the year, we sought to improve the call protection in the portfolio. Many municipal securities are "callable" 10 years from issuance, meaning that issuers can "call" a bond 10 years from the date it is first offered, paying back the principal to bond holders. To increase the Fund's potential going forward, we sold bonds that were nearing their call dates and invested the proceeds in bonds with more distant call dates. This strategy also helped to enhance the Fund's dividend yield during the year. 4 Delaware Investments Florida Insured Municipal Income Fund During the fiscal year ended March 31, 2002, the Fund returned +4.16% (Shares at net asset value with all distributions reinvested), outperforming the +3.62% gain of the Lipper Florida Closed-End Municipal Debt Funds Average and the +3.76% gain of the Lehman Brothers Insured Municipal Bond Index. We usually maintain a shorter duration posture in our insured funds, because insured bonds are the most liquid bonds in the municipal universe. Extra liquidity can lead to increased price volatility, as it often does in the Treasury market. During the second half of our fiscal year, we were able to comfortably extend duration somewhat, as we had previously been somewhat shorter than the peer group average. Both housing and hospital bonds continue to play significant roles in the Florida bond market and in your fund. As of March 31, 2002, 28.8% of the Fund's net assets were dedicated to hospital revenue bonds, and 17.8% were in housing revenue bonds. The Fund also continues to hold 19.0% of its net assets in pre-refunded and escrowed to maturity issues. As of March 31, 2002, the Fund's average credit rating was AAA, the highest possible rating. Delaware Investments Colorado Insured Municipal Income Fund The Fund posted healthy gains for the fiscal year ended March 31, 2002, delivering a return of +3.15% (Shares at net asset value with all distributions reinvested). In comparison, the Lipper Other States Closed-End Municipal Debt Funds Average gained +3.85% for the same year. The Fund continues to hold substantial positions in education bonds, particularly those that fund charter schools. Higher education bonds accounted for 25.9% of net assets at fiscal year end, and several other general obligation issues in the portfolio also help fund charter schools. We are optimistic about the performance of these issues going forward. Colorado is focusing on charter schools as a means to reduce overcrowding in the public school system. We believe that many of these holdings offer substantial upgrade potential. The key to such bonds, as in any market sector, is selectivity on an issue-by-issue basis. Due to long-term growth trends driven by a increased population in the state, we continue to have a bright outlook for the transportation sector of the municipal bond market in Colorado. High quality bonds continue to be issued in Colorado to fund highway projects, and transportation revenue bond holdings accounted for 33.3% of net assets on March 31, 2002. Although healthcare continues to factor into the investment portfolio, the weighting is down from earlier periods. Consolidation in the industry led us to upgrade, and as a result, trim our holdings. As we added new positions during the year, we also focused on higher-quality issues that we believed would perform better in a recessionary environment. Finally, we pulled back on duration slightly as the fiscal year progressed, bringing the Fund more closely in line with its peers. As is the case in Arizona, the Colorado economy has been less severely impacted by the current recession than other parts of the country. As a result, we anticipate that the emerging economic recovery will bode well for a municipal bond market that has remained quite steady. Outlook Recent economic data suggest that the economy may continue to pick up strength. The stronger the economy gets, the more likely that the Federal Reserve will increase interest rates from their current near-historic lows. Such a situation would place negative pressure on the municipal bond market--especially with respect to short-term municipals, which move inversely with the expected direction of interest rates. There are some positive signs for the municipal bond market as well. First, we see no signs of inflation on the horizon. Second, we believe that any economic recovery may be somewhat muted, which would suggest that long-term interest rates may remain low. This would be favorable for longer-maturity municipal investments. To prepare the portfolio for both the short and long term, therefore, we plan to continue managing most of the Funds using a barbell strategy--combining high-yielding, shorter-maturity municipal bonds with longer-maturity bonds that we believe may offer ongoing value for investors. 5 Dividend Reinvestment Plans Each fund offers an automatic dividend reinvestment program. If fund shares are registered in your name and you are not already reinvesting dividends but would like to do so, contact the dividend plan agent, Mellon Investor Services, L.L.C., at 800 851-9677. You will be asked to put your request in writing. If you have shares registered in "street" name, contact your financial advisor or the broker/dealer holding the shares. Under the current policies of Arizona Municipal Income Fund, Florida Insured Municipal Income Fund, Minnesota Municipal Income Fund I, and Minnesota Municipal Income Fund II, all distributions of net investment income and capital gains to common stock shareholders are automatically reinvested in additional shares unless shareholders elect to receive all dividends and other distributions in cash paid by check mailed directly to shareholders by the dividend plan agent. Under the current policies of Colorado Insured Municipal Income Fund and Minnesota Municipal Income Fund III, distributions of net investment income and capital gains to common shareholders will be paid in cash unless shareholders notify Mellon Investor Services, L.L.C. of their desire to participate in the dividend reinvestment program. After each fund declares a dividend or determines to make a capital gains distribution, the plan agent will, as agent for the participants, receive the cash payment and use it to buy shares in the open market on the American Stock Exchange. The funds will not issue any new shares in connection with the plan. You can contact Mellon at: Mellon Investor Services, L.L.C. Dividend Reinvestment Department Overpeck Centre 85 Challenger Road Ridgefield, NJ 07660 800 851-9677 6 Delaware Investments Minnesota Municipal Income Funds I, II, III Fund Basics As of March 31, 2002 Fund Objective: The Funds seek to provide current income exempt from both regular federal income tax and Minnesota personal income tax, consistent with preservation of capital. Total Fund Net Assets: Fund I $38.00 million Fund II $103.57 million Fund III $24.31 million Number of Holdings: Fund I 43 Fund II 77 Fund III 31 Fund Start Dates: Fund I May 1, 1992 Fund II February 26, 1993 Fund III October 29, 1993 Your Fund Managers: Mitchell L. Conery received a bachelor's degree from Boston University and an MBA in finance from the State University of New York at Albany. Prior to joining Delaware Investments in 1997, he served as a municipal bond Investment Officer with the Travelers Group. Before that, he held positions at CS First Boston Corporation, MBIA Corporation, Thomson McKinnon Securities, Ovest Financial Services, and Merrill Lynch. Patrick P. Coyne received a bachelor's degree from Harvard University and an MBA in finance from the University of Pennsylvania's Wharton School. He began his career with Kidder, Peabody & Co., where he managed the firm's trading desk for four years. He joined Delaware Investments' fixed-income department in 1990. Minnesota Municipal Income Funds I, II, III Bond Quality and Portfolio Highlights March 31, 2002 Fund I Fund II Fund III AAA 59.7% 56.6% 56.1% AA 6.9% 16.0% 5.2% A 19.2% 15.7% 21.8% BBB 1.6% 3.0% 7.2% BB -- -- 0.5% Unrated 12.6% 8.7% 9.2% Average Credit Quality AA AA AA Average Effective Duration* 5.7 years 5.4 years 6.6 years Average Effective Maturity** 8.6 years 7.9 years 10.8 years Current Yield at Market Price 5.8% 6.0% 6.0% Amount of Leveraging (millions) $20.0 $60.0 $15.0 * Average Effective Duration is a common measure of a bond or bond fund's sensitivity to interest rate changes. The longer the duration, the more sensitive the bond or bond fund is to changes in interest rates. ** Average Effective Maturity is the average time remaining until scheduled repayment by issuers of portfolio securities. Approximately 16.1%, 17.2%, and 13.3% of the income generated by Minnesota Municipal Income Funds I, II, and III, respectively, for the year ended March 31, 2002 was subject to the federal alternative minimum tax. 7 Delaware Investments Arizona Municipal Income Fund Fund Basics As of March 31, 2002 Fund Objective: The Fund seeks to provide current income exempt from both regular federal income tax and from Arizona personal income tax, consistent with preservation of capital. Total Fund Net Assets: $43.70 million Number of Holdings: 36 Fund Start Date: February 26, 1993 Your Fund Manager: Andrew M. McCullagh joined Delaware Investments in 1997, after holding investment management positions at Kirchner, Moore & Co. He holds a bachelor's degree from Washington College and a graduate certificate in public finance from the University of Michigan. Portfolio Characteristics As of March 31, 2002 Current Yield at Market Price 5.7% Average Effective Duration* 8.9 years Average Effective Maturity** 15.9 years Average Credit Quality AA * Average Effective Duration is a common measure of a bond or bond fund's sensitivity to interest rate changes. The longer the duration, the more sensitive the bond or bond fund is to changes in interest rates. ** Average Effective Maturity is the average time remaining until scheduled repayment by issuers of portfolio securities. Approximately 18.7% of the income generated by Arizona Municipal Income Fund for the year ended March 31, 2002 was subject to the federal alternative minimum tax. Delaware Investments Florida Insured Municipal Income Fund Fund Basics As of March 31, 2002 Fund Objectives: The Fund seeks to provide current income exempt from regular federal income tax consistent with preservation of capital. The Fund will also seek to maintain its portfolio so that the Fund's shares will be exempt from the Florida intangible personal property tax. Total Fund Net Assets: $36.70 million Number of Holdings: 33 Fund Start Date: February 26, 1993 Your Fund Managers: Mitchell L. Conery Patrick P. Coyne Portfolio Characteristics As of March 31, 2002 Current Yield at Market Price 6.0% Average Effective Duration* 6.1 years Average Effective Maturity** 9.0 years Average Credit Quality AAA * Average Effective Duration is a common measure of a bond or bond fund's sensitivity to interest rate changes. The longer the duration, the more sensitive the bond or bond fund is to changes in interest rates. ** Average Effective Maturity is the average time remaining until scheduled repayment by issuers of portfolio securities. Approximately 16.2% of the income generated by Florida Insured Municipal Income Fund for the year ended March 31, 2002 was subject to the federal alternative minimum tax. 8 Delaware Investments Colorado Insured Municipal Income Fund Fund Basics As of March 31, 2002 Fund Objective: The Fund seeks to provide current income exempt from both regular federal income tax and Colorado state personal income tax, consistent with preservation of capital. Total Fund Net Assets: $71.51 million Number of Holdings: 44 Fund Start Date: July 29, 1993 Your Fund Manager: Andrew M. McCullagh Portfolio Characteristics As of March 31, 2002 Current Yield at Market Price 5.5% Average Effective Duration* 9.1 years Average Effective Maturity** 15.3 years Average Credit Quality AAA * Average Effective Duration is a common measure of a bond or bond fund's sensitivity to interest rate changes. The longer the duration, the more sensitive the bond or bond fund is to changes in interest rates. ** Average Effective Maturity is the average time remaining until scheduled repayment by issuers of portfolio securities. None of the income generated by Colorado Insured Municipal Income Fund for the year ended March 31, 2002 was subject to the federal alternative minimum tax. 9 Important Fund Information Change in Investment Policies for Florida Insured Municipal Income Fund and Colorado Insured Municipal Income Fund. Effective July 31, 2002, the investment policies for Florida Insured Municipal Income Fund and Colorado Insured Municipal Income Fund will be amended to require that each fund will, under normal circumstances, invest at least 80% of its net assets in insured securities. This investment policy may only be changed by a fund's Board if the fund's shareholders are provided with at least 60 days advance notice of such change in accordance with the requirements of Rule 35d-1 under the Investment Company Act of 1940. 10 Statements Delaware Investments Minnesota Municipal Income Fund I, Inc. of Net Assets March 31, 2002 Principal Market Amount Value Municipal Bonds - 149.81% Airport Revenue Bonds - 4.51% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series C 5.25% 1/1/32 $1,750,000 $1,715,000 ---------- 1,715,000 ---------- Continuing Care/Retirement Revenue Bonds - 9.46% Minnetonka Housing Facilities Revenue (Beacon Hill Project, Presbyterian Homes & Services) 7.70% 6/1/25 2,725,000 2,746,691 St. Paul Housing & Redevelopment Authority (Franciscan Health Project) 5.40% 11/20/42 (GNMA) 880,000 849,376 ---------- 3,596,067 ---------- General Obligation Bonds - 9.44% Centennial Independent School District #012 Series A 5.00% 2/1/20 (FSA) 400,000 391,428 Hennepin County Series B 5.00% 12/1/18 1,300,000 1,287,585 Minneapolis Refunding (Laurel Village) 6.00% 3/1/16 1,600,000 1,619,120 St. Michael Independent School District #885 5.00% 2/1/24 300,000 290,034 ---------- 3,588,167 ---------- Higher Education Revenue Bonds - 11.01% Minnesota Higher Education Facility (St. Thomas University) Series 3-C 6.25% 9/1/16 1,000,000 1,000,840 Minnesota State University Board (State University System) Series A 6.05% 6/30/18 250,000 250,310 Northfield College Facility (St. Olaf College) 6.30% 10/1/12 1,075,000 1,118,194 6.40% 10/1/21 1,750,000 1,812,982 ---------- 4,182,326 ---------- Hospital Revenue Bonds - 24.03% Duluth Economic Development Authority Benedictine (St. Mary's Hospital) 6.00% 2/15/20 (Connie Lee) 1,000,000 1,040,430 Duluth Economic Development Authority Hospital Facilities Revenue (St. Luke's Hospital) Series B 6.40% 5/1/18 (Connie Lee) 1,000,000 1,023,430 Minneapolis Health Care Facility Revenue (Fairview Hospital) Series A 5.25% 11/15/19 (MBIA) 1,500,000 1,482,075 Minneapolis Hospital System (Fairview Hospital) Series 1991-A 6.50% 1/1/11 (MBIA) 2,050,000 2,098,565 Principal Market Amount Value Municipal Bonds (continued) Hospital Revenue Bonds (continued) Minnesota Agricultural & Economic Development Health Care System (Fairview Hospital) Series A 6.375% 11/15/29 $2,500,000 $2,575,900 St. Paul Housing & Redevelopment Authority Health Care Facilities (Regions Hospital Project) 5.30% 5/15/28 1,000,000 911,820 ---------- 9,132,220 ---------- Housing Revenue Bonds - 23.71% Brooklyn Multifamily Housing (Four Courts Apartments) 7.50% 6/1/25 (AMT) 1,800,000 1,786,050 Dakota County Housing & Redevelopment Authority Single Family Mortgage Revenue 5.85% 10/1/30 (AMT)(FNMA)(GNMA) 256,000 257,231 Minnesota Housing Finance Agency-- Single Family Mortgage Revenue Series J 5.90% 7/1/28 (AMT) 1,300,000 1,318,421 Southeastern Minnesota Housing & Redevelopment Authority Winona County 5.35% 1/1/28 300,000 292,806 St. Anthony Multifamily Housing Development (Autumn Woods Project) 6.875% 7/1/22 (Asset Gty) 2,265,000 2,316,687 St. Paul Housing & Redevelopment Authority Multifamily Housing (Pointe of St. Paul Project) 6.60% 10/1/12 (FNMA) 2,950,000 3,037,409 ---------- 9,008,604 ---------- Pollution Control Revenue Bonds - 5.57% Bass Brook Pollution Control Revenue (Minnesota Power & Light Company) 6.00% 7/1/22 2,100,000 2,114,931 ---------- 2,114,931 ---------- Power Authority Revenue Bonds - 23.56% Chaska Electric Revenue 6.00% 10/1/25 1,000,000 1,025,760 Northern Minnesota Municipal Power Agency Electric System Series A 5.00% 1/1/21 2,120,000 2,031,448 Northern Minnesota Municipal Power Agency Electric System Series B 5.50% 1/1/18 (AMBAC) 1,250,000 1,263,725 Puerto Rico Electric Power Authority Series EE 4.75% 7/1/24 1,100,000 998,019 Rochester Electric 5.25% 12/1/30 (AMBAC) 150,000 148,562 11 Delaware Investments Minnesota Municipal Income Fund I, Inc. Statements of Net Assets (continued) Principal Market Amount Value Municipal Bonds (continued) Power Authority Revenue Bonds (continued) Southern Minnesota Municipal Power Agency 5.00% 1/1/16 (FGIC) $ 580,000 $ 579,095 5.50% 1/1/15 (AMBAC) 610,000 627,708 Western Minnesota Municipal Power Agency Series A 5.50% 1/1/15 (MBIA) 2,275,000 2,278,731 ---------- 8,953,048 ---------- *Pre-Refunded/Escrowed to Maturity Bonds - 29.14% Dakota & Washington Counties Housing & Redevelopment Authority Single Family Mortgage Revenue 8.375% 9/1/21 (AMT) (GNMA) (MBIA) (Escrowed to Maturity) 2,555,000 3,492,914 Duluth Economic Development Authority Health Care Facilities (Duluth Clinic) 6.30% 11/1/22-02 (AMBAC) 1,270,000 1,328,318 6.30% 11/1/22-04 (AMBAC) 730,000 788,758 Minneapolis St. Paul Housing & Redevelopment Authority Health Care (Health One) 6.75% 8/15/14-02 (MBIA) 400,000 405,972 Puerto Rico Commonwealth 6.00% 7/1/26-07 2,000,000 2,243,099 Southern Minnesota Municipal Power Agency 5.50% 1/1/15 (AMBAC) (Escrowed to Maturity) 390,000 407,250 5.75% 1/1/11 (FGIC) (Escrowed to Maturity) 1,000,000 1,046,110 St. Francis Independent School District #15 6.30% 2/1/11-06 (FSA) 1,250,000 1,358,088 ---------- 11,070,509 ---------- Water & Sewer Revenue Bonds - 9.38% Anoka County Solid Waste Disposal National Rural Co-Op Utility 6.95% 12/1/08 (AMT) 895,000 910,510 **Minnesota Public Facilities Authority Water Pollution Control Revenue, Inverse Floater ROLS 5.75% 3/1/16 1,000,000 933,130 5.88% 3/1/17 1,855,000 1,718,380 ---------- 3,562,020 ---------- Total Municipal Bonds (cost $54,651,528) 56,922,892 ---------- Total Market Value of Securities - 149.81% (cost $54,651,528) $56,922,892 Receivables and Other Assets Net of Liabilities - 2.82% 1,072,882 Liquidation Value of Preferred Stock - (52.63%) (20,000,000) ----------- Net Assets Applicable to 2,594,700 Common Shares ($0.01 Par Value) Outstanding - 100.00% $37,995,774 =========== Net Asset Value Per Common Share ($37,995,774 / 2,594,700 Shares) $14.64 ------ Components of Net Assets at March 31, 2002: Common stock, $0.01 par value, 200 million shares authorized to the Fund $35,426,740 Undistributed net investment income 414,864 Accumulated net realized loss on investments (117,194) Net unrealized appreciation of investments 2,271,364 ----------- Total net assets $37,995,774 =========== * For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. ** An inverse floater bond is a type of bond with variable or floating interest rates that move in the opposite direction of short-term interest rates. Interest rate disclosed is in effect as of March 31, 2002. Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax Asset Gty - Insured by the Asset Guaranty Insurance Company Connie Lee - Insured by the College Construction Insurance Association FGIC - Insured by the Financial Guaranty Insurance Company FNMA - Insured by Fannie Mae FSA - Insured by Financial Security Assurance GNMA - Insured by Ginnie Mae MBIA - Insured by the Municipal Bond Insurance Association See accompanying notes 12 Delaware Investments Minnesota Municipal Income Fund II, Inc. March 31, 2002 Statements of Net Assets (continued) Principal Market Amount Value Municipal Bonds - 155.84% Airport Revenue Bonds - 4.96% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series B 5.25% 1/1/24 (FGIC) $1,000,000 $ 966,570 Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series C 5.25% 1/1/32 4,250,000 4,165,000 ---------- 5,131,570 ---------- Continuing Care/Retirement Revenue Bonds - 3.70% Bloomington Health Care Facilities (Masonic Home Care Center) 5.875% 7/1/22 (AMBAC) 1,200,000 1,212,744 Minneapolis Health Care Facility Revenue (Jones-Harrison Residence Project) 6.00% 10/1/27 2,000,000 1,694,940 Moorhead Economic Development Authority Multifamily Revenue (Eventide Lutheran Home) Series B 6.00% 6/1/18 1,000,000 919,830 ---------- 3,827,514 ---------- General Obligation Bonds - 9.36% Becker Refunding Tax Increment Series D 6.25% 8/1/15 (AMT)(MBIA) 3,700,000 3,774,110 Centennial Independent School District #012 Series A 5.00% 2/1/20 (FSA) 400,000 391,428 Hennepin County Series B 5.00% 12/1/18 1,000,000 990,450 **Minnesota State, Inverse Floaters ROLS 6.65% 11/1/17 570,000 569,949 Puerto Rico Commonwealth Refunding Public Improvements 5.125% 7/1/30 (FSA) 1,000,000 979,450 Rosemount Independent School District #196 Series A 5.70% 4/1/12 1,270,000 1,354,163 St. Michael Independent School District #885 5.00% 2/1/24 825,000 797,594 St. Paul Tax Increment (Block 39 Project) Series A 4.75% 2/1/25 900,000 835,380 ---------- 9,692,524 ---------- Higher Education Revenue Bonds - 13.02% Minnesota Higher Education Facility (St. Thomas University) Series 3-R1 5.60% 10/1/15 1,050,000 1,068,186 Series 3-R2 5.60% 9/1/14 175,000 178,178 Series 4-A1 5.625% 10/1/21 1,000,000 1,009,890 Minnesota State University Board (State University System) Series 1993-A 6.10% 6/30/23 1,150,000 1,151,127 Principal Market Amount Value Municipal Bonds (continued) Higher Education Revenue Bonds (continued) Minnesota State University Board (State University System) Series 1993-C 5.60% 6/30/16 (MBIA) $3,115,000 $ 3,183,343 5.60% 6/30/19 (MBIA) 3,720,000 3,744,031 University of Minnesota Series A 5.50% 7/1/21 3,000,000 3,147,720 ---------- 13,482,475 ---------- Hospital Revenue Bonds - 21.85% Brainerd Health Care (Evangelical Lutheran Health Care Facilities) Series A 6.65% 3/1/17 (FSA) 1,195,000 1,222,198 Duluth Economic Development Authority Benedictine (St. Mary's Hospital) 6.00% 2/15/20 (Connie Lee) 6,000,000 6,242,581 Minneapolis/St. Paul Housing & Redevelopment Authority (Children's Health Care Series) 5.50% 8/15/25 (FSA) 1,400,000 1,401,512 Minnesota Agricultural & Economic Development Health Care System (Fairview Hospital) Series 97A 5.75% 11/15/26 (MBIA) 5,550,000 5,654,118 Minnesota Agricultural & Economic Development Health Care System (Fairview Hospital) Series A 6.375% 11/15/29 2,800,000 2,885,008 Rochester Health Care Facilities Revenue (Mayo Foundation) Series B 5.50% 11/15/27 3,365,000 3,383,608 St. Paul Housing & Redevelopment Authority Health Care Facilities (Regions Hospital Project) 5.30% 5/15/28 400,000 364,728 Waconia Health Care Facilities 6.10% 1/1/19 1,405,000 1,474,421 ---------- 22,628,174 ---------- Housing Revenue Bonds - 25.91% Chanhassen Multifamily Housing (Heritage Park Project) 6.20% 7/1/30 (AMT)(FHA) 1,105,000 1,124,360 Dakota County Housing & Redevelopment Authority Multifamily Mortgage (Imperial Ridge Project) Series 1993-A 6.10% 12/15/28 (GNMA) 1,825,000 1,839,582 Harmony Multifamily Housing Section 8 (Zedakah Foundation Project) Series A 5.95% 9/1/20 1,000,000 995,520 Minnesota Housing Finance Agency - Single Family Mortgage Revenue Series J 5.90% 7/1/28 (AMT) 1,100,000 1,115,587 13 Delaware Investments Minnesota Municipal Income Fund II, Inc. Statements of Net Assets (continued) Principal Market Amount Value Municipal Bonds (continued) Housing Revenue Bonds (continued) Minnesota Housing Finance Agency Multifamily Rental Housing Series D 5.90% 2/1/14 $1,115,000 $ 1,146,755 6.00% 8/1/22 2,295,000 2,353,775 Minnesota Housing Finance Agency Single Family Housing Rental 5.95% 2/1/18 (MBIA) 1,180,000 1,201,146 Minnesota Housing Finance Agency Single Family Housing Series 1992-B 6.15% 1/1/26 (AMT) 3,145,000 3,190,854 Minnesota Housing Finance Agency Single Family Housing Series 1992-C2 6.15% 7/1/23 (AMT) 3,185,000 3,233,347 Minnesota Housing Finance Agency Single Family Housing Series 1994-F 6.30% 7/1/25 1,300,000 1,338,870 Minnesota Housing Finance Agency Single Family Housing Series 1994-J 6.95% 7/1/26 (AMT) 1,990,000 2,043,790 Minnetonka Housing Facilities (Beacon Hill Project) 7.25% 6/1/09 1,225,000 1,226,384 7.50% 6/1/14 760,000 769,614 7.55% 6/1/19 2,365,000 2,396,573 Southeastern Minnesota Housing & Redevelopment Authority Winona County 5.35% 1/1/28 870,000 849,137 St. Paul Housing & Redevelopment Authority Single Family Mortgage 6.40% 3/1/21 (FNMA) 515,000 536,965 Stillwater Multifamily Mortgage (Stillwater Cottages) 7.25% 11/1/27 (AMT) 1,540,000 1,472,764 ---------- 26,835,023 ---------- Industrial Development Revenue Bonds - 1.41% Burnsville Commonwealth Development (Holiday Inn Project) 5.90% 4/1/08 1,430,000 1,456,941 ---------- 1,456,941 ---------- Other Revenue Bonds - 1.42% Minneapolis Community Development Agency (Supported Development) Series 5 5.70% 12/1/27 375,000 368,565 Minneapolis Community Development Agency Series G-1 5.70% 12/1/19 1,100,000 1,106,061 ---------- 1,474,626 ---------- Pollution Control Revenue Bonds - 11.64% Bass Brook Pollution Control Revenue (Minnesota Power & Light Company) 6.00% 7/1/22 7,560,000 7,613,752 Cloquet Pollution Control (Potlatch Corporation Project) 5.90% 10/1/26 5,000,000 4,445,000 ---------- 12,058,752 ---------- Principal Market Amount Value Municipal Bonds (continued) Power Authority Revenue Bonds - 9.08% Northern Minnesota Municipal Power Agency Electric System Series A 5.00% 1/1/21 $1,000,000 $958,230 Northern Minnesota Municipal Power Agency Electric System Series B 5.50% 1/1/18 (AMBAC) 5,955,000 6,020,385 Puerto Rico Electric Power Authority 5.25% 7/1/21 2,000,000 1,981,900 Rochester Electric 5.25% 12/1/30 (AMBAC) 450,000 445,685 ---------- 9,406,200 ---------- *Pre-Refunded/Escrowed to Maturity Bonds - 43.69% Buffalo Independent School District 6.15% 2/1/22-03 (FSA) 4,030,000 4,157,953 Dakota & Washington Counties Housing & Redevelopment Authority Single Family Mortgage Revenue 8.375% 9/1/21 (AMT) (GNMA) (MBIA) (Escrowed to Maturity) 5,500,000 7,518,994 Detroit Lakes Benedictine Health (St. Mary's Hospital) 6.00% 2/15/19-03 (Connie Lee) 1,250,000 1,315,913 Duluth Economic Development Authority Health Care Facilities (Duluth Clinic) 6.20% 11/1/12-02 (AMBAC) 720,000 752,638 6.20% 11/1/12-04 (AMBAC) 280,000 301,846 6.30% 11/1/22-02 (AMBAC) 3,890,000 4,068,629 6.30% 11/1/22-04 (AMBAC) 960,000 1,037,270 Esko Independent School District 5.65% 4/1/12-05 (FSA) 550,000 582,274 Hawley Independent School District 5.75% 2/1/17-06 (FSA) 1,000,000 1,067,010 Metropolitan Council Sports Facility Commission (Hubert H. Humphrey Metrodome Sports Facility) 6.00% 10/1/09 (Escrowed to Maturity) 2,360,000 2,456,217 Minneapolis/St. Paul Housing & Redevelopment Authority (Health One) 7.40% 8/15/11-02 (MBIA) 2,105,000 2,142,680 Minnesota Public Facilities Authority Water Pollution Control 6.25% 3/1/16-05 1,000,000 1,077,960 Red Wing Independent School District #256 Series 1993-A 5.70% 2/1/12-03 2,925,000 3,004,472 5.70% 2/1/13-03 1,625,000 1,669,151 Southern Minnesota Municipal Power Agency 5.75% 1/1/18 (MBIA) (Escrowed to Maturity) 3,715,000 3,886,299 14 Delaware Investments Minnesota Municipal Income Fund II, Inc. Statements of Net Assets (continued) Principal Market Amount Value Municipal Bonds (continued) *Pre-Refunded/Escrowed to Maturity Bonds (continued) St. Paul Housing & Redevelopment Authority Sales Tax (Civic Center) 5.55% 11/1/23 (Escrowed to Maturity) $2,300,000 $2,361,341 5.55% 11/1/23 (MBIA) (Escrowed to Maturity) 4,200,000 4,312,013 Stewartville Independent School District #534 5.75% 2/1/17-05 1,705,000 1,771,052 Western Municipal Power Agency 6.625% 1/1/16 (Escrowed to Maturity) 1,535,000 1,768,888 ---------- 45,252,600 ---------- Transportation Revenue Bonds - 5.82% Puerto Rico Commonwealth Highway & Transportation Authority (Highway Improvements) Series Y 5.50% 7/1/26 6,000,000 6,032,520 ---------- 6,032,520 ---------- Water & Sewer Revenue Bonds - 3.98% **Minnesota Public Facilities Authority Water Pollution Control Revenue, Inverse Floater ROLS 5.88% 3/1/17 1,145,000 1,060,671 5.97% 3/1/18 1,360,000 1,253,498 5.97% 3/1/19 2,000,000 1,811,860 ---------- 4,126,029 ---------- Total Municipal Bonds (cost $157,187,141) 161,404,948 ---------- Total Market Value of Securities - 155.84% (cost $157,187,141) 161,404,948 Receivables and Other Assets Net of Liabilities - 2.09% 2,167,785 Liquidation Value of Preferred Stock - (57.93%) (60,000,000) ------------ Net Assets Applicable to 7,252,200 Common Shares ($0.01 Par Value) Outstanding - 100.00% $103,572,733 ============ Net Asset Value Per Common Share ($103,572,733 / 7,252,200 Shares) $14.28 ------ Components of Net Assets at March 31, 2002: Common stock, $0.01 par value, 200 million shares authorized to the Fund $ 99,710,002 Undistributed net investment income 2,566,334 Accumulated net realized loss on investments (2,921,410) Net unrealized appreciation of investments 4,217,807 ------------ Total net assets $103,572,733 ============ * For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. ** An inverse floater bond is a type of bond with variable or floating interest rates that move in the opposite direction of short-term interest rates. Interest rate disclosed is in effect as of March 31, 2002. Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax Connie Lee - Insured by the College Construction Insurance Association FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Authority FNMA - Insured by Fannie Mae FSA - Insured by Financial Security Assurance GNMA - Insured by Ginnie Mae MBIA - Insured by the Municipal Bond Insurance Association See accompanying notes 15 Delaware Investments Minnesota Municipal Income Fund III, Inc. March 31, 2002 Statements of Net Assets (continued) Principal Market Amount Value Municipal Bonds - 159.35% Airport Revenue Bonds - 3.60% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A 5.125% 1/1/25 (FGIC) $ 900,000 $ 875,187 ---------- 875,187 ---------- Continuing Care/Retirement Revenue Bonds - 11.58% Minnesota Agriculture & Economic Development Board Revenue (Benedictine Health Systems) 5.75% 2/1/29 1,300,000 1,059,565 St. Paul Housing & Redevelopment Authority (Franciscan Health Project) 5.40% 11/20/42 (GNMA) 1,820,000 1,756,664 ---------- 2,816,229 ---------- General Obligation Bonds - 6.05% Hennepin County Regional Railroad Authority Revenue 5.00% 12/1/26 750,000 719,670 Minneapolis Sports Arena Project 5.125% 10/1/20 750,000 750,383 ---------- 1,470,053 ---------- Higher Education Revenue Bonds - 10.25% Minnesota Higher Education Facility Authority (St. Thomas University) Series 4A-1 5.625% 10/1/21 1,010,000 1,019,989 Minnesota State Higher Education Facilities Authority (St. Mary's College) Series 3-Q 6.15% 10/1/23 1,000,000 1,006,650 Minnesota State Higher Educational Facilities Authority (College of St. Benedict) Series 3-W 6.375% 3/1/20 345,000 349,702 Minnesota State Higher Educational Facilities Authority (Gustavus Adolphus College) Series 4-X 4.80% 10/1/21 125,000 114,709 ---------- 2,491,050 ---------- Hospital Revenue Bonds - 23.88% Minnesota Agricultural & Economic Development Health Care System (Fairview Hospital) Series A 6.375% 11/15/29 2,000,000 2,060,720 Princeton Hospital Systems (Fairview Hospital) Series C 6.25% 1/1/21 (MBIA) 1,955,000 1,998,479 Rochester Health Care Facilities Revenue (Mayo Foundation) Series B 5.50% 11/15/27 1,000,000 1,005,530 St. Paul Housing & Redevelopment Authority (Health East) 5.85% 11/1/17 250,000 192,075 Principal Market Amount Value Municipal Bonds (continued) Hospital Revenue Bonds (continued) St. Paul Housing & Redevelopment Authority Health Care Facilities (Regions Hospital Project) 5.30% 5/15/28 $ 600,000 $ 547,092 ---------- 5,803,896 ---------- Housing Revenue Bonds - 24.55% Brooklyn Multifamily Housing (Four Courts Apartments) 7.50% 6/1/25 (AMT) 1,000,000 992,250 Burnsville Multifamily Mortgage Series A 7.10% 1/1/30 (FSA) 2,000,000 2,113,220 Minneapolis Minnesota Multifamily Housing (Gaar Scott Loft Project) 5.95% 5/1/30 1,000,000 1,000,000 Minneapolis Multifamily Revenue (Olson Townhomes) 6.00% 12/1/19 (AMT) 1,875,000 1,860,694 ---------- 5,966,164 ---------- Other Revenue Bonds - 3.67% Minneapolis Community Development Agency 6.75% 12/1/25 865,000 891,417 ---------- 891,417 ---------- Pollution Control Revenue Bonds - 19.14% Bass Brook Pollution Control Revenue (Minnesota Power & Light Company) 6.00% 7/1/22 1,505,000 1,515,701 Cloquet Pollution Control (Potlatch Corporation Project) 5.90% 10/1/26 1,000,000 889,000 Minnesota Public Facilities Authority Water Pollution Control Revenue Series B 5.40% 3/1/15 2,200,000 2,248,598 ---------- 4,653,299 ---------- Power Authority Revenue Bonds - 7.64% Southern Minnesota Municipal Power Agency 5.75% 1/1/18 (FGIC) 1,800,000 1,856,934 ---------- 1,856,934 ---------- *Pre-Refunded/Escrowed to Maturity Bonds - 38.63% Duluth Economic Development Authority Health Care Facilities (Duluth Clinic) 6.20% 11/1/12-02 (AMBAC) 1,080,000 1,128,956 6.20% 11/1/12-04 (AMBAC) 420,000 452,768 Esko Independent School District #99 5.75% 4/1/17-05 (FSA) 2,145,000 2,276,939 Minnesota State Higher Education Facilities Authority (Saint Benedict) Series 3-W 6.375% 3/1/20-04 930,000 987,093 16 Delaware Investments Minnesota Municipal Income Fund III, Inc. Statements of Net Assets (continued) Principal Market Amount Value Municipal Bonds (continued) *Pre-Refunded/Escrowed to Maturity Bonds (continued) Moorhead Minnesota Public Utilities Series A 6.25% 11/1/12-02 (MBIA) $1,500,000 $ 1,536,690 University of Minnesota Hospital 6.75% 12/1/16 (Escrowed to Maturity) 2,580,000 3,007,634 ----------- 9,390,080 ----------- Transportation Revenue Bonds - 4.14% Puerto Rico Commonwealth Highway & Transportation Authority (Highway Improvements) Series Y 5.50% 7/1/26 1,000,000 1,005,420 ----------- 1,005,420 ----------- Water & Sewer Revenue Bonds - 6.22% **Minnesota Public Facilities Authority Water Pollution Control Revenue, Inverse Floater ROLS 5.97% 3/1/18 1,640,000 1,511,572 ----------- 1,511,572 ----------- Total Municipal Bonds (cost $37,341,979) 38,731,301 ----------- Total Market Value of Securities - 159.35% (cost $37,341,979) 38,731,301 Receivables and Other Assets Net of Liabilities - 2.36% 574,743 Liquidation Value of Preferred Stock - (61.71%) (15,000,000) ----------- Net Assets Applicable to 1,837,200 Common Shares ($0.01 Par Value) Outstanding - 100.00% $24,306,044 =========== Net Asset Value Per Common Share ($24,306,044 / 1,837,200 Shares) $13.23 ------ Components of Net Assets at March 31, 2002: Common stock, $0.01 par value, 200 million shares authorized to the Fund $25,246,730 Undistributed net investment income 328,389 Accumulated net realized loss on investments (2,658,397) Net unrealized appreciation of investments 1,389,322 ----------- Total net assets $24,306,044 =========== * For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. ** An inverse floater bond is a type of bond with variable or floating interest rates that move in the opposite direction of short-term interest rates. Interest rate disclosed is in effect as of March 31, 2002. Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FSA - Insured by Financial Security Assurance GNMA - Insured by Ginnie Mae MBIA - Insured by the Municipal Bond Insurance Association See accompanying notes 17 Delaware Investments Arizona Municipal Income Fund, Inc. March 31, 2002 Statements of Net Assets (continued) Principal Market Amount Value Municipal Bonds - 156.08% Escrowed to Maturity Bonds - 10.55% Puerto Rico Commonwealth Infrastructure Financing Authority Special Series A 5.50% 10/1/40 (Escrowed to Maturity) $4,500,000 $4,608,720 ---------- 4,608,720 ---------- General Obligation Bonds - 3.72% Eagle Mountain Community Facility District A2 6.40% 7/1/17 1,500,000 1,624,890 ---------- 1,624,890 ---------- Higher Education Revenue Bonds - 2.35% University of Arizona 6.25% 6/1/11 1,000,000 1,027,700 ---------- 1,027,700 ---------- Hospital Revenue Bonds - 18.40% Maricopa County Health Facilities (Catholic Health Care West) Series A 6.00% 7/1/21 (MBIA) 1,100,000 1,127,753 Maricopa Industrial Development Authority (Mayo Clinic Hospital) 5.25% 11/15/37 (MBIA) 2,000,000 1,935,740 Mohave County Industrial Development Authority (Chris/Silver Ridge) 6.375% 11/1/31 (GNMA) 750,000 786,045 Show Low Industrial Development Authority Hospital Revenue (Navapache Regional Medical Center) Series A 5.50% 12/1/17 (ACA) 2,600,000 2,563,548 University of Arizona Medical Center 6.25% 7/1/16 (MBIA) 700,000 719,635 Yuma Industrial Development Authority (Yuma Regional Medical Center) 5.00% 8/1/31 (FSA) 950,000 908,428 ---------- 8,041,149 ---------- Housing Revenue Bonds - 32.85% Maricopa County Industrial Development Authority Multifamily (Avalon Apartments Project) Series A 6.35% 4/1/30 (Asset Gty) 1,610,000 1,680,357 Maricopa County Industrial Development Authority Multifamily Family Housing Revenue (Pines at Camelback Apartments Project) Series A 5.45% 5/1/28 (Asset Gty) 1,250,000 1,245,613 Peoria Casa Del Rio Multifamily Housing 7.30% 2/20/28 (GNMA) 1,230,000 1,310,983 Phoenix Individual Development Authority Single Family Mortgage 5.30% 4/1/20 (FHLMC)(FNMA)(GNMA) 2,440,000 2,392,859 Phoenix Industrial Development Authority (Chris Ridge) 6.80% 11/1/25 (FHA) 500,000 508,600 Principal Market Amount Value Municipal Bonds (continued) Housing Revenue Bonds (continued) Phoenix Industrial Development Authority Single Family Mortgage 5.35% 6/1/20 (FHLMC)(FNMA)(GNMA) $3,160,000 $ 3,095,030 Pima County Industrial Development Authority (Single Family Mortgage Revenue) Series A 6.25% 11/1/30 (FHLMC)(FNMA)(GNMA) 780,000 794,227 Pima County Industrial Development Authority Single Family Mortgage Revenue 6.125% 11/1/33 (AMT)(FHLMC)(FNMA)(GNMA) 1,745,000 1,813,247 Yavapai County Industrial Development Authority Residential Care Facilities (Margaret T. Morris Center) Series A 5.40% 2/20/38 (GNMA) 1,575,000 1,513,481 ---------- 14,354,397 ---------- Leases/Certificates of Participation - 11.11% Oro Valley Municipal Property Corporation Excise Tax Revenue 5.00% 7/1/20 (FGIC) 1,450,000 1,426,191 Scottsdale Municipal Property Corporation Lease 6.25% 11/1/14 (FGIC) 1,300,000 1,325,116 Tucson Certificates of Participation 5.60% 7/1/11 1,100,000 1,133,935 Yuma Municipal Property 5.00% 7/1/25 (AMBAC) 1,000,000 970,750 ---------- 4,855,992 ---------- Other Revenue Bonds - 24.45% Arizona School Facilities Board Revenue 5.00% 7/1/19 2,000,000 1,978,200 Arizona Student Loan Acquisition Authority Revenue 5.90% 5/1/24 1,500,000 1,525,170 Maricopa County Stadium District 5.50% 7/1/13 (MBIA) 2,650,000 2,703,928 Phoenix Civic Improvement Corporation Excise Tax Revenue 5.25% 7/1/24 1,250,000 1,252,800 Pima County Industrial Development Authority (Arizona Charter Schools Project) Series A 6.75% 7/1/31 3,250,000 3,226,990 ---------- 10,687,088 ---------- Power Authority Revenue Bonds - 0.44% Salt River Project Electric System Revenue Series D 6.25% 1/1/27 190,000 193,969 ---------- 193,969 ---------- Territorial Revenue Bonds - 2.97% Virgin Islands, Public Finance Authority Revenue Series A 6.125% 10/1/29 (ACA) 1,250,000 1,298,338 ---------- 1,298,338 ---------- 18 Delaware Investments Arizona Municipal Income Fund, Inc. Statements of Net Assets (continued) Principal Market Amount Value Municipal Bonds (continued) Transportation Revenue Bonds - 36.49% Arizona State Transportation Board Highway 5.75% 7/1/18 $2,350,000 $2,561,124 Phoenix Civic Improvement Airport Revenue Senior Lien Series A 5.00% 7/1/25 (FSA) 1,000,000 972,460 Puerto Rico Commonwealth Highway & Transportation Authority Series A 4.75% 7/1/38 (MBIA) 1,375,000 1,254,646 Puerto Rico Commonwealth Highway & Transportation Authority Series D 5.00% 7/1/32 10,250,000 9,847,789 Tucson Street & Highway 5.50% 7/1/12 (MBIA) 1,250,000 1,312,963 ----------- 15,948,982 ----------- Water & Sewer Revenue Bonds - 12.75% Arizona Water Infrastructure Finance Authority Revenue Water Quality Series A 5.05% 10/1/20 1,500,000 1,481,355 Tucson Water Revenue Refunding Series A 5.75% 7/1/18 (AMBAC) 4,000,000 4,092,000 ----------- 5,573,355 ----------- Total Municipal Bonds (cost $66,782,667) 68,214,580 ----------- Total Market Value of Securities - 156.08% (cost $66,782,667) 68,214,580 Receivables and Other Assets Net of Liabilities - 1.12% 488,073 Liquidation Value of Preferred Stock - (57.20%) (25,000,000) ----------- Net Assets Applicable to 2,982,200 Common Shares ($0.01 Par Value) Outstanding - 100.00% $43,702,653 =========== Net Asset Value Per Common Share ($43,702,653 / 2,982,200 Shares) $14.65 ------ Components of Net Assets at March 31, 2002: Common stock, $0.01 par value, 200 million shares authorized to the Fund $40,838,893 Undistributed net investment income 1,095,473 Accumulated net realized gain on investments 336,374 Net unrealized appreciation of investments 1,431,913 ----------- Total net assets $43,702,653 =========== Summary of Abbreviations: ACA - Insured by American Capital Access AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax Asset Gty - Insured by the Asset Guaranty Insurance Company FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Authority FHLMC - Insured by the Federal Home Loan Mortgage Company FNMA - Insured by Fannie Mae FSA - Insured by Financial Security Assurance GNMA - Insured by Ginnie Mae MBIA - Insured by the Municipal Bond Insurance Association See accompanying notes 19 Delaware Investments Florida Insured Municipal Income Fund March 31, 2002 Statements of Net Assets (continued) Principal Market Amount Value Municipal Bonds - 154.19% Airport Revenue Bonds - 7.19% Dade County Aviation Series 96B 5.60% 10/1/26 (MBIA) $1,000,000 $ 1,015,720 Hillsborough County Aviation Authority (Tampa International Airport) Series B 5.60% 10/1/19 (FGIC) 1,600,000 1,624,736 ---------- 2,640,456 ---------- General Obligation Bonds - 9.73% Florida Department Transportation 5.00% 7/1/31 (FGIC) 1,500,000 1,421,415 Florida State Board of Education (Capital Outlay Public Education) 6.00% 6/1/21 (FGIC) 2,000,000 2,150,900 ---------- 3,572,315 ---------- Higher Education Revenue Bonds - 7.67% Florida Agriculture & Mechanical University (Student Apartment Facility) 5.625% 7/1/21 (MBIA) 1,250,000 1,276,650 Volusia County Educational Facilities Authority (Stetson University Project) Series A 5.50% 6/1/17 (MBIA) 1,500,000 1,538,910 ---------- 2,815,560 ---------- Hospital Revenue Bonds - 28.82% Escambia County Health Facilities Authority (Florida Health Care Facilities) 5.95% 7/1/20 (AMBAC)(VA) 3,075,000 3,308,577 Lee Florida Memorial Health System Hospital Revenue 5.00% 4/1/20 1,000,000 966,020 Orange County Health Facilities Authority (Adventist Health Center) 5.75% 11/15/25 (AMBAC) 1,500,000 1,541,565 Orange County Health Facilities Authority (Orlando Regional Health) Series A 6.25% 10/1/18 (MBIA) 2,000,000 2,265,400 Venice Health Care (Bon Secours Health System) 5.60% 8/15/16 (MBIA) 2,405,000 2,492,807 ---------- 10,574,369 ---------- Housing Revenue Bonds - 17.79% Florida Housing Finance Agency (Homeowner Mortgage) Series 2 5.90% 7/1/29 (AMT)(MBIA) 1,210,000 1,232,010 Florida Housing Finance Agency (Woodbridge Apartments) Series L 6.05% 12/1/16 (AMBAC) 1,120,000 1,154,933 6.25% 6/1/36 (AMBAC)(AMT) 1,500,000 1,546,125 Florida State Housing Finance Agency (Leigh Meadows Apartments Section 8) Series N 6.30% 9/1/36 (AMBAC)(AMT) 2,510,000 2,595,515 ---------- 6,528,583 ---------- Principal Market Amount Value Municipal Bonds (continued) Leases/Certificates of Participation - 19.39% Broward School Board Certificates of Participation Series A 5.25% 7/1/24 (FSA) $1,000,000 $ 992,780 Escambia County School Board Certificates of Participation Series 2 5.50% 2/1/22 (MBIA) 5,000,000 5,061,800 St. Lucie County School Board Certificates of Participation 5.375% 7/1/19 (FSA) 1,000,000 1,058,950 ---------- 7,113,530 ---------- Other Revenue Bonds - 26.53% Florida Ports Financing Commission State Transportation Trust Fund 5.375% 6/1/27 (AMT)(MBIA) 2,000,000 1,958,780 Miami Beach Resort Tax 5.50% 10/1/16 (AMBAC) 1,000,000 1,031,120 Orange County Public Service Tax 6.00% 10/1/24 (FGIC) 3,000,000 3,198,570 Reedy Creek Improvement District (Sports Complex) Series A 5.75% 6/1/13 (MBIA) 2,300,000 2,458,953 Tampa Utility Tax 6.125% 10/1/19 (AMBAC) 1,000,000 1,089,380 ---------- 9,736,803 ---------- *Pre-Refunded/Escrowed to Maturity Bonds - 18.97% Dade County Professional Sports Franchise Facilities Series B 6.00% 10/1/22-02 (FGIC) 1,000,000 1,036,150 Dade County School Board Certificates of Participation Series B 5.60% 8/1/17-06 (AMBAC) 1,000,000 1,081,440 Hillsborough County Industrial Development Authority (Allegany Health System - John Knox Village) 5.75% 12/1/21 (MBIA)(Escrowed to Maturity) 1,000,000 1,010,470 Sunrise Utility System Series A 5.75% 10/1/26-06 (AMBAC) 2,500,000 2,727,300 Village Center Community Development District Recreational Revenue Series A 5.85% 11/1/16-06 (MBIA) 1,000,000 1,104,560 ---------- 6,959,920 ---------- Transportation Revenue Bonds - 5.39% Jacksonville Florida Transportation Revenue 5.25% 10/1/29 (MBIA) 2,000,000 1,978,460 ---------- 1,978,460 ---------- 20 Delaware Investments Florida Insured Municipal Income Fund Statements of Net Assets (continued) Principal Market Amount Value Municipal Bonds (continued) Water & Sewer Revenue Bonds - 12.71% Dade County Water & Sewer System 5.50% 10/1/25 (FGIC) $1,100,000 $ 1,114,311 Indian River County Water & Sewer System 5.50% 9/1/16 (FGIC) 1,000,000 1,030,740 Panama City Beach Water & Sewer System 5.50% 6/1/18 (AMBAC) 1,000,000 1,008,370 Sarasota County Utility System 5.50% 10/1/22 (FGIC) 1,500,000 1,508,880 ----------- 4,662,301 ----------- Total Municipal Bonds (cost $53,810,856) 56,582,297 ----------- Total Market Value of Securities - 154.19% (cost $53,810,856) 56,582,297 Receivables and Other Assets Net of Liabilities - 0.31% 113,598 Liquidation Value of Preferred Stock - (54.50%) (20,000,000) ----------- Net Assets Applicable to 2,422,200 Common Shares ($0.01 Par Value) Outstanding - 100.00% $36,695,895 =========== Net Asset Value Per Common Share ($36,695,895 / 2,422,200 Shares) $15.15 ------ Components of Net Assets at March 31, 2002: Common stock, $0.01 par value, unlimited shares authorized to the Fund $33,361,389 Undistributed net investment income 877,111 Accumulated net realized loss on investments (314,046) Net unrealized appreciation of investments 2,771,441 ----------- Total net assets $36,695,895 =========== * For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FSA - Insured by Financial Security Assurance MBIA - Insured by the Municipal Bond Insurance Association VA - Insured by the Veterans Administration See accompanying notes 21 Delaware Investments Colorado Insured Municipal Income Fund, Inc. March 31, 2002 Statements of Net Assets (continued) Principal Market Amount Value Municipal Bonds - 153.72% General Obligation Bonds - 21.95% Archuleta & Hinsdale Counties School Districts #50JT 5.55% 12/1/20 (MBIA) $4,000,000 $ 4,092,040 Douglas County School District #Re-1 (Douglas & Elbert Counties) 5.00% 12/15/21 (MBIA) 1,000,000 971,840 El Paso County School District #20 5.625% 12/15/16 (AMBAC) 2,800,000 2,880,136 5.625% 12/15/16 (MBIA) 1,000,000 1,028,620 Foothills Park & Recreation District 5.00% 12/1/20 (FSA) 500,000 487,230 G V R Metropolitan District 5.75% 12/1/19 (AMBAC) 1,000,000 1,048,210 Mountain Village Metropolitan District San Miguel County 5.00% 12/1/32 (MBIA) 1,285,000 1,227,907 Pueblo County 5.80% 6/1/11 (MBIA) 1,405,000 1,474,533 Pueblo County (Library District) 5.80% 11/1/19 (AMBAC) 1,395,000 1,467,680 Stonegate Village Metropolitan District Refunding & Improvement Series A 5.50% 12/1/21 (FSA) 1,000,000 1,016,940 ----------- 15,695,136 ----------- Higher Education Revenue Bonds - 25.85% Adams State College (Board of Trustees) 5.75% 5/15/19 (MBIA) 1,000,000 1,024,830 Aurora Educational Development 6.00% 10/15/15 (Connie Lee) 1,500,000 1,591,305 Boulder County Development Revenue 5.00% 9/1/26 4,500,000 4,288,275 Colorado Educational & Cultural Facilities Authority Revenue (University of Denver Project) 5.50% 3/1/21 3,200,000 3,271,168 Colorado Educational & Cultural Facilities Authority Revenue (University of Northern Colorado) 5.00% 7/1/31 (MBIA) 3,500,000 3,302,355 Colorado Springs Revenue (Colorado College) 5.375% 6/1/32 (MBIA) 5,000,000 5,003,900 ----------- 18,481,833 ----------- Hospital Revenue Bonds - 10.79% Colorado Health Facilities Authority (Boulder Community Hospital Project) Series B 5.875% 10/1/23 (MBIA) 1,925,000 1,969,256 Colorado Health Facilities Authority (North Colorado Medical Center) 5.95% 5/15/12 (MBIA) 2,000,000 2,109,680 6.00% 5/15/20 (MBIA) 1,000,000 1,044,690 Principal Market Amount Value Municipal Bonds (continued) Hospital Revenue Bonds (continued) Colorado Health Facilities Authority (Porter Place) Series A 6.00% 1/20/36 (GNMA) $2,515,000 $ 2,588,941 ----------- 7,712,567 ----------- Housing Revenue Bonds - 8.12% Burlingame Multifamily Housing Income 6.00% 11/1/29 (MBIA) 2,290,000 2,354,005 Mountain Glen Housing Multifamily Revenue 6.70% 7/20/20 (GNMA) 1,280,000 1,404,314 Snowmass Village Multifamily Housing Refunding (Essential Function Housing) 6.25% 12/15/16 (FSA) 2,000,000 2,050,040 ----------- 5,808,359 ----------- Leases/Certificates of Participation - 23.48% Arapahoe County Library District Certificates of Participation 5.70% 12/15/10 (MBIA) 2,000,000 2,110,760 Auraria Higher Education Center Certificates of Participation 5.50% 4/1/26 2,485,000 2,524,362 Aurora Certificates of Participation 5.50% 12/1/30 (AMBAC) 2,000,000 2,019,740 Broomfield Public Improvements 5.75% 12/1/24 (AMBAC) 1,500,000 1,554,900 Denver City & County Certificates of Participation 5.50% 12/1/25 (AMBAC) 2,000,000 2,027,540 Eagle County Public Improvements 5.40% 12/1/18 (MBIA) 1,000,000 1,017,830 Garfield County Finance Authority Certificates of Participation 5.00% 12/1/24 1,000,000 971,530 Lakewood Certificates of Participation 5.375% 12/1/22 (AMBAC) 2,000,000 2,008,100 Westminster Building Authority Certificates of Participation 5.25% 12/1/22 1,555,000 1,551,968 Westminster Certificates of Participation 5.40% 1/15/23 1,000,000 1,003,890 ----------- 16,790,620 ----------- Other Revenue Bonds - 20.63% Broomfield Sales & Use Tax Revenue 5.00% 12/1/31 (AMBAC) 5,750,000 5,447,838 Denver Excise Tax Revenue (Colorado Convention Center) 5.00% 9/1/20 (FSA) 7,500,000 7,327,575 Golden Colorado Sales & Use Tax Revenue Improvement Series B 5.10% 12/1/20 (AMBAC) 2,000,000 1,977,320 ----------- 14,752,733 ----------- 22 Delaware Investments Colorado Insured Municipal Income Fund, Inc. Statements of Net Assets (continued) Principal Market Amount Value Municipal Bonds (continued) Transportation Revenue Bonds - 33.29% Denver City & County Airport Series E 5.25% 11/15/23 (MBIA) $10,000,000 $ 9,803,000 E-470 Public Highway Authority 5.75% 9/1/29 (MBIA) 3,000,000 3,127,680 5.75% 9/1/35 (MBIA) 1,700,000 1,761,829 Northwest Parkway Public Highway Authority 5.25% 6/15/41 (FSA) 5,000,000 4,779,300 Puerto Rico Commonwealth Highway & Transportation Authority Series A 4.75% 7/1/38 (MBIA) 4,750,000 4,334,233 ----------- 23,806,042 ----------- Water & Sewer Revenue Bonds - 9.61% Colorado Water Resources & Power Development Authority (Small Water Resources) 5.80% 11/1/20 (FGIC) 2,000,000 2,102,420 Pueblo West Metropolitan District (Water & Wastewater Revenue) 5.25% 12/15/25 2,495,000 2,497,395 Ute Utility Water Conservancy District Water Revenue 5.75% 6/15/20 (MBIA) 2,155,000 2,273,805 ----------- 6,873,620 ----------- Total Municipal Bonds (cost $108,272,936) 109,920,910 ----------- Total Market Value of Securities - 153.72% (cost $108,272,936) 109,920,910 Receivables and Other Assets Net of Liabilities - 2.22% 1,584,690 Liquidation Value of Preferred Stock - (55.94%) (40,000,000) ----------- Net Assets Applicable to 4,837,100 Common Shares ($0.01 Par Value) Outstanding - 100.00% $71,505,600 =========== Net Asset Value Per Common Share ($71,505,600 / 4,837,100 Shares) $14.78 ------ Components of Net Assets at March 31, 2002: Common stock, $0.01 par value, 200 million shares authorized to the Fund $67,238,110 Undistributed net investment income 1,827,617 Accumulated net realized gain on investments 791,899 Net unrealized appreciation of investments 1,647,974 ----------- Total net assets $71,505,600 =========== Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation Connie Lee - Insured by the College Construction Insurance Association FGIC - Insured by the Financial Guaranty Insurance Company FSA - Insured by Financial Security Assurance GNMA - Insured by Ginnie Mae MBIA - Insured by the Municipal Bond Insurance Association See accompanying notes 23
Delaware Investments Closed-End Municipal Bond Funds Year Ended March 31, 2002 Statements of Operations Delaware Delaware Delaware Investments Investments Investments Minnesota Minnesota Minnesota Municipal Municipal Municipal Income Income Income Fund, Inc. Fund II, Inc. Fund III, Inc. Investment Income: Interest $ 3,524,220 $ 9,545,124 $ 2,321,797 ----------- ----------- ----------- Expenses: Management fees 233,798 659,356 158,603 Accounting and administration fees 85,000 85,000 64,430 Remarketing Agent fees 50,210 150,629 37,657 Professional fees 14,988 54,918 35,116 Transfer agent fees and expenses 26,486 75,686 35,506 Reports and statements to shareholders 3,880 35,921 8,975 Custodian fees 2,793 5,340 2,116 Directors'/Trustees' fees 5,498 7,300 6,600 Rating Agency fees 5,750 6,350 6,882 Taxes (other than taxes on income) 800 5,100 757 Registration fees 75 400 25 Other 7,836 35,930 14,065 ----------- ----------- ----------- 437,114 1,121,930 370,732 Less expenses paid indirectly (4,046) (9,296) (3,068) ----------- ----------- ----------- Total expenses 433,068 1,112,634 367,664 ----------- ----------- ----------- Net Investment Income 3,091,152 8,432,490 1,954,133 ----------- ----------- ----------- Net Realized and Unrealized Gain (Loss) on Investments: Net realized gain (loss) on investments 153,748 (25,896) 111,215 Net change in unrealized appreciation/depreciation of investments (994,508) (2,210,780) (675,896) ----------- ----------- ----------- Net Realized and Unrealized Loss on Investments (840,760) (2,236,676) (564,681) ----------- ----------- ----------- Dividends on Preferred Stock (460,732) (1,319,544) (336,918) ----------- ----------- ----------- Net Increase in Net Assets Resulting from Operations $ 1,789,660 $ 4,876,270 $ 1,052,534 =========== =========== ===========
See accompanying notes 24 Statements of Operations (continued)
Delaware Investments Closed-End Municipal Bond Funds Delaware Delaware Delaware Investments Investments Investments Arizona Florida Insured Colorado Municipal Municipal Insured Income Income Municipal Fund, Inc. Fund Income Fund, Inc. Investment Income: Interest $ 3,851,958 $ 3,096,195 $ 6,036,658 ----------- ----------- ----------- Expenses: Management fees 278,951 229,295 454,850 Accounting and administration fees 85,000 85,000 85,002 Remarketing Agent fees 62,761 54,210 101,529 Professional fees 30,646 41,396 25,267 Transfer agent fees and expenses 22,199 34,405 28,880 Reports and statements to shareholders 12,332 23,624 13,101 Custodian fees 4,292 3,473 4,439 Directors'/Trustees' fees 7,323 5,200 5,196 Rating Agency fees 15,279 11,000 6,000 Taxes (other than taxes on income) 1,650 -- 3,170 Registration fees -- -- 250 Other 15,492 18,200 23,949 ----------- ----------- ----------- 535,925 505,803 751,633 Less expenses paid indirectly (4,766) (4,049) (6,969) ----------- ----------- ----------- Total expenses 531,159 501,754 744,664 ----------- ----------- ----------- Net Investment Income 3,320,799 2,594,441 5,291,994 ----------- ----------- ----------- Net Realized and Unrealized Gain (Loss) on Investments: Net realized gain on investments 959,815 60,786 1,111,597 Net change in unrealized appreciation/depreciation of investments (1,708,209) (874,028) (3,041,776) ----------- ----------- ----------- Net Realized and Unrealized Loss on Investments (748,394) (813,242) (1,930,179) ----------- ----------- ----------- Dividends on Preferred Stock (641,330) (434,638) (1,080,868) ----------- ----------- ----------- Net Increase in Net Assets Resulting from Operations $ 1,931,075 $ 1,346,561 $ 2,280,947 =========== =========== ===========
See accompanying notes 25
Delaware Investments Closed-End Municipal Bond Funds Statements of Changes in Net Assets Delaware Delaware Investments Minnesota Investments Minnesota Municipal Income Municipal Income Fund, Inc. Fund II, Inc. Year Ended 3/31/02 3/31/01 3/31/02 3/31/01 (restated) (restated) Increase (Decrease) in Net Assets from Operations: Net investment income $ 3,091,152 $ 3,044,220 $ 8,432,490 $ 8,470,136 Net realized gain (loss) on investments 153,748 2,513 (25,896) (176,192) Net change in unrealized appreciation/depreciation of investments (994,508) 1,853,302 (2,210,780) 6,304,816 Dividends on preferred stock (460,732) (823,120) (1,319,544) (2,469,090) ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations 1,789,660 4,076,915 4,876,270 12,129,670 ------------- ------------- ------------- ------------- Dividends and Distributions to Common Shareholders: From net investment income (2,179,548) (2,179,548) (6,078,250) (5,928,674) ------------- ------------- ------------- ------------- (2,179,548) (2,179,548) (6,078,250) (5,928,674) ------------- ------------- ------------- ------------- Net Increase (Decrease) in Net Assets (389,888) 1,897,367 (1,201,980) 6,200,996 Net Assets: Beginning of period 38,385,662 36,488,295 104,774,713 98,573,717 ------------- ------------- ------------- ------------- End of period $ 37,995,774 $ 38,385,662 $ 103,572,733 $ 104,774,713 ============= ============= ============= =============
Delaware Delaware Investments Minnesota Investments Arizona Municipal Income Municipal Income Fund III, Inc. Fund, Inc. Year Ended 3/31/02 3/31/01 3/31/02 3/31/01 (restated) (restated) Increase (Decrease) in Net Assets from Operations: Net investment income $ 1,954,133 $ 1,955,784 $ 3,320,799 $ 3,348,866 Net realized gain (loss) on investments 111,215 (113,781) 959,815 76,138 Net change in unrealized appreciation/depreciation of investments (675,896) 1,751,579 (1,708,209) 2,788,269 Dividends on preferred stock (336,918) (617,796) (641,330) (1,030,535) ------------ ------------ ------------ ------------ Net increase in net assets resulting from operations 1,052,534 2,975,786 1,931,075 5,182,738 ------------ ------------ ------------ ------------ Dividends and Distributions to Common Shareholders: From net investment income (1,405,458) (1,391,679) (2,436,085) (2,303,750) From net realized gain on investments -- -- (429,437) -- ------------ ------------ ------------ ------------ (1,405,458) (1,391,679) (2,865,522) (2,303,750) ------------ ------------ ------------ ------------ Net Increase (Decrease) in Net Assets (352,924) 1,584,107 (934,447) 2,878,988 Net Assets: Beginning of period 24,658,968 23,074,861 44,637,100 41,758,112 ------------ ------------ ------------ ------------ End of period $ 24,306,044 $ 24,658,968 $ 43,702,653 $ 44,637,100 ============ ============ ============ ============
See accompanying notes 26
Delaware Investments Closed-End Municipal Bond Funds Statements of Changes in Net Assets (continued) Delaware Delaware Investments Florida Investments Colorado Insured Municipal Insured Municipal Income Fund Income Fund, Inc. Year Ended 3/31/02 3/31/01 3/31/02 3/31/01 (restated) (restated) Increase (Decrease) in Net Assets from Operations: Net investment income $ 2,594,441 $ 2,633,120 $ 5,291,994 $ 5,343,527 Net realized gain on investments 60,786 138,481 1,111,597 1,014,580 Net change in unrealized appreciation/depreciation of investments (874,028) 2,449,642 (3,041,776) 5,630,688 Dividends on preferred stock (434,638) (817,026) (1,080,868) (1,654,933) ------------ ------------ ------------ ------------ Net increase in net assets resulting from operations 1,346,561 4,404,217 2,280,947 10,333,862 ------------ ------------ ------------ ------------ Dividends and Distributions to Common Shareholders: From net investment income (1,950,174) (1,834,817) (3,954,329) (3,609,686) From net realized gain on investments -- -- (638,497) -- ------------ ------------ ------------ ------------ (1,950,174) (1,834,817) (4,592,826) (3,609,686) ------------ ------------ ------------ ------------ Net Increase (Decrease) in Net Assets (603,613) 2,569,400 (2,311,879) 6,724,176 Net Assets: Beginning of period 37,299,508 34,730,108 73,817,479 67,093,303 ------------ ------------ ------------ ------------ End of period $ 36,695,895 $ 37,299,508 $ 71,505,600 $ 73,817,479 ============ ============ ============ ============
See accompanying notes 27 Financial Highlights Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Investments Minnesota Municipal Income Fund, Inc. Year Ended 3/31/02 3/31/01 3/31/00 3/31/99 3/31/98 Net asset value, beginning of period $14.790 $14.060 $15.380 $15.380 $14.470 Income (loss) from investment operations: Net investment income 1.191 1.155 1.180 1.188 1.180 Net realized and unrealized gain (loss) on investments (0.323) 0.732 (1.256) 0.004 0.970 Dividends on preferred stock: From net investment income (0.178) (0.317) (0.272) (0.262) (0.280) From net realized gain on investments -- -- (0.014) -- (0.010) ------- ------- ------- ------- ------- Total dividends on preferred stock (0.178) (0.317) (0.286) (0.262) (0.290) ------- ------- ------- ------- ------- Total from investment operations 0.690 1.570 (0.362) 0.930 1.860 ------- ------- ------- ------- ------- Less dividends and distributions to common shareholders: From net investment income (0.840) (0.840) (0.907) (0.930) (0.930) From net realized gain on investments -- -- (0.051) -- (0.020) ------- ------- ------- ------- ------- Total dividends and distributions (0.840) (0.840) (0.958) (0.930) (0.950) ------- ------- ------- ------- ------- Net asset value, end of period $14.640 $14.790 $14.060 $15.380 $15.380 ------- ------- ------- ------- ------- Market value, end of period $14.450 $14.300 $13.563 $16.500 $15.690 ======= ======= ======= ======= ======= Total investment return based on:(1) Market value 7.00% 12.09% (12.39%) 11.29% 16.04% Net asset value 4.81% 11.83% (2.56%) 5.88% 13.02% Ratios and supplemental data: Net assets applicable to common shares, end of period (000 omitted) $37,996 $33,386 $36,488 $39,919 $39,915 Ratio of expenses to average net assets applicable to common shares(2,5) 1.13% 1.23% 1.36% 1.21% 1.17% Ratio of net investment income to average net assets applicable to common shares(2,5) 8.00% 8.22% 8.05% 7.68% 7.86% Ratio of net investment income to average net assets applicable to common shares net of dividends to preferred shares(3) 6.84% 6.00% 6.17% 5.99% 6.01% Portfolio turnover 15% 6% 12% 15% 0% Leverage analysis: Liquidation value of preferred shares outstanding (000 omitted) $20,000 $20,000 $20,000 $20,000 $20,000 Net asset coverage per share of preferred shares, end of period $144,989 $145,964 $141,221 $149,797 $149,788 Liquidation value per share of preferred shares(4) $50,000 $50,000 $50,000 $50,000 $50,000
(1) Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods. (2) Ratios do not reflect the effect of dividend payments to preferred shareholders. (3) Ratio reflects total net investment income less dividends paid to preferred shareholders from net investment income divided by average net assets applicable to common shareholders. (4) Excluding any accumulated but unpaid dividends. (5) Ratio of expenses to average net assets applicable to common shares and the ratio of net investment income to average net assets applicable to common shares for the period ended March 31, 2002 including fees paid indirectly in accordance with Securities and Exchange Commission rules were 1.14% and 7.99%, respectively. As required, effective April 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that required amortization of all premium and discounts on debt securities as an adjustment to interest income. The effect of these changes for the period ended March 31, 2002 was an increase in net investment income per share of $0.006, a decrease in net realized and unrealized gain (loss) per share of $0.006, and an increase in the ratio of net investment income to average net assets of 0.04%. Per share data for periods prior to April 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 28 Financial Highlights Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Investments Minnesota Municipal Income Fund II, Inc. Year Ended 3/31/02 3/31/01 3/31/00 3/31/99 3/31/98 Net asset value, beginning of period $14.450 $13.590 $14.950 $14.800 $13.590 Income (loss) from investment operations: Net investment income 1.163 1.168 1.176 1.154 1.130 Net realized and unrealized gain (loss) on investments (0.313) 0.850 (1.411) 0.099 1.200 Dividends on preferred stock: From net investment income (0.182) (0.340) (0.307) (0.285) (0.300) ------- ------- ------- ------- ------- Total dividends on preferred stock (0.182) (0.340) (0.307) (0.285) (0.300) ------- ------- ------- ------- ------- Total from investment operations 0.668 1.678 (0.542) 0.968 2.030 ------- ------- ------- ------- ------- Less dividends to common shareholders: From net investment income (0.838) (0.818) (0.818) (0.818) (0.820) ------- ------- ------- ------- ------- Total dividends (0.838) (0.818) (0.818) (0.818) (0.820) ------- ------- ------- ------- ------- Net asset value, end of period $14.280 $14.450 $13.590 $14.950 $14.800 ------- ------- ------- ------- ------- Market value, end of period $14.050 $14.080 $12.438 $15.060 $13.880 ======= ======= ======= ======= ======= Total investment return based on:(1) Market value 5.75% 20.37% (12.28%) 14.73% 16.56% Net asset value 4.73% 13.06% (3.43%) 6.76% 15.51% Ratios and supplemental data: Net assets applicable to common shares, end of period (000 omitted) $103,573 $104,775 $98,574 $108,456 $107,333 Ratio of expenses to average net assets applicable to common shares(2,5) 1.06% 1.01% 0.99% 1.00% 1.19% Ratio of net investment income to average net assets applicable to common shares(2,5) 8.03% 8.42% 8.44% 7.70% 7.84% Ratio of net investment income to average net assets applicable to common shares net of dividends to preferred shares(3) 6.79% 5.96% 6.24% 5.80% 5.73% Portfolio turnover 7% 3% 4% 15% 4% Leverage analysis: Liquidation value of preferred shares outstanding (000 omitted) $60,000 $60,000 $60,000 $60,000 $60,000 Net asset coverage per share of preferred shares, end of period $136,311 $137,312 $132,145 $140,380 $139,444 Liquidation value per share of preferred shares(4) $50,000 $50,000 $50,000 $50,000 $50,000
(1) Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods. (2) Ratios do not reflect the effect of dividend payments to preferred shareholders. (3) Ratio reflects total net investment income less dividends paid to preferred shareholders from net investment income divided by average net assets applicable to common shareholders. (4) Excluding any accumulated but unpaid dividends. (5) Ratio of expenses to average net assets applicable to common shares and the ratio of net investment income to average net assets applicable to common shares for the period ended March 31, 2002 including fees paid indirectly in accordance with Securities and Exchange Commission rules were 1.07% and 8.02%, respectively. As required, effective April 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that required amortization of all premium and discounts on debt securities as an adjustment to interest income. The effect of these changes for the period ended March 31, 2002 was an increase in net investment income per share of $0.003, a decrease in net realized and unrealized gain (loss) per share of $0.003, and an increase in the ratio of net investment income to average net assets of 0.02%. Per share data for periods prior to April 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 29 Financial Highlights Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Investments Minnesota Municipal Income Fund III, Inc. Year Ended 3/31/02 3/31/01 3/31/00 3/31/99 3/31/98 Net asset value, beginning of period $13.420 $12.560 $13.970 $13.760 $12.710 Income (loss) from investment operations: Net investment income 1.064 1.065 1.075 1.025 1.050 Net realized and unrealized gain (loss) on investments (0.306) 0.889 (1.425) 0.222 1.060 Dividends on preferred stock: From net investment income (0.183) (0.336) (0.302) (0.279) (0.300) ------- ------- ------- ------- ------- Total dividends on preferred stock (0.183) (0.336) (0.302) (0.279) (0.300) ------- ------- ------- ------- ------- Total from investment operations 0.575 1.618 (0.652) 0.968 1.810 ------- ------- ------- ------- ------- Less dividends to common shareholders: From net investment income (0.765) (0.758) (0.758) (0.758) (0.760) ------- ------- ------- ------- ------- Total dividends (0.765) (0.758) (0.758) (0.758) (0.760) ------- ------- ------- ------- ------- Net asset value, end of period $13.230 $13.420 $12.560 $13.970 $13.760 ------- ------- ------- ------- ------- Market value, end of period $13.000 $13.000 $11.750 $14.125 $13.380 ======= ======= ======= ======= ======= Total investment return based on:(1) Market value 5.93% 17.57% (11.70%) 11.59% 15.80% Net asset value 4.43% 13.54% (4.57%) 7.28% 14.82% Ratios and supplemental data: Net assets applicable to common shares, end of period (000 omitted) $24,306 $24,659 $23,075 $25,665 $25,283 Ratio of expenses to average net assets applicable to common shares(2,5) 1.49% 1.42% 1.33% 1.22% 1.34% Ratio of net investment income to average net assets applicable to common shares(2,5) 7.88% 8.30% 8.33% 7.35% 7.85% Ratio of net investment income to average net assets applicable to common shares net of dividends to preferred shares(3) 6.56% 5.68% 5.99% 5.35% 5.61% Portfolio turnover 5% 5% 16% 15% 9% Leverage analysis: Liquidation value of preferred shares outstanding (000 omitted) $15,000 $15,000 $15,000 $15,000 $15,000 Net asset coverage per share of preferred shares, end of period $131,007 $132,197 $126,916 $135,549 $134,278 Liquidation value per share of preferred shares(4) $50,000 $50,000 $50,000 $50,000 $50,000
(1) Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods. (2) Ratios do not reflect the effect of dividend payments to preferred shareholders. (3) Ratio reflects total net investment income less dividends paid to preferred shareholders from net investment income divided by average net assets applicable to common shareholders. (4) Excluding any accumulated but unpaid dividends. (5) Ratio of expenses to average net assets applicable to common shares and the ratio of net investment income to average net assets applicable to common shares for the period ended March 31, 2002 including fees paid indirectly in accordance with Securities and Exchange Commission rules were 1.50% and 7.87%, respectively. As required, effective April 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that required amortization of all premium and discounts on debt securities as an adjustment to interest income. The effect of these changes for the period ended March 31, 2002 was an increase in net investment income per share of $0.007, a decrease in net realized and unrealized gain (loss) per share of $0.007, and an increase in the ratio of net investment income to average net assets of 0.04%. Per share data for periods prior to April 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 30 Financial Highlights Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Investments Arizona Municipal Income Fund, Inc. Year Ended 3/31/02 3/31/01 3/31/00 3/31/99 3/31/98 Net asset value, beginning of period $14.970 $14.000 $15.290 $15.030 $13.780 Income (loss) from investment operations: Net investment income 1.113 1.124 1.115 1.108 1.090 Net realized and unrealized gain (loss) on investments (0.257) 0.965 (1.333) 0.202 1.230 Dividends on preferred stock: From net investment income (0.164) (0.346) (0.299) (0.277) (0.300) From net realized gain on investments (0.051) -- -- -- -- ------- ------- ------- ------- ------- Total dividends on preferred stock (0.215) (0.346) (0.299) (0.277) (0.300) ------- ------- ------- ------- ------- Total from investment operations 0.641 1.743 (0.517) 1.033 2.020 ------- ------- ------- ------- ------- Less dividends and distributions to common shareholders: From net investment income (0.817) (0.773) (0.773) (0.773) (0.770) From net realized gain on investments (0.144) -- -- -- -- ------- ------- ------- ------- ------- Total dividends and distributions (0.961) (0.773) (0.773) (0.773) (0.770) ------- ------- ------- ------- ------- Net asset value, end of period $14.650 $14.970 $14.000 $15.290 $15.030 ------- ------- ------- ------- ------- Market value, end of period $14.750 $14.250 $12.625 $15.125 $14.630 ======= ======= ======= ======= ======= Total investment return based on:(1) Market value 10.22% 19.28% (11.65%) 8.84% 18.79% Net asset value 4.21% 13.00% (3.10%) 7.07% 15.17% Ratios and supplemental data: Net assets applicable to common shares, end of period (000 omitted) $43,703 $44,637 $41,758 $45,586 $44,813 Ratio of expenses to average net assets applicable to common shares(2,5) 1.19% 1.18% 1.21% 1.15% 1.26% Ratio of net investment income to average net assets applicable to common shares(2,5) 7.41% 7.86% 7.84% 7.28% 7.41% Ratio of net investment income to average net assets applicable to common shares net of dividends to preferred shares(3) 6.33% 5.44% 5.74% 5.46% 5.34% Portfolio turnover 43% 24% 41% 46% 22% Leverage analysis: Liquidation value of preferred shares outstanding (000 omitted) $25,000 $25,000 $25,000 $25,000 $25,000 Net asset coverage per share of preferred shares, end of period $137,405 $139,274 $133,516 $141,172 $139,627 Liquidation value per share of preferred shares(4) $50,000 $50,000 $50,000 $50,000 $50,000
(1) Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods. (2) Ratios do not reflect the effect of dividend payments to preferred shareholders. (3) Ratio reflects total net investment income less dividends paid to preferred shareholders from net investment income divided by average net assets applicable to common shareholders. (4) Excluding any accumulated but unpaid dividends. (5) Ratio of expenses to average net assets applicable to common shares and the ratio of net investment income to average net assets applicable to common shares for the period ended March 31, 2002 including fees paid indirectly in accordance with Securities and Exchange Commission rules were 1.20% and 7.40%, respectively. As required, effective April 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that required amortization of all premium and discounts on debt securities as an adjustment to interest income. The effect of these changes for the period ended March 31, 2002 was an increase in net investment income per share of $0.002, a decrease in net realized and unrealized gain (loss) per share of $0.002, and an increase in the ratio of net investment income to average net assets of 0.02%. Per share data for periods prior to April 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 31 Financial Highlights Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Investments Florida Insured Municipal Income Fund Year Ended 3/31/02 3/31/01 3/31/00 3/31/99 3/31/98 Net asset value, beginning of period $15.400 $14.340 $15.670 $15.300 $13.670 Income (loss) from investment operations: Net investment income 1.071 1.087 1.092 1.113 1.090 Net realized and unrealized gain (loss) on investments (0.337) 1.068 (1.368) 0.292 1.600 Dividends on preferred stock: From net investment income (0.179) (0.337) (0.296) (0.277) (0.300) ------- ------- ------- ------- ------- Total dividends on preferred stock (0.179) (0.337) (0.296) (0.277) (0.300) ------- ------- ------- ------- ------- Total from investment operations 0.555 1.818 (0.572) 1.128 2.390 ------- ------- ------- ------- ------- Less dividends to common shareholders: From net investment income (0.805) (0.758) (0.758) (0.758) (0.760) ------- ------- ------- ------- ------- Total dividends (0.805) (0.758) (0.758) (0.758) (0.760) ------- ------- ------- ------- ------- Net asset value, end of period $15.150 $15.400 $14.340 $15.670 $15.300 ------- ------- ------- ------- ------- Market value, end of period $14.020 $13.180 $11.750 $14.750 $14.310 ======= ======= ======= ======= ======= Total investment return based on:(1) Market value 12.63% 19.06% (15.57%) 8.47% 20.94% Net asset value 4.16% 13.99% (3.01%) 7.80% 18.22% Ratios and supplemental data: Net assets applicable to common shares, end of period (000 omitted) $36,696 $37,300 $34,730 $37,956 $37,071 Ratio of expenses to average net assets applicable to common shares(2,5) 1.34% 1.32% 1.31% 1.14% 1.25% Ratio of net investment income to average net assets applicable to common shares(2,5) 6.95% 7.38% 7.50% 7.15% 7.37% Ratio of net investment income to average net assets applicable to common shares net of dividends to preferred shares(3) 5.79% 5.10% 5.47% 5.37% 5.33% Portfolio turnover 13% 8% 6% 0% 5% Leverage analysis: Liquidation value of preferred shares outstanding (000 omitted) $20,000 $20,000 $20,000 $20,000 $20,000 Net asset coverage per share of preferred shares, end of period $141,740 $143,249 $136,825 $144,889 $142,677 Liquidation value per share of preferred shares(4) $50,000 $50,000 $50,000 $50,000 $50,000
(1) Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods. (2) Ratios do not reflect the effect of dividend payments to preferred shareholders. (3) Ratio reflects total net investment income less dividends paid to preferred shareholders from net investment income divided by average net assets applicable to common shareholders. (4) Excluding any accumulated but unpaid dividends. (5) Ratio of expenses to average net assets applicable to common shares and the ratio of net investment income to average net assets applicable to common shares for the period ended March 31, 2002 including fees paid indirectly in accordance with Securities and Exchange Commission rules were 1.35% and 6.94%, respectively. As required, effective April 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that required amortization of all premium and discounts on debt securities as an adjustment to interest income. This change in accounting had no effect on the Fund's results of operations for the period ended March 31, 2002. Per share data for the period prior to April 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 32 Financial Highlights Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Investments Colorado Insured Municipal Income Fund, Inc. Year Ended 3/31/02 3/31/01 3/31/00 3/31/99 3/31/98 Net asset value, beginning of period $15.260 $13.870 $15.220 $14.920 $13.580 Income (loss) from investment operations: Net investment income 1.094 1.105 1.099 1.080 1.070 Net realized and unrealized gain (loss) on investments (0.401) 1.373 (1.417) 0.264 1.300 Dividends on preferred stock: From net investment income (0.172) (0.342) (0.297) (0.309) (0.290) From net realized gain on investments (0.051) -- -- -- -- ------- ------- ------- ------- ------- Total dividends on preferred stock (0.223) (0.342) (0.297) (0.309) (0.290) ------- ------- ------- ------- ------- Total from investment operations 0.470 2.136 (0.615) 1.035 2.080 ------- ------- ------- ------- ------- Less dividends and distributions to common shareholders: From net investment income (0.818) (0.746) (0.735) (0.735) (0.740) From net realized gain on investments (0.132) -- -- -- -- ------- ------- ------- ------- ------- Total dividends and distributions (0.950) (0.746) (0.735) (0.735) (0.740) ------- ------- ------- ------- ------- Net asset value, end of period $14.780 $15.260 $13.870 $15.220 $14.920 ------- ------- ------- ------- ------- Market value, end of period $14.700 $14.560 $12.563 $14.938 $14.000 ======= ======= ======= ======= ======= Total investment return based on:(1) Market value 7.52% 22.42% (11.05%) 12.13% 18.09% Net asset value 3.15% 16.21% (3.62%) 7.21% 15.84% Ratios and supplemental data: Net assets applicable to common shares, end of period (000 omitted) $71,506 $73,817 $67,093 $73,598 $72,187 Ratio of expenses to average net assets applicable to common shares(2,5) 1.01% 1.06% 1.08% 1.06% 1.18% Ratio of net investment income to average net assets applicable to common shares(2,5) 7.18% 7.68% 7.84% 7.12% 7.41% Ratio of net investment income to average net assets applicable to common shares net of dividends to preferred shares(3) 6.05% 5.31% 5.72% 5.08% 5.38% Portfolio turnover 37% 56% 37% 18% 39% Leverage analysis: Liquidation value of preferred shares outstanding (000 omitted) $40,000 $40,000 $40,000 $40,000 $40,000 Net asset coverage per share of preferred shares, end of period $139,382 $142,272 $133,867 $141,998 $140,234 Liquidation value per share of preferred shares(4) $50,000 $50,000 $50,000 $50,000 $50,000
(1) Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation, to be reinvested at prices obtained under the Fund's dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods. (2) Ratios do not reflect the effect of dividend payments to preferred shareholders. (3) Ratio reflects total net investment income less dividends paid to preferred shareholders from net investment income divided by average net assets applicable to common shareholders. (4) Excluding any accumulated but unpaid dividends. (5) Ratio of expenses to average net assets applicable to common shares and the ratio of net investment income to average net assets applicable to common shares for the period ended March 31, 2002 including fees paid indirectly in accordance with Securities and Exchange Commission rules were 1.02% and 7.17%, respectively. As required, effective April 1, 2001, the Fund has adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that required amortization of all premium and discounts on debt securities as an adjustment to interest income. This change in accounting had no effect on the Fund's results of operations for the period ended March 31, 2002. Per share data for the period prior to April 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 33 Delaware Investments Closed-End Municipal Bond Funds March 31, 2002 Notes to Financial Statements Delaware Investments Minnesota Municipal Income Fund, Inc. ("Minnesota Municipal Fund"), Delaware Investments Minnesota Municipal Income Fund II, Inc. ("Minnesota Municipal Fund II"), Delaware Investments Minnesota Municipal Income Fund III, Inc. ("Minnesota Municipal Fund III"), Delaware Investments Arizona Municipal Income Fund, Inc. ("Arizona Municipal Fund"), and Delaware Investments Colorado Insured Municipal Income Fund, Inc. ("Colorado Insured Municipal Fund") are organized as Maryland corporations and Delaware Investments Florida Insured Municipal Income Fund ("Florida Insured Municipal Fund") is organized as a Massachusetts Business Trust (each referred to as a "Fund" and collectively as the "Funds"). The Minnesota Municipal Fund II, Florida Insured Municipal Fund and Arizona Municipal Fund are diversified closed-end management investment companies and Minnesota Municipal Fund, Minnesota Municipal Fund III and Colorado Insured Municipal Fund are non-diversified closed-end management investment companies under the Investment Company Act of 1940, as amended. The Funds' shares trade on the American Stock Exchange. The investment objective of each Fund is to provide high current income exempt from federal income tax and from the personal income tax of its state, if any, consistent with the preservation of capital. Florida Insured Municipal Fund will generally seek investments that will enable its shares to be exempt from Florida's intangible personal property tax. Each Fund will seek to achieve its investment objective by investing substantially all of its net assets in investment grade, tax-exempt municipal obligations of its respective state. 1. Significant Accounting Policies The following accounting policies are in accordance with accounting principles generally accepted in the United States and are consistently followed by the Funds. Security Valuation -- Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Funds' Board of Trustees/Directors. Federal Income Taxes -- Each Fund intends to continue to qualify for federal income tax purposes as a regulated investment company and make the requisite distributions to shareholders. Accordingly, no provision for federal income taxes has been made in the financial statements. Use of Estimates -- The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of 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. Other -- Expenses common to all funds within the Delaware Investments Family of Funds are allocated amongst the Funds on the basis of average net assets. Security transactions are recorded on the date the securities are purchased or sold (trade date). Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Each Fund declares and pays dividends from net investment income monthly and distributions from net realized gain on investments, if any, annually. Change in Accounting Principle -- As required, effective April 1, 2001, the Funds have adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies (the "Guide") and began amortizing all discount or premium on debt securities. Prior to April 1, 2001, the Funds did not amortize market discount, which conformed to the Series' policy for federal income tax purposes. The cumulative effect of this accounting change had no impact on total assets of the Funds, but resulted in the following changes listed below, based on securities held by the Funds on April 1, 2001.
Minnesota Minnesota Minnesota Arizona Municipal Municipal Municipal Municipal Fund Fund II Fund III Fund -------- -------- -------- -------- Cost of securities $ 44,670 $ 44,927 $ 37,012 $ 16,466 Net unrealized appreciation (depreciation) (44,670) (44,927) (37,012) (16,466)
The effects of these changes for the year ended March 31, 2002, were as follows:
Minnesota Minnesota Minnesota Arizona Municipal Municipal Municipal Municipal Fund Fund II Fund III Fund -------- -------- -------- -------- Net investment income $ 16,956 $ 18,261 $ 12,128 $ 6,512 Net unrealized depreciation (16,956) (18,261) (12,128) (6,512)
This change in accounting had no effect on Florida Insured Municipal Fund or Colorado Insured Municipal Fund. The Statements of Changes in Net Assets and Financial Highlights for prior periods have not been restated to reflect this change in accounting. Change in Classification of Preferred Stock -- Effective April 1, 2000, the Funds adopted the classification requirement of EITF D-98, "Classification and Measurement of Redeemable Securities". EITF D-98 requires that preferred stock for which its redemption is outside of the Funds' control should be presented outside of net assets in the statement of net assets. The redemption of the Funds' preferred stock is outside of the control of the Funds because of the mandatory redemption feature discussed in Note 5. In adopting EITF D-98, the net assets as of April 1, 2000 in the statements of changes in net assets were restated by excluding preferred stock valued at $20 million, $60 million, $15 million, $25 million, $20 million, and $40 million, respectively, 34 Delaware Investments Closed-End Municipal Bond Funds Notes to Financial Statements (continued) 1. Significant Accounting Policies (continued) for the Minnesota Municipal Fund, Minnesota Municipal Fund II, Minnesota Municipal Fund III, Arizona Municipal Fund, Florida Insured Municipal Fund, and Colorado Insured Municipal Fund. The adoption also resulted in dividends on preferred stock being reclassified from distributions on the statement of changes in net assets to a separate line item within the statement of operations. This resulted in a reduction in the net increase in net assets from operations for the years ended March 31, 2002 and 2001, respectively, as follows: Minnesota Municipal Fund, $460,732 and $823,120; Minnesota Municipal Fund II, $1,319,544 and $2,469,090; Minnesota Municipal Fund III, $336,918 and $617,796; Arizona Municipal Fund, $641,330 and $1,030,535; Florida Insured Municipal Fund, $434,638 and $817,026; and Colorado Insured Municipal Fund, $1,080,868 and $1,654,933. As part of the adoption, per share distributions of dividends on preferred stock were reclassified from distributions to amounts from investment operations for each period presented in the financial highlights. Expenses Paid Indirectly -- Certain expenses of the Funds are paid through commission arrangements with brokers. These transactions are done subject to best execution. In addition, the Funds may receive earnings credits from their custodian when positive cash balances are maintained, which are used to offset custody fees. The expenses paid under the above arrangements are included in their respective expense captions on the Statements of Operations with the corresponding expense offset shown as "expenses paid indirectly". The amounts of these expenses for the year ended March 31, 2002 were as follows:
Minnesota Minnesota Minnesota Arizona Florida Insured Colorado Insured Municipal Municipal Municipal Municipal Municipal Municipal Fund Fund II Fund III Fund Fund Fund ---------- ---------- ---------- ---------- --------------- ---------------- Commission Reimbursements $1,403 $3,956 $ 952 $1,674 $1,376 $2,730 Earnings Credits 2,643 5,340 2,116 3,092 2,673 4,239
2. Investment Management, Administration Agreements and Other Transactions with Affiliates In accordance with the terms of its respective investment management agreement, each Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee of 0.40% which is calculated daily based on the average daily net assets of each Fund, including assets attributable to any preferred stock that may be outstanding. The Funds have engaged Delaware Service Company, Inc., (DSC), an affiliate of DMC, to provide accounting and administration services which are based on average net assets and paid on a monthly basis, subject to certain minimums. At March 31, 2002, the Funds had liabilities payable to affiliates as follows:
Minnesota Minnesota Minnesota Arizona Florida Insured Colorado Insured Municipal Municipal Municipal Municipal Municipal Municipal Fund Fund II Fund III Fund Fund Fund --------- --------- ---------- --------- -------------- --------------- Investment management fee payable to DMC $19,425 $54,764 $13,170 $23,021 $19,020 $37,462 Dividend disbursing, accounting and other expenses payable to DSC 10,124 16,813 7,839 9,645 13,063 10,694 Other expenses payable to DMC and affiliates 21,102 34,449 18,630 3,135 19,891 6,037
Certain officers of DMC and DSC are officers, and/or directors/trustees of the Funds. These officers and directors/trustees are paid no compensation by the Funds. 3. Investments For the year ended March 31, 2002, the Funds made purchases and sales of investment securities other than short-term investments as follows:
Minnesota Minnesota Minnesota Arizona Florida Insured Colorado Insured Municipal Municipal Municipal Municipal Municipal Municipal Fund Fund II Fund III Fund Fund Fund ----------- ----------- ---------- --------- -------------- --------------- Purchases $8,697,583 $12,992,932 $2,541,793 $29,850,182 $8,219,005 $41,621,779 Sales 8,663,105 11,176,825 2,099,027 29,254,000 7,228,241 42,009,603
At March 31, 2002, the cost of investments and unrealized appreciation (depreciation) for federal income tax purposes for each Fund were as follows:
Minnesota Minnesota Minnesota Arizona Florida Insured Colorado Insured Municipal Municipal Municipal Municipal Municipal Municipal Fund Fund II Fund III Fund Fund Fund ---------- ---------- --------- --------- -------------- --------------- Cost of Investments $54,589,902 $157,143,117 $37,292,839 $66,759,689 $53,810,856 $108,274,031 =========== ============ =========== =========== =========== ============ Aggregate Unrealized Appreciation $ 2,429,970 $ 5,465,483 $ 1,886,068 $ 1,767,068 $ 2,881,901 $ 2,314,874 Aggregate Unrealized Depreciation (96,980) (1,203,652) (447,606) (312,177) (110,460) (667,995) ----------- ------------ ----------- ----------- ----------- ------------ Net Unrealized Appreciation $ 2,332,990 $ 4,261,831 $ 1,438,462 $ 1,454,891 $ 2,771,441 $ 1,646,879 =========== ============ =========== =========== =========== ============
35 Delaware Investments Closed-End Municipal Bond Funds Notes to Financial Statements (continued) 4. Dividend and Distribution Information Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from accounting principles generally accepted in the United States. The tax character of dividends and distributions paid during the years ended March 31, 2002 and 2001 was as follows:
Minnesota Municipal Fund Minnesota Municipal Fund II 2002 2001 2002 2001 Tax-Exempt Income $2,640,280 $3,002,668 $7,397,794 $8,397,764 ---------- ---------- ---------- ---------- Total $2,640,280 $3,002,668 $7,397,794 $8,397,764 ========== ========== ========== ==========
Minnesota Municipal Fund III Arizona Municipal Fund 2002 2001 2002 2001 Tax-Exempt Income $1,742,376 $2,009,475 $2,925,684 $3,334,285 Long-term capital gain -- -- 581,168 -- ---------- ---------- ---------- ---------- Total $1,742,376 $2,009,475 $3,506,852 $3,334,285 ========== ========== ========== ==========
Florida Insured Municipal Fund Colorado Insured Municipal Fund 2002 2001 2002 2001 Tax-Exempt Income $2,384,812 $2,651,843 $4,788,101 $5,264,619 Ordinary Income -- -- 335,452 -- Long-term capital gain -- -- 550,141 -- ---------- ---------- ---------- ---------- Total $2,384,812 $2,651,843 $5,673,694 $5,264,619 ========== ========== ========== ==========
As of March 31, 2002, the components of net assets on a tax basis were as follows:
Minnesota Municipal Fund Minnesota Municipal Fund II Minnesota Municipal Fund III Paid in capital $35,426,740 $ 99,710,002 $25,246,730 Undistributed tax-exempt income 414,864 2,566,334 328,389 Capital loss carryforward (178,820) (2,939,456) (2,707,537) Post-October losses -- (25,978) -- Unrealized appreciation (depreciation) 2,332,990 4,261,831 1,438,462 ----------- ------------ ----------- Net assets $37,995,774 $103,572,733 $24,306,044 =========== ============ ===========
Arizona Municipal Fund Florida Insured Municipal Fund Colorado Insured Municipal Fund Paid in capital $40,838,893 $33,361,389 $67,238,110 Undistributed tax-exempt income 1,095,473 877,111 1,827,617 Undistributed ordinary income 65,300 -- 13,771 Undistributed long-term gains 248,096 -- 779,223 Capital loss carryforward -- (314,046) -- Post-October losses -- -- -- Unrealized appreciation (depreciation) 1,454,891 2,771,441 1,646,879 ----------- ----------- ----------- Net assets $43,702,653 $36,695,895 $71,505,600 =========== =========== ===========
36 Delaware Investments Closed-End Municipal Bond Funds Notes to Financial Statements (continued) 4. Dividend and Distribution Information (continued) For federal income tax purposes, certain Funds had accumulated capital losses as of March 31, 2002, which may be carried forward and applied against future capital gains. Such capital loss carry forward amounts will expire as follows:
2003 2004 2005 2006 2008 2009 2010 Total Minnesota Municipal Fund I $ -- $ -- $ -- $ -- $114,900 $ 63,920 $ -- $ 178,820 Minnesota Municipal Fund II 952,440 1,143,840 89,665 132,129 437,162 175,804 8,416 2,939,456 Minnesota Municipal Fund III 755,674 1,279,495 455,666 6,539 56,856 153,307 -- 2,707,537 Florida Insured Municipal Fund 32,019 183,099 -- -- 98,928 -- -- 314,046
5. Capital Stock Pursuant to their articles of incorporation, Minnesota Municipal Fund, Minnesota Municipal Fund II, Minnesota Municipal Fund III, Arizona Municipal Fund and Colorado Insured Municipal Fund each have 200 million shares of $0.01 par value common shares authorized. Florida Insured Municipal Fund has been authorized to issue an unlimited amount of $0.01 par value common shares. The Funds did not repurchase any shares under the Share Repurchase Program during the year ending March 31, 2002. Shares issuable under the Fund's dividend reinvestment plan are purchased by the Fund's transfer agent, Mellon Investor Services, LLC, in the open market. For the year ended March 31, 2002, the Funds did not have any transactions in common shares. The Funds each have one million shares of $0.01 par value preferred shares authorized, except for Florida Insured Municipal Fund, which has an unlimited amount of $0.01 par value preferred shares authorized. Under resolutions adopted by the Board of Directors/Trustees, Minnesota Municipal Fund is allowed to issue up to 400 preferred shares, of which the entire amount was issued on August 6, 1992. On May 14, 1993, Minnesota Municipal Fund II, Arizona Municipal Fund and Florida Insured Municipal Fund issued 1,200, 500 and 400 preferred shares, respectively. On December 10, 1993, Minnesota Municipal Fund III issued 300 preferred shares and on September 23, 1993, Colorado Insured Municipal Fund issued 800 preferred shares. The preferred shares of each Fund have a liquidation preference of $50,000 per share plus an amount equal to accumulated but unpaid dividends. Dividends for the outstanding preferred shares of each Fund are cumulative at a rate established at the initial public offering and are typically reset every 28 days based on the results of an auction. Dividend rates (adjusted for any capital gain distributions) ranged from 1.40% to 3.75% on Minnesota Municipal Fund, from 1.34% to 3.40% on Minnesota Municipal Fund II, from 1.30% to 3.70% on Minnesota Municipal Fund III, from 1.40% to 3.80% on Arizona Municipal Fund, from 1.20% to 3.60% on Florida Insured Municipal Fund and from 1.30% to 3.80% on Colorado Insured Municipal Fund during the year ended March 31, 2002. Salomon Smith Barney, Inc. and Merrill Lynch Pierce, Fenner & Smith Inc. (Colorado Insured Municipal Fund only), as the remarketing agents, receive an annual fee from each of the Funds of 0.25% of the average amount of preferred stock outstanding. Under the 1940 Act, the Funds may not declare dividends or make other distributions on common shares or purchase any such shares if, at the time of the declaration, distribution or purchase, asset coverage with respect to the outstanding preferred stock is less than 200%. The preferred shares are redeemable at the option of the Funds, in whole or in part, on any dividend payment date at $50,000 per share plus any accumulated but unpaid dividends whether or not declared. The preferred shares are also subject to mandatory redemption at $50,000 per share plus any accumulated but unpaid dividends whether or not declared, if certain requirements relating to the composition of the assets and liabilities of each Fund are not satisfied. The holders of preferred shares have voting rights equal to the holders of common shares (one vote per share) and will vote together with holders of common shares as a single class. However, holders of preferred shares are also entitled to elect two of each Fund's Directors. In addition, the 1940 Act requires that along with approval by shareholders that might otherwise be required, the approval of the holders of a majority of any outstanding preferred shares, voting separately as a class would be required to (a) adopt any plan of reorganization that would adversely affect the preferred shares, and (b) take any action requiring a vote of security holders pursuant of Section 13(a) of the 1940 Act, including, among other things, changes in each of the Fund's subclassification as a closed-end investment company or changes in their fundamental investment restrictions. 6. Credit and Market Risks The Funds concentrate their investments in securities issued by each specific state's municipalities. The value of these investments may be adversely affected by new legislation within the state, regional or local economic conditions, and differing levels of supply and demand for municipal bonds. Many municipalities insure repayment for their obligations. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that the market may fluctuate for other reasons and there is no assurance that the insurance company will meet its obligations. These securities have been identified in the Statement of Net Assets. 37 Delaware Investments Closed-End Municipal Bond Funds Notes to Financial Statements (continued) 7. Tax Information (Unaudited) The information set forth is for the Fund's fiscal year as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in early 2002. Please consult your tax advisor for proper treatment of the information. For the fiscal year ended March 31, 2002, each Fund designates as long term capital gains, ordinary income, and tax-exempt income distributions paid during the year as follows:
Long Term Ordinary Tax Total Capital Gains Income Exempt Distributions Distributions Distributions Income (Tax Basis) ------------- ------------- ------ ----------- Minnesota Municipal Fund I -- -- 100% 100% Minnesota Municipal Fund II -- -- 100% 100% Minnesota Municipal Fund III -- -- 100% 100% Arizona Municipal Fund 17% -- 83% 100% Florida Insured Municipal Fund -- -- 100% 100% Colorado Insured Municipal Fund 11% 5% 84% 100%
38 Report of Independent Auditors To the Shareholders and Board of Directors/Trustees Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Investments Minnesota Municipal Income Fund III, Inc. Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Investments Florida Insured Municipal Income Fund Delaware Investments Colorado Insured Municipal Income Fund, Inc. We have audited the accompanying statements of net assets of Delaware Investments Minnesota Municipal Income Fund, Inc., Delaware Investments Minnesota Municipal Income Fund II, Inc., Delaware Investments Minnesota Municipal Income Fund III, Inc., Delaware Investments Arizona Municipal Income Fund, Inc., Delaware Investments Florida Insured Municipal Income Fund, and Delaware Investments Colorado Insured Municipal Income Fund, Inc. (the "Funds") as of March 31, 2002, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights. Our procedures included confirmation of securities owned as of March 31, 2002, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide 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 each of the respective Funds at March 31, 2002, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States. As discussed in Note 1 to the financial statements, in 2002 the Funds changed their method of classifying preferred stock. /s/ Ernst & Young LLP -------------------------------------- Philadelphia, Pennsylvania May 3, 2002 39 Unaudited Proxy Results Shareholders of Delaware Investments Minnesota Municipal Income Fund, Inc., Delaware Investments Minnesota Municipal Income Fund II, Inc., Delaware Investments Minnesota Municipal Income Fund III, Inc., Delaware Investments Arizona Municipal Income Fund, Inc., Delaware Investments Florida Insured Municipal Income Fund and Delaware Investments Colorado Insured Municipal Income Fund, Inc. voted on the following proposals at the annual meeting of shareholders on November 1, 2001. The description of each proposal and number of shares voted are as follows:
Common Shareholders Preferred Shareholders Shares Shares Shares Shares Shares Shares Voted Voted Voted Voted Voted Voted For Against Abstain For Against Abstain --- ------- ------- --- ------- ------- 1. To elect the Fund's Board of Directors/Trustees: Delaware Investments Minnesota Municipal Income Fund, Inc.: Charles E. Haldeman, Jr. 2,391,499 29,125 -- -- -- -- David K. Downes 2,391,390 29,235 -- -- -- -- Walter P. Babich 2,338,353 32,271 -- -- -- -- John H. Durham 2,391,499 29,125 -- -- -- -- John A. Fry 2,391,499 29,125 -- -- -- -- Anthony D. Knerr 2,391,499 29,125 -- -- -- -- Ann R. Leven 2,391,677 28,948 -- -- -- -- Thomas F. Madison N/A N/A N/A 400 -- -- Janet L. Yeomans N/A N/A N/A 400 -- -- Delaware Investments Minnesota Municipal Income Fund II, Inc.: Charles E. Haldeman, Jr. 6,667,175 152,083 -- -- -- -- David K. Downes 6,667,175 152,083 -- -- -- -- Walter P. Babich 6,643,664 175,594 -- -- -- -- John H. Durham 6,665,833 153,425 -- -- -- -- John A. Fry 6,666,429 152,829 -- -- -- -- Anthony D. Knerr 6,665,175 154,083 -- -- -- -- Ann R. Leven 6,670,481 148,773 -- -- -- -- Thomas F. Madison N/A N/A N/A 1,100 -- -- Janet L. Yeomans N/A N/A N/A 1,100 -- -- Delaware Investments Minnesota Municipal Income Fund III, Inc.: Charles E. Haldeman, Jr. 1,667,302 27,930 -- -- -- -- David K. Downes 1,667,302 27,930 -- -- -- -- Walter P. Babich 1,666,594 28,638 -- -- -- -- John H. Durham 1,667,302 27,930 -- -- -- -- John A. Fry 1,667,302 27,930 -- -- -- -- Anthony D. Knerr 1,667,302 27,930 -- -- -- -- Ann R. Leven 1,667,302 27,930 -- -- -- -- Thomas F. Madison N/A N/A N/A 299 -- -- Janet L. Yeomans N/A N/A N/A 299 -- -- Delaware Investments Arizona Municipal Income Fund, Inc.: Charles E. Haldeman, Jr. 2,817,453 60,807 -- -- -- -- David K. Downes 2,817,453 60,807 -- -- -- -- Walter P. Babich 2,809,511 68,749 -- -- -- -- John H. Durham 2,817,453 60,807 -- -- -- -- John A. Fry 2,817,453 60,807 -- -- -- -- Anthony D. Knerr 2,817,453 60,807 -- -- -- -- Ann R. Leven 2,817,253 61,007 -- -- -- -- Thomas F. Madison N/A N/A N/A 456 -- -- Janet L. Yeomans N/A N/A N/A 456 -- --
40 Unaudited Proxy Results (continued)
Common Shareholders Preferred Shareholders Shares Shares Shares Shares Shares Shares Voted Voted Voted Voted Voted Voted For Against Abstain For Against Abstain --- ------- ------- --- ------- ------- 1. To elect the Fund's Board of Directors/Trustees: Delaware Investments Florida Insured Municipal Income Fund: Charles E. Haldeman, Jr. 2,336,081 39,954 -- -- -- -- David K. Downes 2,235,082 40,954 -- -- -- -- Walter P. Babich 2,234,342 41,693 -- -- -- -- John H. Durham 2,236,082 39,954 -- -- -- -- John A. Fry 2,236,008 40,027 -- -- -- -- Anthony D. Knerr 2,236,082 39,954 -- -- -- -- Ann R. Leven 2,235,016 41,020 -- -- -- -- Thomas F. Madison N/A N/A N/A 400 -- -- Janet L. Yeomans N/A N/A N/A 400 -- -- Delaware Investments Colorado Insured Municipal Income Fund, Inc.: Charles E. Haldeman, Jr. 4,464,998 59,908 -- -- -- -- David K. Downes 4,466,416 58,490 -- -- -- -- Walter P. Babich 4,459,279 65,627 -- -- -- -- John H. Durham 4,476,733 48,173 -- -- -- -- John A. Fry 4,471,503 53,403 -- -- -- -- Anthony D. Knerr 4,471,593 53,313 -- -- -- -- Ann R. Leven 4,471,593 53,313 -- -- -- -- Thomas F. Madison N/A N/A N/A 619 68 -- Janet L. Yeomans N/A N/A N/A 659 28 --
Common and Preferred Shareholders Shares Shares Shares Voted Voted Voted For Against Abstain --------- ------- ------- 2. To amend the Fund's Articles of Incorporation to change the name of the Fund. Delaware Investments Minnesota Municipal Income Fund I, Inc.: 2,276,464 89,047 55,114 Delaware Investments Minnesota Municipal Income Fund II, Inc.: 6,370,978 326,174 122,106 Delaware Investments Minnesota Municipal Income Fund III, Inc.: 1,616,963 60,149 18,121 Delaware Investments Arizona Municipal Income Fund, Inc.: 2,714,134 137,076 27,051 Delaware Investments Colorado Insured Municipal Income Fund, Inc.: 4,290,063 112,575 122,268
41 Board of Directors/Trustees and Officers Addendum An investment company is governed by a Board of Directors/Trustees (hereinafter "Trustees") which has oversight responsibility for the management of a fund's business affairs. Trustees establish procedures and oversee and review the performance of the investment manager and others that perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. Following is a list of the Directors/Trustees and Officers and certain background and related information.
Principal Number of Other Name, Position(s) Occupation(s) Portfolios in Fund Directorships Address Held with Length of Time During Complex Overseen Held by and Birthdate Registrant Served* Past 5 Years by Trustee/Officer Trustee/Officer Trustees/Officers Charles E. Haldeman, Jr.(1) Chairman 1 Year President/Chief Operating 87 None 2005 Market Street and Trustee Officer/Director - Philadelphia, PA United Asset Management 19103 (January 1998 - January 2000) October 29, 1948 Partner/Director - Cooke and Bieler, Inc. (June 1974 - January 1998) (Investment Management) David K. Downes(1) President, 9 Years - Mr. Downes has 105 Director/President - 2005 Market Street Chief Executive Executive Officer served in various Lincoln National Philadelphia, PA Officer, executive capacities Convertible Securities 19103 Chief Financial 2 Years - Trustee at different times Fund, Inc. Officer and Trustee at Delaware Investments January 8, 1940 Director/President - Lincoln National Income Fund, Inc. Independent Trustees Walter P. Babich Trustee 10 Years for Minnesota Board Chairman - 105 None 460 North Gulph Road Municipal Income Fund I; Citadel Constructors, Inc. King of Prussia, PA 9 years for other Funds (1989 - Present) 19406 October 1, 1927 John H. Durham Trustee 10 Years for Minnesota Private Investor 105 Trustee - P.O. Box 819 Municipal Income Fund I; Abington Memorial Gwynedd Valley, PA 9 years for other Funds(2) Hospital 19437 August 7, 1937 President/Director - 22 WR Corporation
(1) Executive Officer of the Fund's manager and accounting service provider. (2) Mr. Durham served as a Director Emeritus from 1995 through 1998. 42
Principal Number of Other Name, Position(s) Occupation(s) Portfolios in Fund Directorships Address Held with Length of Time During Complex Overseen Held by and Birthdate Registrant Served* Past 5 Years by Trustee/Officer Trustee/Officer Independent Trustees (continued) John A. Fry Trustee 1 Year Executive Vice President - 87 Director - 3451 Walnut Street University of Pennsylvania Sovereign Bancorp 721 Franklin Building (April 1995 - Present) Philadelphia, PA Director - 19104 Sovereign Bank May 28, 1960 Anthony D. Knerr Trustee 8 Years Founder/Managing Director - 105 None 500 Fifth Avenue Anthony Knerr & Associates New York, NY (1990 - Present) 10110 (Strategic Consulting) December 7, 1938 Ann R. Leven Trustee 10 Years Treasurer/Chief Fiscal Officer - 105 Director - 785 Park Avenue National Gallery of Art Recoton Corporation New York, NY (1994 - 1999) 10021 Director - Systemax, Inc. November 1, 1940 Director - Andy Warhol Foundation Thomas F. Madison Trustee 6 Years President/Chief 105 Director - Valmont 200 South Fifth Street Executive Officer - Industries, Inc. Suite 2100 MLM Partners, Inc. Minneapolis, MN (January 1993 - Present) Director - ACI 55402 (Small Business Investing Telecentrics Inc. and Consulting) February 25, 1936 Director - Digital River Inc. Director - Rimage Corporation Janet L. Yeomans Trustee 2 Years Vice President Treasurer - 105 None Building 220-13W-37 3M Corporation St. Paul, MN (July 1995 - Present) 55144 Ms. Yeomans has held various management July 31, 1948 positions at 3M Corporation since 1983.
* The Trustees of the Fund serve for a one-year term. At each annual meeting of shareholders, the entire Board of Trustees will be elected and each newly elected Trustee will serve for a one-year term and until his or her successor is elected and qualified. Thomas F. Madison and Janet L. Yeomans were elected solely by the preferred shareholders of each Fund. 43
Principal Number of Other Name, Position(s) Occupation(s) Portfolios in Fund Directorships Address Held with Length of Time During Complex Overseen Held by and Birthdate Registrant Served* Past 5 Years by Trustee/Officer Trustee/Officer Officers William E. Dodge Executive Vice 2 Years Executive Vice President and 105 None 2005 Market Street President and Chief Investment Officer - Philadelphia, PA Chief Investment Equity of Delaware 19103 Officer - Equity Investment Advisers, a series of Delaware Management June 29, 1949 Business Trust (April 1999 - Present) President, Director of Marketing and Senior Portfolio Manager - Marvin & Palmer Associates (August 1996 - April 1999) (Investment Management) Jude T. Driscoll Executive Vice 1 Year Executive Vice President and 105 None 2005 Market Street President and Head of Fixed-Income of Philadelphia, PA Head of Delaware Investment Advisers, 19103 Fixed-Income a series of Delaware Management Business Trust March 10, 1963 (August 2000 - Present) Senior Vice President and Director of Fixed-Income Process - Conseco Capital Management (June 1998 - August 2000) Managing Director - NationsBanc Capital Markets (February 1996 - June 1998) Richard J. Flannery Executive Vice President, 5 Years Mr. Flannery has served in 105 None 2005 Market Street General Counsel and various executive capacities Philadelphia, PA Chief Administrative Officer at different times at 19103 Delaware Investments. September 30, 1957 Richelle S. Maestro Senior Vice President, 9 Years Ms. Maestro has served in 105 None 2005 Market Street Deputy General Counsel various executive capacities Philadelphia, PA and Secretary at different times at 19103 Delaware Investments. November 26, 1957 Michael P. Bishof Senior Vice President 6 Years Mr. Bishof has served in 105 None 2005 Market Street and Treasurer various executive capacities Philadelphia, PA at different times at 19103 Delaware Investments. August 18, 1962
44 Delaware Investments Family of Funds Complete information on any fund offered by Delaware Investments can be found in each fund's current prospectus. Prospectuses for all funds offered by Delaware Investments are available from your financial advisor. Please read the prospectus carefully before you invest or send money. Growth-Equity Group Fixed Income Group Delaware American Services Fund Corporate and Government Delaware Diversified Growth Fund Delaware American Government Bond Fund Delaware Growth Opportunities Fund Delaware Corporate Bond Fund Delaware Select Growth Fund Delaware Delchester Fund Delaware Small Cap Growth Fund Delaware Extended Duration Bond Fund Delaware Technology and Innovation Fund Delaware High-Yield Opportunities Fund Delaware Trend Fund Delaware Limited-Term Government Fund Delaware U.S. Growth Fund Delaware Strategic Income Fund Value-Equity Group Money Market Delaware Cash Reserve Fund Delaware Decatur Equity Income Fund Delaware Tax-Free Money Fund Delaware Diversified Value Fund Delaware Growth and Income Fund Municipal (National Tax-Exempt) Delaware REIT Fund Delaware National High-Yield Municipal Bond Fund Delaware Small Cap Value Fund Delaware Tax-Free Insured Fund Delaware Tax-Free USA Fund International Group Delaware Tax-Free USA Intermediate Fund (DIAL-Delaware International Advisers Ltd.) Municipal (State-Specific Tax-Exempt) Delaware Emerging Markets Fund Delaware Tax-Free Arizona Fund Delaware International Small Cap Value Fund Delaware Tax-Free Arizona Insured Fund Delaware International Value Equity Fund Delaware Tax-Free California Fund (formerly Delaware International Equity Fund) Delaware Tax-Free California Insured Fund Delaware Tax-Free Colorado Fund Blend Mutual Funds Delaware Tax-Free Florida Fund Delaware Tax-Free Florida Insured Fund Delaware Balanced Fund Delaware Tax-Free Idaho Fund Delaware Core Equity Fund Delaware Minnesota High-Yield Municipal Bond Fund (formerly Delaware Growth Stock Fund) Delaware Tax-Free Minnesota Fund Delaware Devon Fund Delaware Tax-Free Minnesota Insured Fund Delaware Social Awareness Fund Delaware Tax-Free Minnesota Intermediate Fund Foundation Funds Delaware Tax-Free Missouri Insured Fund Delaware Balanced Allocation Portfolio Delaware Tax-Free New York Fund Delaware Growth Allocation Portfolio Delaware Tax-Free Oregon Insured Fund Delaware Income Allocation Portfolio Delaware Tax-Free Pennsylvania Fund
Delaware Investments(SM) - -------------------------------------- A member of Lincoln Financial Group(R) This annual report is for the information of Delaware Investments Closed-End Municipal Bond Funds shareholders. You should read the prospectus carefully before you invest. It sets forth details about charges, expenses, investment objectives, and operating policies of the Funds. The return and principal value of an investment in the Funds will fluctuate so that shares, when resold, may be worth more or less than their original cost. Notice is hereby given in accordance with Section 23(c) of the Investment Act of 1940 that the Funds may, from time-to-time, purchase shares of their common stock on the open market at market prices.
Board of Directors/Trustees Affiliated Officers Contact Information Charles E. Haldeman, Jr. William E. Dodge Investment Manager Chairman Executive Vice President and Delaware Management Company Delaware Investments Family of Funds Chief Investment Officer-- Equity Philadelphia, PA Philadelphia, PA Delaware Investments Family of Funds Philadelphia, PA International Affiliate Walter P. Babich Delaware International Advisers Ltd. Board Chairman Jude T. Driscoll London, England Citadel Constructors, Inc. Executive Vice President and King of Prussia, PA Head of Fixed Income Principal Office of the Funds Delaware Investments Family of Funds 2005 Market Street David K. Downes Philadelphia, PA Philadelphia, PA 19103-7057 President and Chief Executive Officer Delaware Investments Family of Funds Richard J. Flannery Independent Auditors Philadelphia, PA President and Chief Executive Officer Ernst & Young LLP Delaware Distributors, L.P. 2001 Market Street John H. Durham Philadelphia, PA Philadelphia, PA 19103 Private Investor Gwynedd Valley, PA Registrar and Stock Transfer Agent Mellon Investor Services, L.L.C. John A. Fry Overpeck Center Executive Vice President 85 Challenger Road University of Pennsylvania Ridgefield Park, NJ 07660 Philadelphia, PA 800 851-9677 Anthony D. Knerr For Securities Dealers and Financial Consultant Institutions Representatives Anthony Knerr & Associates 800 362-7500 New York, NY Web site Ann R. Leven www.delawareinvestments.com Former Treasurer National Gallery of Art Number of Recordholders as of Washington, DC March 31, 2002: Minnesota Municipal Income Fund I 377 Thomas F. Madison Minnesota Municipal Income Fund II 629 President and Chief Executive Officer Minnesota Municipal Income Fund III 151 MLM Partners, Inc. Arizona Municipal Income Fund 115 Minneapolis, MN Florida Insured Municipal Income Fund 206 Colorado Insured Municipal Janet L. Yeomans Income Fund 204 Vice President and Treasurer 3M Corporation St. Paul, MN Thomas F. Madison and Janet L. Yeomans were elected by the preferred Shareholders of the Delaware Investments Closed-End Municipal Bond Funds.
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