-----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, F/zJajV8WzMiRiTEjp12NrBd7EEN1VFngesV1s+2x6nG//+KfDic877s25qA315U Tpsrfecz9HP4mxccRi/hKQ== 0000950116-05-002112.txt : 20050611 0000950116-05-002112.hdr.sgml : 20050611 20050607160404 ACCESSION NUMBER: 0000950116-05-002112 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050331 FILED AS OF DATE: 20050607 DATE AS OF CHANGE: 20050607 EFFECTIVENESS DATE: 20050607 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-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-06568 FILM NUMBER: 05883004 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 N-CSR 1 n-csr.txt N-CSR UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act file number: 811-06568 Exact name of registrant as specified in charter: Delaware Investments Minnesota Municipal Income Fund, Inc. Address of principal executive offices: 2005 Market Street Philadelphia, PA 19103 Name and address of agent for service: Richelle S. Maestro, Esq. 2005 Market Street Philadelphia, PA 19103 Registrant's telephone number, including area code: (800) 523-1918 Date of fiscal year end: March 31 Date of reporting period: March 31, 2005 Item 1. Report to Stockholders Delaware Investments(R) CLOSED END ----------------------------------- A member of Lincoln Financial Group ANNUAL REPORT MARCH 31, 2005 - -------------------------------------------------------------------------------- DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS [LOGO]POWERED BY RESEARCH.(SM) TABLE OF CONTENTS - ------------------------------------------------------------------ PORTFOLIO MANAGEMENT REVIEW 1 - ------------------------------------------------------------------ PERFORMANCE SUMMARY 8 - ------------------------------------------------------------------ SECTOR ALLOCATION 10 - ------------------------------------------------------------------ FINANCIAL STATEMENTS: Statements of Net Assets 13 Statements of Operations 27 Statements of Changes in Net Assets 29 Financial Highlights 31 Notes to Financial Statements 37 - ------------------------------------------------------------------ REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 42 - ------------------------------------------------------------------ BOARD OF TRUSTEES/DIRECTORS AND OFFICERS 43 - ------------------------------------------------------------------ DIVIDEND REINVESTMENT PLANS Each Fund offers an automatic dividend reinvestment program. If Fund shares are registered in your name and you are not already reinvesting dividends but would like to do so, contact the dividend plan agent, Mellon Investor Services, L.L.C., at 800 851-9677. You will be asked to put your request in writing. If you have shares registered in "street" name, contact your financial advisor or the broker/dealer holding the shares. Under the current policies of Arizona Municipal Income Fund, Florida Insured Municipal Income Fund, Minnesota Municipal Income Fund I, and Minnesota Municipal Income Fund II, all distributions of net investment income and capital gains to common stock shareholders are automatically reinvested in additional shares unless shareholders elect to receive all dividends and other distributions in cash paid by check mailed directly to shareholders by the dividend plan agent. Under the current policies of Colorado Insured Municipal Income Fund and Minnesota Municipal Income Fund III, distributions of net investment income and capital gains to common shareholders will be paid in cash unless shareholders notify Mellon Investor Services, L.L.C. of their desire to participate in the dividend reinvestment program. After each Fund declares a dividend or determines to make a capital gains distribution, the plan agent will, as agent for the participants, receive the cash payment and use it to buy shares in the open market on the American Stock Exchange. The Funds will not issue any new shares in connection with the plan. You can contact Mellon at: Mellon Investor Services, L.L.C. Dividend Reinvestment Department Overpeck Centre 85 Challenger Road Ridgefield, NJ 07660 800 851-9677 Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested. Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. PORTFOLIO DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS MANAGEMENT REVIEW March 31, 2005 FUND MANAGERS Andrew M. McCullagh Senior Portfolio Manager Arizona Municipal Income Fund, Colorado Insured Municipal Income Fund Denise Franchetti Portfolio Manager Minnesota Municipal Income Funds I, II, III, Florida Insured Municipal Income Fund Arizona Municipal Income Fund Colorado Insured Municipal Income Fund Joseph Baxter Portfolio Manager Arizona Municipal Income Fund, Colorado Insured Municipal Income Fund, Minnesota Municipal Income Funds I, II, III, Florida Insured Municipal Income Fund Robert Collins Portfolio Manager Arizona Municipal Income Fund, Colorado Insured Municipal Income Fund, Minnesota Municipal Income Funds I, II, III, Florida Insured Municipal Income Fund Q: PLEASE DESCRIBE THE OVERALL CONDITIONS IN THE MUNICIPAL BOND MARKETS DURING THE FISCAL YEAR. A: During the fiscal year, the Federal Reserve embarked upon a tightening program to gradually eliminate the accommodative stance that has been in place since 2002-03. Just prior to the start of the fiscal year, the market was anticipating a higher federal funds rate, and rates across the yield curve moved up. For example, the 10-year Treasury Note had yields increase by over 100 basis points (a basis point equals 1/100th of a percent) from 3.68% on March 16, 2004 to a high of 4.87% on June 14, 2004. As bond yields and bond prices are inversely related, this was a particularly difficult period for bondholders. However, the municipal bond market dug in its heels and rallied over the next several months, even while the Federal Reserve started its tightening program. The June 30 hike in the fed funds rate from 1.00% to 1.25% was the first of several moves during the fiscal year, with additional 25-basis point increases coming in August, September, November, December, February and March. At the end of the fiscal year, the rate was 2.75%. A market rally in the face of a Federal Reserve tightening is unusual. Recent tightenings have resulted in the bond markets making an initial move to higher rates, similar to what we witnessed in the second quarter of 2004, followed by a period of consolidation before resuming a march to even higher rates. This time the rally started in June, before the first move by the Fed, and lasted over four months, until the end of October. During this period, yields on the 10-year Treasury Note decreased to 3.97%, nearly erasing all the market decline from earlier in the fiscal year. Since the end of September, the market has been range-bound with relatively narrow market moves. One of the economic releases providing support to the market against the tightening backdrop has been the monthly employment report. It was higher-than-anticipated non-farm payroll data that spooked the market in April, May and June, and several very weak releases that sparked the rally in the months following. Slightly-below trend releases of late have kept the market range-bound. Late in the fiscal year, persistent declines in the weekly jobless claims reports, along with higher commodity prices, contributed to market weakness and, as of March 31, 2005, yields in the bond markets were rising and threatening to break out of their recent range on the high side. In the long maturities, tax-exempt bonds outperformed taxable bonds early in the fiscal year, but since May, have steadily traded weaker against Treasury bonds, as the yield ratio between the 30-year maturities moved from 92.3% in mid-May to 96.9% at the period's end. One of the factors leading to the underperformance of long bonds in the municipal market was the lack of retail demand. Often, a 5% yield for long, high-grade tax-exempt bonds is viewed as an on/off switch for retail investors. When yields fall below 5%, we believe investors are much less interested in buying. Since May, the yields have declined from just above 5% to close the fiscal year at about 4.60%. Finally, just as it did in fiscal year 2004, credit performed well as spreads continued to compress. For intermediate and long-term tax-exempt bonds, the yield offered to "buy" credit, as defined by the spreads between AAA and BBB-rated securities, narrowed by nearly 25 basis points. This narrowing spread helped A and BBB-rated sectors outperform the higher rated AA and AAA rated sectors during the year. Over the last five years, there is very little difference between the returns in the various rating categories, as the period three and four years ago was difficult for states and municipalities (recall all the fiscal stress and budget shortfalls), which caused their credit spreads to widen. 1 MINNESOTA MUNICIPAL INCOME FUNDS I, II, AND III Q: WHAT CONDITIONS PREVAILED IN THE MINNESOTA DEBT MARKET? A: Consistent with activity the previous year, the Minnesota tax-exempt debt market mirrored the national markets. Yields on long-term, high-grade Minnesota bonds were virtually unchanged in the fiscal year, only moving three basis points from 4.57% on March 31, 2004 to 4.60% on March 31, 2005 (source: Municipal Marketing Data [Thompson]). During the 12 months ending March 31, 2005, the Minnesota portion of the Lehman Municipal Bond Index generated a 2.36% total return, 31 basis points below the 2.67% total return of the overall index. Fully half of that difference is due to the influence of California bonds on the overall index. Since a state fiscal crisis in 2003, California bonds have come off their depressed levels, tightened to the general market and posted significantly higher returns. Over the last 12 months, the Lehman Municipal Bond Index, excluding California, would have returned 2.51%. The supply of new issues decreased nationally during 2004, while new issuance in Minnesota held steady. Nationally, the supply was down 6.6%, but still represented the third most active year in history, exceeded only by 2003 and 2002. During the same time period, Minnesota experienced a modest 2% increase over 2003's new issuance. Some of the decline in issuance nationally was erased in the first quarter of 2005, when the total volume of new issues set a record in the first quarter, with more than $96 billion brought to market. In Minnesota, issuance was up by over 38% from the volume in the first quarter of last year. Minnesota's fiscal condition improved during the year, with revenues increasing by over 5.1% in fiscal 2004. Employment expanded at a 1.4% clip over the last year, with manufacturing bucking the national downward trend and growing at an even better 2.2% pace. Unemployment at fiscal year end stood at 4.2%, below the national rate of 5.4%. Expectations of a budget shortfall continue to ratchet down as the Legislature is in the midst of its biennial budget process. As part of that process, the governor has proposed cutbacks in the eligibility for Medicare, attempting to rein in the spending within the health and human services area from its current 18% growth rate. Recognizing the strong performance by the state, Standard & Poor's upgraded Minnesota's school enhancement program bonds from AA+ to AAA, impacting about $1.5 billion of school district bond issues, in the third quarter of 2004. A positive change in statutory requirements for debt service reserves resulted in Moody's upgrading general obligation ratings of numerous Minnesota cities and counties. During calendar year 2004, the rating agencies upgrade-to-downgrade ratio for Minnesota was over 20 to 1, with many of the upgrades for general obligation bonds issued by counties, cities, and school districts. Q: AGAINST THIS BACKDROP, HOW DID THE FUNDS PERFORM? A: For the fiscal year ended March 31, 2005, the Delaware Investments Minnesota Municipal Income Funds I, II, & III returned 2.87%, 4.03%, and 3.03%* (all returns reflect shares at net asset value with distributions reinvested), respectively, while the Lipper Minnesota Municipal Debt Funds universe average returned 3.62%, and the Lehman Brothers Municipal Bond Index returned 2.67% during the same period. The Funds' dividends from net investment income during the past 12 months were exempt from federal income and Minnesota State personal income taxes. Q: WHAT STRATEGIES AFFECTED FUND PERFORMANCE? A: The Funds hold a fair amount of seasoned, higher coupon bonds that trade based on their short call dates (the date at which the issuer may call the bond at par from investors). As portfolio managers, we must decide whether to sell these bonds early, forfeit the higher coupon, and realize a capital gain in order to seek better price performance. We did not believe the low-interest-rate environment and the commencing of the Fed tightening cycle was the proper time to sell early, and therefore, opted to allow our positions to roll down the yield curve. By rolling down the yield curve, we allowed them to be called or mature. This afforded us the opportunity to collect high coupon income as long as possible, while minimizing realized capital gains in the portfolios. However, these shorter bonds did impede price performance when yields declined in the second half of 2004. Normally, when the Fed begins to raise the fed funds rate, longer-term rates begin to rise in tandem. However, this tightening cycle was unusual in the fact that long-term rates actually declined. Federal Reserve Chairman Alan Greenspan called this phenomenon a "conundrum" in recent testimony to Congress. Therefore, as the bonds did roll off, we chose to invest the proceeds in premium bonds that should act more defensively in a rising-rate environment. That rising-rate environment was slow to develop in 2004, but rates have ended the first quarter higher than calendar year-end. *Past performance is not a guarantee of future results and a portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 2 Over the last two years, lower-rated bonds outperformed higher quality bonds. For instance, over the last 12 months, in the Lehman Municipal Bond Index, triple-A rated bonds returned 1.88%, while single-A bonds returned 3.41%, and triple-B bonds returned 8.56%. Within the Minnesota Municipal Income Funds, Fund II had a lower weighting in triple-A rated bonds than its counterparts. Conversely, it had a higher weighting in lower-rated bonds, and thus superior return. Other key contributors to return in the Funds have been the hospital sector and IDR/PCR sector, which includes corporate bonds. Our funds have always had a strong commitment to the hospital sector, which over the trailing 12 months has had the second highest sector return (+5.44%) in the Lehman index. We have a smaller commitment to the corporate sector, but do favor certain industrial development projects secured by companies, such as Potlatch and International Paper. These securities have performed well for the funds. Q: WHAT WAS YOUR STRATEGY IN MANAGING THE MINNESOTA FUNDS? A: With interest rates at historically low levels throughout the period, we anticipated an eventual rise in rates and continued to position the three portfolios for such a scenario. Specifically, we kept the Funds' durations relatively modest to make the portfolios less vulnerable in the event rates increase (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). The Funds' durations did naturally lengthen throughout the past 12 months as bonds matured from the portfolios and we were forced to reinvest the proceeds at lower prevailing yields. This activity was manageable throughout the period, however, and as of March 31, 2005, we believed the Fund was well-positioned for the higher interest rates. When making new investments, we continued to emphasize public-power revenue bonds, which at period end made up 30.7%, 11.9%, and 21.8% of portfolio assets in Minnesota Municipal Income Funds I, II, and III, respectively. Our focus was on basic utilities, which provide essential services such as electric generation, transmission, and distribution. Unlike their investor-owned counterparts, the regulated utilities we favored provided relatively stable revenue streams. We also liked that most bonds in this area are insured, giving the Funds an extra layer of security. Because there was a healthy supply of public power bonds during the period, we were able to add to our position in this sector. We also favored the hospital sector during the period. Following a number of credit problems in the late 1990s and early 2000s, most hospitals have had improvements in their financial strength. Despite these improvements, we believe many hospital bonds are still trading at somewhat depressed levels, given the steady credit improvements made. Through careful research, we have sought to identify attractive value opportunities that we believe can offer higher yields with only a modest amount of additional risk. By contrast, continuing care retirement community (CCRC) bonds represented one area of the market that we de-emphasized. We had concerns about the issuers' ability to meet lofty occupancy-rate targets at these care facilities for seniors. ARIZONA MUNICIPAL INCOME FUND Q: WHAT CONDITIONS PREVAILED IN THE ARIZONA DEBT MARKET? A: While the Arizona tax-exempt debt markets mirrored the national markets, certain aspects of the municipal market within Arizona resulted in the state's municipal bond market underperforming national averages. During the 12 months ending March 31, 2005, the Arizona portion of the Lehman Brothers Municipal Bond Index generated a 1.97% total return, 70 basis points below the 2.67% total return of the overall Lehman index. Nationally, most bond issues come to market with long-term bonds (typically due in 25 and 30 years) as part of the issue structure. Within Arizona, a large percentage of the issuance comes with maximum maturities of 20 years. As a result, the average maturity of the Arizona portion of the index is approximately 1.5 years less than the overall index. *Past performance is not a guarantee of future results and a portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 3 These short maturities in Arizona are important to note because the best performing maturities within the tax-exempt market over the last 12 months have been long bonds. As mentioned, the overall index had a total return of 2.67% during the period. That compares with the Lehman Brothers Long Bond Index (bonds over 22 years to maturity) return of 5.46% during the same time period. It is easy to see why Arizona lagged behind the national market in such an environment. During the calendar year 2004, supply of new issues decreased nationally, but was higher in Arizona. Nationally, the supply was down 6.6%, but still represented the third most active year in history, exceeded only by 2003 and 2002. Arizona's new issuance rose by 15% for the year. These roles reversed in the first quarter of 2005, with national supply setting a record and Arizona experiencing a particularly dry period. The total volume of new issues set a record for issuance in the first quarter, with more than $96 billion brought to market. In Arizona, the issuance was down by over 40% from last year's levels. Arizona's fiscal condition improved during the year, with revenues increasing by more than 10% in fiscal 2004 and accelerated to 14% growth in the first quarter of fiscal year 2005. Growth was driven by both the strong economic environment and tax increases. Employment continues to expand at a rapid pace within the state, with unemployment falling over the last 12 months from 5.3% to 4.4%. One of the strongest areas of expansion is construction, with employment growth surging 8.8% over the fiscal year. Overall, this growth has enabled the state to generate a healthy balance in its general fund of 4% at the end of fiscal 2004. The growth is not limited to the state. Pima County had its general obligation rating raised by Standard & Poor's from A+ to AA- in the second quarter of 2004. The rating agency noted the expansion of the county's tax base as a driver of the higher rating. Q: AGAINST THIS BACKDROP, HOW DID THE FUND PERFORM? A: For the fiscal year ended March 31, 2005, the Delaware Investments Arizona Municipal Income Fund returned 3.34%* (shares at net asset value with distributions reinvested), underperforming the Lipper Other States Municipal Debt Funds Average of 3.73%, but outperforming the Lehman Brothers Municipal Bond Index return of 2.67% during the same period. The Fund's dividends from net income during the past 12 months were exempt from federal income and Arizona State personal income taxes. Q: WHAT STRATEGIES AFFECTED FUND PERFORMANCE? A: The Fund underperformed its Lipper peer group for two primary reasons - calls of high coupon housing bonds and a heavy weighting in pre-refunded bonds. As the portfolio has seasoned, several of its positions in housing bonds, both multi- and single-family structures, were getting into the range where calls (the issuer redeeming the bonds at 100 or a slight premium prior to final maturity) were beginning to make economic sense for the issuer. In this most recent fiscal year, many of these issues were called. Our exposure to the housing sectors decreased during the year from 7.09% at the beginning to 5.8% as of March 31, 2005. The combined housing bond sectors generated a below-average return of about 1.30% during the year. While this is low, it is important to recognize the defensive nature of these bonds, with little price performance opportunities, up or down. Another factor affecting fund performance has been an overweighting in pre-refunded bonds. Pre-refunded bonds are seasoned, higher coupon bonds that trade to short calls. While they produce above-average income, their short duration impedes price performance. As portfolio managers, we must decide whether to sell these bonds early, forfeit the higher coupon, and realize a capital gain in order to seek better price performance. We did not believe the low interest rate environment and the commencing of the Fed tightening cycle was the proper time to execute this strategy. Normally, when the Fed begins to raise the fed funds rate, longer-term rates begin to rise in tandem. However, this tightening cycle was unusual in the fact that long-term rates actually declined. Federal Reserve Chairman Alan Greenspan called this a "conundrum" in recent testimony to Congress. One of the strategies that paid off during the year was an investment in mid- and low-investment-grade bonds (A- and BBB-rated). Lower grade bonds have performed well, and we have invested approximately 5.9% of the assets in low-investment-grade issues, which generated a 5.56% total return over the last 12 months. It is important to note that the Fund has no exposure to below-investment-grade issues. *Past performance is not a guarantee of future results and a portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 4 In addition, we reinvested maturity and called bond proceeds in some longer-term securities, which happened to be our best performers in the 12-month trailing period. However, that did not represent a large enough portion of the portfolio to have a significant impact on the Fund's return. Since Greenspan's testimony, longer rates have now begun to rise. FLORIDA INSURED MUNICIPAL INCOME FUND Q: WHAT CONDITIONS PREVAILED IN THE FLORIDA DEBT MARKET? A: Consistent with activity the previous year, the Florida tax-exempt debt markets mirrored the national markets. Yields on long-term high-grade Florida bonds were virtually unchanged in the fiscal year, only moving one basis point from a 4.65% on March 31, 2004 to 4.64% on March 31, 2005 (source: Municipal Marketing Data [Thompson]). During the 12 months ending March 31, 2005, the Florida portion of the Lehman Brothers Municipal Bond Index slightly outperformed the overall index. The supply of new issues decreased both nationally and in the state during calendar year 2004. Nationally, the supply was down 6.6%, but still represented the third most active year in history, exceeded only by 2003 and 2002. Florida's new issuance was down dramatically, falling by nearly 40% for the year. Some of the decline, nationally and specifically within Florida, was erased in the first quarter of 2005. In fact, the total volume of new issues set a record for issuance in the first quarter with more than $96 billion brought to market. In Florida, issuance was up by more than 67% from the depressed levels of last year. Florida's fiscal condition improved during the year, with revenues increasing 9.1% in fiscal 2004 and accelerated with 12.7% growth the first quarter of fiscal 2005. Employment continues to expand at a rapid pace within the state. It rose while the rest of the nation lost jobs. As a result, unemployment was down to 4.5% in February 2005. This has enabled state finances to remain strong and the state benefited by generating the highest general fund balance of any state, standing at $5.0 billion. This strong performance by the state was recognized by the ratings agencies, and both Moody's and Standard & Poor's rewarded Florida by upgrading its general obligation bonds (to Aa1 and AAA, respectively) in the first quarter of 2005. In his fiscal 2005-06 budget proposal, the governor has included a two-year phase out of the state's Intangibles Tax. This tax was reduced in 1999 with an intention of phasing it out, but the budget squeeze in the early 2000's forced the state to keep the tax as an important revenue source. Elimination of the state's intangibles tax would cost Florida approximately $300 million per year in lost revenues. We are closely monitoring the situation. Q: AGAINST THIS BACKDROP, HOW DID THE FUND PERFORM? A: For the fiscal year ended March 31, 2005, the Delaware Investments Florida Insured Municipal Income Fund returned 1.59%* (shares at net asset value with distributions reinvested), underperforming both the Lipper Florida Municipal Debt Funds Universe average of 3.72% and the Lehman Brothers Municipal Bond Index return of 2.67% during the same period. The Fund's dividends from net investment income during the past 12 months were exempt from federal income and Florida tangible personal property taxes. Q: WHAT STRATEGIES AFFECTED FUND PERFORMANCE? A: The Fund underperformed its Lipper peer group and the Lehman Index primarily due to the nature of the Fund being largely a triple-A insured fund. Over the last two years, triple-A bonds have underperformed lower-rated securities. For instance, over this 12-month period, in the Lehman Brothers Municipal Bond Index, triple-A rated bonds returned 1.88%, while single-A bonds returned 3.41%, and triple-B bonds returned 8.56%. Although we cannot change the insured mandate of the Fund, we can state that we have found, over time, that these discrepancies revert to the mean. For instance, over a five-year cumulative period, the triple-A sector return for the Lehman Brothers Municipal Bond Index was 34%, while the single-A sector return was 32%, and the triple-B sector was 39%. *Past performance is not a guarantee of future results and a portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 5 Another factor affecting performance of the Fund has been an overweighting in pre-refunded bonds. Pre-refunded bonds are seasoned, higher coupon bonds that trade to short calls. While they produce above average income, their short duration impedes price performance. As portfolio managers, we must decide whether to sell these bonds early, forfeit the higher coupon, and realize a capital gain in order to seek better price performance. We did not believe the low-interest-rate environment and the commencing of the Fed tightening cycle was the proper time to execute this strategy. Normally, when the Fed begins to raise the fed funds rate, longer-term rates begin to rise in tandem. However, this tightening cycle was unusual in that long-term rates actually declined. Federal Reserve Chairman Alan Greenspan called this phenomenon a "conundrum" in recent testimony to Congress. We did, however, reinvest maturity and called bond proceeds in some longer-term securities, which happened to be our best performers in the 12-month trailing period. However, this did not represent a large enough portion of the portfolio to have a significant impact on the Fund's return. Since Greenspan's testimony, longer rates have now begun to rise. COLORADO INSURED MUNICIPAL INCOME FUND Q: WHAT CONDITIONS PREVAILED IN THE COLORADO DEBT MARKET? A: After underperforming the general market substantially in the previous fiscal year, the Colorado municipal market generated total returns that were close to market levels. During the 12 months ending March 31, 2005, the Colorado portion of the Lehman Index generated a 2.37% total return, 30 basis points below the 2.67% total return of the overall Lehman Brothers Municipal Bond Index. Fully half of that difference is due to the influence of California bonds in the overall index. Since its fiscal crisis in 2003, California bonds have come off their depressed levels, tightened to the general market, and posted significantly higher returns. In fact, over the last 12 months, the Lehman index, excluding California, would have returned 2.51%. During calendar year 2004, supply of new issues decreased nationally, but was higher in Colorado. Nationally, the supply was down 6.6%, but still represented the third most active year in history, exceeded only by 2003 and 2002. Colorado's new issuance rose by 22% for the year. These roles reversed in first quarter 2005, with national supply setting a record and Colorado experiencing a particularly dry period. The total volume of new issues set a record for issuance in the first quarter, with more than $96 billion brought to market. In Colorado, the issuance was down by more than 20% from last year's levels. Colorado is rebounding from the severe economic downturn it experienced at the beginning of the decade due to the decline in telecommunications and technology. State revenues increased 5.1% in fiscal 2004 after declining 5.1% in fiscal 2003. Revenue growth accelerated into this fiscal year, increasing 6.5% in the first quarter of fiscal 2005. The state is starting to rebuild its general fund balance, with a fiscal 2004-ending balance equaling about 3.9% of expenditures. Unemployment has declined over the last year from 5.8% to 4.9%. The bond market will be closely monitoring the budgeting process as the Governor has proposed an $850 million tobacco settlement bond issue, part of the proceeds to go to operating income and part to help create a "rainy day" fund. Growth is not limited to state government. While there were not any significant ratings changes within Colorado during the fiscal year, Moody's upgraded the general obligation ratings of several school districts' bonds. In most of these upgrades, the ratings agency noted the expansion of the tax base as one of the drivers of the higher ratings. Q: AGAINST THIS BACKDROP, HOW DID THE FUND PERFORM? A: For the fiscal year ended March 31, 2005, the Delaware Investments Colorado Insured Municipal Income Fund returned 2.56%* (shares at net asset value with distributions reinvested), underperforming the Lipper Other States Municipal Debt Funds Universe average of 3.73% and the Lehman Brothers Municipal Bond Index return of 2.67% during this period. The Fund's dividends from net investment income during the past 12 months were exempt from federal income and Colorado State personal income taxes. *Past performance is not a guarantee of future results and a portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 6 Q: WHAT STRATEGIES AFFECTED FUND PERFORMANCE? A: The Fund underperformed its Lipper peer group primarily due to the nature of the Fund being largely a triple-A insured fund. Over the last two years, triple-A bonds have underperformed lower-rated securities. For instance, over this 12-month period, in the Lehman Brothers Municipal Bond Index, triple-A rated bonds returned 1.88%, while single-A bonds returned 3.41%, and triple-B bonds returned 8.56%. Although we cannot change the insured mandate of the Fund, we can state that we have found, over time, that these discrepancies revert to the mean. For instance, over a cumulative five-year period, the triple-A sector return for the Lehman Brothers Municipal Bond Index was 34%, while the single-A sector return was 32%, and the triple-B sector 39%. Another factor affecting performance has been an overweighting in bonds with medium durations. Due to the seasoning of the portfolio, many bonds that were originally purchased with 10-year call protection are now being priced based on shorter calls that are now in the three- to seven-year range. The three- and five-year portions of the Lehman index only returned 0.09% and 0.26% over the period, the worst of any maturities. Longer bonds, with more than 22 years to maturity, were the best-performing sector, with a 5.46% total return over the fiscal year. Seasoned bonds generally are higher coupon bonds that were purchased in a higher yield environment. While they produce above-average income, their short duration can impede price performance. As portfolio managers, we must decide whether to sell these bonds early, forfeit the higher coupon, and realize a capital gain in order to seek better price performance. We did not believe the low interest rate environment and the commencing of the Fed tightening cycle was the proper time to execute this strategy. Normally, when the Fed begins to raise the fed funds rate, longer-term rates begin to rise in tandem. However, this tightening cycle was unusual in that long-term rates actually declined. Federal Reserve Chairman Alan Greenspan even called this a "conundrum" in recent testimony to Congress. We did, however, reinvest maturity and called bond proceeds in some longer-term securities, which happened to be among our best performers in the 12-month trailing period. However, that did not represent a large enough portion of the portfolio to have a significant impact on the Fund's return. Since Greenspan's testimony, longer rates have now begun to rise. Currently, we are maintaining a modestly defensive position, holding a duration (a measure of the portfolio's sensitivity to interest rate changes) of 4.8 years, below that of both its Lipper peer group (5.5 year average) and the Lehman Brothers Municipal Bond Index (5.45 years). *Past performance is not a guarantee of future results and a portion of the income from tax-exempt funds may be subject to the alternative minimum tax. 7 PERFORMANCE SUMMARY DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUNDS I, II, III FUND BASICS As of March 31, 2005 - -------------------------------------------------------------------------------- FUND OBJECTIVE: The Funds seek to provide current income exempt from both regular federal income tax and Minnesota personal income tax, consistent with preservation of capital. - -------------------------------------------------------------------------------- TOTAL FUND NET ASSETS: Fund I $37.74 million Fund II $107.96 million Fund III $25.72 million - -------------------------------------------------------------------------------- NUMBER OF HOLDINGS: Fund I 58 Fund II 93 Fund III 43 - -------------------------------------------------------------------------------- FUND START DATE: Fund I May 1, 1992 Fund II February 26, 1993 Fund III October 29, 1993 - -------------------------------------------------------------------------------- YOUR FUND MANAGERS: Joseph Baxter is vice president and senior portfolio manager of municipal bond investments. Prior to joining Delaware in 1999, he held investment positions with First Union. Most recently, he served as a municipal portfolio manager for the Evergreen Funds. Mr. Baxter is a graduate of LaSalle University and joined Delaware Investments in 1999. Robert Collins is vice president and senior portfolio manager of municipal bond development. Prior to joining Delaware Investments, Mr. Collins was a senior vice president and director of portfolio management in the Municipal Investment Group within PNC Advisors. Mr. Collins earned bachelor's degree in economics from Ursinus College. He is a Chartered Financial Analyst and a member of the Financial Analysts of Philadelphia. Denise Franchetti received bachelor's and MBA degrees from LaSalle University. Prior to joining Delaware Investments in 1997, Ms. Franchetti was a fixed-income trader for Provident Mutual Life Insurance Company. Before that, she worked as an investment analyst for General Accident Insurance Company. Ms. Franchetti, a CFA Charterholder, is a member of the Association for Investment Management and Research and the Financial Analysts of Philadelphia. DELAWARE INVESTMENTS ARIZONA MUNICIPAL INCOME FUND FUND BASICS As of March 31, 2005 - -------------------------------------------------------------------------------- FUND OBJECTIVE: The Fund seeks to provide current income exempt from both regular federal income tax and from Arizona personal income tax, consistent with preservation of capital. - -------------------------------------------------------------------------------- TOTAL FUND NET ASSETS: $44.94 million - -------------------------------------------------------------------------------- NUMBER OF HOLDINGS: 46 - -------------------------------------------------------------------------------- FUND START DATE: February 26, 1993 - -------------------------------------------------------------------------------- YOUR FUND MANAGERS: 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. Joseph Baxter Robert Collins Denise Franchetti - -------------------------------------------------------------------------------- 8 PERFORMANCE SUMMARY DELAWARE INVESTMENTS FLORIDA INSURED MUNICIPAL INCOME FUND FUND BASICS As of March 31, 2005 - -------------------------------------------------------------------------------- FUND OBJECTIVE: 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: $37.17 million - -------------------------------------------------------------------------------- NUMBER OF HOLDINGS: 35 - -------------------------------------------------------------------------------- FUND START DATE: February 26, 1993 - -------------------------------------------------------------------------------- YOUR FUND MANAGERS: Joseph Baxter Robert Collins Denise Franchetti - -------------------------------------------------------------------------------- DELAWARE INVESTMENTS COLORADO INSURED MUNICIPAL INCOME FUND FUND BASICS As of March 31, 2005 - -------------------------------------------------------------------------------- FUND OBJECTIVE: The Fund seeks to provide current income exempt from both regular federal income tax and Colorado state personal income tax, consistent with preservation of capital. - -------------------------------------------------------------------------------- TOTAL FUND NET ASSETS: $75.36 million - -------------------------------------------------------------------------------- NUMBER OF HOLDINGS: 49 - -------------------------------------------------------------------------------- FUND START DATE: July 29, 1993 - -------------------------------------------------------------------------------- YOUR FUND MANAGERS: Andrew M. McCullagh Joseph Baxter Robert Collins Denise Franchetti - -------------------------------------------------------------------------------- 9 SECTOR ALLOCATION As of March 31, 2005 The SEC adopted a requirement that all funds present their categories of portfolio holdings in a table, chart, or graph format in their annual and semiannual shareholder reports, whether or not a schedule of investments is utilized. The following charts list the Fund's categories of portfolio holdings as a percentage of total net assets and is provided in compliance with such requirement. DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND, INC. PERCENTAGE SECTOR OF NET ASSETS - --------------------------------------------------------------------------- MUNICIPAL BONDS 149.69% - --------------------------------------------------------------------------- Airport Revenue Bonds 10.34% City General Obligation Bonds 4.12% Continuing Care/Retirement Revenue Bonds 2.43% Corporate-Backed Revenue Bonds 4.15% Escrowed to Maturity Bonds 13.54% Higher Education Revenue Bonds 5.74% Hospital Revenue Bonds 17.42% Miscellaneous Revenue Bonds 7.19% Multifamily Housing Revenue Bonds 6.13% Municipal Lease Revenue Bonds 4.60% Parking Revenue Bonds 1.83% Political Subdivision General Obligation Bonds 8.86% Pre-Refunded Bonds 8.71% Public Power Revenue Bonds 30.69% School District General Obligation Bonds 17.08% Single Family Housing Revenue Bonds 2.26% State General Obligation Bonds 3.20% Tax Increment/Special Assessment Bonds 1.40% - --------------------------------------------------------------------------- SHORT-TERM INVESTMENTS 1.46% - --------------------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES 151.15% - --------------------------------------------------------------------------- RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.85% - --------------------------------------------------------------------------- LIQUIDATION VALUE OF PREFERRED STOCK (53.00%) - --------------------------------------------------------------------------- TOTAL NET ASSETS 100.00% - --------------------------------------------------------------------------- DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND II, INC. PERCENTAGE SECTOR OF NET ASSETS - --------------------------------------------------------------------------- MUNICIPAL BONDS 148.99% - --------------------------------------------------------------------------- Airport Revenue Bonds 9.94% City General Obligation Bonds 3.84% Continuing Care/Retirement Revenue Bonds 2.31% Corporate-Backed Revenue Bonds 5.51% Escrowed to Maturity Bonds 15.17% Higher Education Revenue Bonds 10.23% Hospital Revenue Bonds 23.38% Miscellaneous Revenue Bonds 3.80% Multifamily Housing Revenue Bonds 9.35% Municipal Lease Revenue Bonds 11.20% Parking Revenue Bonds 1.23% Political Subdivision General Obligation Bonds 6.66% Pre-Refunded Bonds 12.94% Public Power Revenue Bonds 11.93% School District General Obligation Bonds 12.52% Single Family Housing Revenue Bonds 2.57% State General Obligation Bonds 4.36% Tax Increment/Special Assessment Bonds 0.49% Territorial General Obligation Bonds 1.07% Territorial Revenue Bonds 0.49% - --------------------------------------------------------------------------- SHORT-TERM INVESTMENTS 3.15% - --------------------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES 152.14% - --------------------------------------------------------------------------- RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 3.44% - --------------------------------------------------------------------------- LIQUIDATION VALUE OF PREFERRED STOCK (55.58%) - --------------------------------------------------------------------------- TOTAL NET ASSETS 100.00% - --------------------------------------------------------------------------- 10 SECTOR ALLOCATION (CONTINUED) As of March 31, 2005 DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND III, INC. PERCENTAGE SECTOR OF NET ASSETS - --------------------------------------------------------------------------- MUNICIPAL BONDS 152.50% - --------------------------------------------------------------------------- Airport Revenue Bonds 9.58% City General Obligation Bonds 5.04% Continuing Care/Retirement Revenue Bonds 9.65% Corporate-Backed Revenue Bonds 7.51% Escrowed to Maturity Bonds 12.14% Higher Education Revenue Bonds 5.26% Hospital Revenue Bonds 21.10% Miscellaneous Revenue Bonds 1.01% Multifamily Housing Revenue Bonds 7.67% Municipal Lease Revenue Bonds 10.12% Parking Revenue Bonds 6.00% Political Subdivision General Obligation Bonds 9.65% Pre-Refunded Bonds 15.17% Public Power Revenue Bonds 21.83% School District General Obligation Bonds 4.07% Single Family Housing Revenue Bonds 2.52% Territorial General Obligation Bonds 2.02% Territorial Revenue Bonds 2.16% - --------------------------------------------------------------------------- SHORT-TERM INVESTMENTS 2.14% - --------------------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES 154.64% - --------------------------------------------------------------------------- RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 3.68% - --------------------------------------------------------------------------- LIQUIDATION VALUE OF PREFERRED STOCK (58.32%) - --------------------------------------------------------------------------- TOTAL NET ASSETS 100.00% - --------------------------------------------------------------------------- DELAWARE INVESTMENTS ARIZONA MUNICIPAL INCOME FUND, INC. PERCENTAGE SECTOR OF NET ASSETS - --------------------------------------------------------------------------- MUNICIPAL BONDS 148.26% - --------------------------------------------------------------------------- Airport Revenue Bonds 6.89% City General Obligation Bonds 1.15% Convention Center/Auditorium/Hotel Revenue Bonds 2.29% Dedicated Tax & Fees Revenue Bonds 6.88% Escrowed to Maturity Bonds 10.86% Higher Education Revenue Bonds 5.88% Hospital Revenue Bonds 19.21% Miscellaneous Revenue Bonds 8.24% Multifamily Housing Revenue Bonds 1.10% Municipal Lease Revenue Bonds 9.54% Political Subdivision General Obligation Bonds 3.51% Pre-Refunded Bonds 18.15% Public Power Revenue Bonds 3.44% School District General Obligation Bonds 17.27% Single Family Housing Revenue Bonds 4.67% Territorial Revenue Bonds 23.80% Water & Sewer Revenue Bonds 5.38% - --------------------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES 148.26% - --------------------------------------------------------------------------- RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 7.37% - --------------------------------------------------------------------------- LIQUIDATION VALUE OF PREFERRED STOCK (55.63%) - --------------------------------------------------------------------------- TOTAL NET ASSETS 100.00% - --------------------------------------------------------------------------- 11 SECTOR ALLOCATION (CONTINUED) As of March 31, 2005 DELAWARE INVESTMENTS FLORIDA INSURED MUNICIPAL INCOME FUND PERCENTAGE SECTOR OF NET ASSETS - --------------------------------------------------------------------------- MUNICIPAL BONDS 151.00% - --------------------------------------------------------------------------- Airport Revenue Bonds 2.83% Dedicated Tax & Fees Revenue Bonds 16.89% Higher Education Revenue Bonds 7.73% Hospital Revenue Bonds 21.82% Miscellaneous Revenue Bonds 2.76% Multifamily Housing Revenue Bonds 23.18% Municipal Lease Revenue Bonds 9.62% Ports & Harbors Revenue Bonds 2.76% Pre-Refunded Bonds 47.12% Public Power Revenue Bonds 5.47% Tax Increment/Special Assessment Bonds 0.82% Water & Sewer Revenue Bonds 10.00% - --------------------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES 151.00% - --------------------------------------------------------------------------- RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 2.81% - --------------------------------------------------------------------------- LIQUIDATION VALUE OF PREFERRED STOCK (53.81%) - --------------------------------------------------------------------------- TOTAL NET ASSETS 100.00% - --------------------------------------------------------------------------- DELAWARE INVESTMENTS COLORADO INSURED MUNICIPAL INCOME FUND, INC. PERCENTAGE SECTOR OF NET ASSETS - --------------------------------------------------------------------------- MUNICIPAL BONDS 150.37% - --------------------------------------------------------------------------- Airport Revenue Bonds 10.47% City General Obligation Bonds 2.74% Continuing Care/Retirement Revenue Bonds 3.56% Convention Center/Auditorium/Hotel Revenue Bonds 4.08% Dedicated Tax & Fees Revenue Bonds 11.29% Higher Education Revenue Bonds 33.23% Hospital Revenue Bonds 1.95% Multifamily Housing Revenue Bonds 3.18% Municipal Lease Revenue Bonds 15.70% Parking Revenue Bonds 3.54% Political Subdivision General Obligation Bonds 10.24% Pre-Refunded Bonds 13.85% School District General Obligation Bonds 10.24% Turnpike/Toll Road Revenue Bonds 13.84% Water & Sewer Revenue Bonds 12.46% - --------------------------------------------------------------------------- SHORT-TERM INVESTMENTS 0.66% - --------------------------------------------------------------------------- TOTAL MARKET VALUE OF SECURITIES 151.03% - --------------------------------------------------------------------------- RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 2.05% - --------------------------------------------------------------------------- LIQUIDATION VALUE OF PREFERRED STOCK (53.08%) - --------------------------------------------------------------------------- TOTAL NET ASSETS 100.00% - --------------------------------------------------------------------------- 12 STATEMENTS DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND, INC. OF NET ASSETS March 31, 2005 Principal Market Amount Value MUNICIPAL BONDS - 149.69% Airport Revenue Bonds - 10.34% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A 5.00% 1/1/22 (MBIA) $1,000,000 $ 1,041,310 5.00% 1/1/30 (AMBAC) 250,000 253,460 Series C 5.25% 1/1/32 (FGIC) 2,500,000 2,609,075 ----------- 3,903,845 ----------- City General Obligation Bonds - 4.12% Metropolitan Council Minnesota (Minneapolis/St. Paul Metropolitan Area) Series C 5.00% 2/1/22 500,000 521,950 Willmar (Rice Memorial Hospital Project) 5.00% 2/1/32 (FSA) 1,000,000 1,032,970 ----------- 1,554,920 ----------- Continuing Care/Retirement Revenue Bonds - 2.43% St. Paul Housing & Redevelopment Authority Revenue (Franciscan Health Project) 5.40% 11/20/42 (GNMA) (FHA) 880,000 917,426 ----------- 917,426 ----------- Corporate-Backed Revenue Bonds - 4.15% Anoka County Solid Waste Disposal National Rural Co-Op Utility (United Power Association) Series A 6.95% 12/1/08 (AMT) 560,000 563,455 Sartell Environmental Improvement Revenue (International Paper) Series A 5.20% 6/1/27 1,000,000 1,003,290 ----------- 1,566,745 ----------- Escrowed to Maturity Bonds - 13.54% Dakota/Washington Counties Housing & Redevelopment Authority Bloomington Single Family Residential Mortgage Revenue 8.375% 9/1/21 (GNMA) (FHA) (AMT) 2,555,000 3,715,762 Southern Minnesota Municipal Power Agency Series B 5.50% 1/1/15 (AMBAC) 390,000 392,613 5.75% 1/1/11 (FGIC) 1,000,000 999,910 ----------- 5,108,285 ----------- Higher Education Revenue Bonds - 5.74% Minnesota State Higher Education Facilities Authority (College of St. Benedict) Series 5-W 5.00% 3/1/20 1,000,000 1,025,250 University of Minnesota Series A 5.50% 7/1/21 1,000,000 1,139,840 ----------- 2,165,090 ----------- Principal Market Amount Value MUNICIPAL BONDS (continued) Hospital Revenue Bonds - 17.42% Bemidji Hospital Facilities Revenue (North County Health Services) 5.00% 9/1/24 (RADIAN) $1,000,000 $ 1,027,390 Duluth Economic Development Authority Health Care Facilities Revenue (Benedictine Health System - St. Mary's Hospital) 5.25% 2/15/33 1,250,000 1,268,963 Minneapolis Health Care System Revenue (Allina Health Systems) Series A 5.75% 11/15/32 1,100,000 1,164,262 Minnesota Agricultural & Economic Development Health Care System (Fairview Hospital) Series A 6.375% 11/15/29 1,750,000 1,902,740 Shakopee Health Care Facilities Revenue (St. Francis Regional Medical Center) 5.25% 9/1/34 500,000 505,160 St. Paul Housing & Redevelopment Authority Health Care Facilities Revenue (Regions Hospital Project) 5.30% 5/15/28 700,000 703,892 ----------- 6,572,407 ----------- Miscellaneous Revenue Bonds - 7.19% Minneapolis Art Center Facilities Revenue (Walker Art Center Project) 5.125% 7/1/21 1,600,000 1,664,976 Minneapolis Community Development Agency Supported Series G-3 5.45% 12/1/31 1,000,000 1,046,740 ----------- 2,711,716 ----------- Multifamily Housing Revenue Bonds - 6.13% Minneapolis Multifamily Housing Revenue (Seward Towers Project) 5.00% 5/20/36 (GNMA) 1,000,000 1,009,290 Southeastern Minnesota Multi County Housing & Redevelopment Authority (Winona County) 5.35% 1/1/28 300,000 301,974 Washington County Housing & Redevelopment Authority Revenue (Woodland Park Apartments Project) 4.70% 10/1/32 1,000,000 1,001,940 ----------- 2,313,204 ----------- Municipal Lease Revenue Bonds - 4.60% St. Paul Port Authority Lease Revenue (Cedar Street Office Building Project) 5.125% 12/1/27 500,000 522,445 5.25% 12/1/27 1,150,000 1,211,732 ----------- 1,734,177 ----------- 13 STATEMENTS DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND, INC. OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS (continued) Parking Revenue Bonds - 1.83% St. Paul Housing & Redevelopment Authority Parking Revenue (Block 19 Ramp Project) Series A 5.35% 8/1/29 (FSA) $ 650,000 $ 691,867 ----------- 691,867 ----------- Political Subdivision General Obligation Bonds - 8.86% Hennepin County Series B 5.00% 12/1/18 1,300,000 1,375,595 Washington County Housing & Redevelopment Authority Series B 5.50% 2/1/22 (MBIA) 855,000 909,669 5.50% 2/1/32 (MBIA) 1,000,000 1,058,500 ----------- 3,343,764 ----------- *Pre-Refunded Bonds - 8.71% Puerto Rico Commonwealth 6.00% 7/1/26-07 1,000,000 1,083,230 Puerto Rico Public Buildings Authority Series D 5.25% 7/1/27-12 845,000 916,664 St. Francis Independent School District #15 Series A 6.30% 2/1/11-06 (FSA) 1,250,000 1,286,888 ----------- 3,286,782 ----------- Public Power Revenue Bonds - 30.69% Chaska Electric Revenue Series A 6.00% 10/1/25 1,000,000 1,093,430 Minnesota State Municipal Power Agency Series A 5.25% 10/1/19 1,110,000 1,183,504 Rochester Electric Utility Revenue 5.25% 12/1/30 (AMBAC) 150,000 157,992 &Southern Minnesota Municipal Power Agency, Inverse Floater ROLs Series II-R-189-3 8.096% 1/1/14 (AMBAC) 2,500,000 3,001,874 Southern Minnesota Municipal Power Agency Series A 5.00% 1/1/12 (AMBAC) 1,000,000 1,081,000 5.00% 1/1/13 (MBIA) 500,000 540,445 5.25% 1/1/15 (AMBAC) 570,000 631,150 5.25% 1/1/16 (AMBAC) 1,000,000 1,105,980 Western Minnesota Municipal Power Agency Series A 5.00% 1/1/30 (MBIA) 1,900,000 1,964,581 Series B 5.00% 1/1/15 (MBIA) 765,000 827,179 ----------- 11,587,135 ----------- School District General Obligation Bonds - 17.08% Centennial Independent School District #012 Series A 5.00% 2/1/20 (FSA) 400,000 418,404 Farmington Independent School District #192 5.00% 2/1/23 (FSA) 1,200,000 1,248,924 Lakeville Independent School District #194-A 4.75% 2/1/22 (FSA) 500,000 511,295 Minneapolis Special School District #001 5.00% 2/1/19 (FSA) 675,000 713,232 Morris Independent School District #769 5.00% 2/1/28 (MBIA) 1,000,000 1,035,650 Principal Market Amount Value MUNICIPAL BONDS (continued) School District General Obligation Bonds (continued) Mounds View Independent School District #621 5.00% 2/1/23 (FSA) $1,020,000 $ 1,063,901 Robbinsdale Independent School District #281 5.00% 2/1/21 (FSA) 500,000 521,165 St. Michael Independent School District #885 5.00% 2/1/22 (FSA) 500,000 519,665 5.00% 2/1/24 (FSA) 400,000 413,056 ----------- 6,445,292 ----------- Single Family Housing Revenue Bonds - 2.26% Dakota County Housing & Redevelopment Authority Single Family Mortgage Revenue 5.85% 10/1/30 (GNMA) (FNMA) (AMT) 42,000 42,926 Minnesota State Housing Finance Agency Single Family Mortgage Series J 5.90% 7/1/28 (AMT) 785,000 808,228 ----------- 851,154 ----------- State General Obligation Bonds - 3.20% Minnesota State 5.00% 8/1/21 1,150,000 1,207,857 ----------- 1,207,857 ----------- Tax Increment/Special Assessment Bonds - 1.40% Moorhead Economic Development Authority Tax Increment Series A 5.25% 2/1/25 (MBIA) 500,000 529,535 ----------- 529,535 ----------- TOTAL MUNICIPAL BONDS (cost $54,591,248) 56,491,201 ----------- SHORT-TERM INVESTMENTS - 1.46% oVariable Rate Demand Notes - 1.46% Midwest Consortium of Municipal Utilities Series A 2.28% 1/1/25 250,000 250,000 Minneapolis Library 2.13% 12/1/32 300,000 300,000 ----------- TOTAL SHORT-TERM INVESTMENTS (cost $550,000) 550,000 ----------- TOTAL MARKET VALUE OF SECURITIES - 151.15% (cost $55,141,248) 57,041,201 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES- 1.85% 696,393 LIQUIDATION VALUE OF PREFERRED STOCK - (53.00%) (20,000,000) ----------- NET ASSETS APPLICABLE TO 2,594,700 SHARES OUTSTANDING - 100.00% $37,737,594 =========== Net Asset Value Per Common Share ($37,737,594 / 2,594,700 Shares) $14.54 ------ 14 STATEMENTS DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND, INC. OF NET ASSETS (CONTINUED) COMPONENTS OF NET ASSETS AT MARCH 31, 2005: Common Stock, $0.01 par value, 200 million shares authorized to the Fund $35,426,619 Undistributed net investment income 389,101 Accumulated net realized gain on investments 21,921 Net unrealized appreciation of investments 1,899,953 ----------- Total net assets $37,737,594 =========== *Pre-Refunded Bonds are municipals that are generally backed or secured by U.S. Treasury bonds. For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 6 in "Notes to Financial Statements." &An inverse floater bond is a type of bond with variable or floating interest rates that move in the opposite direction of short-term interest rates. Interest rate disclosed is in effect as of March 31, 2005. Illiquid security see Note 6 in "Notes to Financial Statements." oVariable rate notes. The interest rate shown is the rate as of March 31, 2005. Summary of Abbreviations: AMBAC - Insured by the AMBAC Assurance Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Administration FNMA - Insured by the Federal National Mortgage Association FSA - Insured by Financial Security Assurance GNMA - Insured by the Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance ROLs - Residual Option Longs See accompanying notes 15 DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND II, INC. March 31, 2005 STATEMENTS OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS - 148.99% Airport Revenue Bonds - 9.94% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A 5.00% 1/1/22 (MBIA) $2,000,000 $ 2,082,620 Series A 5.00% 1/1/28 (MBIA) 1,370,000 1,414,758 Series A 5.00% 1/1/30 (AMBAC) 1,450,000 1,470,068 Series A 5.25% 1/1/16 (MBIA) 1,000,000 1,078,730 Series B 5.25% 1/1/24 (FGIC) (AMT) 1,000,000 1,030,150 Series C 5.25% 1/1/32 (FGIC) 3,500,000 3,652,705 ----------- 10,729,031 ----------- City General Obligation Bonds - 3.84% Metropolitan Council Minnesota (Minneapolis/St. Paul Metropolitan Area) Series C 5.00% 2/1/22 500,000 521,950 Moorhead Series B 5.00% 2/1/33 (MBIA) 2,000,000 2,074,320 Willmar (Rice Memorial Hospital Project) 5.00% 2/1/32 (FSA) 1,500,000 1,549,455 ----------- 4,145,725 ----------- Continuing Care/Retirement Revenue Bonds - 2.31% Minneapolis Health Care Facility Revenue (Jones-Harrison Residence Project) 6.00% 10/1/27 1,565,000 1,489,285 Moorhead Economic Development Authority Multifamily Revenue (Eventide Lutheran Home Project) Series B 6.00% 6/1/18 1,000,000 1,000,730 ----------- 2,490,015 ----------- Corporate-Backed Revenue Bonds - 5.51% Burnsville Commonwealth Development (Holiday Inn Project) 5.90% 4/1/08 1,430,000 1,415,228 Cloquet Pollution Control Revenue (Potlatch Corporation Project) 5.90% 10/1/26 4,500,000 4,535,280 ----------- 5,950,508 ----------- Escrowed to Maturity Bonds - 15.17% Dakota/Washington Counties Housing & Redevelopment Authority Bloomington Single Family Residential Mortgage Revenue 8.375% 9/1/21 (GNMA) (FHA) (VA) 5,500,000 7,998,705 St. Paul Housing & Redevelopment Authority Sales Tax (Civic Center Project) 5.55% 11/1/23 2,300,000 2,329,624 5.55% 11/1/23 (MBIA) 4,200,000 4,254,096 Western Minnesota Municipal Power Agency 6.625% 1/1/16 1,535,000 1,801,583 ----------- 16,384,008 ----------- Higher Education Revenue Bonds - 10.23% Minnesota State Higher Education Facilities Authority (College of St. Benedict) Series 5-W 5.00% 3/1/20 1,000,000 1,025,250 (St. Catherine College) Series 5-N1 5.375% 10/1/32 1,500,000 1,561,935 (St. Mary's University) Series 5-U 4.80% 10/1/23 1,400,000 1,400,490 Principal Market Amount Value MUNICIPAL BONDS (continued) Higher Education Revenue Bonds (continued) (St. Thomas University) Series 4-A1 5.625% 10/1/21 $1,000,000 $ 1,033,090 (St. Thomas University) Series 5-Y 5.25% 10/1/34 1,500,000 1,563,795 St. Cloud Housing & Redevelopment Authority Revenue (State University Foundation Project) 5.00% 5/1/23 1,000,000 1,035,830 University of Minnesota Series A 5.50% 7/1/21 3,000,000 3,419,520 ----------- 11,039,910 ----------- Hospital Revenue Bonds - 23.38% Duluth Economic Development Authority Health Care Facilities Revenue (Benedictine Health System - St. Mary's Hospital) 5.25% 2/15/33 5,000,000 5,075,850 Minneapolis Health Care System Revenue (Allina Health Systems) Series A 5.75% 11/15/32 1,000,000 1,058,420 (Fairview Health Services) Series A 5.625% 5/15/32 2,750,000 2,898,308 Minnesota Agricultural & Economic Development Health Care System (Fairview Hospital) Series A 6.375% 11/15/29 3,300,000 3,588,024 Series 97A 5.75% 11/15/26 (MBIA) 5,550,000 5,956,704 Rochester Health Care Facilities Revenue (Mayo Foundation) Series B 5.50% 11/15/27 3,365,000 3,570,904 St. Louis Park Health Care Facilities Revenue (Park Nicollet Health Services) Series B 5.25% 7/1/30 1,250,000 1,270,038 St. Paul Housing & Redevelopment Authority Health Care Facilities Revenue (Regions Hospital Project) 5.30% 5/15/28 300,000 301,668 Waconia Health Care Facilities Revenue (Ridgeview Medical Center Project) Series A 6.10% 1/1/19 (RADIAN) 1,405,000 1,534,246 ----------- 25,254,162 ----------- Miscellaneous Revenue Bonds - 3.80% Minneapolis Art Center Facilities Revenue (Walker Art Center Project) 5.125% 7/1/21 2,400,000 2,497,464 Minneapolis Community Development Agency (Supported Development Revenue Limited Tax Common Bond Fund) Series 5 5.70% 12/1/27 375,000 381,795 Series G1 5.70% 12/1/19 1,100,000 1,225,444 ----------- 4,104,703 ----------- 16 DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND II, INC. STATEMENTS OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS (continued) Multifamily Housing Revenue Bonds - 9.35% Chanhassen Multifamily Housing Revenue (Heritage Park Project Section 8) 6.20% 7/1/30 (FHA) (AMT) $1,105,000 $ 1,141,454 Harmony Multifamily Housing Revenue Refunding Section 8 (Zedakah Foundation Project) Series A 5.95% 9/1/20 1,000,000 847,950 Minneapolis Multifamily Housing Revenue (Seward Towers Project) 5.00% 5/20/36 (GNMA) 1,000,000 1,009,290 (Sumner Housing Project) Series A 5.15% 2/20/45 (GNMA) (AMT) 3,575,000 3,586,868 Minnesota State Housing Finance Agency Series A 5.00% 2/1/35 (AMT) 1,000,000 983,930 Series D 5.95% 2/1/18 (MBIA) 155,000 158,257 Southeastern Minnesota Multi County Housing & Redevelopment Authority (Winona County) 5.35% 1/1/28 870,000 875,725 Stillwater Multifamily Housing Revenue (Stillwater Cottages) (Orleans Homes Number One) 7.25% 11/1/27 (AMT) 1,540,000 1,490,951 ----------- 10,094,425 ----------- Municipal Lease Revenue Bonds - 11.20% Andover Economic Development Authority Public Facilities Lease Revenue (Andover Community Center) 5.20% 2/1/29 1,000,000 1,018,000 Minneapolis Development Revenue (Limited Tax Supported Common Bond Fund) 5.50% 12/1/24 (AMT) 1,000,000 1,043,730 St. Paul Port Authority Lease Revenue (Cedar Street Office Building Project) 5.00% 12/1/22 2,385,000 2,483,429 5.25% 12/1/27 2,650,000 2,792,252 St. Paul Port Authority Lease Revenue (Robert Street Office Building Project) 5.00% 12/1/27 2,545,000 2,641,634 Series 9 5.25% 12/1/27 2,000,000 2,115,360 ----------- 12,094,405 ----------- Parking Revenue Bonds - 1.23% St. Paul Housing & Redevelopment Authority Parking Revenue (Block 19 Ramp Project) Series A 5.35% 8/1/29 (FSA) 1,250,000 1,330,513 ----------- 1,330,513 ----------- Political Subdivision General Obligation Bonds - 6.66% Hennepin County Series B 5.00% 12/1/18 1,000,000 1,058,150 Hennepin Regional Railroad Authority 5.00% 12/1/26 3,500,000 3,599,680 Metropolitan Council Waste Water Treatment Series B 5.00% 12/1/21 1,250,000 1,324,125 Washington County Housing & Redevelopment Authority Series B 5.50% 2/1/32 (MBIA) 1,140,000 1,206,690 ----------- 7,188,645 ----------- Principal Market Amount Value MUNICIPAL BONDS (continued) *Pre-Refunded Bonds - 12.94% Esko Independent School District #99 5.65% 4/1/12-05 (FSA) $ 550,000 $ 550,000 Hawley Independent School District #150 Series A 5.75% 2/1/17-06 (FSA) 1,000,000 1,025,020 Minneapolis/St. Paul Housing & Redevelopment Authority Health Care Systems (Children's Health Care) Series A 5.50% 8/15/25-05 (FSA) 1,400,000 1,444,114 Puerto Rico Commonwealth Public Improvement Series A 5.00% 7/1/27-12 1,250,000 1,356,163 Puerto Rico Electric Power Authority Power Revenue Series Z 5.25% 7/1/21-05 1,500,000 1,511,100 Puerto Rico Highway & Transportation Authority Revenue Series Y 5.50% 7/1/26-06 2,000,000 2,100,480 Puerto Rico Public Buildings Authority Series D 5.25% 7/1/27-12 625,000 678,006 Rosemount Independent School District #196 Series A 5.70% 4/1/12-06 1,270,000 1,307,148 Southern Minnesota Municipal Power Agency Supply Revenue Series A 5.75% 1/1/18-13 3,715,000 3,996,336 ----------- 13,968,367 ----------- Public Power Revenue Bonds - 11.93% Minnesota State Municipal Power Agency Series A 5.00% 10/1/34 5,750,000 5,845,680 Rochester Electric Utility Revenue 5.25% 12/1/30 (AMBAC) 450,000 473,976 &Southern Minnesota Municipal Power Agency Supply System Revenue Inverse Floater ROLs Series II-R-189-3 8.096% 1/1/14 (AMBAC) 3,000,000 3,602,250 Series II-R-189 8.096% 1/1/15 (AMBAC) 1,500,000 1,821,840 Western Minnesota Municipal Power Agency Series A 5.00% 1/1/30 (MBIA) 1,100,000 1,137,389 ----------- 12,881,135 ----------- School District General Obligation Bonds - 12.52% Centennial Independent School District #012 Series A 5.00% 2/1/20 (FSA) 400,000 418,404 Elk River Independent School District #728 5.00% 2/1/16 (FGIC) 1,500,000 1,615,200 Farmington Independent School District #192 5.00% 2/1/23 (FSA) 1,080,000 1,124,032 Series B 5.00% 2/1/27 (FSA) 1,000,000 1,042,950 Lakeville Independent School District #194-A 4.75% 2/1/22 (FSA) 1,500,000 1,533,885 Minneapolis Special School District #001 5.00% 2/1/19 (FSA) 1,000,000 1,056,640 Morris Independent School District #769 5.00% 2/1/28 (MBIA) 2,750,000 2,848,037 Mounds View Independent School District #621 5.00% 2/1/23 (FSA) 1,000,000 1,043,040 17 STATEMENTS DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND II, INC. OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS (continued) School District General Obligation Bonds (continued) Princeton Independent School District #477 Series A 5.00% 2/1/24 (FSA) $ 500,000 $ 524,725 St. Michael Independent School District #885 5.00% 2/1/22 (FSA) 1,500,000 1,558,995 5.00% 2/1/24 (FSA) 725,000 748,664 ----------- 13,514,572 ----------- Single Family Housing Revenue Bonds - 2.57% Minnesota State Housing Finance Agency Single Family Housing Series 1992-C2 6.15% 7/1/23 (AMT) 920,000 922,585 Minnesota State Housing Finance Agency Single Family Mortgage Series B 5.35% 1/1/33 (AMT) 1,145,000 1,157,802 Series J 5.90% 7/1/28 (AMT) 670,000 689,825 ----------- 2,770,212 ----------- State General Obligation Bonds - 4.36% Minnesota State 5.00% 8/1/21 3,875,000 4,069,951 &Minnesota State, Inverse Floater ROLs 7.824% 11/1/17 570,000 631,936 ----------- 4,701,887 ----------- Tax Increment/Special Assessment Bonds - 0.49% Moorhead Economic Development Authority Tax Increment Series A 5.25% 2/1/25 (MBIA) 500,000 529,535 ----------- 529,535 ----------- Territorial General Obligation Bonds - 1.07% Puerto Rico Commonwealth Public Improvement Series A 5.50% 7/1/19 (MBIA) 1,000,000 1,151,650 ----------- 1,151,650 ----------- Territorial Revenue Bonds - 0.49% Virgin Islands Public Finance Authority 5.25% 10/1/23 500,000 525,375 ----------- 525,375 ----------- TOTAL MUNICIPAL BONDS (cost $154,446,585) 160,848,783 ----------- SHORT-TERM INVESTMENTS - 3.15% oVariable Rate Demand Notes - 3.15% Midwest Consortium of Municipal Utilities Series A 2.28% 1/1/25 250,000 250,000 Minneapolis Block E Buildings Series A 2.13% 3/1/27 1,250,000 1,250,000 Minneapolis Library 2.13% 12/1/32 700,000 700,000 Minneapolis Multifamily Housing Revenue (Seven Corners Apartments Project) 2.23% 11/1/31 300,000 300,000 Minnesota State Higher Education Facilities Authority (Carleton College) Series 5-G 2.13% 11/1/29 900,000 900,000 ----------- TOTAL SHORT-TERM INVESTMENTS (cost $3,400,000) 3,400,000 ----------- TOTAL MARKET VALUE OF SECURITIES - 152.14% (cost $157,846,585) $164,248,783 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 3.44% 3,709,092 LIQUIDATION VALUE OF PREFERRED STOCK - (55.58%) (60,000,000) ------------ NET ASSETS APPLICABLE TO 7,252,200 SHARES OUTSTANDING - 100.00% $107,957,875 ============ Net Asset Value Per Common Share ($107,957,875 / 7,252,200 Shares) $14.89 ------ COMPONENTS OF NET ASSETS AT MARCH 31, 2005: Common Stock, $0.01 par value, 200 million shares authorized to the Fund $99,710,000 Undistributed net investment income 2,250,617 Accumulated net realized loss on investments (404,940) Net unrealized appreciation of investments 6,402,198 ------------ Total net assets $107,957,875 ============ *Pre-Refunded Bonds are municipals that are generally backed or secured by U.S. Treasury bonds. For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 6 in "Notes to Financial Statements." &An inverse floater bond is a type of bond with variable or floating interest rates that move in the opposite direction of short-term interest rates. Interest rate disclosed is in effect as of March 31, 2005. Illiquid security see Note 6 in "Notes to Financial Statements." oVariable rate notes. The interest rate shown is the rate as of March 31, 2005. SUMMARY OF ABBREVIATIONS: AMBAC - Insured by the AMBAC Assurance Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Administration FSA - Insured by Financial Security Assurance GNMA - Insured by the Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance ROLs - Residual Option Longs VA - Insured by the Veterans Administration See accompanying notes 18 DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND III, INC. March 31, 2005 STATEMENTS OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS - 152.50% Airport Revenue Bonds - 9.58% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A5.00% 1/1/28 (MBIA) $ 750,000 $ 774,503 5.00% 1/1/30 (AMBAC) 750,000 760,380 5.125% 1/1/25 (FGIC) 900,000 928,557 ----------- 2,463,440 ----------- City General Obligation Bonds - 5.04% Moorhead Series B 5.00% 2/1/33 (MBIA) 1,250,000 1,296,450 ----------- 1,296,450 ----------- Continuing Care/Retirement Revenue Bonds - 9.65% Minnesota Agriculture & Economic Development Board Revenue (Benedictine Health Systems) 5.75% 2/1/29 600,000 585,060 St. Paul Housing & Redevelopment Authority Revenue (Franciscan Health Project) 5.40% 11/20/42 (GNMA) (FHA) 1,820,000 1,897,405 ----------- 2,482,465 ----------- Corporate-Backed Revenue Bonds - 7.51% Cloquet Pollution Control Revenue (Potlatch Corporation Project) 5.90% 10/1/26 1,000,000 1,007,840 Minneapolis Community Development Agency Supported Development Revenue (Pajor Graphics) Series 1 (LOC US Bank NA) 6.75% 12/1/25 (AMT) 865,000 924,382 ----------- 1,932,222 ----------- Escrowed to Maturity Bonds - 12.14% University of Minnesota Hospital & Clinics 6.75% 12/1/16 2,580,000 3,122,393 ----------- 3,122,393 ----------- Higher Education Revenue Bonds - 5.26% Minnesota State Higher Education Facilities Authority (College of St. Benedict) Series 5-W 5.25% 3/1/24 300,000 309,888 (St.Thomas University) Series 4-A1 5.625% 10/1/21 1,010,000 1,043,421 ----------- 1,353,309 ----------- Hospital Revenue Bonds - 21.10% Bemidji Hospital Facilities Revenue (North County Health Services) 5.00% 9/1/24 (RADIAN) 500,000 513,695 Duluth Economic Development Authority Health Care Facilities Revenue (Benedictine Health System - St. Mary's Hospital) 5.25% 2/15/33 1,000,000 1,015,170 Minneapolis Health Care System Revenue (Allina Health Systems) Series A 5.75% 11/15/32 1,100,000 1,164,262 Minnesota Agricultural & Economic Development Health Care System (Fairview Hospital) Series A 6.375% 11/15/29 1,250,000 1,359,099 Principal Market Amount Value MUNICIPAL BONDS (continued) Hospital Revenue Bonds (continued) Rochester Health Care Facilities Revenue (Mayo Foundation) Series B 5.50% 11/15/27 $1,000,000 $ 1,061,190 Shakopee Health Care Facilities Revenue (St. Francis Regional Medical Center) 5.25% 9/1/34 310,000 313,199 ----------- 5,426,615 ----------- Miscellaneous Revenue Bonds - 1.01% Minneapolis Art Center Facilities Revenue (Walker Art Center Project) 5.125% 7/1/21 250,000 260,153 ----------- 260,153 ----------- Multifamily Housing Revenue Bonds - 7.67% Minneapolis Multifamily Housing Revenue o(Gaar Scott Loft Project) 5.95% 5/1/30 (AMT) 975,000 1,029,785 Minneapolis Multifamily Housing Revenue (Olson Townhomes Project) 6.00% 12/1/19 (AMT) 965,000 943,307 ----------- 1,973,092 ----------- Municipal Lease Revenue Bonds - 10.12% Andover Economic Development Authority Public Facilities Lease Revenue (Andover Community Center) 5.125% 2/1/24 500,000 508,850 St. Paul Port Authority Lease Revenue (Cedar Street Office Building Project) 5.125% 12/1/27 500,000 522,445 5.25% 12/1/27 1,000,000 1,053,680 St. Paul Port Authority Lease Revenue (Robert Street Office Building Project) 5.00% 12/1/27 500,000 518,985 ----------- 2,603,960 ----------- Parking Revenue Bonds - 6.00% St. Paul Housing & Redevelopment Authority Parking Revenue (Block 19 Ramp Project) Series A 5.35% 8/1/29 (FSA) 1,450,000 1,543,395 ----------- 1,543,395 ----------- Political Subdivision General Obligation Bonds - 9.65% Metropolitan Council Waste Water Treatment Series B 5.00% 12/1/21 750,000 794,475 Minneapolis Sports Arena Project 5.125% 10/1/20 750,000 782,033 Washington County Housing & Redevelopment Authority Series B 5.50% 2/1/22 (MBIA) 850,000 904,349 ----------- 2,480,857 ----------- *Pre-Refunded Bonds - 15.17% Esko Independent School District #99 5.75% 4/1/17-05 (FSA) 1,645,000 1,645,000 Minnesota Public Facilities Authority Water Pollution Control Revenue Series B 5.40% 3/1/15-06 2,200,000 2,256,452 ----------- 3,901,452 ----------- 19 DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND III, INC. STATEMENTS OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS (continued) Public Power Revenue Bonds - 21.83% Minnesota State Municipal Power Agency Series A 5.00% 10/1/34 $ 750,000 $ 762,480 5.25% 10/1/19 500,000 533,110 Southern Minnesota Municipal Power Agency Series A 5.00% 1/1/13 (MBIA) 500,000 540,445 5.25% 1/1/15 (AMBAC) 700,000 775,096 5.25% 1/1/16 (AMBAC) 500,000 552,990 &Southern Minnesota Municipal Power Agency Supply System Revenue Inverse Floater ROLs Series II-R-189-3 8.096% 1/1/14 (AMBAC) 1,500,000 1,801,124 Western Minnesota Municipal Power Agency Series B 5.00% 1/1/15 (MBIA) 600,000 648,768 ----------- 5,614,013 ----------- School District General Obligation Bonds - 4.07% Farmington Independent School District #192 Series B 5.00% 2/1/27 (FSA) 500,000 521,475 Princeton Independent School District #477 Series A 5.00% 2/1/24 (FSA) 500,000 524,725 ----------- 1,046,200 ------------ Single Family Housing Revenue Bonds - 2.52% Minnesota State Housing Finance Agency Single Family Mortgage Series B 5.35% 1/1/33 (AMT) 640,000 647,155 ----------- 647,155 ----------- Territorial General Obligation Bonds - 2.02% University Virgin Islands Series A 5.375% 6/1/34 500,000 520,070 ----------- 520,070 ----------- Territorial Revenue Bonds - 2.16% Puerto Rico Public Buildings Authority Guaranteed Government Facilities Revenue Series D (Unrefunded Portion) 5.25% 7/1/27 530,000 554,990 ----------- 554,990 ----------- TOTAL MUNICIPAL BONDS (cost $37,578,090) 39,222,231 ----------- SHORT-TERM INVESTMENTS - 2.14% Variable Rate Demand Notes - 2.14% oCity of St. Cloud 2.18% 2/1/16 550,000 550,000 ----------- TOTAL SHORT-TERM INVESTMENTS (cost $550,000) 550,000 ----------- TOTAL MARKET VALUE OF SECURITIES - 154.64% (cost $38,128,090) $39,772,231 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 3.68% 947,514 LIQUIDATION VALUE OF PREFERRED STOCK - (58.32%) (15,000,000) ----------- NET ASSETS APPLICABLE TO 1,837,200 SHARES OUTSTANDING - 100.00% $25,719,745 =========== Net Asset Value Per Common Share ($25,719,745 / 1,837,200 Shares) $14.00 ------ COMPONENTS OF NET ASSETS AT MARCH 31, 2005: Common Stock $0.01 par value, 200 million shares authorized to the Fund $23,648,910 Undistributed net investment income 522,026 Accumulated net realized loss on investments (95,332) Net unrealized appreciation of investments 1,644,141 ----------- Total net assets $25,719,745 =========== *Pre-Refunded Bonds are municipals that are generally backed or secured by U.S. Treasury bonds. For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 6 in "Notes to Financial Statements." &An inverse floater bond is a type of bond with variable or floating interest rates that move in the opposite direction of short-term interest rates. Interest rate disclosed is in effect as of March 31, 2005. Illiquid security see Note 6 in "Notes to Financial Statements." oVariable rate notes. The interest rate shown is the rate as of March 31, 2005. SUMMARY OF ABBREVIATIONS: AMBAC - Insured by the AMBAC Assurance Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FHA - Insured by the Federal Housing Administration FSA - Insured by Financial Security Assurance GNMA - Insured by the Government National Mortgage Association LOC - Letter of Credit MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance ROLs - Residual Option Longs See accompanying notes 20 DELAWARE INVESTMENTS ARIZONA MUNICIPAL INCOME FUND, INC. March 31, 2005 STATEMENTS OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS - 148.26% Airport Revenue Bonds - 6.89% Phoenix Civic Improvement Corporation Airport Revenue Senior Lien Series A 5.00% 7/1/25 (FSA) $1,000,000 $ 1,024,920 Series B 5.25% 7/1/27 (FGIC)(AMT) 2,000,000 2,072,980 ----------- 3,097,900 ----------- City General Obligation Bonds - 1.15% DC Ranch Community Facilities 5.00% 7/15/27 (AMBAC) 500,000 517,980 ----------- 517,980 ----------- Convention Center/Auditorium/Hotel Revenue Bonds - 2.29% Arizona Tourism & Sports Authority Tax Revenue Multipurpose Stadium Facilities Series A 5.00% 7/1/31 (MBIA) 1,000,000 1,030,250 ----------- 1,030,250 ----------- Dedicated Tax & Fees Revenue Bonds - 6.88% Glendale Municipal Property Corporation 5.00% 7/1/33 (AMBAC) 3,000,000 3,092,820 ----------- 3,092,820 ----------- Escrowed to Maturity Bonds - 10.86% Puerto Rico Commonwealth Infrastructure Financing Series A 5.50% 10/1/40 4,500,000 4,879,260 ----------- 4,879,260 ----------- Higher Education Revenue Bonds - 5.88% Arizona State University Certificates of Participation (Research Infrastructure Project) 5.00% 9/1/30 (AMBAC) 1,000,000 1,032,180 South Campus Group Student Housing Revenue (Arizona State University South Campus Project) 5.625% 9/1/35 (MBIA) 1,000,000 1,089,830 University of Arizona Certificates of Participation (University of Arizona Project) Series B 5.125% 6/1/22 (AMBAC) 500,000 522,420 ----------- 2,644,430 ----------- Hospital Revenue Bonds - 19.21% Maricopa County Industrial Development Authority (Catholic Healthcare West) Series A 5.50% 7/1/26 430,000 449,621 (Mayo Clinic Hospital) 5.25% 11/15/37 2,000,000 2,084,760 Mohave County Industrial Development Authority (Chris/Silver Ridge) 6.375% 11/1/31 (GNMA) 260,000 272,477 Scottsdale Industrial Development Authority Hospital Revenue (Scottsdale Healthcare) 5.80% 12/1/31 1,000,000 1,069,420 Show Low Industrial Development Authority Hospital Revenue (Navapache Regional Medical Center) Series A 5.50% 12/1/17 (ACA) 1,600,000 1,661,456 University Medical Center Corporation Arizona Hospital Revenue 5.00% 7/1/33 1,000,000 1,000,660 Yavapai County Industrial Development Authority (Yavapai Regional Medical Center) 5.25% 8/1/21 (RADIAN) 2,000,000 2,091,840 ----------- 8,630,234 ----------- Principal Market Amount Value MUNICIPAL BONDS (continued) Miscellaneous Revenue Bonds - 8.24% Arizona School Facilities Board Revenue (State School Improvement) Series 2001 5.00% 7/1/19 $2,000,000 $ 2,109,180 Arizona Student Loan Acquisition Authority Revenue Series A-1 5.90% 5/1/24 (AMT) 1,500,000 1,595,700 ----------- 3,704,880 ----------- Multifamily Housing Revenue Bonds - 1.10% Maricopa County Industrial Development Authority Multifamily Housing Revenue (Sly-Mar Apartments Projects) 6.10% 4/20/36 (GNMA) (AMT) 465,000 494,379 ----------- 494,379 ----------- Municipal Lease Revenue Bonds - 9.54% Greater Arizona Development Authority Infrastructure Revenue Series A 5.00% 8/1/22 (MBIA) 500,000 525,725 Phoenix Civic Improvement Corporation Excise Tax Senior Lien (Municipal Courthouse Project) Series A 5.25% 7/1/24 1,000,000 1,063,370 Prescott Valley Property Corporation 5.00% 1/1/27 (FGIC) 500,000 515,345 Tucson Certificates of Participation 5.60% 7/1/11 1,100,000 1,154,252 Yuma Municipal Property Corporation 5.00% 7/1/25 (AMBAC) 1,000,000 1,027,880 ----------- 4,286,572 ----------- Political Subdivision General Obligation Bonds - 3.51% Eagle Mountain Community Facilities District Series A 6.40% 7/1/17 1,500,000 1,576,005 ----------- 1,576,005 ----------- *Pre-Refunded Bonds - 18.15% Arizona School Facilities Board Certificates of Participation Series B 5.25% 9/1/19-14 (FSA) 1,000,000 1,108,170 Arizona State Transportation Board Highway Revenue Refunding 5.75% 7/1/18-09 2,350,000 2,586,715 Arizona Water Infrastructure Finance Authority Revenue Water Quality Series A 5.05% 10/1/20-11 1,500,000 1,624,605 Oro Valley Municipal Property Corporation Excise Tax 5.00% 7/1/20-11 (FGIC) 1,000,000 1,045,800 Puerto Rico Commonwealth Public Improvement Series A 5.125% 7/1/31-11 250,000 271,810 Southern Arizona Capital Facilities Finance Corporation (University of Arizona Project) 5.00% 9/1/23-12 (MBIA) 1,150,000 1,247,095 Yuma Industrial Development Authority Hospital Revenue (Yuma Regional Medical Center) 5.00% 8/1/31-11 (FSA) 250,000 270,980 ----------- 8,155,175 ----------- 21 DELAWARE INVESTMENTS ARIZONA MUNICIPAL INCOME FUND, INC. STATEMENTS OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS (continued) Public Power Revenue Bonds - 3.44% Salt River Project Arizona Agricultural Improvement & Power District Electric System Revenue (Salt River Project) Series A 5.00% 1/1/31 $1,500,000 $ 1,545,045 ----------- 1,545,045 ----------- School District General Obligation Bonds - 17.27% Maricopa County School District #6 (Washington Elementary) Series A 5.375% 7/1/13 (FSA) 3,000,000 3,332,879 (Washington Elementary School Improvement Project of 2001) Series B 5.00% 7/1/17 (FSA) 1,000,000 1,087,440 Maricopa County School District #78 (Madison Elementary) 5.00% 7/1/13 (FSA) 1,250,000 1,355,763 5.00% 7/1/14 (FSA) 825,000 896,528 Tempe Union High School District #213 5.00% 7/1/14 (FSA) 1,000,000 1,086,700 ----------- 7,759,310 ----------- Single Family Housing Revenue Bonds - 4.67% Phoenix Industrial Development Authority Single Family Statewide Series A 5.35% 6/1/20 (GNMA) (FNMA) (FHLMC) (AMT) 950,000 973,960 Series C 5.30% 4/1/20 (GNMA) (FNMA) (FHLMC) (AMT) 745,000 767,357 Pima County Industrial Development Authority Single Family Mortgage Revenue Series A 6.125% 11/1/33 (GNMA) (FNMA) (FHLMC) (AMT) 340,000 355,752 ----------- 2,097,069 ----------- Territorial Revenue Bonds - 23.80% Puerto Rico Commonwealth Highway & Transportation Authority Transportation Refunding Series D 5.00% 7/1/32 (FSA) 8,500,000 8,789,084 Puerto Rico Commonwealth Public Improvement Series A 5.125% 7/1/31 500,000 513,535 Virgin Islands Public Finance Authority Revenue Series A 6.125% 10/1/29 (ACA) 1,250,000 1,392,000 ----------- 10,694,619 ----------- Water & Sewer Revenue Bonds - 5.38% Phoenix Civic Improvement Corporation Wastewater Systems Revenue Junior Lien 5.00% 7/1/24 (FGIC) 1,590,000 1,640,212 5.00% 7/1/26 (FGIC) 750,000 775,508 ----------- 2,415,720 ----------- TOTAL MUNICIPAL BONDS (cost $63,376,193) 66,621,648 ----------- TOTAL MARKET VALUE OF SECURITIES - 148.26% (cost $63,376,193) $66,621,648 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 7.37%~ 3,314,111 LIQUIDATION VALUE OF PREFERRED STOCK - (55.63%) (25,000,000) ----------- NET ASSETS APPLICABLE TO 2,982,200 SHARES OUTSTANDING - 100.00% $44,935,759 =========== Net Asset Value Per Common Share ($44,935,759 / 2,982,200 Shares) $15.07 ------ COMPONENTS OF NET ASSETS AT MARCH 31, 2005: Common stock, $0.01 per value, 200 million shares authorized to the Fund $40,838,893 Undistributed net investment income 765,316 Accumulated net realized gain on investments 86,095 Net unrealized appreciation of investments 3,245,455 ----------- Total net assets $44,935,759 =========== *Pre-Refunded Bonds are municipals that are generally backed or secured by U.S. Treasury Bonds. For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-funded. See Note 6 in "Notes to Financial Statements." ~Of this amount, $2,353,234 represents cash as of March 31, 2005. SUMMARY OF ABBREVIATIONS: ACA - Insured by American Capital Access AMBAC - Insured by the AMBAC Assurance Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FHLMC - Insured by the Federal Home Loan Mortgage Corporation FNMA - Insured by Federal National Mortgage Association FSA - Insured by the Financial Security Assurance GNMA - Insured by Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance See accompanying notes 22 DELAWARE INVESTMENTS FLORIDA INSURED MUNICIPAL INCOME FUND March 31, 2005 STATEMENTS OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS - 151.00% Airport Revenue Bonds - 2.83% Dade County Aviation Revenue Series 96B 5.60% 10/1/26 (MBIA) $1,000,000 $ 1,051,980 ----------- 1,051,980 ----------- Dedicated Tax & Fees Revenue Bonds - 16.89% Florida Department of Transportation 5.00% 7/1/31 (FGIC) 1,525,000 1,575,371 Jacksonville Sales Tax Revenue 5.00% 10/1/30 (MBIA) 1,500,000 1,547,685 Jacksonville Transportation Revenue 5.25% 10/1/29 (MBIA) 2,000,000 2,101,540 Miami Beach Resort Tax Revenue 5.50% 10/1/16 (AMBAC) 1,000,000 1,055,910 ----------- 6,280,506 ----------- Higher Education Revenue Bonds - 7.73% Florida Agriculture & Mechanical University Revenue (Student Apartment Facility) 5.625% 7/1/21 (MBIA) 1,250,000 1,301,463 Volusia County Educational Facilities Authority (Stetson University Project) Series A 5.50% 6/1/17 (MBIA) 1,500,000 1,572,630 ----------- 2,874,093 ----------- Hospital Revenue Bonds - 21.82% Escambia County Health Facilities Authority (Florida Health Care Facilities - VHA Program) 5.95% 7/1/20 (AMBAC) 3,075,000 3,132,810 Lee County Memorial Health System Board of Directors 5.00% 4/1/20 (FSA) 1,000,000 1,036,120 Orange County Health Facilities Authority Revenue (Adventist Health Systems) 5.75% 11/15/25 (AMBAC) 1,500,000 1,553,250 (Orlando Regional Healthcare) Series A 6.25% 10/1/18 (MBIA) 2,000,000 2,386,060 ----------- 8,108,240 ----------- Miscellaneous Revenue Bonds - 2.76% Florida State Municipal Loan (Council Revenue) Series A 5.00% 2/1/35 (MBIA) 1,000,000 1,027,710 ----------- 1,027,710 ----------- Multifamily Housing Revenue Bonds - 23.18% Broward County Housing Finance Authority (St. Croix Apartments Project) Series A 5.45% 11/1/36 (FSA) (AMT) 1,000,000 1,012,080 Florida Housing Finance Agency (Homeowner Mortgage) Series 2 5.90% 7/1/29 (MBIA) (AMT) 760,000 783,279 (Leigh Meadows Apartments Section 8) Series N 6.30% 9/1/36 (AMBAC) (AMT) 2,510,000 2,583,493 Principal Market Amount Value MUNICIPAL BONDS (continued) Multifamily Housing Revenue Bonds (continued) (Woodbridge Apartments Project) Series L 6.05% 12/1/16 (AMBAC) (AMT) $1,120,000 $ 1,163,635 6.25% 6/1/36 (AMBAC) (AMT) 1,500,000 1,545,375 Volusia County Multifamily Housing Finance Authority (San Marco Apartments) Series A 5.60% 1/1/44 (FSA) (AMT) 1,500,000 1,529,100 ----------- 8,616,962 ----------- Municipal Lease Revenue Bonds - 9.62% Broward School Board Certificates of Participation Series A 5.25% 7/1/24 (FSA) 1,000,000 1,056,020 Orange County School Board Certificates of Participation Series A 5.00% 8/1/27 (MBIA) 1,250,000 1,285,838 Palm Beach County School Board Certificates of Participation Series D 5.00% 8/1/28 (FSA) 1,200,000 1,232,904 ----------- 3,574,762 ----------- Ports & Harbors Revenue Bonds - 2.76% Florida Ports Financing Commission State Transportation Trust Fund 5.375% 6/1/27 (MBIA) (AMT) 1,000,000 1,024,640 ----------- 1,024,640 ----------- *Pre-Refunded Bonds - 47.12% Dade County School Board Certificates of Participation Series B 5.60% 8/1/17-06 (AMBAC) 1,000,000 1,048,170 Escambia County School Board Certificates of Participation Series 2 5.50% 2/1/22-06 (MBIA) 5,000,000 5,196,299 Florida State Board of Education (Capital Outlay Public Education) Series C 6.00% 6/1/21-10 (FGIC) 2,000,000 2,267,080 Indian River County Water & Sewer Revenue 5.50% 9/1/16-06 (FGIC) 1,000,000 1,054,110 Orange County Public Service Tax Revenue 6.00% 10/1/24-05 (FGIC) 3,000,000 3,113,340 Sunrise Utility System Revenue Series A 5.75% 10/1/26-06 (AMBAC) 2,500,000 2,636,700 Tampa Utility Tax Improvement Series A 6.125% 10/1/19-09 (AMBAC) 1,000,000 1,128,330 Village Center Community Development District Recreational Revenue Series A 5.85% 11/1/16-06 (MBIA) 1,000,000 1,067,940 ----------- 17,511,969 ----------- Public Power Revenue Bonds - 5.47% JEA Electric Systems Revenue Series 3-A 5.00% 10/1/34 (FSA) 2,000,000 2,031,940 ----------- 2,031,940 ----------- 23 DELAWARE INVESTMENTS FLORIDA INSURED MUNICIPAL INCOME FUND STATEMENTS OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS (continued) Tax Increment/Special Assessment Bonds - 0.82% Julington Creek Plantation Community Development District Special Assessment 5.00% 5/1/29 (MBIA) $ 295,000 $ 303,381 ----------- 303,381 ----------- Water & Sewer Revenue Bonds - 10.00% Dade County Water & Sewer System Revenue 5.50% 10/1/25 (FGIC) 1,100,000 1,134,441 JEA Florida Water & Sewer Systems Revenue Sub-Second Crossover 5.00% 10/1/25 (MBIA) 1,000,000 1,038,700 Village Center Community Development District Florida Utility Revenue 5.00% 10/1/36 (MBIA) 1,500,000 1,542,960 ----------- 3,716,101 ----------- TOTAL MUNICIPAL BONDS (cost $53,141,451) 56,122,284 ----------- TOTAL MARKET VALUE OF SECURITIES - 151.00% (cost $53,141,451) 56,122,284 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 2.81% 1,043,769 LIQUIDATION VALUE OF PREFERRED STOCK - (53.81%) (20,000,000) ----------- NET ASSETS APPLICABLE TO 2,422,200 SHARES OUTSTANDING - 100.00% $37,166,053 =========== Net Asset Value Per Common Share ($37,166,053 / 2,422,200 Shares) $15.34 ------ COMPONENTS OF NET ASSETS AT MARCH 31, 2005: Common stock, $0.01 par value, unlimited shares authorized to the Fund $33,361,389 Undistributed net investment income 799,507 Accumulated net realized gain on investments 24,324 Net unrealized appreciation of investments 2,980,833 ----------- Total net assets $37,166,053 =========== *Pre-Refunded Bonds are municipals that are generally backed or secured by U.S. Treasury Bonds. For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-funded. See Note 6 in "Notes to Financial Statements." SUMMARY OF ABBREVIATIONS: AMBAC - Insured by the AMBAC Assurance Corporation AMT - Subject to Alternative Minimum Tax FGIC - Insured by the Financial Guaranty Insurance Company FSA - Insured by the Financial Security Assurance MBIA - Insured by the Municipal Bond Insurance Association See accompanying notes 24 DELAWARE INVESTMENTS COLORADO INSURED MUNICIPAL INCOME FUND, INC. March 31, 2005 STATEMENTS OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS - 150.37% Airport Revenue Bonds - 10.47% Denver City & County Airport Series E 5.25% 11/15/23 (MBIA) $7,500,000 $ 7,888,125 ----------- 7,888,125 ----------- City General Obligation Bonds - 2.74% Bowles Metropolitan District 5.00% 12/1/33 (FSA) 2,000,000 2,064,460 ----------- 2,064,460 ----------- Continuing Care/Retirement Revenue Bonds - 3.56% Colorado Health Facilities Authority Revenue (Porter Place) Series A 6.00% 1/20/36 (GNMA) 2,515,000 2,686,322 ----------- 2,686,322 ----------- Convention Center/Auditorium/Hotel Revenue Bonds - 4.08% Denver Convention Center Series A 5.00% 12/1/33 (XLCA) 3,000,000 3,072,930 ----------- 3,072,930 ----------- Dedicated Tax & Fees Revenue Bonds - 11.29% Broomfield County Sales & Use Tax Revenue Refunding & Improvement Series A 5.00% 12/1/31 (AMBAC) 650,000 668,077 Denver City & County Excise Tax Revenue (Colorado Convention Center Project) Series A 5.00% 9/1/20 (FSA) 6,500,000 6,783,530 Golden Sales & Use Tax Revenue Improvement Series B 5.10% 12/1/20 (AMBAC) 1,000,000 1,058,600 ----------- 8,510,207 ----------- Higher Education Revenue Bonds - 33.23% Boulder County Development Revenue (University Corporation for Atmospheric Research) 5.00% 9/1/26 (MBIA) 4,500,000 4,622,760 Colorado Educational & Cultural Facilities Authority (Johnson & Wales University Project) Series A 5.00% 4/1/28 (XLCA) 3,000,000 3,082,590 (University of Colorado Foundation Project) 5.00% 7/1/27 (AMBAC) 4,000,000 4,118,560 (University of Denver Project) 5.50% 3/1/21 (AMBAC) 3,200,000 3,475,136 (University of Northern Colorado) 5.00% 7/1/31 (MBIA) 2,500,000 2,554,300 Colorado Springs Revenue (Colorado College Project) 5.375% 6/1/32 (MBIA) 5,000,000 5,339,499 Colorado State University Systems Series B 5.00% 3/1/35 (AMBAC) 1,800,000 1,850,022 ----------- 25,042,867 ----------- Hospital Revenue Bonds - 1.95% Colorado Health Facilities Authority (North Colorado Medical Center) 5.95% 5/15/12 (MBIA) 1,420,000 1,469,558 ----------- 1,469,558 ----------- Principal Market Amount Value MUNICIPAL BONDS (continued) Multifamily Housing Revenue Bonds - 3.18% Burlingame Multifamily Housing Revenue Series A 6.00% 11/1/29 (MBIA) $2,290,000 $ 2,400,264 ----------- 2,400,264 ----------- Municipal Lease Revenue Bonds - 15.70% Arapahoe County Library District Certificates of Participation 5.70% 12/15/10 (MBIA) 2,000,000 2,092,260 Aurora Certificates of Participation 5.50% 12/1/30 (AMBAC) 2,000,000 2,151,700 Broomfield City & County Certificates of Participation 5.75% 12/1/24 (AMBAC) 1,500,000 1,639,335 Eagle County Certificates of Participation 5.40% 12/1/18 (MBIA) 1,000,000 1,076,860 Lakewood Certificates of Participation 5.375% 12/1/22 (AMBAC) 2,000,000 2,152,780 Westminster Building Authority Certificates of Participation 5.25% 12/1/22 (MBIA) 1,555,000 1,652,887 Westminster Certificates of Participation (Ice Centre Project) 5.40% 1/15/23 (AMBAC) 1,000,000 1,064,030 ----------- 11,829,852 ----------- Parking Revenue Bonds - 3.54% Auraria Higher Education Center Parking Facilities System Revenue 5.50% 4/1/26 (AMBAC) 2,485,000 2,665,212 ----------- 2,665,212 ----------- Political Subdivision General Obligation Bonds - 10.24% Arapahoe County Water & Wastewater Public Improvement District Refunding Series A 5.125% 12/1/32 (MBIA) 1,000,000 1,038,700 Centennial Downs Metropolitan District 5.00% 12/1/28 (AMBAC) 1,000,000 1,037,590 G V R Metropolitan District 5.75% 12/1/19 (AMBAC) 1,000,000 1,095,820 Pueblo County 5.80% 6/1/11 (MBIA) 1,405,000 1,453,149 Pueblo County (Library District Project) 5.80% 11/1/19 (AMBAC) 1,395,000 1,530,664 Sand Creek Metropolitan District Refunding & Improvement 5.00% 12/1/31 (XLCA) 500,000 512,875 Stonegate Village Metropolitan District Refunding & Improvement Series A 5.50% 12/1/21 (FSA) 1,000,000 1,047,360 ----------- 7,716,158 ----------- *Pre-Refunded Bonds - 13.85% Archuleta & Hinsdale Counties School District #50JT 5.55% 12/1/20-06 (MBIA) 4,000,000 4,222,520 Denver City & County Certificates of Participation Series B 5.50% 12/1/25-10 (AMBAC) 2,000,000 2,229,940 El Paso County School District #20 5.625% 12/15/16-06 (AMBAC) 2,800,000 2,935,128 5.625% 12/15/16-06 (MBIA) 1,000,000 1,048,260 ----------- 10,435,848 ----------- 25 DELAWARE INVESTMENTS COLORADO INSURED MUNICIPAL INCOME FUND, INC. STATEMENTS OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS (continued) School District General Obligation Bonds - 10.24% Adams & Arapahoe Counties School District #28J 5.00% 12/1/22 (FSA) $2,000,000 $ 2,095,120 Adams County School District #1 5.00% 12/1/16 (FSA) 1,490,000 1,595,328 Douglas County School District #Re-1 (Douglas & Elbert Counties) 5.00% 12/15/21 (MBIA) 1,000,000 1,038,860 Larimer Weld & Boulder Counties School Districts #R-2J 5.00% 12/15/15 (FSA) 1,950,000 2,117,641 Weld & Adams Counties School District RE-3J 5.00% 12/15/24 (FSA) 830,000 869,276 ----------- 7,716,225 ----------- Turnpike/Toll Road Revenue Bonds - 13.84% E-470 Public Highway Authority Series A 5.75% 9/1/29 (MBIA) 3,000,000 3,330,900 5.75% 9/1/35 (MBIA) 1,700,000 1,887,510 Northwest Parkway Public Highway Authority Series A 5.25% 6/15/41 (FSA) 5,000,000 5,214,500 ----------- 10,432,910 ----------- Water & Sewer Revenue Bonds - 12.46% Colorado Water Resources & Power Development Authority Small Water Resources Revenue Series A 5.80% 11/1/20 (FGIC) 2,000,000 2,212,160 Colorado Water Resources & Power Development Authority Water Resources Revenue (Parker Water & Sanitation District) 5.125% 9/1/34 (MBIA) 1,500,000 1,564,125 5.25% 9/1/43 (MBIA) 2,000,000 2,098,680 Lafayette Water Revenue Series A 5.00% 12/1/27 (MBIA) 1,100,000 1,140,238 Ute Utility Water Conservancy District Water Revenue 5.75% 6/15/20 (MBIA) 2,155,000 2,377,418 ----------- 9,392,621 ----------- TOTAL MUNICIPAL BONDS (cost $106,882,293) 113,323,559 ----------- SHORT-TERM INVESTMENTS - 0.66% Variable Rate Demand Notes - 0.66% oColorado Health Facilities Authority Revenue 2.28% 12/1/20 500,000 500,000 ----------- TOTAL SHORT-TERM INVESTMENTS (cost $500,000) 500,000 ----------- TOTAL MARKET VALUE OF SECURITIES - 151.03% (cost $107,382,293) $113,823,559 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 2.05% 1,540,463 LIQUIDATION VALUE OF PREFERRED STOCK - (53.08%) (40,000,000) ------------ NET ASSETS APPLICABLE TO 4,837,100 SHARES OUTSTANDING - 100.00% $75,364,022 =========== Net Asset Value Per Common Share ($75,364,022 / 4,837,100 Shares) $15.58 ------ COMPONENTS OF NET ASSETS AT MARCH 31, 2005: Common stock, $0.01 par value, 200 million shares authorized to the Fund $67,238,110 Undistributed net investment income 1,685,741 Accumulated net realized loss on investments (1,095) Net unrealized appreciation of investments 6,441,266 ----------- Total net assets $75,364,022 =========== *Pre-Refunded Bonds are municipals that are generally backed or secured by U.S. Treasury Bonds. For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-funded. See Note 6 in "Notes to Financial Statements." oVariable rate notes. The interest rate shown is the rate as of March 31, 2005. SUMMARY OF ABBREVIATIONS: AMBAC - Insured by the AMBAC Assurance Corporation FGIC - Insured by the Financial Guaranty - Insured by the Federal Housing Administration FSA - Insured by the Financial Security Assurance GNMA - Insured by Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association XLCA - Insured by XL Capital Assurance See accompanying notes 26 STATEMENTS DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS OF OPERATIONS Year Ended March 31, 2005
Delaware Delaware Delaware Investments Investments Investments Minnesota Minnesota Minnesota Municipal Municipal Municipal Income Income Income Fund, Inc. Fund II, Inc. Fund III, Inc. INVESTMENT INCOME: Interest $2,805,252 $8,517,640 $2,110,341 ---------- ---------- ---------- EXPENSES: Management fees 232,006 674,164 163,520 Accounting and administration expenses 85,000 85,000 60,500 Remarketing Agent fees 50,354 150,815 37,070 Dividend disbursing and transfer agent fees and expenses 40,318 58,423 21,842 Legal and professional fees 38,703 47,348 32,198 Rating Agency fees 9,000 6,416 9,417 Reports and statements to shareholders 7,387 22,481 7,868 Taxes (other than taxes on income) 6,948 17,237 3,760 Directors'/Trustees' Fees 4,571 7,953 3,915 Pricing fees 3,454 5,973 2,192 Custodian fees 2,279 4,888 1,728 Stock exchange fees 2,258 6,282 1,595 Other 995 2,988 1,444 ---------- ---------- ---------- 483,273 1,089,968 347,049 Less expenses paid indirectly (2,197) (4,763) (1,712) ---------- ---------- ---------- Total expenses 481,076 1,085,205 345,337 ---------- ---------- ---------- NET INVESTMENT INCOME 2,324,176 7,432,435 1,765,004 ---------- ---------- ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments 268,227 257,523 114,703 Net change in unrealized appreciation/depreciation of investments (1,027,949) (2,017,417) (762,302) ---------- ---------- ---------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (759,722) (1,759,894) (647,599) ---------- ---------- ---------- DIVIDENDS ON PREFERRED STOCK (305,320) (927,702) (235,128) ---------- ---------- ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,259,134 $4,744,839 $ 882,277 ========== ========== ==========
See accompanying notes 27 STATEMENTS DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS OF OPERATIONS (CONTINUED)
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 $3,387,872 $3,030,906 $5,710,088 ---------- ---------- ---------- EXPENSES: Management fees 280,164 231,637 463,133 Accounting and administration expenses 85,000 85,000 85,000 Remarketing Agent fees 62,851 50,299 101,094 Legal and professional fees 38,420 41,301 42,866 Dividend disbursing and transfer agent fees and expenses 22,475 26,477 28,880 Reports and statements to shareholders 15,262 13,189 22,806 Rating Agency fees 12,381 11,663 11,884 Taxes (other than taxes on income) 6,424 695 9,725 Directors'/Trustees' Fees 3,163 5,156 6,105 Custodian fees 2,861 2,213 3,909 Pricing fees 2,759 2,369 3,391 Stock exchange fees 1,970 2,742 6,244 Other 1,655 1,046 298 ---------- ---------- ---------- 535,385 473,787 785,335 Less expenses paid indirectly (2,861) (2,156) (3,586) ---------- ---------- ---------- Total expenses 532,524 471,631 781,749 ---------- ---------- ---------- NET INVESTMENT INCOME 2,855,348 2,559,275 4,928,339 ---------- ---------- ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain on investments 83,408 286,142 80,722 Net change in unrealized appreciation/depreciation of investments (1,080,216) (1,915,443) (2,143,648) ---------- ---------- ---------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (996,808) (1,629,301) (2,062,926) ---------- ---------- ---------- DIVIDENDS ON PREFERRED STOCK (361,013) (297,142) (615,308) ---------- ---------- ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,497,527 $ 632,832 $2,250,105 ========== ========== ==========
See accompanying notes 28 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. Year Ended Year Ended 3/31/05 3/31/04 3/31/05 3/31/04 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 2,324,176 $ 2,592,109 $ 7,432,435 $ 7,924,672 Net realized gain on investments 268,227 650,891 257,523 1,299,317 Net change in unrealized appreciation/depreciation of investments (1,027,949) (316,556) (2,017,417) 221,686 Dividends on preferred stock (305,320) (262,664) (927,702) (595,374) ----------- ----------- ------------ ------------ Net increase in net assets resulting from operations 1,259,134 2,663,780 4,744,839 8,850,301 ----------- ----------- ------------ ------------ DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income (2,471,452) (2,432,531) (7,614,810) (7,234,070) Net realized gain on investments (28,542) (1,375,191) -- -- ----------- ----------- ------------ ------------ (2,499,994) (3,807,722) (7,614,810) (7,234,070) ----------- ----------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS (1,240,860) (1,143,942) (2,869,971) 1,616,231 NET ASSETS: Beginning of period 38,978,454 40,122,396 110,827,846 109,211,615 ----------- ----------- ------------ ------------ End of period $37,737,594 $38,978,454 $107,957,875 $110,827,846 =========== =========== ============ ============ Undistributed net investment income $389,101 $805,302 $2,250,617 $3,358,447 ======== ======== ========== ==========
Delaware Delaware Investments Minnesota Investments Arizona Municipal Income Municipal Income Fund III, Inc. Fund, Inc. Year Ended Year Ended 3/31/05 3/31/04 3/31/05 3/31/04 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 1,765,004 $ 1,898,759 $ 2,855,348 $ 3,042,361 Net realized gain on investments 114,703 562,903 83,408 315,397 Net change in unrealized appreciation/depreciation of investments (762,302) (350,631) (1,080,216) 501,711 Dividends on preferred stock (235,128) (152,709) (361,013) (271,690) ----------- ----------- ----------- ----------- Net increase in net assets resulting from operations 882,277 1,958,322 1,497,527 3,587,779 ----------- ----------- ----------- ----------- DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income (1,763,712) (1,616,736) (2,862,911) (2,862,912) Net realized gain on investments -- -- (128,235) (462,241) ----------- ----------- ----------- ----------- (1,763,712) (1,616,736) (2,991,146) (3,325,153) ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS (881,435) 341,586 (1,493,619) 262,626 NET ASSETS: Beginning of period 26,601,180 26,259,594 46,429,378 46,166,752 ----------- ----------- ----------- ----------- End of period $25,719,745 $26,601,180 $44,935,759 $46,429,378 =========== =========== =========== =========== Undistributed net investment income $522,026 $758,251 $765,316 $1,126,683 ======== ======== ======== ==========
See accompanying notes 29 DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS STATEMENTS OF CHANGES IN NET ASSETS (CONTINUED)
Delaware Delaware Investments Florida Investments Colorado Insured Municipal Insured Municipal Income Fund Income Fund, Inc. Year Ended Year Ended 3/31/05 3/31/04 3/31/05 3/31/04 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 2,559,275 $ 2,634,312 $ 4,928,339 $ 5,047,366 Net realized gain on investments 286,142 52,390 80,722 223,885 Net change in unrealized appreciation/depreciation of investments (1,915,443) (362,616) (2,143,648) 1,336,193 Dividends on preferred stock (297,142) (209,938) (615,308) (435,224) ----------- ----------- ----------- ----------- Net increase in net assets resulting from operations 632,832 2,114,148 2,250,105 6,172,220 ----------- ----------- ----------- ----------- DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income (2,470,644) (2,410,089) (4,643,616) (4,643,616) Net realized gain on investments (239,798) (111,421) (145,113) (614,312) ----------- ----------- ----------- ----------- (2,710,442) (2,521,510) (4,788,729) (5,257,928) ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS (2,077,610) (407,362) (2,538,624) 914,292 NET ASSETS: Beginning of period 39,243,663 39,651,025 77,902,646 76,988,354 ----------- ----------- ----------- ----------- End of period $37,166,053 $39,243,663 $75,364,022 $77,902,646 =========== =========== =========== =========== Undistributed net investment income $799,507 $985,998 $1,685,741 $2,003,077 ======== ======== ========== ==========
30 FINANCIAL HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------ Delaware Investments Minnesota Municipal Income Fund, Inc. - ------------------------------------------------------------------------------------------------------------------------ Year Ended 3/31/05 3/31/04 3/31/03 3/31/02(1) 3/31/01 NET ASSET VALUE, BEGINNING OF PERIOD $15.020 $15.460 $14.640 $14.790 $14.060 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.896 0.999 1.119 1.191 1.155 Net realized and unrealized gain (loss) on investments (0.294) 0.130 0.758 (0.323) 0.732 Dividends on preferred stock from: Net investment income (0.117) (0.054) (0.094) (0.178) (0.317) Net realized gain on investments (0.001) (0.047) (0.008) -- -- ------- ------- ------- ------- ------- Total dividends on preferred stock (0.118) (0.101) (0.102) (0.178) (0.317) ------- ------- ------- ------- ------- Total from investment operations 0.484 1.028 1.775 0.690 1.570 ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income (0.953) (0.938) (0.890) (0.840) (0.840) Net realized gain on investments (0.011) (0.530) (0.065) -- -- ------- ------- ------- ------- ------- Total dividends and distributions (0.964) (1.468) (0.955) (0.840) (0.840) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $14.540 $15.020 $15.460 $14.640 $14.790 ======= ======= ======= ======= ======= MARKET VALUE, END OF PERIOD $15.070 $16.600 $16.000 $14.450 $14.300 ======= ======= ======= ======= ======= TOTAL INVESTMENT RETURN BASED ON:(2) Market value (3.52%) 13.86% 17.74% 7.00% 12.09% Net asset value 2.88% 6.62% 12.29% 4.81% 11.83% RATIOS AND SUPPLEMENTAL DATA: Net assets applicable to common shares, end of period (000 omitted) $37,738 $38,978 $40,122 $37,996 $33,386 Ratio of expenses to average net assets applicable to common shares(3) 1.27% 1.20% 1.21% 1.13% 1.23% Ratio of net investment income to average net assets applicable to common shares(3) 6.12% 6.57% 7.35% 8.00% 8.22% Ratio of net investment income to average net assets applicable to common shares net of dividends to preferred shares(4) 5.31% 5.90% 6.68% 6.84% 6.00% Portfolio turnover 12% 50% 38% 15% 6% LEVERAGE ANALYSIS: Value of preferred shares outstanding (000 omitted) $20,000 $20,000 $20,000 $20,000 $20,000 Net asset coverage per share of preferred shares, end of period $144,344 $147,445 $150,306 $144,989 $145,964 Liquidation value per share of preferred shares(5) $50,000 $50,000 $50,000 $50,000 $50,000
(1) As required, effective April 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year 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 and ratios for periods prior to April 1, 2001 have not been restated to reflect this change in accounting. (2) 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. (3) Ratios do not reflect the effect of dividend payments to preferred shareholders. (4) 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. (5) Excluding any accumulated but unpaid dividends. See accompanying notes 31 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------- Delaware Investments Minnesota Municipal Income Fund II, Inc. - ------------------------------------------------------------------------------------------------------------------------- Year Ended 3/31/05 3/31/04 3/31/03 3/31/02(1) 3/31/01 NET ASSET VALUE, BEGINNING OF PERIOD $15.280 $15.060 $14.280 $14.450 $13.590 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 1.025 1.093 1.143 1.163 1.168 Net realized and unrealized gain (loss) on investments (0.237) 0.207 0.689 (0.313) 0.850 Dividends on preferred stock from: Net investment income (0.128) (0.082) (0.112) (0.182) (0.340) ------- ------- ------- ------- ------- Total dividends on preferred stock (0.128) (0.082) (0.112) (0.182) (0.340) ------- ------- ------- ------- ------- Total from investment operations 0.660 1.218 1.720 0.668 1.678 ------- ------- ------- ------- ------- LESS DIVIDENDS TO COMMON SHAREHOLDERS FROM: Net investment income (1.050) (0.998) (0.940) (0.838) (0.818) ------- ------- ------- ------- ------- Total dividends (1.050) (0.998) (0.940) (0.838) (0.818) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $14.890 $15.280 $15.060 $14.280 $14.450 ======= ======= ======= ======= ======= MARKET VALUE, END OF PERIOD $16.370 $16.800 $15.300 $14.050 $14.080 ======= ======= ======= ======= ======= TOTAL INVESTMENT RETURN BASED ON:(2) Market value 4.02% 16.87% 15.84% 5.75% 20.37% Net asset value 4.03% 7.99% 12.19% 4.73% 13.06% RATIOS AND SUPPLEMENTAL DATA: Net assets applicable to common shares, end of period (000 omitted) $107,958 $110,828 $109,212 $103,573 $104,775 Ratio of expenses to average net assets applicable to common shares(3) 1.00% 0.93% 1.03% 1.06% 1.01% Ratio of net investment income to average net assets applicable to common shares(3) 6.85% 7.23% 7.74% 8.03% 8.42% Ratio of net investment income to average net assets applicable to common shares net of dividends to preferred shares(4) 6.00% 6.69% 6.99% 6.79% 5.96% Portfolio turnover 15% 34% 22% 7% 3% LEVERAGE ANALYSIS: Value of preferred shares outstanding (000 omitted) $60,000 $60,000 $60,000 $60,000 $60,000 Net asset coverage per share of preferred shares, end of period $139,965 $142,357 $141,010 $136,311 $137,312 Liquidation value per share of preferred shares(5) $50,000 $50,000 $50,000 $50,000 $50,000
(1) As required, effective April 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year 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 and ratios for periods prior to April 1, 2001 have not been restated to reflect this change in accounting. (2) 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. (3) Ratios do not reflect the effect of dividend payments to preferred shareholders. (4) 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. (5) Excluding any accumulated but unpaid dividends. See accompanying notes 32 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ------------------------------------------------------------------------------------------------------------------------- Delaware Investments Minnesota Municipal Income Fund III, Inc. - ------------------------------------------------------------------------------------------------------------------------- Year Ended 3/31/05 3/31/04 3/31/03 3/31/02(1) 3/31/01 NET ASSET VALUE, BEGINNING OF PERIOD $14.480 $14.290 $13.230 $13.420 $12.560 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.961 1.034 1.084 1.064 1.065 Net realized and unrealized gain (loss) on investments (0.353) 0.119 0.918 (0.306) 0.889 Dividends on preferred stock from: Net investment income (0.128) (0.083) (0.112) (0.183) (0.336) ------- ------- ------- ------- ------- Total dividends on preferred stock (0.128) (0.083) (0.112) (0.183) (0.336) ------- ------- ------- ------- ------- Total from investment operations 0.480 1.070 1.890 0.575 1.618 ------- ------- ------- ------- ------- LESS DIVIDENDS TO COMMON SHAREHOLDERS FROM: Net investment income (0.960) (0.880) (0.830) (0.765) (0.758) ------- ------- ------- ------- ------- Total dividends (0.960) (0.880) (0.830) (0.765) (0.758) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $14.000 $14.480 $14.290 $13.230 $13.420 ======= ======= ======= ======= ======= MARKET VALUE, END OF PERIOD $15.620 $16.160 $14.800 $13.000 $13.000 ======= ======= ======= ======= ======= TOTAL INVESTMENT RETURN BASED ON:(2) Market value 3.00% 15.76% 20.72% 5.93% 17.57% Net asset value 3.03% 7.43% 14.53% 4.43% 13.54% RATIOS AND SUPPLEMENTAL DATA: Net assets applicable to common shares, end of period (000 omitted) $25,720 $26,601 $26,260 $24,306 $24,659 Ratio of expenses to average net assets applicable to common shares(3) 1.33% 1.23% 1.32% 1.49% 1.42% Ratio of net investment income to average net assets applicable to common shares(3) 6.82% 7.20% 7.80% 7.88% 8.30% Ratio of net investment income to average net assets applicable to common shares net of dividends to preferred shares(4) 5.92% 6.62% 6.99% 6.56% 5.68% Portfolio turnover 12% 41% 23% 5% 5% LEVERAGE ANALYSIS: Value of preferred shares outstanding (000 omitted) $15,000 $15,000 $15,000 $15,000 $15,000 Net asset coverage per share of preferred shares, end of period $135,732 $138,670 $137,532 $131,007 $132,197 Liquidation value per share of preferred shares(5) $50,000 $50,000 $50,000 $50,000 $50,000
(1) As required, effective April 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year 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 and ratios for periods prior to April 1, 2001 have not been restated to reflect this change in accounting. (2) 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. (3) Ratios do not reflect the effect of dividend payments to preferred shareholders. (4) 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. (5) Excluding any accumulated but unpaid dividends. See accompanying notes 33 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- ----------------------------------------------------------------------------------------------------------------------- Delaware Investments Arizona Municipal Income Fund, Inc. - ----------------------------------------------------------------------------------------------------------------------- Year Ended 3/31/05 3/31/04 3/31/03 3/31/02(1) 3/31/01 NET ASSET VALUE, BEGINNING OF PERIOD $15.570 $15.480 $14.650 $14.970 $14.000 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.956 1.020 1.067 1.113 1.124 Net realized and unrealized gain (loss) on investments (0.332) 0.276 0.988 (0.257) 0.965 Dividends on preferred stock from: Net investment income (0.118) (0.075) (0.103) (0.164) (0.346) Net realized gain on investments (0.003) (0.016) (0.018) (0.051) -- ------- ------- ------- ------- ------- Total dividends on preferred stock (0.121) (0.091) (0.121) (0.215) (0.346) ------- ------- ------- ------- ------- Total from investment operations 0.503 1.205 1.934 0.641 1.743 ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income (0.960) (0.960) (0.940) (0.817) (0.773) Net realized gain on investments (0.043) (0.155) (0.164) (0.144) -- ------- ------- ------- ------- ------- Total dividends and distributions (1.003) (1.115) (1.104) (0.961) (0.773) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $15.070 $15.570 $15.480 $14.650 $14.970 ======= ======= ======= ======= ======= MARKET VALUE, END OF PERIOD $15.390 $16.560 $15.490 $14.750 $14.250 ======= ======= ======= ======= ======= TOTAL INVESTMENT RETURN BASED ON:(2) Market value (0.78%) 14.64% 12.74% 10.22% 19.28% Net asset value 3.34% 7.86% 13.44% 4.21% 13.00% RATIOS AND SUPPLEMENTAL DATA: Net assets applicable to common shares, end of period (000 omitted) $44,936 $46,429 $46,167 $43,703 $44,637 Ratio of expenses to average net assets applicable to common shares(3) 1.18% 1.05% 1.16% 1.19% 1.18% Ratio of net investment income to average net assets applicable to common shares(3) 6.34% 6.63% 6.96% 7.41% 7.86% Ratio of net investment income to average net assets applicable to common shares net of dividends to preferred shares(4) 5.54% 6.04% 6.18% 5.99% 5.44% Portfolio turnover 8% 30% 24% 43% 24% LEVERAGE ANALYSIS: Value of preferred shares outstanding (000 omitted) $25,000 $25,000 $25,000 $25,000 $25,000 Net asset coverage per share of preferred shares, end of period $139,872 $142,858 $142,334 $137,405 $139,274 Liquidation value per share of preferred shares(5) $50,000 $50,000 $50,000 $50,000 $50,000
(1) As required, effective April 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. The effect of this change for the year 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 and ratios for periods prior to April 1, 2001 have not been restated to reflect this change in accounting. (2) 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. (3) Ratios do not reflect the effect of dividend payments to preferred shareholders. (4) 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. (5) Excluding any accumulated but unpaid dividends. See accompanying notes 34 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- --------------------------------------------------------------------------------------------------------------------------- Delaware Investments Florida Insured Municipal Income Fund, Inc. - --------------------------------------------------------------------------------------------------------------------------- Year Ended 3/31/05 3/31/04 3/31/03 3/31/02(1) 3/31/01 NET ASSET VALUE, BEGINNING OF PERIOD $16.200 $16.370 $15.150 $15.400 $14.340 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 1.057 1.088 1.084 1.071 1.087 Net realized and unrealized gain (loss) on investments (0.675) (0.130) 1.186 (0.337) 1.068 Dividends on preferred stock from: Net investment income (0.114) (0.082) (0.109) (0.179) (0.337) Net realized gain on investments (0.009) (0.005) -- -- -- ------- ------- ------- ------- ------- Total dividends on preferred stock (0.123) (0.087) (0.109) (0.179) (0.337) ------- ------- ------- ------- ------- Total from investment operations 0.259 0.871 2.161 0.555 1.818 ------- ------- ------- ------- ------- LESS DIVIDENDS TO COMMON SHAREHOLDERS FROM: Net investment income (1.020) (0.995) (0.941) (0.805) (0.758) Net realized gain on investments (0.099) (0.046) -- -- -- ------- ------- ------- ------- ------- Total dividends (1.119) (1.041) (0.941) (0.805) (0.758) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $15.340 $16.200 $16.370 $15.150 $15.400 ======= ======= ======= ======= ======= MARKET VALUE, END OF PERIOD $15.050 $16.650 $15.050 $14.020 $13.180 ======= ======= ======= ======= ======= TOTAL INVESTMENT RETURN BASED ON:(2) Market value (3.02%) 18.04% 14.17% 12.63% 19.06% Net asset value 1.59% 5.59% 14.92% 4.16% 13.99% RATIOS AND SUPPLEMENTAL DATA: Net assets applicable to common shares, end of period (000 omitted) $37,166 $39,244 $39,651 $36,696 $37,300 Ratio of expenses to average net assets applicable to common shares(3) 1.24% 1.11% 1.18% 1.34% 1.32% Ratio of net investment income to average net assets applicable to common shares(3) 6.75% 6.70% 6.81% 6.95% 7.38% Ratio of net investment income to average net assets applicable to common shares net of dividends to preferred shares(4) 5.97% 6.16% 6.13% 5.79% 5.10% Portfolio turnover 11% 3% 13% 13% 8% LEVERAGE ANALYSIS: Value of preferred shares outstanding (000 omitted) $20,000 $20,000 $20,000 $20,000 $20,000 Net asset coverage per share of preferred shares, end of period $142,915 $148,110 $149,128 $141,740 $143,249 Liquidation value per share of preferred shares(5) $50,000 $50,000 $50,000 $50,000 $50,000
(1) As required, effective April 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. This change in accounting had no effect on the Fund's results of operations for the year ended March 31, 2002. Per share data and ratios for the periods prior to April 1, 2001 have not been restated to reflect this change in accounting. (2) 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. (3) Ratios do not reflect the effect of dividend payments to preferred shareholders. (4) 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. (5) Excluding any accumulated but unpaid dividends. See accompanying notes 35 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
- --------------------------------------------------------------------------------------------------------------------------- Delaware Investments Colorado Insured Municipal Income Fund, Inc. - -------------------------------------------------------------------------------------------------------------------------- Year Ended 3/31/05 3/31/04 3/31/03 3/31/02(1) 3/31/01 NET ASSET VALUE, BEGINNING OF PERIOD $16.110 $15.920 $14.780 $15.260 $13.870 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 1.019 1.043 1.068 1.094 1.105 Net realized and unrealized gain (loss) on investments (0.432) 0.324 1.324 (0.401) 1.373 Dividends on preferred stock from: Net investment income (0.124) (0.077) (0.098) (0.172) (0.342) Net realized gain on investments (0.003) (0.013) (0.023) (0.051) -- ------- ------- ------- ------- ------- Total dividends on preferred stock (0.127) (0.090) (0.121) (0.223) (0.342) ------- ------- ------- ------- ------- Total from investment operations 0.460 1.277 2.271 0.470 2.136 ------- ------- ------- ------- ------- LESS DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income (0.960) (0.960) (0.940) (0.818) (0.746) Net realized gain on investments (0.030) (0.127) (0.191) (0.132) -- ------- ------- ------- ------- ------- Total dividends and distributions (0.990) (1.087) (1.131) (0.950) (0.746) ------- ------- ------- ------- ------- NET ASSET VALUE, END OF PERIOD $15.580 $16.110 $15.920 $14.780 $15.260 ======= ======= ======= ======= ======= MARKET VALUE, END OF PERIOD $17.180 $16.960 $16.650 $14.700 $14.560 ======= ======= ======= ======= ======= TOTAL INVESTMENT RETURN BASED ON:(2) Market value 7.42% 8.76% 21.31% 7.52% 22.42% Net asset value 2.56% 8.05% 15.37% 3.15% 16.21% RATIOS AND SUPPLEMENTAL DATA: Net assets applicable to common shares, end of period (000 omitted) $75,364 $77,903 $76,988 $71,506 $73,817 Ratio of expenses to average net assets applicable to common shares(3) 1.03% 1.01% 1.05% 1.01% 1.06% Ratio of net investment income to average net assets applicable to common shares(3) 6.51% 6.54% 6.83% 7.18% 7.68% Ratio of net investment income to average net assets applicable to common shares net of dividends to preferred shares(4) 5.69% 5.98% 6.08% 5.71% 5.31% Portfolio turnover 5% 13% 14% 37% 56% LEVERAGE ANALYSIS: Value of preferred shares outstanding (000 omitted) $40,000 $40,000 $40,000 $40,000 $40,000 Net asset coverage per share of preferred shares, end of period $144,205 $147,379 $146,235 $139,382 $142,272 Liquidation value per share of preferred shares(5) $50,000 $50,000 $50,000 $50,000 $50,000
(1) As required, effective April 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that require amortization of all premiums and discounts on debt securities. This change in accounting had no effect on the Fund's results of operations for the year ended March 31, 2002. Per share data and ratios for the periods prior to April 1, 2001 have not been restated to reflect this change in accounting. (2) 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. (3) Ratios do not reflect the effect of dividend payments to preferred shareholders. (4) 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. (5) Excluding any accumulated but unpaid dividends. See accompanying notes 36 NOTES DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS March 31, 2005 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 Minnesota corporations and Delaware Investments Florida Insured Municipal Income Fund ("Florida Insured Municipal Income 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 U.S. generally accepted accounting principles 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 U.S. generally accepted accounting principles 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. Management fees and some other expenses are paid monthly. 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. In addition, in order to satisfy certain distribution requirements of the Tax Reform Act of 1986, the Funds may declare special year-end dividend and capital gains distributions during November or December to shareholders of record on a date in such month. Such distributions, if received by shareholders by January 31, are deemed to have been paid by the Funds and received by shareholders on the earlier of the date paid or December 31 of the prior year. Expenses Paid Indirectly -- The Funds receive earnings credits from their custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under the above arrangement is included in custodian fees on the Statements of Operations with the corresponding expense offset shown as expenses paid indirectly. The amount of the expense for each Fund for the year ended March 31, 2005 was as follows:
Minnesota Minnesota Minnesota Arizona Florida Insured Colorado Insured Municipal Municipal Municipal Municipal Municipal Municipal Fund Fund II Fund III Fund Fund Fund --------- --------- --------- --------- --------------- ------------------ Earnings credits $2,197 $4,763 $1,712 $2,861 $2,156 $3,586
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. As of September 1, 2004, DMC has voluntarily agreed to waive that portion, if any, of its management fee and reimburse the Minnesota Municipal Fund to the extent necessary to ensure that annual operating expenses, exclusive of taxes, interest, brokerage commissions, remarketing and rating agency fees, certain insurance costs and extraordinary expenses, do not exceed 0.72% of average daily net assets of the Fund, including assets attributable to any preferred stock that may be outstanding, through September 30, 2005. This waiver may be revoked at any time. The Funds have engaged Delaware Service Company, Inc., (DSC), an affiliate of DMC, to provide accounting and administration services which are based on average net assets and paid on a monthly basis, subject to certain minimums. 37 NOTES DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS (CONTINUED) 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED) At March 31, 2005, the Funds had liabilities payable to affiliates as follows:
Minnesota Minnesota Minnesota Arizona Florida Insured Colorado Insured Municipal Municipal Municipal Municipal Municipal Municipal Fund Fund II Fund III Fund Fund Fund --------- --------- --------- ---------- --------------- ---------------- Investment management fee payable to DMC $19,357 $56,242 $13,631 $23,429 $19,109 $38,639 Accounting, administration, and other expenses payable to DSC 15,125 16,903 22,735 15,302 15,741 16,704 Other expenses payable to DMC and affiliates* 6,388 15,336 3,844 7,292 3,410 9,569
*DMC, as part of its administrative services, pays operating expenses on behalf of the Funds and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, stock exchange fees, custodian fees, and director/trustees fees. As provided in the investment management agreement, the Funds bear the cost of certain legal services expenses, including internal legal services provided to the Funds by DMC employees. For the year ended March 31, 2005, the Delaware Investments Minnesota Municipal Income Fund, Delaware Investments Minnesota Municipal Income Fund II, Delaware Investments Minnesota Municipal Income Fund III, Delaware Investments Arizona Municipal Income Fund, Delaware Investments Florida Insured Municipal Income Fund, and Delaware Investments Colorado Insured Municipal Income Fund were charged $1,263, $2,959, $765, $1,230, $1,064, and $2,209, respectively, for internal legal services provided by DMC. Certain officers of DMC and DSC are officers, and or directors/trustees of the Funds. These officers and directors/trustees are paid no compensation by the Funds. 3. INVESTMENTS For the year ended March 31, 2005, the Funds made purchases and sales of investment securities other than short-term investments as follows:
Minnesota Minnesota Minnesota Arizona Florida Insured Colorado Insured Municipal Municipal Municipal Municipal Municipal Municipal Fund Fund II Fund III Fund Fund Fund ---------- ----------- ---------- ----------- -------------- ---------------- Purchases $6,788,141 $24,615,474 $4,725,790 $5,794,702 $6,003,561 $5,996,702 Sales 7,483,510 28,404,831 5,829,100 7,485,212 6,458,760 6,507,750
At March 31, 2005, 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 $55,128,768 $157,691,301 $38,006,719 $63,354,559 $53,141,451 $107,383,388 =========== ============ =========== =========== =========== ============ Aggregate unrealized appreciation $ 2,121,448 $ 7,168,613 $ 1,868,447 $ 3,421,433 $ 2,995,979 $ 6,505,219 Aggregate unrealized depreciation (209,015) (611,131) (102,935) (154,344) (15,146) (65,048) ----------- ------------ ----------- ----------- ----------- ------------ Net unrealized appreciation $ 1,912,433 $ 6,557,482 $ 1,765,512 $ 3,267,089 $ 2,980,833 $ 6,440,171 =========== ============ =========== =========== =========== ============
38 NOTES DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS (CONTINUED) 4. DIVIDEND AND DISTRIBUTION INFORMATION Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended March 31, 2005 and 2004 was as follows:
Minnesota Municipal Fund Minnesota Municipal Fund II ------------------------- --------------------------- 3/31/05 3/31/04 3/31/05 3/31/04 Tax-exempt income $2,744,238 $2,538,026 $8,535,622 $7,775,641 Ordinary income 30,198 122,453 6,890 53,803 Long-term capital gain 30,878 1,409,907 -- -- ---------- ---------- ---------- ---------- Total $2,805,314 $4,070,386 $8,542,512 $7,829,444 ========== ========== ========== ==========
Minnesota Municipal Fund III Arizona Municipal Fund ---------------------------- -------------------------- 3/31/05 3/31/04 3/31/05 3/31/04 Tax-exempt income $1,998,840 $1,750,401 $3,210,970 $3,072,779 Ordinary Income -- 19,044 84,725 178,072 Long-term capital gain -- -- 56,464 345,992 ---------- ---------- ---------- ---------- Total $1,998,840 $1,769,445 $3,352,159 $3,596,843 ========== ========== ========== ==========
Florida Insured Municipal Fund Colorado Insured Municipal Fund ------------------------------ ------------------------------- 3/31/05 3/31/04 3/31/05 3/31/04 Tax-exempt income $2,745,766 $2,608,022 $5,245,675 $5,016,217 Ordinary Income -- -- 14,636 63,831 Long-term capital gain 261,818 123,426 143,726 613,104 ---------- ---------- ---------- ---------- Total $3,007,584 $2,731,448 $5,404,037 $5,693,152 ========== ========== ========== ==========
As of March 31, 2005, 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 $35,426,619 $ 99,710,000 $23,648,910 Undistributed tax-exempt income 389,101 2,250,617 522,026 Undistributed long-term gains 9,441 -- -- Capital loss carry forward -- (560,224) (216,703) Unrealized appreciation 1,912,433 6,557,482 1,765,512 ----------- ------------ ----------- Net assets $37,737,594 $107,957,875 $25,719,745 =========== ============ ===========
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 765,316 799,507 1,685,741 Undistributed long-term gains 64,461 24,324 -- Unrealized appreciation 3,267,089 2,980,833 6,440,171 ----------- ----------- ----------- Net assets $44,935,759 $37,166,053 $75,364,022 =========== =========== ===========
The difference between book basis and tax basis components of net assets are primarily attributable to tax treatment of market discounts on debt instruments. 39 NOTES DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS (CONTINUED) 4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED) For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. For the year ended March 31, 2005, the Funds recorded the following reclassifications. Reclassifications are primarily due to tax treatment of market discounts on certain debt instruments and the expiration of capital loss carryforwards. Results of operations and net assets were not affected by these reclassifications.
Minnesota Municipal Fund Minnesota Municipal Fund II Minnesota Municipal Fund III ------------------------ --------------------------- ---------------------------- Undistributed net investment income $34,059 $2,247 $(2,389) Accumulated realized gain (loss) on investments (34,059) (2,247) 338,608 Paid-in capital -- -- (336,219)
Arizona Municipal Fund Colorado Municipal Fund ---------------------- ----------------------- Undistributed net investment income $(3,156) $(127) Accumulated realized gain (loss) on investments 3,156 127
For federal income tax purposes in 2005, certain Funds had accumulated capital losses as of March 31, 2005, which may be carried forward and applied against future capital gains. Such capital loss carryforward amounts will expire as follows:
2006 2008 2009 2010 Total ------- -------- -------- ------ ------- Minnesota Municipal Fund II $ -- $376,004 $175,804 $8,416 $560,224 Minnesota Municipal Fund III 6,539 56,856 153,308 -- 216,703
For federal income tax purposes, in 2005 Minnesota Municipal Income Funds II and Minnesota Municipal Income Funds III utilized $266,585 and $119,447, respectively, of capital loss carryforwards from prior years. Capital loss carryforward of $336,219 expired in 2005 for Minnesota Municipal Income Fund III. 5. CAPITAL STOCK Pursuant to their articles of incorporation, Minnesota Municipal Fund, Minnesota Municipal Fund II, Minnesota Municipal Fund III, Arizona Municipal Fund and Colorado Insured Municipal Fund each have 200 million shares of $0.01 par value common shares authorized. Florida Insured Municipal Fund has been authorized to issue an unlimited amount of $0.01 par value common shares. The Funds did not repurchase any shares under the Share Repurchase Program during the year ended March 31, 2005. Shares issuable under the Funds' dividend reinvestment plan are purchased by the Funds' transfer agent, Mellon Investor Services, LLC, in the open market. For the year ended March 31, 2005, 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, 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 during the year ended March 31, 2005 as follows:
Fund Low High - ---- --- ---- Minnesota Municipal Fund 1.02% to 2.60% Minnesota Municipal Fund II 1.00% to 2.40% Minnesota Municipal Fund III 1.05% to 2.40% Arizona Municipal Fund 0.95% to 2.30% Florida Insured Municipal Fund 0.95% to 2.40% Colorado Insured Municipal Fund 0.97% to 2.35%
Salomon Smith Barney, Inc. and Merrill Lynch Pierce, Fenner & Smith Inc. (Colorado Insured Municipal Fund only), as the remarketing agents, receive an annual fee from each of the Funds of 0.25% of the average amount of preferred stock outstanding. Under the 1940 Act, the Funds may not declare dividends or make other distributions on common shares or purchase any such shares if, at the time of the declaration, distribution or purchase, asset coverage with respect to the outstanding preferred stock is less than 200%. The preferred shares are redeemable at the option of the Funds, in whole or in part, on any dividend payment date at $50,000 per share plus any accumulated but unpaid dividends whether or not declared. The preferred shares are also subject to mandatory redemption at $50,000 per share plus any accumulated but unpaid dividends whether or not declared, if certain requirements relating to the composition of the assets and liabilities of each Fund are not satisfied. The holders of preferred shares have voting rights equal to the holders of common shares (one vote per share) and will vote together with holders of common shares as a single class. However, holders of preferred shares are also entitled to elect two of each Fund's Directors. In addition, the 1940 Act requires that along with approval by shareholders that might otherwise be required, the approval of the holders of a majority of any outstanding preferred shares, voting separately as a class, would be required to (a) adopt any plan of reorganization that would adversely affect the preferred shares, and (b) take any action requiring a vote of security holders pursuant of Section 13(a) of the 1940 Act, including, among other things, changes in each of the Fund's subclassification as a closed-end investment company or changes in their fundamental investment restrictions. 40 NOTES DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS (CONTINUED) 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 states, 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 market value 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 Statements of Net Assets. The Funds may invest in inverse floating rate securities ("inverse floaters"), a type of derivative tax-exempt obligation with floating or variable interest rates that move in the opposite direction of short-term interest rates, usually at an accelerated speed. Consequently, the market values of inverse floaters will generally be more volatile than other tax-exempt investments. Such securities are denoted on the Statements of Net Assets. The Funds may invest in advanced refunded bonds, escrow secured bonds or defeased bonds. Under current federal tax laws and regulations, state and local government borrowers are permitted to refinance outstanding bonds by issuing new bonds. The issuer refinances the outstanding debt to either reduce interest costs or to remove or alter restrictive covenants imposed by the bonds being refinanced. A refunding transaction where the municipal securities are being refunded within 90 days or less from the issuance of the refunding issue is known as a "current refunding". "Advance refunded bonds" are bonds in which the refunded bond issue remains outstanding for more than 90 days following the issuance of the refunding issue. In an advance refunding, the issuer will use the proceeds of a new bond issue to purchase high grade interest bearing debt securities which are then deposited in an irrevocable escrow account held by an escrow agent to secure all future payments of principal and interest and bond premium of the advance refunded bond. Bonds are "escrowed to maturity" when the proceeds of the refunding issue are deposited in an escrow account for investment sufficient to pay all of the principal and interest on the original interest payment and maturity dates. Bonds are considered "pre-refunded" when the refunding issue's proceeds are escrowed only until a permitted call date or dates on the refunded issue with the refunded issue being redeemed at that time, including any required premium. Bonds become "defeased" when the rights and interests of the bondholders and their lien on the pledged revenues or other security under the terms of the bond contract are substituted with an alternative source of revenues (the escrow securities) sufficient to meet payments of principal and interest to maturity or to the first call dates. Escrowed secured bonds will often receive a rating of AAA from Moody's, S&P, and/or Fitch due to the strong credit quality of the escrow securities and the irrevocable nature of the escrow deposit agreement. Each Fund may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. Such securities are denoted on the Statements of Net Assets. 7. CONTRACTUAL OBLIGATIONS The Funds enter into contracts in the normal course of business that contain a variety of indemnifications. The Funds' maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these contracts. Management has reviewed the Funds' existing contracts and and expects the risk of loss to be remote. 8. TAX INFORMATION (UNAUDITED) The information set forth is for each Fund's fiscal year end as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information. For the fiscal year ended March 31, 2005, each Fund designates distributions paid during the year as follows:
Long-Term Ordinary Tax Total Capital Gains Income Exempt Distributions Distributions Distributions Income (Tax Basis) ------------- ------------- ------ -------------- Minnesota Municipal Fund 1% 1% 98% 100% Minnesota Municipal Fund II -- 1% 99% 100% Minnesota Municipal Fund III -- -- 100% 100% Arizona Municipal Fund 2% 3% 95% 100% Florida Insured Municipal Fund 9% -- 91% 100% Colorado Insured Municipal Fund 3% -- 97% 100%
41 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors/Trustees Delaware Investments Minnesota Municipal Income Fund, Inc. Delaware Investments Minnesota Municipal Income Fund II, Inc. Delaware Investments Minnesota Municipal Income Fund III, Inc. Delaware Investments Arizona Municipal Income Fund, Inc. Delaware Investments Florida Insured Municipal Income Fund Delaware Investments Colorado Insured Municipal Income Fund, Inc. We have audited the accompanying statements of net assets of Delaware Investments Minnesota Municipal Income Fund, Inc., Delaware Investments Minnesota Municipal Income Fund II, Inc., Delaware Investments Minnesota Municipal Income Fund III, Inc., Delaware Investments Arizona Municipal Income Fund, Inc., Delaware Investments Florida Insured Municipal Income Fund and Delaware Investments Colorado Insured Municipal Income Fund, Inc. ("the Funds"), as of March 31, 2005, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds' internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds' internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of March 31, 2005, by correspondence with the custodian and brokers. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the respective Funds at March 31, 2005, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles. Ernst & Young LLP Philadelphia, Pennsylvania May 12, 2005 42 DELAWARE INVESTMENTS FAMILY OF FUNDS BOARD OF TRUSTEES/DIRECTORS AND OFFICERS ADDENDUM A mutual fund is governed by a Board of Trustees/Directors ("Trustees"), which has oversight responsibility for the management of a fund's business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor and others that perform services for the fund. The independent fund trustees, in particular, are advocates for shareholder interests. The following is a list of the Trustees and Officers with certain background and related information.
NUMBER OF OTHER PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER - ------------------------------------------------------------------------------------------------------------------------------------ INTERESTED TRUSTEES JUDE T. DRISCOLL(2) Chairman, 5 Years - Since August 2000, 92 None 2005 Market Street President, Executive Officer Mr. Driscoll has served in Philadelphia, PA Chief Executive various executive capacities 19103 Officer and 1 Year - at different times at Trustee(2) Trustee Delaware Investments(1) March 10, 1963 Senior Vice President and Director of Fixed-Income Process - Conseco Capital Management (June 1998 - August 2000) - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES THOMAS L. BENNETT Trustee Since Private Investor - 92 None 2005 Market Street March 23, 2005 (March 2004 - Present) Philadelphia, PA 19103 Investment Manager - Morgan Stanley & Co. October 4, 1947 (January 1984 - March 2004) JOHN A. FRY Trustee 4 Years President - 92 Director - 2005 Market Street Franklin & Marshall College Community Health Philadelphia, PA (June 2002 - Present) Systems 19103 Executive Vice President - May 28, 1960 University of Pennsylvania (April 1995 - June 2002) ANTHONY D. KNERR Trustee 12 Years Founder/Managing Director - 92 None 2005 Market Street Anthony Knerr & Associates Philadelphia, PA (Strategic Consulting) 19103 (1990 - Present) December 7, 1938 LUCINDA S. LANDRETH Trustee Since Chief Investment Officer - 92 None 2005 Market Street March 23, 2005 Assurant, Inc. Philadelphia, PA (Insurance) 19103 (2002 - 2004) June 24, 1947 ANN R. LEVEN Trustee 16 Years Treasurer/Chief Fiscal Officer - 92 Director and 2005 Market Street National Gallery of Art Audit Committee Philadelphia, PA (1994 - 1999) Chairperson - Andy 19103 Warhol Foundation November 1, 1940 Director and Audit Committee Member - Systemax Inc.
43
NUMBER OF OTHER PRINCIPAL PORTFOLIOS IN FUND DIRECTORSHIPS NAME, POSITION(S) OCCUPATION(S) COMPLEX OVERSEEN HELD BY ADDRESS HELD WITH LENGTH OF TIME DURING BY TRUSTEE TRUSTEE AND BIRTHDATE FUND(S) SERVED PAST 5 YEARS OR OFFICER OR OFFICER - ------------------------------------------------------------------------------------------------------------------------------------ INDEPENDENT TRUSTEES (CONTINUED) THOMAS F. MADISON Trustee 11 Years President/Chief 92 Director - 2005 Market Street Executive Officer - Banner Health Philadelphia, PA MLM Partners, Inc. 19103 (Small Business Investing Director and Audit and Consulting) Committee Member - February 25, 1936 (January 1993 - Present) CenterPoint Energy Director and Audit Committee Member - Digital River Inc. Director and Audit Committee Member - Rimage Corporation Director - Valmont Industries, Inc. JANET L. YEOMANS Trustee 6 Years Vice President/Mergers & 92 None 2005 Market Street Acquisitions - 3M Corporation Philadelphia, PA (January 2003 - Present) 19103 Ms. Yeomans has held July 31, 1948 various management positions at 3M Corporation since 1983. J. RICHARD ZECHER Trustee Since Founder - 92 Director and Audit 2005 Market Street March 23, 2005 Investor Analytics Committee Member - Philadelphia, PA (Risk Management) Investor Analytics 19103 (May 1999 - Present) Director and Audit July 3, 1940 Committee Member - Oxigene, Inc. - ------------------------------------------------------------------------------------------------------------------------------------ OFFICERS MICHAEL P. BISHOF Senior Chief Financial Mr. Bishof has served in 92 None(3) 2005 Market Street Vice President Officer since various executive capacities Philadelphia, PA and February 17, 2005 at different times at 19103 Chief Financial Delaware Investments. Officer August 18, 1962 RICHELLE S. MAESTRO Executive Vice President, 2 Years Ms. Maestro has served in 92 None(3) 2005 Market Street Chief Legal Officer various executive capacities Philadelphia, PA and Secretary at different times at 19103 Delaware Investments. November 26, 1957 JOHN J. O'CONNOR Senior Vice President Treasurer Mr. O'Connor has served in 92 None(3) 2005 Market Street and Treasurer since various executive capacities Philadelphia, PA February 17, 2005 at different times at 19103 Delaware Investments. June 16, 1957
(1) Delaware Investments is the marketing name for Management Holdings, Inc. and its subsidiaries, including the Fund's(s') investment advisor, principal underwriter and its transfer agent. (2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an executive officer of the Fund's(s') manager and distributor. (3) Mr. Bishof, Ms. Maestro and Mr. O'Connor also serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant. The Statement of Additional Information for the Fund(s) includes additional information about the Trustees/Directors and Officers and is available, without charge, upon request by calling 800 523-1918. 44 Delaware Investments(R) - ----------------------------------- A member of Lincoln Financial Group This annual report is for the information of Delaware Investments Closed-End Municipal Bond Funds shareholders. The return and principal value of an investment in each Fund will fluctuate so that shares, when sold, may be worth more or less than their original cost. Notice is hereby given in accordance with Section 23(c) of the Investment Company 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 TRUSTEES AFFILIATED OFFICERS CONTACT INFORMATION JUDE T. DRISCOLL MICHAEL P. BISHOF INVESTMENT MANAGER Chairman Senior Vice President and Delaware Management Company Delaware Investments Family of Funds Chief Financial Officer Philadelphia, PA Philadelphia, PA Delaware Investments Family of Funds Philadelphia, PA PRINCIPAL OFFICE OF THE FUNDS THOMAS L. BENNETT 2005 Market Street Private Investor RICHELLE S. MAESTRO Philadelphia, PA 19103-7057 Rosemont, PA Executive Vice President, Chief Legal Officer and Secretary INDEPENDENT REGISTERED PUBLIC JOHN A. FRY Delaware Investments Family of Funds ACCOUNTING FIRM President Philadelphia, PA Ernst & Young LLP Franklin & Marshall College 2001 Market Street Lancaster, PA JOHN J. O'CONNOR Philadelphia, PA 19103 Senior Vice President and Treasurer ANTHONY D. KNERR Delaware Investments Family of Funds REGISTRAR AND STOCK TRANSFER AGENT Managing Director Philadelphia, PA Mellon Investor Services, L.L.C. Anthony Knerr & Associates Overpeck Centre New York, NY ----------------------------------- 85 Challenger Road Each Fund files its complete Ridgefield Park, NJ 07660 LUCINDA S. LANDRETH schedule of portfolio holdings with 800 851-9677 Former Chief Investment Officer the Securities and Exchange Assurant, Inc. Commission for the first and third FOR SECURITIES DEALERS AND FINANCIAL Philadelphia, PA quarters of each fiscal year on INSTITUTIONS REPRESENTATIVES Form N-Q. Each Fund's Forms N-Q, as 800 362-7500 ANN R. LEVEN well as a description of the Former Treasurer/Chief Fiscal Officer policies and procedures that each WEB SITE National Gallery of Art Fund uses to determine how to vote www.delawareinvestments.com Washington, DC proxies (if any) relating to portfolio securities is available NUMBER OF RECORDHOLDERS AS OF THOMAS F. MADISON without charge (i) upon request, by MARCH 31, 2005: President and Chief Executive Officer calling 800 523-1918; (ii) on each Minnesota Municipal Income Fund I 311 MLM Partners, Inc. Fund's Web site at Minnesota Municipal Income Fund II 491 Minneapolis, MN http://www.delawareinvestments.com; Minnesota Municipal Income Fund III 117 and (iii) on the Commission's Web Arizona Municipal Income Fund 98 JANET L. YEOMANS site at http://www.sec.gov. Each Florida Insured Municipal Income Fund 153 Vice President/Mergers & Acquisitions Fund's Forms N-Q may be reviewed Colorado Insured Municipal 3M Corporation and copied at the Commission's Income Fund 174 St. Paul, MN Public Reference Room in Washington, DC; information on the J. RICHARD ZECHER operation of the Public Reference Founder Room may be obtained by calling Investor Analytics 1-800-SEC-0330. Scottsdale, AZ Information (if any) regarding how Thomas F. Madison and Janet L. each Fund voted proxies relating to Yeomans were elected by the portfolio securities during the preferred shareholders of the most recently disclosed 12-month Delaware Investments Closed-End period ended June 30 is available Municipal Bond Funds. without charge (i) through each Fund's Web site at http://www.delawareinvestments.com; and (ii) on the Commission's Web site at http://www.sec.gov. -----------------------------------
(9357) Printed in the USA AR-CEMUNI [3/05] IVES 5/05 J10138 Item 2. Code of Ethics The registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of the registrant's Code of Business Ethics has been posted on Delaware Investments' internet website at www.delawareinvestments.com. Any amendments to the Code of Business Ethics, and information on any waiver from its provisions granted by the registrant, will also be posted on this website within five business days of such amendment or waiver and will remain on the website for at least 12 months. Item 3. Audit Committee Financial Expert The registrant's Board of Trustees/Directors has determined that each member of the registrant's Audit Committee is an audit committee financial expert, as defined below. For purposes of this item, an "audit committee financial expert" is a person who has the following attributes: a. An understanding of generally accepted accounting principles and financial statements; b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves; c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant's financial statements, or experience actively supervising one or more persons engaged in such activities; d. An understanding of internal controls and procedures for financial reporting; and e. An understanding of audit committee functions. An "audit committee financial expert" shall have acquired such attributes through: a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions; b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions; c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or d. Other relevant experience. The registrant's Board of Trustees/Directors has also determined that each member of the registrant's Audit Committee is independent. In order to be "independent" for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees/Directors or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an "interested person" of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940. The names of the audit committee financial experts on the registrant's Audit Committee are set forth below: Thomas L. Bennett(1) Thomas F. Madison Janet L. Yeomans(1) J. Richard Zecher Item 4. Principal Accountant Fees and Services (a) Audit fees. The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant's annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $18,950 for the fiscal year ended March 31, 2005. The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant's annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $16,950 for the fiscal year ended March 31, 2004. _______________________ (1) The instructions to Form N-CSR require disclosure on the relevant experience of persons who qualify as audit committee financial experts based on "other relevant experience." The Board of Trustees/Directors had determined that Mr. Bennett qualifies as an audit committee financial expert by virtue of his education, Chartered Financial Analyst designation, and his experience as a credit analyst, portfolio manager and the manager of other credit analysts and portfolio managers. The Board of Trustees/Directors has determined that Ms. Yeomans qualifies as an audit committee financial expert by virtue of her education and experience as the Treasurer of a large global corporation. (b) Audit-related fees. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the registrant's financial statements and not reported under paragraph (a) of this Item were $6,695 for the fiscal year ended March 31, 2005. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: agreed upon procedures with respect to the preferred stock rating agency reports. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the financial statements of the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $21,350 for the registrant's fiscal year ended March 31, 2005. The percentage of these fees relating to services approved by the Registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of agreed-upon procedures reports to the registrant's Board in connection with the annual fund accounting service agent contract renewal and the pass-through of internal legal costs relating to the operations of the registrant. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the registrant's financial statements and not reported under paragraph (a) of this Item were $9,900 for the fiscal year ended March 31, 2004. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: quarterly agreed upon procedures with respect to the preferred stock rating agency reports. The aggregate fees billed by the registrant's independent auditors for services relating to the performance of the audit of the financial statements of the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $15,750 for the registrant's fiscal year ended March 31, 2004. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: issuance of agreed-upon procedures reports to the registrant's Board in connection with the annual fund accounting service agent contract renewal and the pass-through of internal legal costs relating to the operations of the registrant. (c) Tax fees. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the Registrant were $1,750 for the fiscal year ended March 31, 2005. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax return and review of annual excise distribution calculation. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant's investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended March 31, 2005. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant were $1,250 for the fiscal year ended March 31, 2004. The percentage of these fees relating to services approved by the registrant's Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax return and review of annual excise distribution calculation. The aggregate fees billed by the registrant's independent auditors for tax-related services provided to the registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended March 31, 2004. (d) All other fees. The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended March 31, 2005. The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant's independent auditors to the registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the Registrant's fiscal year ended March 31, 2005. The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended March 31, 2004. The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant's independent auditors to the registrant's adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant's fiscal year ended March 31, 2004. (e) The registrant's Audit Committee has not established pre-approval policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X. (f) Not applicable. (g) The aggregate non-audit fees billed by the registrant's independent auditors for services rendered to the registrant and to its investment adviser and other service providers under common control with the adviser were $235,079 and $166,625 for the registrant's fiscal years ended March 31, 2005 and March 31, 2004, respectively. (h) In connection with its selection of the independent auditors, the registrant's Audit Committee has considered the independent auditors' provision of non-audit services to the registrant's investment adviser and other service providers under common control with the adviser that were not required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit Committee has determined that the independent auditors' provision of these services is compatible with maintaining the auditors' independence. Item 5. Audit Committee of Listed Registrants The registrant has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the registrant's Audit Committee are Thomas L. Bennett, Thomas F. Madison, Janet L. Yeomans and J. Richard Zecher. Item 6. Schedule of Investments Included as part of report to shareholders filed under Item 1 of this Form N-CSR. Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies The registrant has formally delegated to its investment adviser(s) (including any sub-adviser) (the "Adviser") the ability to make all proxy voting decisions in relation to portfolio securities held by the registrant. If and when proxies need to be voted on behalf of the registrant, the Adviser will vote such proxies pursuant to its Proxy Voting Policies and Procedures (the "Procedures"). The Adviser has established a Proxy Voting Committee (the "Committee") which is responsible for overseeing the Adviser's proxy voting process for the registrant. One of the main responsibilities of the Committee is to review and approve the Procedures to ensure that the Procedures are designed to allow the Adviser to vote proxies in a manner consistent with the goal of voting in the best interests of the registrant. In order to facilitate the actual process of voting proxies, the Adviser has contracted with Institutional Shareholder Services ("ISS") to analyze proxy statements on behalf of the registrant and other Adviser clients and vote proxies generally in accordance with the Procedures. The Committee is responsible for overseeing ISS's proxy voting activities. If a proxy has been voted for the registrant, ISS will create a record of the vote. Information (if any) regarding how the registrant voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge (i) through the registrant's website at http://www.delawareinvestments.com; and (ii) on the Commission's website at http://www.sec.gov. The Procedures contain a general guideline that recommendations of company management on an issue (particularly routine issues) should be given a fair amount of weight in determining how proxy issues should be voted. However, the Adviser will normally vote against management's position when it runs counter to its specific Proxy Voting Guidelines (the "Guidelines"), and the Adviser will also vote against management's recommendation when it believes that such position is not in the best interests of the registrant. As stated above, the Procedures also list specific Guidelines on how to vote proxies on behalf of the registrant. Some examples of the Guidelines are as follows: (i) generally vote for shareholder proposals asking that a majority or more of directors be independent; (ii) generally vote against proposals to require a supermajority shareholder vote; (iii) votes on mergers and acquisitions should be considered on a case-by-case basis, determining whether the transaction enhances shareholder value; (iv) generally vote against proposals to create a new class of common stock with superior voting rights; (v) generally vote re-incorporation proposals on a case-by-case basis; (vi) votes with respect to management compensation plans are generally determined on a case-by-case basis; (vii) generally vote for reports on the level of greenhouse gas emissions from a company's operations and products; and (viii) generally vote for proposals requesting the company to report on its policies and practices related to social, environmental and economic sustainability. Because the registrant has delegated proxy voting to the Adviser, the registrant is not expected to encounter any conflict of interest issues regarding proxy voting and therefore does not have procedures regarding this matter. However, the Adviser does have a section in its Procedures that addresses the possibility of conflicts of interest. Most proxies which the Adviser receives on behalf of the registrant are voted by ISS in accordance with the Procedures. Because almost all registrant proxies are voted by ISS pursuant to the pre-determined Procedures, it normally will not be necessary for the Adviser to make an actual determination of how to vote a particular proxy, thereby largely eliminating conflicts of interest for the Adviser during the proxy voting process. In the very limited instances where the Adviser is considering voting a proxy contrary to ISS's recommendation, the Committee will first assess the issue to see if there is any possible conflict of interest involving the Adviser or affiliated persons of the Adviser. If a member of the Committee has actual knowledge of a conflict of interest, the Committee will normally use another independent third party to do additional research on the particular proxy issue in order to make a recommendation to the Committee on how to vote the proxy in the best interests of the registrant. The Committee will then review the proxy voting materials and recommendation provided by ISS and the independent third party to determine how to vote the issue in a manner which the Committee believes is consistent with the Procedures and in the best interests of the registrant. Item 8. Portfolio Managers of Closed-End Management Investment Companies Applicable to Form N-CSRs filed for fiscal years ending on or after December 31, 2005. Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers Not applicable. Item 10. Submission of Matters to a Vote of Security Holders Not applicable. Item 11. Controls and Procedures The registrant's principal executive officer and principal financial officer have evaluated the registrant's disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. There were no significant changes in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report to stockholders included herein (i.e., the registrant's fourth fiscal quarter) that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. Item 12. Exhibits (a) (1) Code of Ethics Not applicable. (2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT. (3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934. Not applicable. (b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized. NAME OF REGISTRANT: DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND, INC. JUDE T. DRISCOLL - ------------------------------- By: Jude T. Driscoll ------------------------ Title: Chief Executive Officer Date: June 7, 2005 ------------------------ Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. JUDE T. DRISCOLL - ------------------------------- By: Jude T. Driscoll ------------------------ Title: Chief Executive Officer Date: June 7, 2005 ------------------------ MICHAEL P. BISHOF - ------------------------------- By: Michael P. Bishof ------------------------ Title: Chief Financial Officer Date: June 7, 2005 ------------------------ EX-99 2 ex99-cert.txt EXHIBIT 99.CERT EXHIBIT 99.CERT CERTIFICATION ------------- I, Jude T. Driscoll, certify that: 1. I have reviewed this report on Form N-CSR of Delaware Investments Minnesota Municipal Income Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 7, 2005 ------------------------ JUDE T. DRISCOLL - ------------------------------- By: Jude T. Driscoll ------------------------ Title: Chief Executive Officer CERTIFICATION ------------- I, Michael P. Bishof, certify that: 1. I have reviewed this report on Form N-CSR of Delaware Investments Minnesota Municipal Income Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: June 7, 2005 ------------------------ MICHAEL P. BISHOF - ------------------------------- By: Michael P. Bishof ------------------------ Title: Chief Financial Officer EX-99 3 ex99-906cert.txt EXHIBIT 99.906CERT EXHIBIT 99.906CERT CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the attached report of the registrant on Form N-CSR to be filed with the Securities and Exchange Commission (the "Report"), each of the undersigned officers of the registrant does hereby certify, to the best of such officer's knowledge, that: 1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and 2. The information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the registrant as of, and for, the periods presented in the Report. Date: June 7, 2005 ------------------------ JUDE T. DRISCOLL - ------------------------------- By: Jude T. Driscoll ------------------------ Title: Chief Executive Officer MICHAEL P. BISHOF - ------------------------------- By: Michael P. Bishof ------------------------ Title: Chief Financial Officer A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the registrant and will be retained by the registrant and furnished to the SEC or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----