-----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, HZ6J2bf6DGeQZzZl7E203wSV2ITdS0+ql588x/Oj8sQJHMmrVQrfxS5zPzfbRhE0 w4jL2aR8AEagEDIck5swUQ== 0000950116-02-002709.txt : 20021126 0000950116-02-002709.hdr.sgml : 20021126 20021126111545 ACCESSION NUMBER: 0000950116-02-002709 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021126 EFFECTIVENESS DATE: 20021126 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: 02840263 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: 02840264 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: 02840265 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 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: 02840267 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 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: 02840268 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 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: 02840266 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 N-30D 1 n30d.txt N-30D Delaware Investments(SM) - ------------------------------------- A member of Lincoln Financial Group(R) [Graphic Omitted: Closed End Artwork] CLOSED END Semiannual Report 2003 DELAWARE INVESTMENTS Closed-End Municipal Bond Funds (formerly Voyageur Closed-End Municipal Bond Funds) [Graphic Omitted: Powered by Research.(SM) Logo] 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 $113.59 billion in assets under management as of September 30, 2002. As of September 30, 2002, Delaware Management and its affiliates managed more than $82 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 return 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 Financial Statements: Statements of Net Assets 10 Statements of Operations 23 Statements of Changes in Net Assets 25 Financial Highlights 27 Notes to Financial Statements 33 Letter Delaware Investments Closed-End Municipal Bond Funds to Shareholders October 8, 2002 Recap of Events As we head into the fall, we are impressed by the resilience of the U.S. economy as it has continued to show signs of recovery from a recession that recent government data suggest was worse than earlier depicted. The U.S. gross domestic product (GDP), often considered a snapshot of the entire economy, has posted four consecutive quarters of growth. While it's true that the gains have been modest, we think it's important to consider how much worse the recession might have been had the economy not displayed such resiliency. Considering the collapse in capital spending that occurred when the business cycle bottomed, we think it may take some time for the economy to fully establish a base from which it can launch a more significant expansion. With prospects for a growing economy ahead of us, we would like to review areas of financial strength in the six-month period ended September 30, 2002. The biggest story, in our opinion, was the bond market. Interest rates helped to drive bond performance and since the beginning of 2001, interest rates have moved substantially lower. Short-term rates have declined significantly due to the Federal Reserve's prior reductions of the fed funds rate. Longer-term rates, which are typically higher due to added future uncertainties, also moved lower, but to a lesser degree. The net result was that investors frequently experienced a measure of capital appreciation from their bonds, while enjoying the steady income flows that bonds also offer. During the six-month reporting period, the fed funds rate remained unchanged. "TO MEET RISING DEMAND, THE ISSUANCE OF NEW BONDS HAS BEEN DRAMATIC." Not surprising, we witnessed a wave of capital flows into bond funds during the past six months. Driven by a variety of factors -- including unattractive money market yields, diminished expectations for stock returns, and simple risk aversion -- net new cash flows for bond mutual funds increased $92 billion in the six months ended September 30, 2002 (Source: ICI). To meet rising demand, the issuance of new bonds has been dramatic. For municipal securities, the number of such offerings reached a record setting $218.7 billion for the first eight months of 2002. This figure represents a greater than 20 percent increase over the same eight-month period in 2001 (Source: Salomon Smith Barney). It also has served to keep municipal bond yields meaningfully high in relation to U.S. Treasury bonds.
Total Return Total Return Premium (+)/ Total Return at Net at Market Discount (-) ASE For the six months ended September 30, 2002 Asset Value Value as of 9/30/02 Symbol Minnesota Municipal Income Fund I +10.04% +13.27% +1.60% VMN Minnesota Municipal Income Fund II +9.14% +14.45% +3.17% VMM Minnesota Municipal Income Fund III +11.78% +13.84% +0.07% VYM Lipper Minnesota Closed-End Municipal Debt Funds Average (5 funds) +9.81% Arizona Municipal Income Fund +12.37% +14.05% +2.19% VAZ Colorado Insured Municipal Income Fund +14.28% +16.93% +1.77% VCF Lipper Other States Closed-End Municipal Debt Funds Average (41 funds) +13.03% Florida Insured Municipal Income Fund +12.42% +16.49% -4.11% VFL Lipper Florida Closed-End Municipal Debt Funds Average (14 funds) +12.68% - ------------------------------------------------------------------------------------------------------------------------------------ Lehman Brothers Municipal Bond Index +8.58% Lehman Brothers Insured Municipal Bond Index +9.31% - ------------------------------------------------------------------------------------------------------------------------------------
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 We believe that the U.S. economy will continue to grow for the remainder of 2002. We also believe the Federal Reserve is likely to keep the fed funds target rate low for the near term. A continuation of low rates could likely bode well for your Fund over the short run. Despite immediate concerns for the economy, we encourage investors to be patient about the long-term economic renewal. The business community appears to have become more risk-averse -- a stance that may well prove useful in the long run, but which also portends a gradual recovery. At the same time, current events are weighing on the economy and on investors as well. With the possibility of U.S. action against Iraq, and with tensions lingering in the Middle East, outside events continue to play a large role in the current investment setting. The past six-month period has caused many investors to reassess their risk tolerance. We reiterate the importance of diversification, and suggest meeting with your financial advisor to reexamine your investment goals. Given their income production and ability to moderate overall portfolio volatility, we are confident that Delaware Investments' municipal bond funds can maintain a meaningful place in a balanced portfolio structure. Thank you for your continued commitment to Delaware Investments. Sincerely, /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 October 8, 2002 Fund Managers Andrew M. McCullagh Senior Portfolio Manager Arizona Municipal Income Fund, Colorado Insured Municipal Income Fund Patrick P. Coyne Mitchell L. Conery Senior Portfolio Managers Minnesota Municipal Income Funds I,II,III, Florida Insured Municipal Income Fund The Funds' Results The municipal bond markets have continued their solid performance, which began in 2000 and has now spanned into the six months ended September 30, 2002. For much of the reporting period investors also took part in a "flight to quality", and investors sought out the bond markets as they looked for a safe haven from the relative poor performance of other asset classes - especially equities. Municipal bond funds generally benefited from this sentiment. The bullish environment for municipal bonds owed greatly to the Federal Reserve's efforts at keeping interest rates low. Though investors have largely enjoyed rising bond prices as a result of the low short-term interest rate environment, new bonds coming to market have offered steadily lower yields. Low interest rates also helped generate a healthy supply of new municipal securities as 2002 progressed. The main source of this new supply was re-funding activity, as lower borrowing costs enticed issuers to refinance outstanding debt. In addition, many issuers were eager to initiate new projects while rates were low. Nationally, municipal bond issuance for 2002 is on a record pace, well above the levels experienced one year earlier (Source: Moody's Investors Service). We believe our investment style is well suited for such dynamic times. In the recent six months, we believe our investors benefited from our conservative investment style, which precludes our making large bets on the future course of interest rates. We also do not allow our asset mix to significantly deviate, relative to our benchmarks, by region or specific asset class. Portfolio Highlights Minnesota Municipal Income Funds I, II and III Throughout the six months ended September 30, 2002, Minnesota's economy continued to benefit from its diverse economic base and limited indebtedness. Despite this, the state's budget was weighed down by the same economic pressures felt nationwide, and the state legislature managed to balance the budget only through a one-time use of reserves. We noted in our last report that municipal bond issuance in the state trailed national averages. However, that trend has reversed, and for 2002 issuance in Minnesota has been above the national average, which is itself on a record pace (Source: Moody's Investors Service). The State of Minnesota was able to maintain its AAA credit rating, but credit analysts began watching for any unfavorable change in the government's fiscal situation. During the six-month period, the Funds' benchmark index -- the Lehman Brothers Municipal Bond Index -- rose +8.58%. Municipal bond performance in the state was strong during the period, and the Funds' peer group, the Lipper Minnesota Closed-End Municipal Debt Funds Average, returned +9.81%. Returns for all three Funds surpassed the Lehman Brothers Municipal Bond Index. Only Minnesota Municipal Income Fund II was outperformed by its Lipper peer group. Minnesota Municipal Income Fund I returned +10.04% for the six-month period ended September 30, 2002 (Shares at net asset value with all distributions reinvested), Minnesota Municipal Income Fund II returned +9.14% for the period (Shares at net asset value with all distributions reinvested), and Minnesota Municipal Income Fund III turned in a +11.78% 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. Duration postures in the three portfolios changed only slightly during the six-month period. Minnesota Municipal Income Fund III holds several longer maturity bonds and has a longer duration than the other two portfolios, indicating a greater sensitivity to interest rate changes. 3 Although the percentages are down from six months prior, the three Funds also have continued to hold a significant portion of their assets in pre-refunded bonds. This generally serves to keep the average credit rating in the portfolios high. Pre-refunded bonds typically have a AAA credit rating, because interest from U.S. government securities is used to pay off the bond issues. As of September 30, 2002, pre-refunded bonds accounted for 18.38% of net assets in Minnesota Municipal Income Fund I, 13.41% of net assets in Minnesota Municipal Income Fund II, and 14.39% of net assets in Minnesota Municipal Income Fund III. At the six-month period end, the largest position in both Minnesota Municipal Income Fund I and Minnesota Municipal Income Fund II was a revenue bond issued by the Dakota and Washington County Housing and Redevelopment Authority. In Minnesota Municipal Income Fund III, the largest position was a bond issued by the University of Minnesota Hospital. Both bonds were escrowed to maturity, a process similar to pre-refunding in which proceeds on a new bond are held in escrow and used to pay off the existing issue at maturity. Many new municipal bond issues come to market in Minnesota backed by insurance guarantees, which adds stability but can also limit yield in a portfolio. As a result, part of our management approach during the period 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. Arizona Municipal Income Fund The Arizona economy has slowed in 2002, primarily because of weakness in the state's high technology sector. However, population gains are expected to be among the strongest in the nation going forward, boosting demand for housing. The Fund rewarded shareholders with solid performance for the six-month period ended September 30, 2002. The Fund's return of +12.37% (Shares at net asset value with all distributions reinvested) trailed the +13.03% return of the Lipper Other States Closed-End Municipal Debt Funds Average for the same six-month period, which may have been aided by better municipal bond performance in states other than Arizona. The Fund benefited from a dividend yield that was high relative to some of our peer funds during the period. Many of the Fund's bonds were purchased in periods in which interest rates were significantly higher, allowing us to lock in higher yields. The Fund still maintained a strong overall credit rating, with 77.15% of assets dedicated to AAA-rated securities as of September 30, 2002. On the downside, the Fund included some securities that experienced credit downgrades, such as revenue bonds issued by Maricopa County Industrial Development Authority for multifamily housing. However, we expect that we could see credit improvement in these issues over the next six months to a year. 4 Colorado Insured Municipal Income Fund We continue to have a bright outlook for the municipal bond market in Colorado, generally given the long-term growth trends in the state. High quality bonds continue to be issued in Colorado to fund a variety of municipal projects, including hospitals, schools, housing, and transportation. For example, as of September 30, 2002, bonds issued to fund higher education projects constituted 22.25% of net assets in the Fund. These bonds are typically issued by the Colorado Educational and Cultural Facilities Authority, or directly by universities themselves. The Fund returned +14.28% (Shares at net asset value with distributions reinvested) for the six-month period ended September 30, 2002, surpassing the +13.03% return of the Lipper Other States Closed-End Municipal Debt Funds Average for the same period. The Fund's holdings were all AAA-rated as of the period end, as the Fund is focused exclusively on insured bonds, which are given the highest credit rating almost without exception. The Fund's average duration, which denotes sensitivity to interest rate changes, stood at 5.77 years on September 30, 2002. Although this figure was less than the average fund in our Lipper peer group, it is important to note that the group includes funds from multiple states, while our posture was reflective of our own outlook for the Colorado market. Florida Insured Municipal Income Fund During the six months ended September 30, 2002, the Fund returned +12.42% (Shares at net asset value with all distributions reinvested), slightly trailing the +12.68% gain of the Lipper Florida Closed-End Municipal Debt Funds Average. The Fund's holdings were all AAA-rated as of the period end, as the Fund is focused exclusively on insured bonds. We usually maintain a shorter duration posture in this insured Fund relative to its peers. This may have caused our notable underperformance relative to the Lipper class average. However, given the conservative nature of the Fund, we felt the strategy was prudent, allowing us to provide an attractive risk/return profile. One argument for keeping duration reined in is that insured bonds are the most liquid bonds in the municipal universe, and extra liquidity can lead to increased price volatility. Both housing and hospital bonds continue to play significant roles in the Fund. A significant percentage of the portfolio's assets were also dedicated to pre-refunded issues. The largest position in the Fund as of September 30, 2002 was Escambia County School Board certificates of participation. The second largest holding was a hospital bond, also in Escambia County, issued by the county's Health Facility Authority. Outlook We anticipate a continued attractive environment for municipal investors going forward. Among the reasons for our optimism is that municipal bonds tend to attract few foreign investors, who have begun retrenching from U.S. fixed-income markets. Also, as industry publication The Bond Buyer recently noted, 2002 may well end with a historic high for new municipal securities coming to market. State and local agencies are seeking to replace older, higher-yielding debt with newer, cheaper debt before interest rates move upward. These same institutions may also need to borrow to fund capital projects as a result of decreased tax receipts caused by the lingering effects of last year's recession. Salomon Smith Barney adds that with education and transportation-oriented bonds likely to be new issue volume leaders, we may well see heavy volume in the few months ahead. We generally expect longer-maturity securities to begin closing the performance gap with shorter-maturity securities. Because we believe that longer-maturity bonds may be somewhat undervalued, we may decide to expand our holdings in this area across all of our municipal bond funds. We believe that municipal bonds will continue to be attractive to investors, given the turbulent stock market of last fall and this past July. We think a balanced asset allocation that includes municipals is likely to prove its worth in the long run. 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 Park, NJ 07660 800 851-9677 6 Delaware Investments Minnesota Municipal Income Funds I, II, III Fund Basics As of September 30, 2002 - -------------------------------------------------------------------------------- Fund Objective: The Funds seek to provide current income exempt from both regular federal income tax and Minnesota state personal income tax, consistent with preservation of capital. - -------------------------------------------------------------------------------- Total Fund Net Assets: Fund I $40.60 million Fund II $109.67 million Fund III $26.37 million - -------------------------------------------------------------------------------- Number of Holdings: Fund I 44 Fund II 76 Fund III 32 - -------------------------------------------------------------------------------- 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 an 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 September 30, 2002 Fund I Fund II Fund III AAA 61.86% 47.07% 50.31% AA 2.70% 16.53% 5.23% A 21.48% 17.89% 25.06% BBB 1.60% 6.57% 6.95% BB -- -- 0.49% Unrated 12.37% 11.94% 11.96% - --------------------------------------------------------------------------------------------- Average Credit Quality AAA AAA AAA Average Duration* 4.39 years 4.12 years 5.36 years Average Maturity ** 5.98 years 5.89 years 8.08 years Current Yield at Market Price 5.66% 6.15% 5.85% Amount of Leveraging (millions) $20 $60 $15 - ---------------------------------------------------------------------------------------------
* 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 Maturity is the average time remaining until scheduled repayment by issuers of portfolio securities. Approximately 14.09%, 15.19%, and 12.50% of the income generated by Minnesota Municipal Income Funds - I, II and III, respectively, for the six months ended September 30, 2002 was subject to the federal alternative minimum tax. - -------------------------------------------------------------------------------- 7 Delaware Investments Arizona Municipal Income Fund Fund Basics As of September 30, 2002 - -------------------------------------------------------------------------------- Fund Objective: The Fund seeks to provide current income exempt from both regular federal income tax and from Arizona state personal income tax, consistent with preservation of capital. - -------------------------------------------------------------------------------- Total Fund Net Assets: $47.70 million - -------------------------------------------------------------------------------- Number of Holdings: 35 - -------------------------------------------------------------------------------- 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 September 30, 2002 - -------------------------------------------------------------------------------- Current Yield at Market Price 5.87% - -------------------------------------------------------------------------------- Average Duration* 5.97 years - -------------------------------------------------------------------------------- Average Maturity** 8.09 years - -------------------------------------------------------------------------------- Average Credit Quality AAA - -------------------------------------------------------------------------------- *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 Maturity is the average time remaining until scheduled repayment by issuers of portfolio securities. Approximately 13.15% of the income generated by Arizona Municipal Income Fund for the six months ended September 30, 2002 was subject to the federal alternative minimum tax. Delaware Investments Florida Insured Municipal Income Fund Fund Basics As of September 30, 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: $40.04 million - -------------------------------------------------------------------------------- Number of Holdings: 34 - -------------------------------------------------------------------------------- Fund Start Date: February 26, 1993 - -------------------------------------------------------------------------------- Your Fund Managers: Mitchell L. Conery Patrick P. Coyne - -------------------------------------------------------------------------------- Portfolio Characteristics As of September 30, 2002 - -------------------------------------------------------------------------------- Current Yield at Market Price 6.06% - -------------------------------------------------------------------------------- Average Duration* 4.79 years - -------------------------------------------------------------------------------- Average Maturity** 6.14 years - -------------------------------------------------------------------------------- Average Credit Quality AAA - -------------------------------------------------------------------------------- * 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 Maturity is the average time remaining until scheduled repayment by issuers of portfolio securities. Approximately 18.16% of the income generated by Florida Insured Municipal Income Fund for the six months ended September 30, 2002 was subject to the federal alternative minimum tax. - -------------------------------------------------------------------------------- 8 Delaware Investments Colorado Insured Municipal Income Fund Fund Basics As of September 30, 2002 - -------------------------------------------------------------------------------- Fund Objective: The Fund seeks to provide current income exempt from both regular federal income tax and Colorado state income tax, consistent with preservation of capital. - -------------------------------------------------------------------------------- Total Fund Net Assets: $79.39 million - -------------------------------------------------------------------------------- Number of Holdings: 45 - -------------------------------------------------------------------------------- Fund Start Date: July 29, 1993 - -------------------------------------------------------------------------------- Your Fund Manager: Andrew M. McCullagh - -------------------------------------------------------------------------------- Portfolio Characteristics As of September 30, 2002 - -------------------------------------------------------------------------------- Current Yield at Market Price 5.85% - -------------------------------------------------------------------------------- Average Duration* 5.77 years - -------------------------------------------------------------------------------- Average Maturity** 7.18 years - -------------------------------------------------------------------------------- Average Credit Quality AAA - -------------------------------------------------------------------------------- * 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 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 six months ended September 30, 2002 was subject to the federal alternative minimum tax. - -------------------------------------------------------------------------------- 9 Statement Delaware Investments Minnesota Municipal Income Fund, Inc. of Net Assets September 30, 2002 (Unaudited) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 152.04% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 7.74% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A 5.00% 1/1/30 (AMBAC) $ 500,000 $ 513,265 Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series C 5.25% 1/1/32 (FGIC) 2,500,000 2,627,000 ---------- 3,140,265 ---------- City General Obligation Bonds - 4.01% Minneapolis Refunding (Laurel Village) 6.00% 3/1/16 1,600,000 1,627,408 ---------- 1,627,408 ---------- Continuing Care/Retirement Revenue Bonds - 9.12% Minnetonka Housing Facilities Revenue (Beacon Hill Housing Project, Presbyterian Homes & Services) 7.70% 6/1/25 2,725,000 2,772,224 St. Paul Housing & Redevelopment Authority Revenue (Franciscan Health Project) 5.40% 11/20/42 (GNMA) (FHA) 880,000 928,523 ---------- 3,700,747 ---------- Corporate Backed Revenue Bonds - 2.24% Anoka County Solid Waste Disposal National Rural Co-Op Utility (United Power Association) Series A 6.95% 12/1/08 (CFC) (AMT) 895,000 910,922 -------- 910,922 -------- Escrowed to Maturity Bonds - 12.96% Dakota/Washington Counties Housing & Redevelopment Authority Single Family Mortgage Revenue 8.375% 9/1/21 (GNMA) (FHA) (AMT) 2,555,000 3,828,386 Southern Minnesota Municipal Power Agency Series B 5.50% 1/1/15 (AMBAC) 390,000 401,517 5.75% 1/1/11 (FGIC) 1,000,000 1,030,150 ---------- 5,260,053 ---------- Hospital Revenue Bonds - 24.43% Duluth Economic Development Authority Health Care Facilities Revenue Benedictine Health System (St. Mary's Hospital) Series C 6.00% 2/15/20 (Connie Lee) 1,000,000 1,033,970 Duluth Economic Development Authority Hospital Facilities Revenue (St. Luke's Hospital) Series B 6.40% 5/1/18 (Connie Lee) 1,000,000 1,023,730 Minneapolis Health Care Facilities Revenue (Fairview Hospital & Healthcare Service) Series A 5.25% 11/15/19 (MBIA) 1,500,000 1,553,055 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Hospital Revenue Bonds (continued) Minneapolis Health Care System Revenue (Fairview Health Services) Series A 5.625% 5/15/32 $2,500,000 $ 2,599,400 Minnesota Agricultural & Economic Development Health Care System (Fairview Hospital) Series A 6.375% 11/15/29 2,500,000 2,718,476 St. Paul Housing & Redevelopment Authority Health Care Facilities Revenue (Regions Hospital Project) 5.30% 5/15/28 1,000,000 987,920 ---------- 9,916,551 ---------- Investor Owned Utilities Revenue Bonds - 5.28% Bass Brook Pollution Control Revenue (Minnesota Power & Light Company) 6.00% 7/1/22 2,100,000 2,144,415 ---------- 2,144,415 ---------- Multifamily Housing Revenue Bonds - 12.63% Brooklyn Center Multifamily Housing Revenue (Four Courts Apartments Project) Series A 7.50% 6/1/25 (AMT) 1,800,000 1,808,838 Southcentral Minnesota Multi County Housing & Redevelopment Authority (Winona County) 5.35% 1/1/28 (County-GTD) 300,000 304,767 St. Paul Housing & Redevelopment Authority Multifamily Housing Revenue (Pointe of St. Paul Project) 6.60% 10/1/12 (FNMA) 2,950,000 3,015,225 ---------- 5,128,830 ---------- Parking Revenue Bonds - 1.71% St. Paul Housing & Redevelopment Authority Parking Revenue (Block 19 Ramp Project) Series A 5.35% 8/1/29 (FSA) 650,000 694,304 ---------- 694,304 ---------- Political Subdivision General Obligation Bonds - 8.24% Hennepin County Series B 5.00% 12/1/18 1,300,000 1,391,169 Washington County Housing & Redevelopment Authority Series B 5.50% 2/1/22 (MBIA) 855,000 908,540 5.50% 2/1/32 (MBIA) 1,000,000 1,047,180 ---------- 3,346,889 ---------- *Pre-Refunded Bonds - 18.38% Duluth Economic Development Authority Health Care Facilities Revenue (Duluth Clinic) 6.30% 11/1/22-04 (AMBAC) 730,000 800,927 10 Statement Delaware Investments Minnesota Municipal Income Fund, Inc. of Net Assets (continued) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- *Pre-Refunded Bonds (continued) Northfield College Facility (St. Olaf College) 6.30% 10/1/12-02 $1,075,000 $1,096,640 6.40% 10/1/21-02 1,750,000 1,785,245 Puerto Rico Commonwealth 6.00% 7/1/26-07 2,000,000 2,367,639 St. Francis Independent School District #15 6.30% 2/1/11-06 (FSA) 1,250,000 1,412,563 ---------- 7,463,014 ---------- Public Power Revenue Bonds - 21.46% Chaska Electric Revenue Series A 6.00% 10/1/25 1,000,000 1,076,560 Northern Minnesota Municipal Power Agency Electric System Revenue Series A 5.00% 1/1/21 2,700,000 2,700,809 Northern Minnesota Municipal Power Agency Electric System Revenue Series B 5.50% 1/1/18 (AMBAC) 1,250,000 1,283,713 Rochester Electric 5.25% 12/1/30 (AMBAC) 150,000 157,977 Southern Minnesota Municipal Power Agency Series B 5.00% 1/1/16 (FGIC) 580,000 581,943 5.50% 1/1/15 (AMBAC) 610,000 628,404 Western Minnesota Municipal Power Agency Series A 5.50% 1/1/15 (MBIA) 2,275,000 2,281,438 ---------- 8,710,844 ---------- School District General Obligation Bonds - 3.11% Centennial Independent School District #012 Series A 5.00% 2/1/20 (FSA) 400,000 424,324 Robbinsdale Independent School District #281 5.00% 2/1/21 (FSA) 500,000 526,455 St. Michael Independent School District #885 5.00% 2/1/24 (FSA) 300,000 311,220 ---------- 1,261,999 ---------- Single Family Housing Revenue Bonds - 3.96% Dakota County Housing & Redevelopment Authority Single Family Mortgage Revenue 5.85% 10/1/30 (GNMA) (FNMA) (AMT) 235,000 244,010 Minnesota Housing Finance Agency Single Family Mortgage Revenue Series J 5.90% 7/1/28 (AMT) 1,300,000 1,362,270 ---------- 1,606,280 ---------- State General Obligation Bonds - 6.53% Minnesota State Refunding 5.00% 8/1/21 2,500,000 2,650,350 ---------- 2,650,350 ---------- Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Territorial Revenue Bonds - 2.72% Puerto Rico Electric Power Authority Power Revenue Series EE 4.75% 7/1/24 $ 1,100,000 $ 1,103,817 ----------- 1,103,817 ----------- Water & Sewer Revenue Bonds - 7.52% **Minnesota Public Facilities Authority Water Pollution Control Revenue, Inverse Floater ROLS 7.09% 3/1/16 1,000,000 1,082,170 7.24% 3/1/17 1,855,000 1,969,973 ----------- 3,052,143 ----------- Total Municipal Bonds (cost $57,178,825) 61,718,831 ----------- Total Market Value of Securities - 152.04% (cost $57,178,825) 61,718,831 Liabilities Net of Receivables and Other Assets - (2.77%) (1,123,317) Liquidation Value of Preferred Stock - (49.27%) (20,000,000) ----------- Net Assets Applicable to 2,594,700 Common Shares ($0.01 Par Value) Outstanding - 100.00% $40,595,514 =========== Net Asset Value Per Common Share ($40,595,514 / 2,594,700 Shares) $15.65 ------ Components of Net Assets at September 30, 2002: Common stock, $0.01 par value, 200 million shares authorized to the Fund $35,426,740 Undistributed net investment income 629,236 Accumulated net realized gain on investments 72,284 Net unrealized appreciation of investments 4,467,254 ----------- Total net assets $40,595,514 =========== Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax CFC - Insured by the National Rural Utilities Cooperative Finance Corporation Connie Lee - Insured by the College Construction Insurance Association FGIC - Insured by the Financial Guaranty Insurance Company FNMA - Insured by Fannie Mae FHA - Insured by the Federal Housing Authority FSA - Insured by Financial Security Assurance GNMA - Insured by Ginnie Mae MBIA - Insured by the Municipal Bond Insurance Association * 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 September 30, 2002. See accompanying notes 11 Statement Delaware Investments Minnesota Municipal Income Fund II, Inc. of Net Assets September 30, 2002 (Unaudited) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 151.54% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 5.43% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A 5.00% 1/1/30 (AMBAC) $1,200,000 $ 1,231,836 Series B 5.25% 1/1/24 (FGIC) 1,000,000 1,041,010 Series C 5.25% 1/1/32 (FGIC) 3,500,000 3,677,800 ----------- 5,950,646 ----------- Continuing Care/Retirement Revenue Bonds - 5.81% Bloomington Health Care Facilities (Masonic Home Care Center) 5.875% 7/1/22 (AMBAC) 1,200,000 1,226,820 Minneapolis Health Care Facility Revenue (Jones-Harrison Residence Project) 6.00% 10/1/27 2,000,000 1,765,420 Minnetonka Housing Facilities Revenue (Beacon Hill Senior Housing Project, Presbyterian Homes & Services) 7.55% 6/1/19 2,365,000 2,417,574 Moorhead Economic Development Authority Multifamily Revenue (Eventide Lutheran Home) Series B 6.00% 6/1/18 1,000,000 962,500 ----------- 6,372,314 ----------- Corporate Backed Revenue Bonds - 5.35% Burnsville Commonwealth Development (Holiday Inn Project) 5.90% 4/1/08 1,430,000 1,497,367 Cloquet Pollution Control Revenue (Potlatch Corporation Projects) 5.90% 10/1/26 5,000,000 4,366,500 ----------- 5,863,867 ----------- Escrowed to Maturity Bonds - 21.22% Dakota/Washington Counties Housing & Redevelopment Authority Single Family Mortgage Revenue 8.375% 9/1/21 (GNMA) (FHA) (AMT) 5,500,000 8,241,144 Metropolitan Council Minneapolis/St. Paul Area Sports Facilities Commission (Hubert H. Humphrey Metrodome) 6.00% 10/1/09 2,360,000 2,409,820 Southern Minnesota Municipal Power Agency Power Supply Revenue Series A 5.75% 1/1/18 3,715,000 3,827,007 St. Paul Housing & Redevelopment Authority Sales Tax (Civic Center) 5.55% 11/1/23 (MBIA) 4,200,000 4,443,852 5.55% 11/1/23 2,300,000 2,433,538 Western Minnesota Municipal Power Agency 6.625% 1/1/16 1,535,000 1,927,592 ----------- 23,282,953 ----------- Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Higher Education Revenue Bonds - 13.07% Minnesota Higher Education Facilities Authority (St. Catherine College) Series 5-N1 5.375% 10/1/32 $1,500,000 $ 1,542,060 Minnesota Higher Education Facilities Authority (St. Thomas University) Series 3-R1 5.60% 10/1/15 1,050,000 1,078,424 Series 3-R2 5.60% 9/1/14 175,000 179,631 Series 4-A1 5.625% 10/1/21 1,000,000 1,048,440 Minnesota State University Board (State University System) Series 1993-C 5.60% 6/30/16 (MBIA) 3,115,000 3,198,077 5.60% 6/30/19 (MBIA) 3,720,000 3,812,441 University of Minnesota Series A 5.50% 7/1/21 3,000,000 3,470,550 ----------- 14,329,623 ----------- Hospital Revenue Bonds - 24.73% Brainerd Health Care (Evangelical Lutheran Health Care Facilities) Series A 6.65% 3/1/17 (FSA) 1,195,000 1,223,250 Duluth Economic Development Authority Health Care Facilities Revenue Benedictine Health System (St. Mary's Hospital) Series C 6.00% 2/15/20 (Connie Lee) 6,000,000 6,203,820 Minneapolis Health Care System Revenue (Fairview Health Services) Series A 5.625% 5/15/32 3,500,000 3,639,160 Minneapolis/St. Paul Housing & Redevelopment Authority Health Care Systems (Children's Health Care Series) Series A 5.50% 8/15/25 (FSA) 1,400,000 1,474,550 Minnesota Agricultural & Economic Development Health Care System (Fairview Hospital) Series 97A 5.75% 11/15/26 (MBIA) 5,550,000 6,009,596 Series A 6.375% 11/15/29 2,800,000 3,044,692 Rochester Health Care Facilities Revenue (Mayo Foundation) Series B 5.50% 11/15/27 3,365,000 3,561,079 St. Paul Housing & Redevelopment Authority Health Care Facilities Revenue (Regions Hospital Project) 5.30% 5/15/28 400,000 395,168 Waconia Health Care Facilities Revenue (Ridgeview Medical Center Project) Series A 6.10% 1/1/19 (RADIAN) 1,405,000 1,579,557 ----------- 27,130,872 ----------- Investor Owned Utilities Revenue Bonds - 7.04% Bass Brook Pollution Control Revenue (Minnesota Power & Light Company) 6.00% 7/1/22 7,560,000 7,719,894 ----------- 7,719,894 ----------- 12 Statement Delaware Investments Minnesota Municipal Income Fund II, Inc. of Net Assets Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Miscellaneous Revenue Bonds - 1.44% Minneapolis Community Development Agency (Supported Development Revenue Limited Tax Common Bond Fund) Series 5 5.70% 12/1/27 $ 375,000 $ 386,576 Minneapolis Community Development Series G1 5.70% 12/1/19 1,100,000 1,193,896 ----------- 1,580,472 ----------- Multifamily Housing Revenue Bonds - 10.91% Chanhassen Multifamily Housing Revenue (Heritage Park Project) 6.20% 7/1/30 (FHA) (AMT) 1,105,000 1,158,438 Dakota County Housing & Redevelopment Authority Multifamily Mortgage (Imperial Ridge Project) Series 1993-A 6.10% 12/15/28 (GNMA) (FHA) 1,810,000 1,849,567 Harmony Multifamily Housing Revenue Refunding Section 8 (Zedakah Foundation Project) Series A 5.95% 9/1/20 1,000,000 996,670 Minnesota Housing Finance Agency Multifamily Rental Housing Series D 5.90% 2/1/14 1,115,000 1,149,286 6.00% 8/1/22 2,295,000 2,359,420 Minnetonka Housing Facilities (Beacon Hill Project) (Presbyterian Homes & Services) 7.25% 6/1/09 1,225,000 1,238,757 7.50% 6/1/14 760,000 776,424 Southcentral Minnesota Multi County Housing & Redevelopment Authority (Winona County) 5.35% 1/1/28 (County-GTD) 870,000 883,824 Stillwater Multifamily (Stillwater Cottages) (Orleans Homes Number One) 7.25% 11/1/27 (AMT) 1,540,000 1,551,873 ----------- 11,964,259 ----------- Parking Revenue Bonds - 1.22% St. Paul Housing & Redevelopment Authority Parking Revenue (Block 19 Ramp Project) Series A 5.35% 8/1/29 (FSA) 1,250,000 1,335,200 ----------- 1,335,200 ----------- Political Subdivision General Obligation Bonds - 2.67% Hennepin County Series B 5.00% 12/1/18 1,000,000 1,070,130 **Minnesota State, Inverse Floater ROLS 8.39% 11/1/17 570,000 659,661 Washington County Housing & Redevelopment Authority Series B 5.50% 2/1/32 (MBIA) 1,140,000 1,193,785 ----------- 2,923,576 ----------- Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- *Pre-Refunded Bonds - 13.41% Buffalo Independent School District #877 (Enhanced Programs) 6.15% 2/1/22-03 (FSA) $4,030,000 $ 4,091,296 Duluth Economic Development Authority Health Care Facilities Revenue (Duluth Clinic) 6.20% 11/1/12-04 (AMBAC) 280,000 306,634 6.30% 11/1/22-04 (AMBAC) 960,000 1,053,274 Esko Independent School District #99 5.65% 4/1/12-05 (FSA) 550,000 599,825 Hawley Independent School District #150 Series A 5.75% 2/1/17-06 (FSA) 1,000,000 1,112,460 Minnesota Public Facilities Authority Water Pollution Control Revenue Series A 6.25% 3/1/16-05 1,000,000 1,106,430 Red Wing Independent School District #256 Series 1993-A 5.70% 2/1/12-03 2,925,000 2,964,107 5.70% 2/1/13-03 1,625,000 1,646,726 Stewartville Independent School District #534 5.75% 2/1/17-05 1,705,000 1,839,405 ----------- 14,720,157 ----------- Public Power Revenue Bonds - 7.88% Northern Minnesota Municipal Power Agency Electric System Revenue Series A 5.00% 1/1/21 2,050,000 2,050,615 Series B 5.50% 1/1/18 (AMBAC) 5,955,000 6,115,606 Rochester Electric 5.25% 12/1/30 (AMBAC) 450,000 473,931 ----------- 8,640,152 ----------- School District General Obligation Bonds - 2.46% Centennial Independent School District #012 Series A 5.00% 2/1/20 (FSA) 400,000 424,324 Rosemount Independent School District #196 Series A 5.70% 4/1/12 1,270,000 1,414,247 St. Michael Independent School District #885 5.00% 2/1/24 (FSA) 825,000 855,855 ----------- 2,694,426 ----------- Single Family Housing Revenue Bonds - 10.25% Minnesota Housing Finance Agency Single Family Housing Series 1992-B 6.15% 1/1/26 (AMT) 2,930,000 3,005,682 Series 1992-C2 6.15% 7/1/23 (AMT) 2,970,000 3,048,557 Series 1994-J 6.95% 7/1/26 (AMT) 1,635,000 1,692,470 Minnesota Housing Finance Agency Single Family Rental Housing Series D 5.95% 2/1/18 (MBIA) 1,135,000 1,184,758 Minnesota Housing Finance Agency Single Family Mortgage Revenue Series F 6.30% 7/1/25 1,125,000 1,166,276 Series J 5.90% 7/1/28 (AMT) 1,095,000 1,147,451 ----------- 11,245,194 ----------- 13 Statement Delaware Investments Minnesota Municipal Income Fund II, Inc. of Net Assets Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- State General Obligation Bonds - 2.18% Minnesota State Refunding 5.00% 8/1/21 $2,250,000 $ 2,385,315 ----------- 2,385,315 ----------- Tax Increment/Special Assessment Bonds - 3.49% Becker Refunding Tax Increment Series D 6.25% 8/1/15 (MBIA) (AMT) 3,700,000 3,825,467 ----------- 3,825,467 ----------- Territorial General Obligation Bonds - 0.96% Puerto Rico Commonwealth Refunding Public Improvement Series A 5.125% 7/1/30 (FSA) 1,000,000 1,051,240 ----------- 1,051,240 ----------- Territorial Revenue Bonds - 7.65% Puerto Rico Electric Power Authority Power Revenue Series Z 5.25% 7/1/21 2,000,000 2,086,120 Puerto Rico Highway & Transportation Authority Revenue (Highway Improvements) Series Y 5.50% 7/1/26 6,000,000 6,303,120 ----------- 8,389,240 ----------- Water & Sewer Revenue Bonds - 4.37% **Minnesota Public Facilities Authority Water Pollution Control Revenue, Inverse Floater ROLS 7.24% 3/1/17 1,145,000 1,215,967 7.34% 3/1/18 1,360,000 1,456,492 7.34% 3/1/19 2,000,000 2,119,120 ----------- 4,791,579 ----------- Total Municipal Bonds (cost $156,568,244) 166,196,446 ----------- Total Market Value of Securities - 151.54% (cost $156,568,244) 166,196,446 Receivables and Other Assets Net of Liabilities - 3.17% 3,473,740 Liquidation Value of Preferred Stock - (54.71%) (60,000,000) ------------ Net Assets Applicable to 7,252,200 Common Shares ($0.01 Par Value) Outstanding - 100.00% $109,670,186 ============ Net Asset Value Per Common Share ($109,670,186 / 7,252,200 Shares) $15.12 ------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Components of Net Assets at September 30, 2002: Common stock, $0.01 par value, 200 million shares authorized to the Fund $ 99,710,002 Undistributed net investment income 3,018,460 Accumulated net realized loss on investments (2,610,860) Net unrealized appreciation of investments 9,552,584 ------------ Total net assets $109,670,186 ============ 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 FSA - Insured by Financial Security Assurance GNMA - Insured by Ginnie Mae MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance * 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 September 30, 2002. See accompanying notes 14 Statement Delaware Investments Minnesota Municipal Income Fund III, Inc. of Net Assets September 30, 2002 (Unaudited) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 154.83% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 6.47% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A 5.00% 1/1/30 (AMBAC) $ 750,000 $ 769,898 5.125% 1/1/25 (FGIC) 900,000 935,964 ---------- 1,705,862 ---------- Continuing Care/Retirement Revenue Bonds - 11.57% Minnesota Agriculture & Economic Development Board Revenue (Benedictine Health Systems) 5.75% 2/1/29 1,300,000 1,132,196 St. Paul Housing & Redevelopment Authority Revenue (Franciscan Health Project) 5.40% 11/20/42 (GNMA) (FHA) 1,820,000 1,920,355 ---------- 3,052,551 ---------- Corporate Backed Revenue Bonds - 6.91% Cloquet Pollution Control Revenue (Potlatch Corporation Projects) 5.90% 10/1/26 1,000,000 873,300 Minneapolis Community Development Agency Supported Development Revenue (Pajor Graphics) Series 1 (LOC) US Bank NA 6.75% 12/1/25 (AMT) 865,000 947,971 ---------- 1,821,271 ---------- Escrowed to Maturity Bonds - 12.48% University of Minnesota Hospital 6.75% 12/1/16 2,580,000 3,292,028 ---------- 3,292,028 ---------- Higher Education Revenue Bonds - 9.22% Minnesota Higher Educational Facilities Authority (College of St. Benedict) Series 3-W 6.375% 3/1/20 345,000 352,711 Minnesota Higher Education Facilities Authority (St. Mary's College) Series 3-Q 6.15% 10/1/23 1,000,000 1,019,560 Minnesota Higher Education Facilities Authority (St. Thomas University) Series 4-A1 5.625% 10/1/21 1,010,000 1,058,924 ---------- 2,431,195 ---------- Hospital Revenue Bonds - 21.18% Minneapolis Health Care System Revenue (Fairview Health Services) Series A 5.625% 5/15/32 1,500,000 1,559,640 Minnesota Agricultural & Economic Development Health Care System (Fairview Hospital) Series A 6.375% 11/15/29 2,000,000 2,174,779 Rochester Health Care Facilities Revenue (Mayo Foundation) Series B 5.50% 11/15/27 1,000,000 1,058,270 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Hospital Revenue Bonds (continued) St. Paul Housing & Redevelopment Authority Health Care Facilities Revenue (Regions Hospital Project) 5.30% 5/15/28 $ 600,000 $ 592,752 St. Paul Housing & Redevelopment Authority Hospital Revenue (Health East Project) Series B 5.85% 11/1/17 250,000 200,938 ---------- 5,586,379 ---------- Investor Owned Utilities Revenue Bonds - 5.83% Bass Brook Pollution Control Revenue (Minnesota Power & Light Company) 6.00% 7/1/22 1,505,000 1,536,831 ---------- 1,536,831 ---------- Multifamily Housing Revenue Bonds - 23.11% Brooklyn Center Multifamily Housing Revenue (Four Courts Apartments Project) Series A 7.50% 6/1/25 (AMT) 1,000,000 1,004,910 Burnsville Multifamily Housing Mortgage Revenue SCA Tax Exempt Trust Series A 7.10% 1/1/30 (FSA) 1,990,000 2,109,578 Minneapolis Multifamily Housing Revenue (Gaar Scott Loft Project) 5.95% 5/1/30 1,000,000 1,078,700 Minneapolis Multifamily Housing Revenue (Olson Townhomes Project) 6.00% 12/1/19 (AMT) 1,875,000 1,902,844 ---------- 6,096,032 ---------- Parking Revenue Bonds - 5.87% St. Paul Housing & Redevelopment Authority Parking Revenue (Block 19 Ramp Project) Series A 5.35% 8/1/29 (FSA) 1,450,000 1,548,832 ---------- 1,548,832 ---------- Political Subdivision General Obligation Bonds - 8.95% Hennepin Regional Railroad Authority Revenue 5.00% 12/1/26 650,000 668,168 Minneapolis Sports Arena Project 5.125% 10/1/20 750,000 788,093 Washington County Housing & Redevelopment Authority Series B 5.50% 2/1/22 (MBIA) 850,000 903,226 ---------- 2,359,487 ---------- 15 Statement Delaware Investments Minnesota Municipal Income Fund III, Inc. of Net Assets Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- *Pre-Refunded Bonds - 14.39% Duluth Economic Development Authority Health Care Facilities Revenue (Duluth Clinic) 6.20% 11/1/12-04 (AMBAC) $ 420,000 $ 459,950 Esko Independent School District #99 5.75% 4/1/17-05 (FSA) 2,145,000 2,344,528 Minnesota Higher Education Facilities Authority (College of St. Benedict) Series 3-W 6.375% 3/1/20-04 930,000 991,678 ---------- 3,796,156 ---------- Public Power Revenue Bonds - 7.04% Southern Minnesota Municipal Power Agency 5.75% 1/1/18 (FGIC) 1,800,000 1,855,476 ---------- 1,855,476 ---------- State General Obligation Bonds - 2.11% Minnesota State Refunding 5.00% 8/1/21 525,000 556,574 ---------- 556,574 ---------- Territorial Revenue Bonds - 3.98% Puerto Rico Highway & Transportation Authority Revenue (Highway Improvements) Series Y 5.50% 7/1/26 1,000,000 1,050,520 ---------- 1,050,520 ---------- Water & Sewer Revenue Bonds - 15.72% Minnesota Public Facilities Authority Water Pollution Control Revenue Series B 5.40% 3/1/15 2,200,000 2,389,508 **Minnesota Public Facilities Authority Water Pollution Control Revenue, Inverse Floater ROLS 7.34% 3/1/18 1,640,000 1,756,358 ---------- 4,145,866 ---------- Total Municipal Bonds (cost $37,677,839) 40,835,060 ---------- Total Market Value of Securities - 154.83% (cost $37,677,839) 40,835,060 Receivables and Other Assets Net of Liabilities - 2.04% 539,134 Liquidation Value of Preferred Stock - (56.87%) (15,000,000) ----------- Net Assets Applicable to 1,837,200 Common Shares ($0.01 Par Value) Outstanding - 100.00% $26,374,194 =========== Net Asset Value Per Common Share ($26,374,194 / 1,837,200 Shares) $14.36 ------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Components of Net Assets at September 30, 2002: Common stock, $0.01 par value, 200 million shares authorized to the Fund $25,246,730 Undistributed net investment income 522,277 Accumulated net realized loss on investments (2,497,848) Net unrealized appreciation of investments 3,103,035 ----------- Total net assets $26,374,194 =========== Summary of Abbreviations: AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Authority FSA - Insured by Financial Security Assurance GNMA - Insured by Ginnie Mae LOC - Letter of Credit MBIA - Insured by the Municipal Bond Insurance Association * 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 September 30, 2002. See accompanying notes 16 Statement Delaware Investments Arizona Municipal Income Fund, Inc. of Net Assets September 30, 2002 (Unaudited) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 149.90% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 2.17% Phoenix Civic Improvement Airport Revenue Senior Lien Series A 5.00% 7/1/25 (FSA) $1,000,000 $ 1,035,600 ----------- 1,035,600 ----------- Charter School Revenue Bonds - 6.78% Pima County Industrial Development Authority (Arizona Charter Schools Project II) Series A 6.75% 7/1/31 3,250,000 3,235,245 ----------- 3,235,245 ----------- Continuing Care/Retirement Revenue Bonds - 3.34% Yavapai County Industrial Development Authority Residential Care Facilities (Margaret T. Morris Center) Series A 5.40% 2/20/38 (GNMA) 1,575,000 1,590,939 ----------- 1,590,939 ----------- Dedicated Tax & Fees Revenue Bonds - 8.19% Oro Valley Municipal Property Corporation Excise Tax Revenue 5.00% 7/1/20 (FGIC) 1,450,000 1,544,946 Phoenix Civic Improvement Corporation Excise Tax Revenue 5.25% 7/1/24 1,000,000 1,054,920 Scottsdale Municipal Property Corporation Lease 6.25% 11/1/14 (FGIC) 1,300,000 1,304,927 ----------- 3,904,793 ----------- Escrowed to Maturity Bonds - 10.50% Puerto Rico Commonwealth Infrastructure Financing Authority Special Series A 5.50% 10/1/40 4,500,000 5,009,130 ----------- 5,009,130 ----------- Higher Education Revenue Bonds - 2.52% Southern Arizona Capital Facilities Finance Corporation (University of Arizona Project) 5.00% 9/1/23 (MBIA) 1,150,000 1,201,647 ----------- 1,201,647 ----------- Hospital Revenue Bonds - 15.88% Maricopa County Industrial Development Authority (Catholic Health Care West) Series A 6.00% 7/1/21 (MBIA) 1,100,000 1,124,882 Maricopa County Industrial Development Authority (Mayo Clinic Hospital) 5.25% 11/15/37 2,000,000 2,098,939 Mohave County Industrial Development Authority (Chris/Silver Ridge) 6.375% 11/1/31 (GNMA) 750,000 807,435 Show Low Industrial Development Authority Hospital Revenue (Navapache Regional Medical Center) Series A 5.50% 12/1/17 (ACA) 1,750,000 1,840,230 Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Hospital Revenue Bonds (continued) University of Arizona Medical Center 6.25% 7/1/16 (MBIA) $ 700,000 $ 716,422 Yuma Industrial Development Authority (Yuma Regional Medical Center) 5.00% 8/1/31 (FSA) 950,000 987,744 ----------- 7,575,652 ----------- Miscellaneous Revenue Bonds - 13.10% Arizona School Facilities Board Revenue 5.00% 7/1/19 2,000,000 2,122,820 Arizona Student Loan Acquisition Authority Revenue 5.90% 5/1/24 1,500,000 1,604,325 Maricopa County Stadium District 5.50% 7/1/13 (MBIA) 2,400,000 2,519,832 ----------- 6,246,977 ----------- Multifamily Housing Revenue Bonds - 10.20% Maricopa County Industrial Development Authority Multifamily Housing Revenue (Avalon Apartments Project) Series A 6.35% 4/1/30 (RADIAN) 1,610,000 1,750,022 Maricopa County Industrial Development Authority Multifamily Housing Revenue (Pines at Camelback Apartments Project) Series A 5.45% 5/1/28 (RADIAN) 1,250,000 1,294,425 Peoria Industrial Development Authority Multifamily Housing Revenue (Casa Del Rio) Series A 7.30% 2/20/28 (GNMA) 1,230,000 1,317,674 Phoenix Industrial Development Authority Multifamily Housing Revenue (Chris Ridge) Series B 6.80% 11/1/25 (FHA) 500,000 505,745 ----------- 4,867,866 ----------- Municipal Lease Revenue Bonds - 4.66% Tucson Certificates of Participation 5.60% 7/1/11 1,100,000 1,188,022 Yuma Municipal Property Corporation 5.00% 7/1/25 (AMBAC) 1,000,000 1,032,680 ----------- 2,220,702 ----------- Political Subdivision General Obligation Bonds - 3.58% Eagle Mountain Community Facilities District Series A 6.40% 7/1/17 1,500,000 1,707,705 ----------- 1,707,705 ----------- *Pre-Refunded Bonds - 5.79% Arizona State Transportation Board Highway 5.75% 7/1/18-09 2,350,000 2,761,885 ----------- 2,761,885 ----------- 17 Statement Delaware Investments Arizona Municipal Income Fund, Inc. of Net Assets Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- School District General Obligation Bonds - 11.19% Maricopa County School District #6 (Washington Elementary) 5.375% 7/1/13 (FSA) $4,575,000 $ 5,340,169 ----------- 5,340,169 ----------- Single Family Housing Revenue Bonds - 15.45% Phoenix Industrial Development Authority Single Family Mortgage 5.30% 4/1/20 (GNMA) (FNMA) (FHLMC) 2,235,000 2,310,185 5.35% 6/1/20 (GNMA) (FNMA) (FHLMC) 3,075,000 3,182,748 Pima County Industrial Development Authority Single Family Mortgage Revenue 6.125% 11/1/33 (AMT) (GNMA) (FNMA) (FHLMC) 1,745,000 1,876,154 ----------- 7,369,087 ----------- Territorial Revenue Bonds - 28.09% Puerto Rico Commonwealth Highway & Transportation Authority Transportation Revenue Series D 5.00% 7/1/32 (FSA) 10,750,000 11,234,609 Puerto Rico Public Buildings Authority Revenue Guaranteed Government Facilities Series D 5.25% 7/2/36 750,000 791,955 Virgin Islands Public Finance Authority Revenue Series A 6.125% 10/1/29 (ACA) 1,250,000 1,378,488 ----------- 13,405,052 ----------- Turnpike/Toll Road Revenue Bonds - 2.74% Tucson Street & Highway 5.50% 7/1/12 (MBIA) 1,250,000 1,307,738 ----------- 1,307,738 ----------- Water & Sewer Revenue Bonds - 5.72% Arizona Water Infrastructure Finance Authority Revenue Water Quality Series A 5.05% 10/1/20 1,500,000 1,596,960 Phoenix Civic Improvement Corporation Wastewater Systems Revenue 5.00% 7/1/24 (FGIC) 1,090,000 1,130,995 ----------- 2,727,955 ----------- Total Municipal Bonds (cost $66,338,086) 71,508,142 ----------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Total Market Value of Securities - 149.90% (cost $66,338,086) $ 71,508,142 Receivables and Other Assets Net of Liabilities - 2.50% 1,194,206 Liquidation Value of Preferred Stock - (52.40%) (25,000,000) ----------- Net Assets Applicable to 2,982,200 Common Shares ($0.01 Par Value) Outstanding - 100.00% $47,702,348 =========== Net Asset Value Per Common Share ($47,702,348 / 2,982,200 Shares) $16.00 ------ Components of Net Assets at September 30, 2002: Common stock, $0.01 par value, 200 million shares authorized to the Fund $40,838,893 Undistributed net investment income 1,153,383 Accumulated net realized gain on investments 566,652 Net unrealized appreciation of investments 5,143,420 ----------- Total net assets $47,702,348 =========== Summary of Abbreviations: ACA - Insured by American Capital Access AMBAC - Insured by the AMBAC Indemnity Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Authority FHLMC - Insured by the Federal Home Loan Mortgage Corporation FNMA - Insured by Fannie Mae FSA - Insured by Financial Security Assurance GNMA - Insured by Ginnie Mae MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance * For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See accompanying notes 18 Statement Delaware Investments Florida Insured Municipal Income Fund of Net Assets September 30, 2002 (Unaudited) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 150.78% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 9.49% Dade County Aviation Series 96B 5.60% 10/1/26 (MBIA) $1,000,000 $ 1,062,570 Hillsborough County Aviation Authority (Tampa International Airport) Series B 5.60% 10/1/19 (FGIC) 1,600,000 1,681,584 Miami-Dade County Aviation Revenue (Miami International Airport) 5.375% 10/1/32 (FGIC) 1,000,000 1,054,680 ----------- 3,798,834 ----------- Dedicated Tax & Fees Revenue Bonds - 20.03% Florida Department Transportation 5.00% 7/1/31 (FGIC) 1,400,000 1,453,606 Jacksonville County Transportation Revenue 5.25% 10/1/29 (MBIA) 2,000,000 2,115,340 Miami Beach Resort Tax 5.50% 10/1/16 (AMBAC) 1,000,000 1,123,730 Orange County Public Service Tax 6.00% 10/1/24 (FGIC) 3,000,000 3,327,540 ----------- 8,020,216 ----------- Escrowed to Maturity Bonds - 2.54% Hillsborough County Industrial Development Authority (Allegany Health System - John Knox Village) 5.75% 12/1/21 (MBIA) 1,000,000 1,016,100 ----------- 1,016,100 ----------- Higher Education Revenue Bonds - 7.49% Florida Agriculture & Mechanical University (Student Apartment Facility) 5.625% 7/1/21 (MBIA) 1,250,000 1,347,325 Volusia County Educational Facilities Authority (Stetson University Project) Series A 5.50% 6/1/17 (MBIA) 1,500,000 1,653,165 ----------- 3,000,490 ----------- Hospital Revenue Bonds - 28.77% Escambia County Health Facilities Authority (Florida Health Care Facilities-VHA Program) 5.95% 7/1/20 (AMBAC) (VA) 3,075,000 3,664,108 Lee County Memorial Health System Hospital Revenue 5.00% 4/1/20 1,000,000 1,056,930 Orange County Health Facilities Authority (Adventist Health Center) 5.75% 11/15/25 (AMBAC) 1,500,000 1,593,015 Orange County Health Facilities Authority (Orlando Regional Health) Series A 6.25% 10/1/18 (MBIA) 2,000,000 2,499,640 Venice Health Care (Bon Secours Health System) 5.60% 8/15/16 (MBIA) 2,405,000 2,710,579 ----------- 11,524,272 ----------- Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Multifamily Housing Revenue Bonds - 20.53% Florida Housing Finance Agency (Homeowner Mortgage) Series 2 5.90% 7/1/29 (AMT) (MBIA) $1,165,000 $ 1,228,458 Florida Housing Finance Agency (Woodbridge Apartments) Series L 6.05% 12/1/16 (AMBAC) 1,120,000 1,198,546 6.25% 6/1/36 (AMT) (AMBAC) 1,500,000 1,584,885 Florida State Housing Finance Agency (Leigh Meadows Apartments Section 8) Series N 6.30% 9/1/36 (AMT) (AMBAC) 2,510,000 2,650,534 Volusia County Housing Finance Authority (San Marco Apartments) Series A 5.60% 1/1/44 (FSA) 1,500,000 1,557,990 ----------- 8,220,413 ----------- Municipal Lease Revenue Bonds - 19.22% Broward School Board Certificates of Participation Series A 5.25% 7/1/24 (FSA) 1,000,000 1,062,260 Escambia County School Board Certificates of Participation Series 2 5.50% 2/1/22 (MBIA) 5,000,000 5,338,850 Orange County School Board Certificates of Participation 5.00% 8/1/27 (MBIA) 1,250,000 1,295,338 ----------- 7,696,448 ----------- Ports & Harbors Revenue Bonds - 2.59% Florida Ports Financing Commission State Transportation Trust Fund 5.375% 6/1/27 (AMT) (MBIA) 1,000,000 1,036,370 ----------- 1,036,370 ----------- *Pre-Refunded Bonds - 22.29% Dade County School Board Certificates of Participation Series B 5.60% 8/1/17-06 (AMBAC) 1,000,000 1,138,430 Reedy Creek Improvement District (Sports Complex) Series A 5.75% 6/1/13-05 (MBIA) 2,300,000 2,539,177 Sunrise Utility System Series A 5.75% 10/1/26-06 (AMBAC) 2,500,000 2,874,175 Tampa Utility Tax 6.125% 10/1/19-09 (AMBAC) 1,000,000 1,211,590 Village Center Community Development District Recreational Revenue Series A 5.85% 11/1/16-06 (MBIA) 1,000,000 1,164,960 ----------- 8,928,332 ----------- Single Family Housing Revenue Bonds - 2.57% Broward County Housing Finance Authority 5.45% 11/1/36 (FSA) 1,000,000 1,027,680 ----------- 1,027,680 ----------- 19 Statement Delaware Investments Florida Insured Municipal Income Fund of Net Assets Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- State General Obligation Bonds - 5.74% Florida State Board of Education (Capital Outlay Public Education) Series C 6.00% 6/1/21 (FGIC) $2,000,000 $ 2,298,740 ----------- 2,298,740 ----------- Water & Sewer Revenue Bonds - 9.52% Dade County Water & Sewer System 5.50% 10/1/25 (FGIC) 1,100,000 1,155,693 Indian River County Water & Sewer System 5.50% 9/1/16 (FGIC) 1,000,000 1,121,660 Sarasota County Utility System 5.50% 10/1/22 (FGIC) 1,500,000 1,532,940 ----------- 3,810,293 ----------- Total Municipal Bonds (cost $54,561,695) 60,378,188 ----------- Total Market Value of Securities - 150.78% (cost $54,561,695) 60,378,188 Liabilities Net of Receivables and Other Assets - (0.83%) (333,053) Liquidation Value of Preferred Stock - (49.95%) (20,000,000) ----------- Net Assets Applicable to 2,422,200 Common Shares ($0.01 Par Value) Outstanding - 100.00% $40,045,135 =========== Net Asset Value Per Common Share ($40,045,135 / 2,422,200 Shares) $16.53 ------ - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Components of Net Assets at September 30, 2002: Common stock, $0.01 par value, unlimited shares authorized to the Fund $33,361,389 Undistributed net investment income 915,578 Accumulated net realized loss on investments (48,325) Net unrealized appreciation of investments 5,816,493 ----------- Total net assets $40,045,135 =========== 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 * For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See accompanying notes 20 Statement Delaware Investments Colorado Insured Municipal Income Fund, Inc. of Net Assets September 30, 2002 (Unaudited) Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds - 148.69% - -------------------------------------------------------------------------------- Airport Revenue Bonds - 13.10% Denver City & County Airport Series E 5.25% 11/15/23 (MBIA) $10,000,000 $10,402,600 ----------- 10,402,600 ----------- Continuing Care/Retirement Revenue Bonds - 3.40% Colorado Health Facilities Authority (Porter Place) Series A 6.00% 1/20/36 (GNMA) 2,515,000 2,700,632 ----------- 2,700,632 ----------- Dedicated Tax & Fees Revenue Bonds - 18.89% Broomfield County Sales & Use Tax Revenue Refunding & Improvement Series A 5.00% 12/1/31 (AMBAC) 5,750,000 5,975,055 Denver City & County Excise Tax Revenue (Colorado Convention Center Project) Series A 5.00% 9/1/20 (FSA) 6,500,000 6,877,195 Golden Sales & Use Tax Revenue Improvement Series B 5.10% 12/1/20 (AMBAC) 2,000,000 2,139,620 ----------- 14,991,870 ----------- Higher Education Revenue Bonds - 22.25% Adams State College (Board of Trustees) 5.75% 5/15/19 (MBIA) 1,000,000 1,064,070 Colorado Educational & Cultural Facilities Authority Revenue (University of Colorado Foundation Project) 5.00% 7/1/27 (AMBAC) 4,000,000 4,153,960 Colorado Educational & Cultural Facilities Authority Revenue (University of Denver Project) 5.50% 3/1/21 (AMBAC) 3,200,000 3,510,176 Colorado Educational & Cultural Facilities Authority Revenue (University of Northern Colorado) 5.00% 7/1/31 (MBIA) 3,500,000 3,621,380 Colorado Springs Revenue (Colorado College) 5.375% 6/1/32 (MBIA) 5,000,000 5,307,600 ----------- 17,657,186 ----------- Hospital Revenue Bonds - 6.55% Colorado Health Facilities Authority (Boulder Community Hospital Project) Series B 5.875% 10/1/23 (MBIA) 1,925,000 2,072,186 Colorado Health Facilities Authority (North Colorado Medical Center) 5.95% 5/15/12 (MBIA) 2,000,000 2,088,840 6.00% 5/15/20 (MBIA) 1,000,000 1,042,610 ---------- 5,203,636 ---------- Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Miscellaneous Revenue Bonds - 5.87% Boulder County Development Revenue (Atmospheric Research) 5.00% 9/1/26 (MBIA) $4,500,000 $ 4,661,955 ----------- 4,661,955 ----------- Multifamily Housing Revenue Bonds - 7.52% Burlingame Multifamily Housing Revenue Series A 6.00% 11/1/29 (MBIA) 2,290,000 2,451,857 Mountain Glen Housing Corporation Multifamily Housing Revenue 6.70% 7/20/20 (GNMA)(FHA) 1,280,000 1,471,155 Snowmass Village Multifamily Housing Revenue Refunding (Essential Function Housing) 6.25% 12/15/16 (FSA) 2,000,000 2,047,060 ----------- 5,970,072 ----------- Municipal Lease Revenue Bonds - 21.27% Arapahoe County Library District Certificates of Participation 5.70% 12/15/10 (MBIA) 2,000,000 2,256,280 Aurora Certificates of Participation 5.50% 12/1/30 (AMBAC) 2,000,000 2,157,300 Aurora Educational Development 6.00% 10/15/15 (Connie Lee) 1,500,000 1,636,530 Broomfield Certificates of Participation 5.75% 12/1/24 (AMBAC) 1,500,000 1,650,840 Denver City & County Certificates of Participation Series B 5.50% 12/1/25 (AMBAC) 2,000,000 2,175,700 Eagle County Certificates of Participation 5.40% 12/1/18 (MBIA) 1,000,000 1,099,210 Garfield County Finance Authority 5.00% 12/1/24 (AMBAC) 1,000,000 1,027,700 Lakewood Certificates of Participation 5.375% 12/1/22 (AMBAC) 2,000,000 2,148,800 Westminster Building Authority Certificates of Participation 5.25% 12/1/22 (MBIA) 1,555,000 1,665,265 Westminster Certificates of Participation 5.40% 1/15/23 (AMBAC) 1,000,000 1,062,440 ----------- 16,880,065 ----------- Parking Revenue Bonds - 3.36% Auraria Higher Education Center Parking Facilities System Revenue 5.50% 4/1/26 (MBIA) 2,485,000 2,668,741 ----------- 2,668,741 ----------- 21 Statement Delaware Investments Colorado Insured Municipal Income Fund, Inc. of Net Assets Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Political Subdivision General Obligation Bonds - 8.42% G V R Metropolitan District 5.75% 12/1/19 (AMBAC) $1,000,000 $ 1,134,400 Mountain Village Metropolitan District San Miguel County 5.00% 12/1/32 (MBIA) 1,285,000 1,312,987 Pueblo County 5.80% 6/1/11 (MBIA) 1,405,000 1,567,334 Pueblo County (Library District) 5.80% 11/1/19 (AMBAC) 1,395,000 1,586,799 Stonegate Village Metropolitan District Refunding & Improvement Series A 5.50% 12/1/21 (FSA) 1,000,000 1,079,300 ----------- 6,680,820 ----------- School District General Obligation Bonds - 12.24% Archuleta & Hinsdale Counties School District #50JT 5.55% 12/1/20 (MBIA) 4,000,000 4,403,480 Douglas County School District #Re-1 (Douglas & Elbert Counties) 5.00% 12/15/21 (MBIA) 1,000,000 1,058,550 El Paso County School District #20 5.625% 12/15/16 (AMBAC) 2,800,000 3,133,424 5.625% 12/15/16 (MBIA) 1,000,000 1,119,080 ----------- 9,714,534 ----------- Territorial General Obligation Bonds - 0.73% Puerto Rico Commonwealth Refunding Public Improvement Series A 5.125% 7/1/30 (FSA) 550,000 578,182 ----------- 578,182 ----------- Territorial Revenue Bonds - 2.57% Puerto Rico Commonwealth Highway & Transportation Authority Transportation Revenue Series A 4.75% 7/1/38 (MBIA) 2,000,000 2,043,380 ----------- 2,043,380 ----------- Turnpike/Toll Road Revenue Bonds - 13.25% E-470 Public Highway Authority 5.75% 9/1/29 (MBIA) 3,000,000 3,350,340 5.75% 9/1/35 (MBIA) 1,700,000 1,896,826 Northwest Parkway Public Highway Authority Series A 5.25% 6/15/41 (FSA) 5,000,000 5,273,750 ----------- 10,520,916 ----------- Principal Market Amount Value - -------------------------------------------------------------------------------- Municipal Bonds (continued) - -------------------------------------------------------------------------------- Water & Sewer Revenue Bonds - 9.27% Colorado Water Resources & Power Development Authority Small Water Resources Revenue 5.80% 11/1/20 (FGIC) $2,000,000 $ 2,294,900 Pueblo West Metropolitan District Water & Wastewater Revenue 5.25% 12/15/25 (MBIA) 2,495,000 2,614,211 Ute Utility Water Conservancy District Water Revenue 5.75% 6/15/20 (MBIA) 2,155,000 2,453,381 ----------- 7,362,492 ----------- Total Municipal Bonds (cost $108,774,856) 118,037,081 ----------- Total Market Value of Securities - 148.69% (cost $108,774,856) 118,037,081 Receivables and Other Assets Net of Liabilities - 1.70% 1,349,037 Liquidation Value of Preferred Stock - (50.39%) (40,000,000) ----------- Net Assets Applicable to 4,837,100 Common Shares ($0.01 Par Value) Outstanding - 100.00% $79,386,118 =========== Net Asset Value Per Common Share ($79,386,118 / 4,837,100 Shares) $16.41 ------ Components of Net Assets at September 30, 2002: Common stock, $0.01 par value, 200 million shares authorized to the Fund $67,238,110 Undistributed net investment income 1,958,840 Accumulated net realized gain on investments 926,943 Net unrealized appreciation of investments 9,262,225 ----------- Total net assets $79,386,118 =========== 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 FHA - Insured by the Federal Housing Authority FSA - Insured by Financial Security Assurance GNMA - Insured by Ginnie Mae MBIA - Insured by the Municipal Bond Insurance Association See accompanying notes 22 Statements Delaware Investments Closed-End Municipal Bond Funds of Operations Period Ended September 30, 2002 (Unaudited)
Delaware Delaware Delaware Investments Investments Investments Minnesota Minnesota Minnesota Municipal Municipal Municipal Income Income Income Fund, Inc. Fund III, Inc Fund II, Inc. Investment Income: Interest $ 1,724,300 $ 4,756,049 $ 1,230,690 ----------- ----------- ----------- Expenses: Management fees 118,469 332,844 80,553 Accounting and administration 42,500 42,500 30,250 Remarketing Agent fees 24,795 75,617 18,904 Professional fees 12,348 20,450 12,800 Transfer agent fees and expenses 9,529 27,900 15,902 Reports and statements to shareholders -- 17,195 12,367 Custodian fees 1,376 1,206 778 Directors'/Trustees' Fees 3,533 4,710 2,705 Rating Agency fees 4,500 10,884 8,725 Taxes (other than taxes on income) -- 2,200 75 Other 4,084 15,118 4,492 ----------- ----------- ----------- 221,134 550,624 187,551 Less expenses paid indirectly (2,088) (3,203) (1,262) ----------- ----------- ----------- Total expenses 219,046 547,421 186,289 ----------- ----------- ----------- Net Investment Income 1,505,254 4,208,628 1,044,401 ----------- ----------- ----------- Net Realized and Unrealized Gain on Investments: Net realized gain on investments 189,478 310,550 160,549 Net change in unrealized appreciation/depreciation of investments 2,195,890 5,334,777 1,713,713 ----------- ----------- ----------- Net Realized and Unrealized Gain on Investments 2,385,368 5,645,327 1,874,262 ----------- ----------- ----------- Dividends on Preferred Stock (149,140) (420,420) (97,209) ----------- ----------- ----------- Net Increase in Net Assets Resulting from Operations $ 3,741,482 $ 9,433,535 $ 2,821,454 =========== =========== ===========
See accompanying notes 23 Statements of Operations Delaware Investments Closed-End Municipal Bond Funds (continued) Period Ended September 30, 2002 (Unaudited)
Delaware Delaware Delaware Investments Investments Investments Arizona Florida Insured Colorado Insured Municipal Municipal Municipal Income Income Income Fund, Inc. Fund Fund, Inc. Investment Income: Interest $ 1,868,879 $ 1,545,158 $ 2,994,740 ------------ ------------ ------------ Expenses: Management fees 141,098 116,222 230,104 Accounting and administration 42,500 42,500 42,500 Remarketing Agent fees 31,335 25,206 49,863 Professional fees 17,000 14,100 22,043 Transfer agent fees and expenses 9,800 16,885 9,885 Reports and statements to shareholders 11,857 23,178 1,976 Custodian fees 1,330 1,027 1,500 Directors'/Trustees' Fees 2,600 3,600 2,329 Rating Agency fees 7,500 8,400 2,000 Other 5,394 4,526 7,743 ------------ ------------ ------------ 270,414 255,644 369,943 Less expenses paid indirectly (2,178) (1,726) (2,883) ------------ ------------ ------------ Total expenses 268,236 253,918 367,060 ------------ ------------ ------------ Net Investment Income 1,600,643 1,291,240 2,627,680 ------------ ------------ ------------ Net Realized and Unrealized Gain on Investments: Net realized gain on investments 230,278 265,721 135,044 Net change in unrealized appreciation/depreciation of investments 3,711,507 3,045,052 7,614,251 ------------ ------------ ------------ Net Realized and Unrealized Gain on Investments 3,941,785 3,310,773 7,749,295 ------------ ------------ ------------ Dividends on Preferred Stock (173,558) (138,464) (271,344) ------------ ------------ ------------ Net Increase in Net Assets Resulting from Operations $ 5,368,870 $ 4,463,549 $ 10,105,631 ============ ============ ============
See accompanying notes 24 Statements Delaware Investments Closed-End Municipal Bond Funds of Changes in Net Assets
Delaware Delaware Investments Minnesota Investments Minnesota Municipal Income Municipal Income Fund, Inc. Fund II, Inc. Six Months Year Six Months Year Ended Ended Ended Ended 9/30/02 3/31/02 9/30/02 3/31/02 (Unaudited) (Unaudited) Increase (Decrease) in Net Assets from Operations: Net investment income $ 1,505,254 $ 3,091,152 $ 4,208,628 $ 8,432,490 Net realized gain (loss) on investments 189,478 153,748 310,550 (25,896) Net change in unrealized appreciation/depreciation of investments 2,195,890 (994,508) 5,334,777 (2,210,780) Dividends on preferred stock (149,140) (460,732) (420,420) (1,319,544) ------------- ------------- ------------- ------------- Net increase in net assets resulting from operations 3,741,482 1,789,660 9,433,535 4,876,270 ------------- ------------- ------------- ------------- Dividends and Distributions to Common Shareholders: From net investment income (1,141,742) (2,179,548) (3,336,082) (6,078,250) ------------- ------------- ------------- ------------- (1,141,742) (2,179,548) (3,336,082) (6,078,250) ------------- ------------- ------------- ------------- Net Increase (Decrease) in Net Assets 2,599,740 (389,888) 6,097,453 (1,201,980) Net Assets: Beginning of period 37,995,774 38,385,662 103,572,733 104,774,713 ------------- ------------- ------------- ------------- End of period $ 40,595,514 $ 37,995,774 $ 109,670,186 $ 103,572,733 ============= ============= ============= =============
Delaware Delaware Investments Minnesota Investments Arizona Municipal Income Municipal Income Fund III, Inc. Fund, Inc. Six Months Year Six Months Year Ended Ended Ended Ended 9/30/02 3/31/02 9/30/02 3/31/02 (Unaudited) (Unaudited) Increase (Decrease) in Net Assets from Operations: Net investment income $ 1,044,401 $ 1,954,133 $ 1,600,643 $ 3,320,799 Net realized gain on investments 160,549 111,215 230,278 959,815 Net change in unrealized appreciation/depreciation of investments 1,713,713 (675,896) 3,711,507 (1,708,209) Dividends on preferred stock (97,209) (336,918) (173,558) (641,330) ------------ ------------ ------------ ------------ Net increase in net assets resulting from operations 2,821,454 1,052,534 5,368,870 1,931,075 ------------ ------------ ------------ ------------ Dividends and Distributions to Common Shareholders: From net investment income (753,304) (1,405,458) (1,369,175) (2,436,085) From net realized gain on investments -- -- -- (429,437) ------------ ------------ ------------ ------------ (753,304) (1,405,458) (1,369,175) (2,865,522) ------------ ------------ ------------ ------------ Net Increase (Decrease) in Net Assets 2,068,150 (352,924) 3,999,695 (934,447) Net Assets: Beginning of period 24,306,044 24,658,968 43,702,653 44,637,100 ------------ ------------ ------------ ------------ End of period $ 26,374,194 $ 24,306,044 $ 47,702,348 $ 43,702,653 ============ ============ ============ ============
See accompanying notes 25 Statements of Changes in Net Delaware Investments Closed-End Municipal Bond Funds Assets (continued)
Delaware Delaware Investments Florida Investments Colorado Insured Municipal Insured Municipal Income Fund Income Fund, Inc. Six Months Year Six Months Year Ended Ended Ended Ended 9/30/02 3/31/02 9/30/02 3/31/02 (Unaudited) (Unaudited) Increase (Decrease) in Net Assets from Operations: Net investment income $ 1,291,240 $ 2,594,441 $ 2,627,680 $ 5,291,994 Net realized gain on investments 265,721 60,786 135,044 1,111,597 Net change in unrealized appreciation/depreciation of investments 3,045,052 (874,028) 7,614,251 (3,041,776) Dividends on preferred stock (138,464) (434,638) (271,344) (1,080,868) ------------ ------------ ------------ ------------ Net increase in net assets resulting from operations 4,463,549 1,346,561 10,105,631 2,280,947 ------------ ------------ ------------ ------------ Dividends and Distributions to Common Shareholders: From net investment income (1,114,309) (1,950,174) (2,225,113) (3,954,329) From net realized gain on investments -- -- -- (638,497) ------------ ------------ ------------ ------------ (1,114,309) (1,950,174) (2,225,113) (4,592,826) ------------ ------------ ------------ ------------ Net Increase (Decrease) in Net Assets 3,349,240 (603,613) 7,880,518 (2,311,879) Net Assets: Beginning of period 36,695,895 37,299,508 71,505,600 73,817,479 ------------ ------------ ------------ ------------ End of period $ 40,045,135 $ 36,695,895 $ 79,386,118 $ 71,505,600 ============ ============ ============ ============
See accompanying notes 26 Financial Highlights Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Investments Minnesota Municipal Income Fund, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended 9/30/02 3/31/02 3/31/01 3/31/00 3/31/99 3/31/98 (Unaudited) Net asset value, beginning of period $14.640 $14.790 $14.060 $15.380 $15.380 $14.470 Income (loss) from investment operations: Net investment income 0.576 1.191 1.155 1.180 1.188 1.180 Net realized and unrealized gain (loss) on investments 0.931 (0.323) 0.732 (1.256) 0.004 0.970 Dividends on preferred stock: From net investment income (0.057) (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 (0.057) (0.178) (0.317) (0.286) (0.262) (0.290) ------- ------- ------- ------- ------- ------- Total from investment operations 1.450 0.690 1.570 (0.362) 0.930 1.860 ------- ------- ------- ------- ------- ------- Less dividends and distributions to common shareholders: From net investment income (0.440) (0.840) (0.840) (0.907) (0.930) (0.930) From net realized gain on investments -- -- -- (0.051) -- (0.020) ------- ------- ------- ------- ------- ------- Total dividends and distributions (0.440) (0.840) (0.840) (0.958) (0.930) (0.950) ------- ------- ------- ------- ------- ------- Net asset value, end of period $15.650 $14.640 $14.790 $14.060 $15.380 $15.380 ======= ======= ======= ======= ======= ======= Market value, end of period $15.900 $14.450 $14.300 $13.563 $16.500 $15.690 ======= ======= ======= ======= ======= ======= Total investment return based on:(1) Market value 13.27% 7.00% 12.09% (12.39%) 11.29% 16.04% Net asset value 10.04% 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) $40,596 $37,996 $33,386 $36,488 $39,919 $39,915 Ratio of expenses to average net assets applicable to common shares(2) 1.11% 1.13% 1.23% 1.36% 1.21% 1.17% Ratio of net investment income to average net assets applicable to common shares(2) 7.65% 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) 6.89% 6.84% 6.00% 6.17% 5.99% 6.01% Portfolio turnover 26% 15% 6% 12% 15% 0% Leverage analysis: Value of preferred shares outstanding (000 omitted) $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 Net asset coverage per share of preferred shares, end of period $151,489 $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 $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. 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 27 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. - ----------------------------------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended 9/30/02 3/31/02 3/31/01 3/31/00 3/31/99 3/31/98 (Unaudited) Net asset value, beginning of period $14.280 $14.450 $13.590 $14.950 $14.800 $13.590 Income (loss) from investment operations: Net investment income 0.580 1.163 1.168 1.176 1.154 1.130 Net realized and unrealized gain (loss) on investments 0.778 (0.313) 0.850 (1.411) 0.099 1.200 Dividends on preferred stock: From net investment income (0.058) (0.182) (0.340) (0.307) (0.285) (0.300) ------- ------- ------- ------- ------- ------- Total dividends on preferred stock (0.058) (0.182) (0.340) (0.307) (0.285) (0.300) ------- ------- ------- ------- ------- ------- Total from investment operations 1.300 0.668 1.678 (0.542) 0.968 2.030 ------- ------- ------- ------- ------- ------- Less dividends to common shareholders: From net investment income (0.460) (0.838) (0.818) (0.818) (0.818) (0.820) ------- ------- ------- ------- ------- ------- Total dividends (0.460) (0.838) (0.818) (0.818) (0.818) (0.820) ------- ------- ------- ------- ------- ------- Net asset value, end of period $15.120 $14.280 $14.450 $13.590 $14.950 $14.800 ======= ======= ======= ======= ======= ======= Market value, end of period $15.600 $14.050 $14.080 $12.438 $15.060 $13.880 ======= ======= ======= ======= ======= ======= Total investment return based on:(1) Market value 14.45% 5.75% 20.37% (12.28%) 14.73% 16.56% Net asset value 9.14% 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) $109,670 $103,573 $104,775 $98,574 $108,456 $107,333 Ratio of expenses to average net assets applicable to common shares(2) 1.03% 1.06% 1.01% 0.99% 1.00% 1.19% Ratio of net investment income to average net assets applicable to common shares(2) 7.89% 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) 7.10% 6.79% 5.96% 6.24% 5.80% 5.73% Portfolio turnover 15% 7% 3% 4% 15% 4% Leverage analysis: Value of preferred shares outstanding (000 omitted) $60,000 $60,000 $60,000 $60,000 $60,000 $60,000 Net asset coverage per share of preferred shares, end of period $141,392 $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 $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. 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 28 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. - ----------------------------------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended 9/30/02 3/31/02 3/31/01 3/31/00 3/31/99 3/31/98 (Unaudited) Net asset value, beginning of period $13.230 $13.420 $12.560 $13.970 $13.760 $12.710 Income (loss) from investment operations: Net investment income 0.568 1.064 1.065 1.075 1.025 1.050 Net realized and unrealized gain (loss) on investments 1.025 (0.306) 0.889 (1.425) 0.222 1.060 Dividends on preferred stock: From net investment income (0.053) (0.183) (0.336) (0.302) (0.279) (0.300) ------- ------- ------- ------- ------- ------- Total dividends on preferred stock (0.053) (0.183) (0.336) (0.302) (0.279) (0.300) ------- ------- ------- ------- ------- ------- Total from investment operations 1.540 0.575 1.618 (0.652) 0.968 1.810 ------- ------- ------- ------- ------- ------- Less dividends to common shareholders: From net investment income (0.410) (0.765) (0.758) (0.758) (0.758) (0.760) ------- ------- ------- ------- ------- ------- Total dividends (0.410) (0.765) (0.758) (0.758) (0.758) (0.760) ------- ------- ------- ------- ------- ------- Net asset value, end of period $14.360 $13.230 $13.420 $12.560 $13.970 $13.760 ======= ======= ======= ======= ======= ======= Market value, end of period $14.370 $13.000 $13.000 $11.750 $14.125 $13.380 ======= ======= ======= ======= ======= ======= Total investment return based on:(1) Market value 13.84% 5.93% 17.57% (11.70%) 11.59% 15.80% Net asset value 11.78% 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) $26,374 $24,306 $24,659 $23,075 $25,665 $25,283 Ratio of expenses to average net assets applicable to common shares(2) 1.47% 1.49% 1.42% 1.33% 1.22% 1.34% Ratio of net investment income to average net assets applicable to common shares(2) 8.25% 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) 7.48% 6.56% 5.68% 5.99% 5.35% 5.61% Portfolio turnover 24% 5% 5% 16% 15% 9% Leverage analysis: Value of preferred shares outstanding (000 omitted) $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 Net asset coverage per share of preferred shares, end of period $137,917 $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 $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. 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 29 Financial Highlights Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Investments Arizona Municipal Income Fund, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended 9/30/02 3/31/02 3/31/01 3/31/00 3/31/99 3/31/98 (Unaudited) Net asset value, beginning of period $14.650 $14.970 $14.000 $15.290 $15.030 $13.780 Income (loss) from investment operations: Net investment income 0.537 1.113 1.124 1.115 1.108 1.090 Net realized and unrealized gain (loss) on investments 1.331 (0.257) 0.965 (1.333) 0.202 1.230 Dividends on preferred stock: From net investment income (0.058) (0.164) (0.346) (0.299) (0.277) (0.300) From net realized gain on investments -- (0.051) -- -- -- -- ------- ------- ------- ------- ------- ------- Total dividends on preferred stock (0.058) (0.215) (0.346) (0.299) (0.277) (0.300) ------- ------- ------- ------- ------- ------- Total from investment operations 1.810 0.641 1.743 (0.517) 1.033 2.020 ------- ------- ------- ------- ------- ------- Less dividends and distributions to common shareholders: From net investment income (0.460) (0.817) (0.773) (0.773) (0.773) (0.770) From net realized gain on investments -- (0.144) -- -- -- -- ------- ------- ------- ------- ------- ------- Total dividends and distributions (0.460) (0.961) (0.773) (0.773) (0.773) (0.770) ------- ------- ------- ------- ------- ------- Net asset value, end of period $16.000 $14.650 $14.970 $14.000 $15.290 $15.030 ======= ======= ======= ======= ======= ======= Market value, end of period $16.350 $14.750 $14.250 $12.625 $15.125 $14.630 ======= ======= ======= ======= ======= ======= Total investment return based on:(1) Market value 14.05% 10.22% 19.28% (11.65%) 8.84% 18.79% Net asset value 12.37% 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) $47,702 $43,703 $44,637 $41,758 $45,586 $44,813 Ratio of expenses to average net assets applicable to common shares(2) 1.18% 1.19% 1.18% 1.21% 1.15% 1.26% Ratio of net investment income to average net assets applicable to common shares(2) 7.02% 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) 6.26% 6.33% 5.44% 5.74% 5.46% 5.34% Portfolio turnover 24% 43% 24% 41% 46% 22% Leverage analysis: Value of preferred shares outstanding (000 omitted) $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 Net asset coverage per share of preferred shares, end of period $145,405 $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 $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. 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 30 Financial Highlights Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Investments Florida Insured Municipal Income Fund - ----------------------------------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended 9/30/02 3/31/02 3/31/01 3/31/00 3/31/99 3/31/98 (Unaudited) Net asset value, beginning of period $15.150 $15.400 $14.340 $15.670 $15.300 $13.670 Income (loss) from investment operations: Net investment income 0.533 1.071 1.087 1.092 1.113 1.090 Net realized and unrealized gain (loss) on investments 1.364 (0.337) 1.068 (1.368) 0.292 1.600 Dividends on preferred stock: From net investment income (0.057) (0.179) (0.337) (0.296) (0.277) (0.300) ------- ------- ------- ------- ------- ------- Total dividends on preferred stock (0.057) (0.179) (0.337) (0.296) (0.277) (0.300) ------- ------- ------- ------- ------- ------- Total from investment operations 1.840 0.555 1.818 (0.572) 1.128 2.390 ------- ------- ------- ------- ------- ------- Less dividends to common shareholders: From net investment income (0.460) (0.805) (0.758) (0.758) (0.758) (0.760) ------- ------- ------- ------- ------- ------- Total dividends (0.460) (0.805) (0.758) (0.758) (0.758) (0.760) ------- ------- ------- ------- ------- ------- Net asset value, end of period $16.530 $15.150 $15.400 $14.340 $15.670 $15.300 ======= ======= ======= ======= ======= ======= Market value, end of period $15.850 $14.020 $13.180 $11.750 $14.750 $14.310 ======= ======= ======= ======= ======= ======= Total investment return based on:(1) Market value 16.49% 12.63% 19.06% (15.57%) 8.47% 20.94% Net asset value 12.42% 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) $40,045 $36,696 $37,300 $34,730 $37,956 $37,071 Ratio of expenses to average net assets applicable to common shares(2) 1.33% 1.34% 1.32% 1.31% 1.14% 1.25% Ratio of net investment income to average net assets applicable to common shares(2) 6.76% 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) 6.04% 5.79% 5.10% 5.47% 5.37% 5.33% Portfolio turnover 15% 13% 8% 6% 0% 5% Leverage analysis: Value of preferred shares outstanding (000 omitted) $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 Net asset coverage per share of preferred shares, end of period $150,113 $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 $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. 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 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 Colorado Insured Municipal Income Fund, Inc. - ----------------------------------------------------------------------------------------------------------------------------------- Six Months Ended Year Ended 9/30/02 3/31/02 3/31/01 3/31/00 3/31/99 3/31/98 (Unaudited) Net asset value, beginning of period $14.780 $15.260 $13.870 $15.220 $14.920 $13.580 Income (loss) from investment operations: Net investment income 0.543 1.094 1.105 1.099 1.080 1.070 Net realized and unrealized gain (loss) on investments 1.603 (0.401) 1.373 (1.417) 0.264 1.300 Dividends on preferred stock: From net investment income (0.056) (0.172) (0.342) (0.297) (0.309) (0.290) From net realized gain on investments -- (0.051) -- -- -- -- ------- ------- ------- ------- ------- ------- Total dividends on preferred stock (0.056) (0.223) (0.342) (0.297) (0.309) (0.290) ------- ------- ------- ------- ------- ------- Total from investment operations 2.090 0.470 2.136 (0.615) 1.035 2.080 ------- ------- ------- ------- ------- ------- Less dividends and distributions to common shareholders: From net investment income (0.460) (0.818) (0.746) (0.735) (0.735) (0.740) From net realized gain on investments -- (0.132) -- -- -- -- ------- ------- ------- ------- ------- ------- Total dividends and distributions (0.460) (0.950) (0.746) (0.735) (0.735) (0.740) ------- ------- ------- ------- ------- ------- Net asset value, end of period $16.410 $14.780 $15.260 $13.870 $15.220 $14.920 ======= ======= ======= ======= ======= ======= Market value, end of period $16.410 $14.700 $14.560 $12.563 $14.938 $14.000 ======= ======= ======= ======= ======= ======= Total investment return based on:(1) Market value 16.93% 7.52% 22.42% (11.05%) 12.13% 18.09% Net asset value 14.28% 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) $79,386 $71,506 $73,817 $67,093 $73,598 $72,187 Ratio of expenses to average net assets applicable to common shares(2) 0.98% 1.01% 1.06% 1.08% 1.06% 1.18% Ratio of net investment income to average net assets applicable to common shares(2) 6.99% 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) 6.27% 6.05% 5.31% 5.72% 5.08% 5.38% Portfolio turnover 8% 37% 56% 37% 18% 39% Leverage analysis: Value of preferred shares outstanding (000 omitted) $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 Net asset coverage per share of preferred shares, end of period $149,233 $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 $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. 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 is accounting had no effect on the Fund's results of operations for the period ended March 31, 2002. Per share data for periods prior to April 1, 2001 have not been restated to reflect this change in accounting. See accompanying notes 32 Notes Delaware Investments Closed-End Municipal Bond Funds to Financial Statements September 30, 2002 (Unaudited) 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. 33 Notes Delaware Investments Closed-End Municipal Bond Funds to Financial Statements (continued) 1. Significant Accounting Policies (continued) 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 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, 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 statements of changes in net assets to a separate line item within the statements 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 amount of these expenses for the year ended September 30, 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 $ 712 $2,002 $484 $ 848 $ 699 $1,383 Earnings Credits 1,376 1,201 778 1,330 1,027 1,500
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 Services 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 September 30, 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 $20,128 $56,378 $13,727 $24,073 $19,850 $39,466 Dividend disbursing, transfer agent fees, accounting and other expenses payable to DSC 19,162 23,122 8,095 18,483 18,148 15,143 Other expenses payable to DMC and affiliates 2,125 3,401 1,862 2,081 1,967 2,546
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. 34 Notes Delaware Investments Closed-End Municipal Bond Funds to Financial Statements (continued) 3. Investments For the period ended September 30, 2002, the Funds made purchases and sales of investment securities other than U.S. government securities and 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 $10,042,613 $12,683,618 $5,022,311 $8,430,902 $4,762,938 $4,953,426 Sales 7,641,618 13,530,677 4,865,332 9,080,040 4,284,507 4,594,704
At September 30, 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 $57,178,825 $156,568,244 $37,677,839 $66,338,086 $54,561,695 $108,774,856 =========== ============ =========== =========== =========== ============ Aggregate Unrealized Appreciation $ 4,540,006 $ 10,557,612 $ 3,466,161 $ 5,170,056 $ 5,816,493 $ 9,262,225 Aggregate Unrealized Depreciation -- (929,410) (308,940) -- -- -- ----------- ------------ ----------- ----------- ----------- ------------ Net Unrealized Appreciation $ 4,540,006 $ 9,628,202 $ 3,157,221 $ 5,170,056 $ 5,816,493 $ 9,262,225 =========== ============ =========== =========== =========== ============
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 ========== ========== ========== ==========
35 Notes Delaware Investments Closed-End Municipal Bond Funds to Financial Statements (continued) 4. Dividend and Distribution Information (continued) 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 =========== ============ ===========
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 period ending September 30, 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 period ended September 30, 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 1.30% to 1.50% on Minnesota Municipal Fund, from 1.15% to 1.62% on Minnesota Municipal Fund II, from 1.28% to 1.50% on Minnesota Municipal Fund III, from 1.30% to 1.55% on Arizona Municipal Fund, from 1.30% to 1.55% on Florida Insured Municipal Fund and from 1.15% to 1.50% on Colorado Insured Municipal Fund during the period ended September 30, 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. 36 Notes Delaware Investments Closed-End Municipal Bond Funds to Financial Statements (continued) 5. Capital Stock (continued) 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 is 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 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(SM) - -------------------------------------- A member of Lincoln Financial Group(R) This semiannual 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 Walter P. Babich William E. Dodge Investment Manager Board Chairman Executive Vice President and Delaware Management Company Citadel Constructors, Inc. Chief Investment Officer -- Equity Philadelphia, PA King of Prussia, PA Delaware Investments Family of Funds Philadelphia, PA International Affiliate David K. Downes Delaware International Advisers Ltd. President and Chief Executive Officer Jude T. Driscoll London, England Delaware Investments Family of Funds Executive Vice President and Philadelphia, PA Head of Fixed Income Principal Office of the Funds Delaware Investments Family of Funds 2005 Market Street John H. Durham Philadelphia, PA Philadelphia, PA 19103-7057 Private Investor Gwynedd Valley, PA Richard J. Flannery Independent Auditors President and Chief Executive Officer Ernst & Young LLP John A. Fry Delaware Distributors, L.P. 2001 Market Street Executive Vice President Philadelphia, PA Philadelphia, PA 19103 University of Pennsylvania Philadelphia, PA Registrar and Stock Transfer Agent Mellon Investor Services, L.L.C. Anthony D. Knerr Overpeck Centre Consultant 85 Challenger Road Anthony Knerr & Associates Ridgefield Park, NJ 07660 New York, NY 800 851-9677 Ann R. Leven For Securities Dealers and Financial Former Treasurer Institutions Representatives National Gallery of Art 800 362-7500 Washington, DC Web site Thomas F. Madison www.delawareinvestments.com President and Chief Executive Officer MLM Partners, Inc. Number of Recordholders as of Minneapolis, MN September 30, 2002: Minnesota Municipal Income Fund I 370 Janet L. Yeomans Minnesota Municipal Income Fund II 610 Vice President and Treasurer Minnesota Municipal Income Fund III 142 3M Corporation Arizona Municipal Income Fund 113 St. Paul, MN Florida Insured Municipal Income Fund 198 Colorado Insured Municipal Thomas F. Madison and Janet L. Yeomans Income Fund 195 were elected by the preferred Shareholders of the Delaware Investments Closed-End Municipal Bond Funds.
(6849) Printed in the USA VOY-CEAR [9/02] IVES 11/02 J8729 -----END PRIVACY-ENHANCED MESSAGE-----