N-CSR 1 ncsr.txt FORM 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: 811-07938 Exact name of registrant as specified in charter: Delaware Investments Minnesota Municipal Income Fund III, Inc. Address of principal executive offices: 2005 Market Street Philadelphia, PA 19103 Name and address of agent for service: David F. Connor, 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: September 30, 2005
Item 1. Reports to Stockholders CLOSED END Delaware Investments(R) ----------------------------------- A member of Lincoln Financial Group SEMIANNUAL REPORT SEPTEMBER 30, 2005 -------------------------------------------------------------------------------- DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS [LOGO] POWERED BY RESEARCH(R) TABLE OF CONTENTS ----------------------------------------------------------------- SECTOR ALLOCATIONS 1 ----------------------------------------------------------------- FINANCIAL STATEMENTS: Statements of Net Assets 4 Statements of Assets and Liabilities 17 Statements of Operations 18 Statements of Changes in Net Assets 20 Financial Highlights 21 Notes to Financial Statements 27 ----------------------------------------------------------------- OTHER FUND INFORMATION 32 ----------------------------------------------------------------- ABOUT THE ORGANIZATION 36 ----------------------------------------------------------------- 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 Delaware Investments Arizona Municipal Income Fund, Delaware Investments Florida Insured Municipal Income Fund, Delaware Investments Minnesota Municipal Income Fund, and Delaware Investments 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 Delaware Investments Colorado Insured Municipal Income Fund and Delaware Investments 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. (C) 2005 Delaware Distributors, L.P. SECTOR ALLOCATIONS As of September 30, 2005 Sector designations may be different than the sector designations presented in other Fund materials. DELAWARE INVESTMENTS ARIZONA MUNICIPAL INCOME FUND, INC. PERCENTAGE SECTOR OF NET ASSETS ------------------------------------------------------------------------ MUNICIPAL BONDS 152.47% ------------------------------------------------------------------------ Airport Revenue Bonds 6.92% City General Obligation Bonds 1.16% Convention Center/Auditorium/Hotel Revenue Bonds 2.31% Dedicated Tax & Fees Revenue Bonds 6.93% Escrowed to Maturity Bonds 10.93% Higher Education Revenue Bonds 8.28% Hospital Revenue Bonds 19.25% Miscellaneous Revenue Bonds 3.55% Municipal Lease Revenue Bonds 10.73% Pre-Refunded Bonds 26.40% Public Power Revenue Bonds 3.47% School District General Obligation Bonds 17.36% School District Revenue Bonds 2.42% Single Family Housing Revenue Bonds 3.42% Territorial Revenue Bonds 23.89% Water & Sewer Revenue Bonds 5.45% ------------------------------------------------------------------------ TOTAL MARKET VALUE OF SECURITIES 152.47% ------------------------------------------------------------------------ RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 3.05% ------------------------------------------------------------------------ LIQUIDATION VALUE OF PREFERRED STOCK (55.52%) ------------------------------------------------------------------------ TOTAL NET ASSETS 100.00% ------------------------------------------------------------------------ DELAWARE INVESTMENTS COLORADO INSURED MUNICIPAL INCOME FUND, INC. PERCENTAGE SECTOR OF NET ASSETS ------------------------------------------------------------------------ MUNICIPAL BONDS 149.98% ------------------------------------------------------------------------ Airport Revenue Bonds 10.33% City General Obligation Bonds 2.75% Continuing Care/Retirement Revenue Bonds 3.54% Convention Center/Auditorium/Hotel Revenue Bonds 4.09% Dedicated Tax & Fees Revenue Bonds 3.73% Higher Education Revenue Bonds 24.34% Hospital Revenue Bonds 1.89% Municipal Lease Revenue Bonds 14.15% Parking Revenue Bonds 3.53% Political Subdivision General Obligation Bonds 6.25% Pre-Refunded Bonds 43.33% School District General Obligation Bonds 5.35% School District Revenue Bonds 1.40% Turnpike/Toll Road Revenue Bonds 12.84% Water & Sewer Revenue Bonds 12.46% ------------------------------------------------------------------------ TOTAL MARKET VALUE OF SECURITIES 149.98% ------------------------------------------------------------------------ RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 2.72% ------------------------------------------------------------------------ LIQUIDATION VALUE OF PREFERRED STOCK (52.70%) ------------------------------------------------------------------------ TOTAL NET ASSETS 100.00% ------------------------------------------------------------------------ 1 SECTOR ALLOCATIONS As of September 30, 2005 (CONTINUED) Sector designations may be different than the sector designations presented in other Fund materials. DELAWARE INVESTMENTS FLORIDA INSURED MUNICIPAL INCOME FUND PERCENTAGE SECTOR OF NET ASSETS ------------------------------------------------------------------------ MUNICIPAL BONDS 152.00% ------------------------------------------------------------------------ Airport Revenue Bonds 9.17% Dedicated Tax & Fees Revenue Bonds 24.69% Higher Education Revenue Bonds 3.48% Hospital Revenue Bonds 18.78% Miscellaneous Revenue Bonds 2.83% Multifamily Housing Revenue Bonds 23.06% Municipal Lease Revenue Bonds 9.81% Ports & Harbors Revenue Bonds 2.81% Pre-Refunded Bonds 24.63% Public Power Revenue Bonds 5.58% State General Obligation Bonds 5.69% Tax Increment/Special Assessment Bonds 0.83% Turnpike/Toll Road Revenue Bonds 2.83% Water & Sewer Revenue Bonds 17.81% ------------------------------------------------------------------------ TOTAL MARKET VALUE OF SECURITIES 152.00% ------------------------------------------------------------------------ RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 2.19% ------------------------------------------------------------------------ LIQUIDATION VALUE OF PREFERRED STOCK (54.19%) ------------------------------------------------------------------------ TOTAL NET ASSETS 100.00% ------------------------------------------------------------------------ DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND, INC. PERCENTAGE SECTOR OF NET ASSETS ------------------------------------------------------------------------ MUNICIPAL BONDS 150.87% ------------------------------------------------------------------------ Airport Revenue Bonds 10.28% City General Obligation Bonds 4.10% Continuing Care/Retirement Revenue Bonds 2.42% Corporate-Backed Revenue Bonds 4.12% Escrowed to Maturity Bonds 13.44% Higher Education Revenue Bonds 5.72% Hospital Revenue Bonds 13.82% Miscellaneous Revenue Bonds 7.13% Multifamily Housing Revenue Bonds 5.44% Municipal Lease Revenue Bonds 7.39% Parking Revenue Bonds 1.83% Political Subdivision General Obligation Bonds 8.82% Pre-Refunded Bonds 16.50% Public Power Revenue Bonds 27.64% School District General Obligation Bonds 15.70% Single Family Housing Revenue Bonds 1.90% State General Obligation Bonds 3.22% Tax Increment/Special Assessment Bonds 1.40% ------------------------------------------------------------------------ TOTAL MARKET VALUE OF SECURITIES 150.87% ------------------------------------------------------------------------ RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.38% ------------------------------------------------------------------------ LIQUIDATION VALUE OF PREFERRED STOCK (52.25%) ------------------------------------------------------------------------ TOTAL NET ASSETS 100.00% ------------------------------------------------------------------------ 2 SECTOR ALLOCATIONS As of September 30, 2005 (CONTINUED) Sector designations may be different than the sector designations presented in other Fund materials. DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND II, INC. PERCENTAGE SECTOR OF NET ASSETS ------------------------------------------------------------------------ MUNICIPAL BONDS 152.00% ------------------------------------------------------------------------ Airport Revenue Bonds 11.81% City General Obligation Bonds 3.83% Corporate-Backed Revenue Bonds 4.18% Escrowed to Maturity Bonds 15.20% Higher Education Revenue Bonds 11.15% Hospital Revenue Bonds 17.24% Miscellaneous Revenue Bonds 2.65% Multifamily Housing Revenue Bonds 7.97% Municipal Lease Revenue Bonds 11.20% Parking Revenue Bonds 1.23% Political Subdivision General Obligation Bonds 7.70% Pre-Refunded Bonds 22.15% Public Power Revenue Bonds 13.85% School District General Obligation Bonds 12.98% Single Family Housing Revenue Bonds 2.46% State General Obligation Bonds 4.37% Tax Increment/Special Assessment Bonds 0.49% Territorial General Obligation Bonds 1.06% Territorial Revenue Bonds 0.48% ------------------------------------------------------------------------ SHORT-TERM INVESTMENTS 0.92% ------------------------------------------------------------------------ TOTAL MARKET VALUE OF SECURITIES 152.92% ------------------------------------------------------------------------ RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 2.00% ------------------------------------------------------------------------ LIQUIDATION VALUE OF PREFERRED STOCK (54.92%) ------------------------------------------------------------------------ TOTAL NET ASSETS 100.00% ------------------------------------------------------------------------ DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND III, INC. PERCENTAGE SECTOR OF NET ASSETS ------------------------------------------------------------------------ MUNICIPAL BONDS 155.77% ------------------------------------------------------------------------ Airport Revenue Bonds 9.56% City General Obligation Bonds 5.02% Continuing Care/Retirement Revenue Bonds 7.35% Corporate-Backed Revenue Bonds 7.48% Escrowed to Maturity Bonds 12.09% Higher Education Revenue Bonds 5.15% Hospital Revenue Bonds 18.93% Miscellaneous Revenue Bonds 1.00% Multifamily Housing Revenue Bonds 7.61% Municipal Lease Revenue Bonds 12.49% Parking Revenue Bonds 6.01% Political Subdivision General Obligation Bonds 9.57% Pre-Refunded Bonds 18.11% Public Power Revenue Bonds 24.64% School District General Obligation Bonds 4.07% Single Family Housing Revenue Bonds 2.53% Territorial Revenue Bonds 4.16% ------------------------------------------------------------------------ TOTAL MARKET VALUE OF SECURITIES 155.77% ------------------------------------------------------------------------ RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.85% ------------------------------------------------------------------------ LIQUIDATION VALUE OF PREFERRED STOCK (57.62%) ------------------------------------------------------------------------ TOTAL NET ASSETS 100.00% ------------------------------------------------------------------------ 3 STATEMENTS DELAWARE INVESTMENTS ARIZONA MUNICIPAL INCOME FUND, INC. OF NET ASSETS September 30, 2005 (Unaudited) Principal Market Amount Value MUNICIPAL BONDS - 152.47% Airport Revenue Bonds - 6.92% Phoenix Civic Improvement Corporation Airport Revenue Senior Lien Series A 5.00% 7/1/25 (FSA) $1,000,000 $1,028,000 Series B 5.25% 7/1/27 (FGIC) (AMT) 2,000,000 2,088,740 ---------- 3,116,740 ---------- City General Obligation Bonds - 1.16% DC Ranch Community Facilities 5.00% 7/15/27 (AMBAC) 500,000 523,100 ---------- 523,100 ---------- Convention Center/Auditorium/Hotel Revenue Bonds - 2.31% Arizona Tourism & Sports Authority Tax Revenue Multipurpose Stadium Facilities Series A 5.00% 7/1/31 (MBIA) 1,000,000 1,041,990 ---------- 1,041,990 ---------- Dedicated Tax & Fees Revenue Bonds - 6.93% Glendale Municipal Property Corporation 5.00% 7/1/33 (AMBAC) 3,000,000 3,119,970 ---------- 3,119,970 ---------- Escrowed to Maturity Bonds - 10.93% Puerto Rico Commonwealth Infrastructure Financing Series A 5.50% 10/1/40 4,500,000 4,922,640 ---------- 4,922,640 ---------- Higher Education Revenue Bonds - 8.28% Arizona State University Certificates of Participation (Research Infrastructure Project) 5.00% 9/1/30 (AMBAC) 1,000,000 1,046,460 Northern Arizona University Certificates of Participation (Northern Arizona University Research Project) 5.00% 9/1/30 (AMBAC) 1,000,000 1,047,360 South Campus Group Student Housing Revenue (Arizona State University South Campus Project) 5.625% 9/1/35 (MBIA) 1,000,000 1,103,270 University of Arizona Certificates of Participation (University of Arizona Project) Series B 5.125% 6/1/22 (AMBAC) 500,000 530,900 ---------- 3,727,990 ---------- Hospital Revenue Bonds - 19.25% Maricopa County Industrial Development Authority (Catholic Healthcare West) Series A 5.50% 7/1/26 430,000 454,579 (Mayo Clinic Hospital) 5.25% 11/15/37 2,000,000 2,097,520 Mohave County Industrial Development Authority (Chris/Silver Ridge) 6.375% 11/1/31 (GNMA) 260,000 270,616 Scottsdale Industrial Development Authority Hospital Revenue (Scottsdale Healthcare) 5.80% 12/1/31 1,000,000 1,071,800 Show Low Industrial Development Authority Hospital Revenue (Navapache Regional Medical Center) Series A 5.50% 12/1/17 (ACA) 1,600,000 1,665,216 University Medical Center Corporation Arizona Hospital Revenue 5.00% 7/1/33 1,000,000 1,003,790 Principal Market Amount Value MUNICIPAL BONDS (continued) Hospital Revenue Bonds (continued) Yavapai County Industrial Development Authority (Yavapai Regional Medical Center) 5.25% 8/1/21 (RADIAN) $2,000,000 $ 2,104,760 ---------- 8,668,281 ---------- Miscellaneous Revenue Bonds - 3.55% Arizona Student Loan Acquisition Authority Revenue Series A-1 5.90% 5/1/24 (AMT) 1,500,000 1,598,355 ---------- 1,598,355 ---------- Municipal Lease Revenue Bonds - 10.73% Greater Arizona Development Authority Infrastructure Revenue Series A 5.00% 8/1/22 (MBIA) 500,000 532,140 Nogales Development Authority 5.00% 6/1/30 (AMBAC) 500,000 521,990 Phoenix Civic Improvement Corporation Excise Tax Senior Lien (Municipal Courthouse Project) Series A 5.25% 7/1/24 1,000,000 1,064,680 Prescott Valley Property Corporation 5.00% 1/1/27 (FGIC) 500,000 520,155 Tucson Certificates of Participation 5.60% 7/1/11 1,100,000 1,141,822 Yuma Municipal Property Corporation 5.00% 7/1/25 (AMBAC) 1,000,000 1,048,790 ---------- 4,829,577 ---------- ss.Pre-Refunded Bonds - 26.40% Arizona School Facilities Board Certificates of Participation Series B 5.25% 9/1/19-14 (FSA) 1,000,000 1,114,000 Arizona School Facilities Board Revenue (State School Improvement) 5.00% 7/1/19-11 2,000,000 2,166,360 Arizona State Transportation Board Highway Revenue Refunding 5.75% 7/1/18-09 2,350,000 2,563,238 Arizona Water Infrastructure Finance Authority Revenue Water Quality Series A 5.05% 10/1/20-11 1,500,000 1,632,090 Eagle Mountain Community Facilities District Series A 6.40% 7/1/17-06 (Assured Gty) 1,500,000 1,554,270 Oro Valley Municipal Property Corporation Excise Tax 5.00% 7/1/20-11 (FGIC) 1,000,000 1,062,710 Puerto Rico Commonwealth Public Improvement Series A 5.125% 7/1/31-11 250,000 273,100 Southern Arizona Capital Facilities Finance Corporation (University of Arizona Project) 5.00% 9/1/23-12 (MBIA) 1,150,000 1,250,890 Yuma Industrial Development Authority Hospital Revenue (Yuma Regional Medical Center) 5.00% 8/1/31-11 (FSA) 250,000 271,920 ---------- 11,888,578 ---------- Public Power Revenue Bonds - 3.47% Salt River Project Arizona Agricultural Improvement & Power District Electric System Revenue (Salt River Project) Series A 5.00% 1/1/31 1,500,000 1,561,410 ---------- 1,561,410 ---------- 4 STATEMENTS DELAWARE INVESTMENTS ARIZONA MUNICIPAL INCOME FUND, INC. OF NET ASSETS (CONTINUED) Principal Market Amount Value MUNICIPAL BONDS (continued) School District General Obligation Bonds - 17.36% Maricopa County School District #6 (Washington Elementary) Series A 5.375% 7/1/13 (FSA) $3,000,000 $ 3,351,900 Maricopa County School District #6 (Washington Elementary School Improvement Project of 2001) Series B 5.00% 7/1/17 (FSA) 1,000,000 1,097,410 Maricopa County School District #38 (Madison Elementary) 5.00% 7/1/13 (FSA) 1,250,000 1,365,188 5.00% 7/1/14 (FSA) 825,000 904,200 Tempe Union High School District #213 5.00% 7/1/14 (FSA) 1,000,000 1,096,000 ----------- 7,814,698 ----------- School District Revenue Bonds - 2.42% Coconino County Unified School District #8 (Aid Revenue Project of 2004) Series A 5.00% 7/1/15 (MBIA) 1,000,000 1,088,970 ----------- 1,088,970 ----------- Single Family Housing Revenue Bonds - 3.42% Phoenix Industrial Development Authority Single Family Statewide Series A 5.35% 6/1/20 (GNMA) (FNMA) (FHLMC) (AMT) 745,000 762,180 Series C 5.30% 4/1/20 (GNMA) (FNMA) (FHLMC) (AMT) 575,000 589,542 Pima County Industrial Development Authority Single Family Mortgage Revenue Series A 6.125% 11/1/33 (GNMA) (FNMA) (FHLMC) (AMT) 185,000 187,708 ----------- 1,539,430 ----------- Territorial Revenue Bonds - 23.89% Puerto Rico Commonwealth Highway & Transportation Authority Transportation Refunding Series D 5.00% 7/1/32 (FSA) 8,500,000 8,852,579 Puerto Rico Commonwealth Public Improvement Series A 5.125% 7/1/31 500,000 516,085 Virgin Islands Public Finance Authority Revenue Series A 6.125% 10/1/29 (ACA) 1,250,000 1,387,288 ----------- 10,755,952 ----------- Water & Sewer Revenue Bonds - 5.45% Phoenix Civic Improvement Corporation Wastewater Systems Revenue Junior Lien 5.00% 7/1/24 (FGIC) 1,590,000 1,672,903 5.00% 7/1/26 (FGIC) 750,000 782,895 ----------- 2,455,798 ----------- TOTAL MUNICIPAL BONDS (cost $64,981,133) 68,653,479 ----------- TOTAL MARKET VALUE OF SECURITIES - 152.47% (cost $64,981,133) $68,653,479 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 3.05% 1,374,264 LIQUIDATION VALUE OF PREFERRED STOCK - (55.52%) (25,000,000) ----------- NET ASSETS APPLICABLE TO 2,982,200 COMMON SHARES OUTSTANDING - 100.00% $45,027,743 ----------- Net Asset Value Per Common Share ($45,027,743 / 2,982,200 Shares) $15.10 ----------- COMPONENTS OF NET ASSETS AT SEPTEMBER 30, 2005: Common stock, $0.01 par value, 200 million shares authorized to the Fund $40,838,893 Undistributed net investment income 522,221 Accumulated net realized loss on investments (5,717) Net unrealized appreciation of investments 3,672,346 ----------- Total net assets $45,027,743 =========== ss.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." SUMMARY OF ABBREVIATIONS: ACA - Insured by American Capital Access AMBAC - Insured by the AMBAC Assurance Corporation AMT - Subject to Alternative Minimum Tax Assured Gty - Insured by the Assured Guaranty Corporation 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 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 5 STATEMENTS DELAWARE INVESTMENTS COLORADO INSURED OF NET ASSETS (CONTINUED) MUNICIPAL INCOME FUND, INC. September 30, 2005 (Unaudited) Principal Market Amount Value MUNICIPAL BONDS - 149.98% Airport Revenue Bonds - 10.33% Denver City & County Airport Revenue Series E 5.25% 11/15/23 (MBIA) $7,500,000 $ 7,839,675 ----------- 7,839,675 ----------- City General Obligation Bonds - 2.75% Bowles Metropolitan District 5.00% 12/1/33 (FSA) 2,000,000 2,086,360 ----------- 2,086,360 ----------- Continuing Care/Retirement Revenue Bonds - 3.54% Colorado Health Facilities Authority Revenue (Porter Place) Series A 6.00% 1/20/36 (GNMA) 2,515,000 2,690,396 ----------- 2,690,396 ----------- Convention Center/Auditorium/Hotel Revenue Bonds - 4.09% Denver Convention Center Series A 5.00% 12/1/33 (XLCA) 3,000,000 3,106,590 ----------- 3,106,590 ----------- Dedicated Tax & Fees Revenue Bonds - 3.73% Broomfield County Sales & Use Tax Revenue Refunding & Improvement Series A 5.00% 12/1/31 (AMBAC) 650,000 675,948 Golden Sales & Use Tax Revenue Improvement Series B 5.10% 12/1/20 (AMBAC) 1,000,000 1,070,050 Gypsum Sales Tax & General Funding Revenue 5.25% 6/1/30 (Assured Gty) 1,000,000 1,081,440 ----------- 2,827,438 ----------- Higher Education Revenue Bonds - 24.34% Boulder County Development Revenue (University Corporation for Atmospheric Research) 5.00% 9/1/26 (MBIA) 4,500,000 4,659,345 Colorado Educational & Cultural Facilities Authority (Johnson & Wales University Project) Series A 5.00% 4/1/28 (XLCA) 3,000,000 3,116,880 (University of Colorado Foundation Project) 5.00% 7/1/27 (AMBAC) 4,000,000 4,154,000 (University of Northern Colorado) 5.00% 7/1/31 (MBIA) 2,500,000 2,577,250 Colorado State Board of Governors (Colorado University) Series B 5.00% 3/1/35 (AMBAC) 1,800,000 1,871,712 University of Northern Colorado Revenue Refunding 5.00% 6/1/35 (FSA) 2,000,000 2,097,580 ----------- 18,476,767 ----------- Hospital Revenue Bonds - 1.89% Colorado Health Facilities Authority (North Colorado Medical Center) 5.95% 5/15/12 (MBIA) 1,420,000 1,431,076 ----------- 1,431,076 ----------- Municipal Lease Revenue Bonds - 14.15% Arapahoe County Library District Certificates of Participation 5.70% 12/15/10 (MBIA) 2,000,000 2,063,580 Aurora Certificates of Participation 5.50% 12/1/30 (AMBAC) 2,000,000 2,166,100 Broomfield City & County Certificates of Participation 5.75% 12/1/24 (AMBAC) 1,500,000 1,628,580 Principal Market Amount Value MUNICIPAL BONDS (continued) Municipal Lease Revenue Bonds (continued) Lakewood Certificates of Participation 5.375% 12/1/22 (AMBAC) $2,000,000 $ 2,149,580 Westminster Building Authority Certificates of Participation 5.25% 12/1/22 (MBIA) 1,555,000 1,673,460 Westminster Certificates of Participation (Ice Centre Project) 5.40% 1/15/23 (AMBAC) 1,000,000 1,058,310 ----------- 10,739,610 ----------- Parking Revenue Bonds - 3.53% Auraria Higher Education Center Parking Facilities System Revenue 5.50% 4/1/26 (AMBAC) 2,485,000 2,675,699 ----------- 2,675,699 ----------- Political Subdivision General Obligation Bonds - 6.25% Arapahoe County Water & Wastewater Public Improvement District Refunding Series A 5.125% 12/1/32 (MBIA) 1,000,000 1,048,680 Centennial Downs Metropolitan District 5.00% 12/1/28 (AMBAC) 1,000,000 1,051,360 Green Valley Ranch Metropolitan District 5.75% 12/1/19 (AMBAC) 1,000,000 1,091,600 Sand Creek Metropolitan District Refunding & Improvement 5.00% 12/1/31 (XLCA) 500,000 519,500 Stonegate Village Metropolitan District Refunding & Improvement Series A 5.50% 12/1/21 (FSA) 1,000,000 1,035,720 ----------- 4,746,860 ----------- ss.Pre-Refunded Bonds - 43.33% Archuleta & Hinsdale Counties School District #50JT 5.55% 12/1/20-06 (MBIA) 4,000,000 4,160,240 Burlingame Multifamily Housing Revenue Series A 6.00% 11/1/29-09 (MBIA) 2,290,000 2,548,404 City of Colorado Springs (Colorado Springs College Project) 5.375% 6/1/32-09 (MBIA) 5,000,000 5,421,950 Colorado Educational & Cultural Facilities Authority (University of Denver Project) 5.50% 3/1/21-11 (AMBAC) 3,200,000 3,535,296 Denver City & County Certificates of Participation Series B 5.50% 12/1/25-10 (AMBAC) 2,000,000 2,224,840 Denver City & County Excise Tax Revenue (Colorado Convention Center Project) Series A 5.00% 9/1/20-11 (FSA) 6,500,000 7,021,299 Eagle County Certificates of Participation 5.40% 12/1/18-09 (MBIA) 1,000,000 1,093,460 El Paso County School District #20 5.625% 12/15/16-06 (AMBAC) 2,800,000 2,890,160 5.625% 12/15/16-06 (MBIA) 1,000,000 1,032,200 Pueblo County 5.80% 6/1/11-06 (MBIA) 1,405,000 1,431,231 Pueblo County (Library District Project) 5.80% 11/1/19-09 (AMBAC) 1,395,000 1,523,507 ----------- 32,882,587 ----------- School District General Obligation Bonds - 5.35% Adams & Arapahoe Counties School District #28J 5.00% 12/1/22 (FSA) 2,000,000 2,115,940 6 STATEMENTS DELAWARE INVESTMENTS COLORADO INSURED OF NET ASSETS (CONTINUED) MUNICIPAL INCOME FUND, INC. Principal Market Amount Value MUNICIPAL BONDS (continued) School District General Obligation Bonds (continued) Douglas County School District #Re-1 (Douglas & Elbert Counties) 5.00% 12/15/21 (MBIA) $1,000,000 $ 1,061,780 Weld & Adams Counties School District RE-3J 5.00% 12/15/24 (FSA) 830,000 879,900 ----------- 4,057,620 ----------- School District Revenue Bonds - 1.40% Colorado Educational & Cultural Facilities Authority Refunding (Bromley School) 5.25% 9/15/32 (XLCA) 1,000,000 1,065,020 ----------- 1,065,020 ----------- Turnpike/Toll Road Revenue Bonds - 12.84% E-470 Public Highway Authority Series A 5.75% 9/1/29 (MBIA) 3,000,000 3,341,550 5.75% 9/1/35 (MBIA) 1,700,000 1,893,545 Northwest Parkway Public Highway Authority Series A 5.25% 6/15/41 (FSA) 4,250,000 4,511,673 ----------- 9,746,768 ----------- 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 2,206,780 Colorado Water Resources & Power Development Authority Water Resources Revenue (Parker Water & Sanitation District) 1,500,000 1,585,125 5.125% 9/1/34 (MBIA) 5.25% 9/1/43 (MBIA) 2,000,000 2,136,700 Lafayette Water Revenue Series A 5.00% 12/1/27 (MBIA) 1,100,000 1,152,118 Ute Utility Water Conservancy District Water Revenue 5.75% 6/15/20 (MBIA) 2,155,000 2,377,633 ----------- 9,458,356 ----------- TOTAL MUNICIPAL BONDS (cost $106,667,309) 113,830,822 ----------- TOTAL MARKET VALUE OF SECURITIES - 149.98% (cost $106,667,309) 113,830,822 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 2.72% 2,064,154 LIQUIDATION VALUE OF PREFERRED STOCK - (52.70%) (40,000,000) ----------- NET ASSETS APPLICABLE TO 4,837,100 SHARES OUTSTANDING - 100.00% $75,894,976 =========== Net Asset Value Per Common Share ($75,894,976 / 4,837,100 Shares) $15.69 ------ COMPONENTS OF NET ASSETS AT SEPTEMBER 30, 2005: Common stock, $0.01 par value, 200 million shares authorized to the Fund $67,238,110 Undistributed net investment income 1,351,512 Accumulated net realized gain on investments 141,841 Net unrealized appreciation of investments 7,163,513 ----------- Total net assets $75,894,976 =========== ss.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." SUMMARY OF ABBREVIATIONS: AMBAC - Insured by the AMBAC Assurance Corporation Assured Gty - Insured by the Assured Guaranty Corporation FGIC - Insured by the Financial Guaranty Insurance Company FSA - Insured by 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 7 STATEMENTS DELAWARE INVESTMENTS FLORIDA INSURED OF NET ASSETS (CONTINUED) MUNICIPAL INCOME FUND September 30, 2005 (Unaudited) Principal Market Amount Value MUNICIPAL BONDS - 152.00% Airport Revenue Bonds - 9.17% Dade County Aviation Revenue Series 96B 5.60% 10/1/26 (MBIA) $1,000,000 $1,040,570 Miami-Dade County Aviation Revenue (Miami International Airport) Series B 5.00% 10/1/37 (FGIC) 2,250,000 2,342,678 ---------- 3,383,248 ---------- Dedicated Tax & Fees Revenue Bonds - 24.69% Flagler County Capital Improvements Revenue 5.00% 10/1/35 (MBIA) 1,000,000 1,049,370 Florida Department of Transportation 5.00% 7/1/31 (FGIC) 1,525,000 1,590,057 Jacksonville Sales Tax Revenue 5.00% 10/1/30 (MBIA) 1,500,000 1,567,875 Jacksonville Transportation Revenue 5.25% 10/1/29 (MBIA) 2,000,000 2,138,520 Miami Beach Resort Tax Revenue 5.50% 10/1/16 (AMBAC) 1,000,000 1,043,880 *Miami-Dade County Special Obligation (Capital Appreciation & Income) Series B 5.00% 10/1/35 (MBIA) 2,000,000 1,721,760 ---------- 9,111,462 ---------- Higher Education Revenue Bonds - 3.48% Florida Agriculture & Mechanical University Revenue (Student Apartment Facility) 5.625% 7/1/21 (MBIA) 1,250,000 1,284,700 ---------- 1,284,700 ---------- Hospital Revenue Bonds - 18.78% Escambia County Health Facilities Authority (Florida Health Care Facilities - VHA Program) 5.95% 7/1/20 (AMBAC) 355,000 380,982 Lee County Memorial Health System Board of Directors Series A 5.00% 4/1/20 (FSA) 1,000,000 1,043,090 Miami-Dade County Public Facilities Revenue (Jackson Health Systems) Series A 5.00% 6/1/35 (MBIA) 1,500,000 1,562,970 Orange County Health Facilities Authority Revenue (Adventist Health Systems) 5.75% 11/15/25 (AMBAC) 1,500,000 1,534,275 (Orlando Regional Healthcare) Series A 6.25% 10/1/18 (MBIA) 2,000,000 2,410,940 ---------- 6,932,257 ---------- Miscellaneous Revenue Bonds - 2.83% Florida State Municipal Loan (Council Revenue) Series A 5.00% 2/1/35 1,000,000 1,045,080 ---------- 1,045,080 ---------- Multifamily Housing Revenue Bonds - 23.06% Broward County Housing Finance Authority (St. Croix Apartments Project) Series A 5.45% 11/1/36 (FSA) (AMT) 935,000 965,659 Florida Housing Finance Agency (Homeowner Mortgage) Series 2 5.90% 7/1/29 (MBIA) (AMT) 680,000 704,691 (Leigh Meadows Apartments) Series N 6.30% 9/1/36 (AMBAC) (AMT) 2,510,000 2,585,927 (Woodbridge Apartments Project) Series L 6.05% 12/1/16 (AMBAC) (AMT) 1,120,000 1,156,019 6.25% 6/1/36 (AMBAC) (AMT) 1,500,000 1,548,855 Principal Market Amount Value MUNICIPAL BONDS - 152.00% Multifamily Housing Revenue Bonds (continued) Volusia County Multifamily Housing Finance Authority (San Marco Apartments) Series A 5.60% 1/1/44 (FSA) (AMT) $1,500,000 $1,548,750 ---------- 8,509,901 ---------- Municipal Lease Revenue Bonds - 9.81% Broward School Board Certificates of Participation Series A 5.25% 7/1/24 (FSA) 1,000,000 1,075,520 Orange County School Board Certificates of Participation Series A 5.00% 8/1/27 (MBIA) 1,250,000 1,298,650 Palm Beach County School Board Certificates of Participation Series D 5.00% 8/1/28 (FSA) 1,200,000 1,244,556 ---------- 3,618,726 ---------- Ports & Harbors Revenue Bonds - 2.81% Florida Ports Financing Commission State Transportation Trust Fund 5.375% 6/1/27 (MBIA) (AMT) 1,000,000 1,035,520 ---------- 1,035,520 ---------- ss.Pre-Refunded Bonds - 24.63% Dade County School Board Certificates of Participation Series B 5.60% 8/1/17-06 (AMBAC) 1,000,000 1,032,270 Florida State Board of Education (Capital Outlay Public Education) Series C 6.00% 6/1/21-10 (FGIC) 2,000,000 2,252,500 Indian River County Water & Sewer Revenue 5.50% 9/1/16-06 (FGIC) 1,000,000 1,042,610 Sunrise Utility System Revenue Series A 5.75% 10/1/26-06 (AMBAC) 2,500,000 2,595,100 Tampa Utility Tax Improvement Series A 6.125% 10/1/19-09 (AMBAC) 1,000,000 1,117,680 Village Center Community Development District Recreational Revenue Series A 5.85% 11/1/16-06 (MBIA) 1,000,000 1,050,950 ---------- 9,091,110 ---------- Public Power Revenue Bonds - 5.58% JEA Electric Systems Revenue Series 3-A 5.00% 10/1/34 (FSA) 2,000,000 2,060,620 ---------- 2,060,620 ---------- State General Obligation Bonds - 5.69% Florida State Board Education Public Education Series C 5.00% 6/1/34 (AMBAC) 2,000,000 2,100,800 ---------- 2,100,800 ---------- Tax Increment/Special Assessment Bonds - 0.83% Julington Creek Plantation Community Development District Special Assessment 5.00% 5/1/29 (MBIA) 295,000 306,977 ---------- 306,977 ---------- Turnpike/Toll Road Revenue Bonds - 2.83% Miami-Dade County Expressway Authority Toll Systems Revenue Series B 5.00% 7/1/33 (FGIC) 1,000,000 1,044,980 ---------- 1,044,980 ---------- 8 STATEMENTS DELAWARE INVESTMENTS FLORIDA INSURED OF NET ASSETS (CONTINUED) MUNICIPAL INCOME FUND Principal Market Amount Value MUNICIPAL BONDS (continued) Water & Sewer Revenue Bonds - 17.81% Dade County Water & Sewer System Revenue 5.50% 10/1/25 (FGIC) $1,100,000 $ 1,124,442 JEA Florida Water & Sewer Systems Revenue Sub-Second Crossover 5.00% 10/1/25 (MBIA) 1,000,000 1,052,180 Riviera Beach Utilities Special District Water & Sewer Revenue 5.00% 10/1/34 (FGIC) 1,200,000 1,251,684 Village Center Community Development District Utility Revenue 5.00% 10/1/36 (MBIA) 1,500,000 1,564,035 Winter Haven Utilities Systems Revenue Refunding & Improvement 5.00% 10/1/30 (MBIA) 1,500,000 1,581,510 ----------- 6,573,851 ----------- TOTAL MUNICIPAL BONDS (cost $53,761,021) 56,099,232 ----------- TOTAL MARKET VALUE OF SECURITIES - 152.00% (cost $53,761,021) 56,099,232 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 2.19% 808,728 LIQUIDATION VALUE OF PREFERRED STOCK - (54.19%) (20,000,000) ----------- NET ASSETS APPLICABLE TO 2,422,200 SHARES OUTSTANDING - 100.00% $36,907,960 =========== Net Asset Value Per Common Share ($36,907,960 / 2,422,200 Shares) $15.24 ------ COMPONENTS OF NET ASSETS AT SEPTEMBER 30, 2005: Common stock, $0.01 par value, unlimited shares authorized to the Fund $33,361,389 Undistributed net investment income 585,943 Accumulated net realized gain on investments 622,417 Net unrealized appreciation of investments 2,338,211 ----------- Total net assets $36,907,960 =========== ss.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." *Step coupon bond. Indicates security that has a zero coupon that remains in effect until a predetermined date at which time the stated interest rate becomes effective. 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 Financial Security Assurance MBIA - Insured by the Municipal Bond Insurance Association See accompanying notes 9 STATEMENTS DELAWARE INVESTMENTS MINNESOTA MUNICIPAL OF NET ASSETS (CONTINUED) INCOME FUND, INC. September 30, 2005 (Unaudited) Principal Market Amount Value MUNICIPAL BONDS - 150.87% Airport Revenue Bonds - 10.28% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A 5.00% 1/1/22 (MBIA) $1,000,000 $1,050,470 Series A 5.00% 1/1/30 (AMBAC) 250,000 255,298 Series C 5.25% 1/1/32 (FGIC) 2,500,000 2,630,725 ---------- 3,936,493 ---------- City General Obligation Bonds - 4.10% Metropolitan Council Minnesota (Minneapolis/St. Paul Metropolitan Area) Series C 5.00% 2/1/22 500,000 527,965 Willmar (Rice Memorial Hospital Project) 5.00% 2/1/32 (FSA) 1,000,000 1,040,710 ---------- 1,568,675 ---------- Continuing Care/Retirement Revenue Bonds - 2.42% St. Paul Housing & Redevelopment Authority Revenue (Franciscan Health Project) 5.40% 11/20/42 (GNMA) (FHA) 880,000 925,874 ---------- 925,874 ---------- Corporate-Backed Revenue Bonds - 4.12% Anoka County Solid Waste Disposal National Rural Co-Op Utility (United Power Association) Series A 6.95% 12/1/08 (AMT) 560,000 563,086 Sartell Environmental Improvement Revenue (International Paper) Series A 5.20% 6/1/27 1,000,000 1,015,400 ---------- 1,578,486 ---------- Escrowed to Maturity Bonds - 13.44% Dakota/Washington Counties Housing & Redevelopment Authority Bloomington Single Family Residential Mortgage Revenue 8.375% 9/1/21 (GNMA) (FHA) (VA) (AMT) 2,555,000 3,751,430 Southern Minnesota Municipal Power Agency Power Supply Systems Series B 5.50% 1/1/15 (AMBAC) 390,000 391,065 5.75% 1/1/11 (FGIC) 1,000,000 1,003,040 ---------- 5,145,535 ---------- Higher Education Revenue Bonds - 5.72% Minnesota State Higher Education Facilities Authority Revenue (College of St. Benedict) Series 5-W 5.00% 3/1/20 1,000,000 1,035,990 University of Minnesota Series A 5.50% 7/1/21 1,000,000 1,154,280 ---------- 2,190,270 ---------- Hospital Revenue Bonds - 13.82% Bemidji Health Care Facilities First Mortgage Revenue (North Country Health Services) 5.00% 9/1/24 (RADIAN) 1,000,000 1,039,660 Duluth Economic Development Authority Health Care Facilities Revenue (Benedictine Health System- St. Mary's Hospital) 5.25% 2/15/33 1,250,000 1,292,263 Glencoe Health Care Facilities Revenue (Glencoe Regional Health Services Project) 5.00% 4/1/25 500,000 503,195 Principal Market Amount Value MUNICIPAL BONDS (continued) Hospital Revenue Bonds (continued) Minneapolis Health Care System Revenue (Allina Health Systems) Series A 5.75% 11/15/32 $1,100,000 $1,170,202 Minnesota Agricultural & Economic Development Broad Revenue (Fairview Health Care System) Series A 6.375% 11/15/29 55,000 59,884 Shakopee Health Care Facilities Revenue (St. Francis Regional Medical Center) 5.25% 9/1/34 500,000 514,395 St. Paul Housing & Redevelopment Authority Health Care Facilities Revenue (Regions Hospital Project) 5.30% 5/15/28 700,000 710,941 ---------- 5,290,540 ---------- Miscellaneous Revenue Bonds - 7.13% Minneapolis Art Center Facilities Revenue (Walker Art Center Project) 5.125% 7/1/21 1,600,000 1,674,672 Minneapolis Community Development Agency (Supported Development Revenue Limited Tax Common Bond Fund) Series G-3 5.45% 12/1/31 1,000,000 1,052,820 ---------- 2,727,492 ---------- Multifamily Housing Revenue Bonds - 5.44% Minneapolis Multifamily Housing Revenue (Seward Towers Project) 5.00% 5/20/36 (GNMA) 1,000,000 1,025,710 Southeastern Minnesota Multi-County Housing & Redevelopment Authority (Winona County) 5.35% 1/1/28 300,000 302,280 Washington County Housing & Redevelopment Authority (Woodland Park Apartments Project) 4.70% 10/1/32 750,000 755,475 ---------- 2,083,465 ---------- Municipal Lease Revenue Bonds - 7.39% St. Paul Port Authority Lease Revenue (Cedar Street Office Building Project) 5.125% 12/1/27 500,000 527,395 5.25% 12/1/27 1,150,000 1,222,185 Virginia Housing & Redevelopment Authority Health Care Facility (Lease Revenue) 5.25% 10/1/25 680,000 701,087 5.375% 10/1/30 365,000 376,976 ---------- 2,827,643 ---------- Parking Revenue Bonds - 1.83% St. Paul Housing & Redevelopment Authority Parking Revenue (Block 19 Ramp Project) Series A 5.35% 8/1/29 (FSA) 650,000 701,233 ---------- 701,233 ---------- Political Subdivision General Obligation Bonds - 8.82% Hennepin County Series B 5.00% 12/1/18 1,300,000 1,392,378 Washington County Housing & Redevelopment Authority Series B 5.50% 2/1/22 (MBIA) 855,000 916,466 5.50% 2/1/32 (MBIA) 1,000,000 1,066,730 ---------- 3,375,574 ---------- 10 STATEMENTS DELAWARE INVESTMENTS MINNESOTA MUNICIPAL OF NET ASSETS (CONTINUED) INCOME, FUND, INC. Principal Market Amount Value MUNICIPAL BONDS (continued) ss.Pre-Refunded Bonds - 16.50% Chaska Electric Revenue Series A 6.00% 10/1/25-10 $1,000,000 $ 1,120,400 Minnesota Agricultural & Economic Development Broad Revenue (Fairview Health Care System) Series A 6.375% 11/15/29-10 1,695,000 1,943,232 Puerto Rico Commonwealth 6.00% 7/1/26-07 1,000,000 1,066,010 Puerto Rico Public Buildings Authority Series D 5.25% 7/1/27-12 845,000 923,374 St. Francis Independent School District #015 Series A 6.30% 2/1/11-06 (FSA) 1,250,000 1,263,863 ----------- 6,316,879 ----------- Public Power Revenue Bonds - 27.64% Minnesota State Municipal Power Agency Electric Revenue Series A 5.25% 10/1/19 1,110,000 1,197,490 Rochester Electric Utility Revenue 5.25% 12/1/30 (AMBAC) 150,000 159,911 &Southern Minnesota Municipal Power Agency Power Supply Systems Revenue, Inverse Floater ROLs Series II-R-189-3 7.626% 1/1/14 (AMBAC) 2,500,000 3,037,174 Southern Minnesota Municipal Power Agency Power Supply Systems Revenue Series A 5.00% 1/1/12 (AMBAC) 1,000,000 1,083,240 5.00% 1/1/13 (MBIA) 500,000 543,475 5.25% 1/1/15 (AMBAC) 570,000 634,644 5.25% 1/1/16 (AMBAC) 1,000,000 1,113,580 Western Minnesota Municipal Power Agency Series A 5.00% 1/1/30 (MBIA) 1,900,000 1,976,588 Series B 5.00% 1/1/15 (MBIA) 765,000 835,074 ----------- 10,581,176 ----------- School District General Obligation Bonds - 15.70% Centennial Independent School District #012 Series 2002-A 5.00% 2/1/20 (FSA) 400,000 423,780 Farmington Independent School District #192 5.00% 2/1/23 (FSA) 1,200,000 1,270,031 Minneapolis Special School District #001 5.00% 2/1/19 (FSA) 675,000 718,619 Morris Independent School District #769 5.00% 2/1/28 (MBIA) 1,000,000 1,047,110 Mounds View Independent School District #621 5.00% 2/1/23 (FSA) 1,020,000 1,071,337 Robbinsdale Independent School District #281 5.00% 2/1/21 (FSA) 500,000 529,725 St. Michael Independent School District #885 5.00% 2/1/22 (FSA) 500,000 528,060 5.00% 2/1/24 (FSA) 400,000 420,616 ----------- 6,009,278 ----------- Single Family Housing Revenue Bonds - 1.90% Dakota County Housing & Redevelopment Authority Single Family Mortgage Revenue 5.85% 10/1/30 (GNMA) (FNMA) (AMT) 31,000 31,922 Minnesota State Housing Finance Agency Single Family Mortgage Series J 5.90% 7/1/28 (AMT) 670,000 694,937 ----------- 726,859 ----------- Principal Market Amount Value MUNICIPAL BONDS (continued) State General Obligation Bonds - 3.22% Minnesota State 5.00% 8/1/21 $1,150,000 $ 1,231,627 ----------- 1,231,627 ----------- Tax Increment/Special Assessment Bonds - 1.40% Moorhead Economic Development Authority Tax Increment Series A 5.25% 2/1/25 (MBIA) 500,000 534,695 ----------- 534,695 ----------- TOTAL MUNICIPAL BONDS (cost $55,178,111) 57,751,794 ----------- TOTAL MARKET VALUE OF SECURITIES - 150.87% (cost $55,178,111) 57,751,794 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 1.38% 526,351 LIQUIDATION VALUE OF PREFERRED STOCK - (52.25%) (20,000,000) ----------- NET ASSETS APPLICABLE TO 2,594,700 SHARES OUTSTANDING - 100.00% $38,278,145 =========== Net Asset Value Per Common Share ($38,278,145 / 2,594,700 Shares) $14.75 ------ COMPONENTS OF NET ASSETS AT SEPTEMBER 30, 2005: Common stock, $0.01 par value, 200 million shares authorized to the Fund $35,426,619 Undistributed net investment income 257,924 Accumulated net realized gain on investments 19,919 Net unrealized appreciation of investments 2,573,683 ----------- Total net assets $38,278,145 =========== ss.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 September 30, 2005. See Notes 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 FHA - Insured by the Federal Housing Administration FNMA - Insured by Federal National Mortgage Association FSA - Insured by Financial Security Assurance GNMA - Insured by Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance ROLs - Residual Options Longs VA - Insured by the Veterans Administration See accompanying notes 11 STATEMENTS DELAWARE INVESTMENTS MINNESOTA MUNICIPAL OF NET ASSETS (CONTINUED) INCOME FUND II, INC. September 30, 2005 (Unaudited) Principal Market Amount Value MUNICIPAL BONDS - 152.00% Airport Revenue Bonds - 11.81% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A 5.00% 1/1/22 (MBIA) $2,000,000 $ 2,100,940 Series A 5.00% 1/1/28 (MBIA) 1,370,000 1,427,828 Series A 5.00% 1/1/30 (AMBAC) 1,450,000 1,480,726 Series A 5.00% 1/1/35 (AMBAC) 2,000,000 2,081,780 Series A 5.25% 1/1/16 (MBIA) 1,000,000 1,084,840 Series B 5.25% 1/1/24 (FGIC) (AMT) 1,000,000 1,038,700 Series C 5.25% 1/1/32 (FGIC) 3,500,000 3,683,014 ----------- 12,897,828 ----------- City General Obligation Bonds - 3.83% Metropolitan Council Minnesota (Minneapolis/St. Paul Metropolitan Area) Series C 5.00% 2/1/22 500,000 527,965 Moorhead Series B 5.00% 2/1/33 (MBIA) 2,000,000 2,092,100 Willmar (Rice Memorial Hospital Project) 5.00% 2/1/32 (FSA) 1,500,000 1,561,065 ----------- 4,181,130 ----------- Corporate-Backed Revenue Bonds - 4.18% Cloquet Pollution Control Revenue (Potlatch Corp. Project) 5.90% 10/1/26 4,500,000 4,561,605 ----------- 4,561,605 ----------- Escrowed to Maturity Bonds - 15.20% Dakota/Washington Counties Housing & Redevelopment Authority Bloomington Single Family Residential Mortgage Revenue 8.375% 9/1/21 (GNMA) (FHA) (VA) (AMT) 5,500,000 8,075,485 St. Paul Housing & Redevelopment Authority Sales Tax (Civic Center Project) 5.55% 11/1/23 2,300,000 2,376,107 5.55% 11/1/23 (MBIA) 4,200,000 4,338,978 Western Minnesota Municipal Power Agency Series A 6.625% 1/1/16 1,535,000 1,815,521 ----------- 16,606,091 ----------- Higher Education Revenue Bonds - 11.15% Minnesota State Higher Education Facilities Authority (College of St. Benedict) Series 5-W 5.00% 3/1/20 1,000,000 1,035,990 (St. Catherine College) Series 5-N1 5.375% 10/1/32 1,500,000 1,571,205 (St. Mary's University) Series 5-U 4.80% 10/1/23 1,400,000 1,414,546 (St. Thomas University) Series 4-A1 5.625% 10/1/21 1,000,000 1,019,720 (St. Thomas University) Series 5-Y 5.00% 10/1/24 1,000,000 1,042,690 5.25% 10/1/34 1,500,000 1,588,560 St. Cloud Housing & Redevelopment Authority Revenue (State University Foundation Project) 5.00% 5/1/23 1,000,000 1,043,530 University of Minnesota Series A 5.50% 7/1/21 3,000,000 3,462,840 ----------- 12,179,081 ----------- Principal Market Amount Value MUNICIPAL BONDS (continued) Hospital Revenue Bonds - 17.24% Duluth Economic Development Authority Health Care Facilities Revenue (Benedictine Health System-St. Mary's Hospital) 5.25% 2/15/33 $5,000,000 $ 5,169,051 Glencoe Minnesota Health Care Facilities Revenue (Glencoe Regional Health Services Project) 5.00% 4/1/25 1,500,000 1,509,585 Minneapolis Health Care System Revenue (Allina Health Systems) Series A 5.75% 11/15/32 1,000,000 1,063,820 (Fairview Health Services) Series D 5.00% 11/15/30 (AMBAC) 1,500,000 1,574,070 5.00% 11/15/34 (AMBAC) 2,500,000 2,615,325 Minnesota Agricultural & Economic Development Board Revenue (Fairview Health Care System) Series A 5.75% 11/15/26 (MBIA) 100,000 106,580 6.375% 11/15/29 100,000 108,880 Rochester Health Care Facilities Revenue (Mayo Foundation) Series B 5.50% 11/15/27 3,365,000 3,555,997 St. Louis Park Health Care Facilities Revenue (Park Nicollet Health Services) Series B 5.25% 7/1/30 1,250,000 1,296,500 St. Paul Housing & Redevelopment Authority Health Care Facilities Revenue (Regions Hospital Project) 5.30% 5/15/28 300,000 304,689 Waconia Health Care Facilities Revenue (Ridgeview Medical Center Project) Series A 6.10% 1/1/19 (RADIAN) 1,405,000 1,530,986 ----------- 18,835,483 ----------- Miscellaneous Revenue Bonds - 2.65% Minneapolis Art Center Facilities Revenue (Walker Art Center Project) 5.125% 7/1/21 2,400,000 2,512,008 Minneapolis Community Development Agency (Supported Development Revenue Limited Tax Common Bond Fund) Series 5 5.70% 12/1/27 375,000 382,511 ----------- 2,894,519 ----------- Multifamily Housing Revenue Bonds - 7.97% Chanhassen Multifamily Housing Revenue (Heritage Park Apartments Project- Section 8) 6.20% 7/1/30 (FHA) (AMT) 1,105,000 1,142,172 Harmony Multifamily Housing Revenue Refunding Section 8 (Zedakah Foundation Project) Series A 5.95% 9/1/20 1,000,000 849,810 Minneapolis Multifamily Housing Revenue (Seward Towers Project) 5.00% 5/20/36 (GNMA) 1,000,000 1,025,710 (Sumner Housing Project) Series A 5.15% 2/20/45 (GNMA) (AMT) 3,575,000 3,643,246 Minnesota State Housing Finance Agency Series A 5.00% 2/1/35 (AMT) 1,000,000 1,015,150 Series D 5.95% 2/1/18 (MBIA) 150,000 152,366 Southeastern Minnesota Multi-County Housing & Redevelopment Authority (Winona County) 5.35% 1/1/28 870,000 876,612 ----------- 8,705,066 ----------- 12 STATEMENTS DELAWARE INVESTMENTS MINNESOTA MUNICIPAL OF NET ASSETS (CONTINUED) INCOME FUND II, INC. Principal Market Amount Value MUNICIPAL BONDS (continued) 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 $ 1,034,300 Minneapolis Development Revenue (Limited Tax Supported Common Bond Fund) 5.50% 12/1/24 (AMT) 1,000,000 1,058,590 St. Paul Port Authority Lease Revenue (Cedar Street Office Building Project) 5.00% 12/1/22 2,385,000 2,523,569 5.25% 12/1/27 2,650,000 2,816,340 (Robert Street Office Building Project) 5.00% 12/1/27 2,545,000 2,665,582 Series 9 5.25% 12/1/27 2,000,000 2,133,180 ----------- 12,231,561 ----------- 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 1,348,525 ----------- 1,348,525 ----------- Political Subdivision General Obligation Bonds - 7.70% Dakota County Community Development Agency Governmental Housing Facilities Series A 5.00% 1/1/23 1,100,000 1,161,204 Hennepin County Series B 5.00% 12/1/18 1,000,000 1,071,060 Hennepin County Regional Railroad Authority 5.00% 12/1/26 3,500,000 3,624,600 Metropolitan Council Waste Water Treatment Series B 5.00% 12/1/21 1,250,000 1,337,663 Washington County Housing & Redevelopment Authority Series B 5.50% 2/1/32 (MBIA) 1,140,000 1,216,072 ----------- 8,410,599 ----------- ss.Pre-Refunded Bonds - 22.15% Hawley Independent School District #150 Series A 5.75% 2/1/17-06 (FSA) 1,000,000 1,009,260 Minneapolis Community Development Agency (Supported Development Revenue Limited Tax Common Bond Fund) Series G1 5.70% 12/1/19-11 1,100,000 1,225,323 Minneapolis Health Care System Revenue (Fairview Health Services) Series A 5.625% 5/15/32-12 2,750,000 3,087,728 Minnesota Agricultural & Economic Development Board Revenue (Fairview Health Care Systems) Series A 5.75% 11/15/26-07 (MBIA) 5,450,000 5,856,679 6.375% 11/15/29-10 3,200,000 3,668,640 Puerto Rico Commonwealth Highway & Transportation Authority Revenue Series Y 5.50% 7/1/26-06 2,000,000 2,068,400 Puerto Rico Commonwealth Public Improvement Series A 5.00% 7/1/27-12 1,250,000 1,359,875 Puerto Rico Public Buildings Authority Series D 5.25% 7/1/27-12 625,000 682,969 Rosemount Independent School District #196 Series A 5.70% 4/1/12-06 1,270,000 1,287,209 Principal Market Amount Value MUNICIPAL BONDS (continued) ss.Pre-Refunded Bonds (continued) Southern Minnesota Municipal Power Agency Power Supply Systems Series A 5.75% 1/1/18-05 $3,715,000 $ 3,953,392 ----------- 24,199,475 ----------- Public Power Revenue Bonds - 13.85% Minnesota State Municipal Power Agency Electric Revenue Series A 5.00% 10/1/34 5,750,000 5,936,357 Rochester Electric Utility Revenue 5.25% 12/1/30 (AMBAC) 450,000 479,732 &Southern Minnesota Municipal Power Agency Power Supply Systems Revenue, Inverse Floater ROLs Series II-R-189-3 7.626% 1/1/14 (AMBAC) 3,000,000 3,644,610 Series II-R-189 7.626% 1/1/15 (AMBAC) 1,500,000 1,840,230 Western Minnesota Municipal Power Agency Series A 5.00% 1/1/30 (MBIA) 3,100,000 3,224,961 ----------- 15,125,890 ----------- School District General Obligation Bonds - 12.98% Centennial Independent School District #012 Series 2002-A 5.00% 2/1/20 (FSA) 400,000 423,780 Elk River Independent School District #728 5.00% 2/1/16 (FGIC) 1,500,000 1,624,005 Farmington Independent School District #192 5.00% 2/1/23 (FSA) 1,080,000 1,143,029 Series B 5.00% 2/1/27 (FSA) 1,000,000 1,056,850 Lakeville Independent School District #194 Series A 4.75% 2/1/22 (FSA) 2,000,000 2,062,979 Minneapolis Special School District #001 5.00% 2/1/19 (FSA) 1,000,000 1,064,620 Morris Independent School District #769 5.00% 2/1/28 (MBIA) 2,750,000 2,879,552 Mounds View Independent School District #621 5.00% 2/1/23 (FSA) 1,000,000 1,050,330 Princeton Independent School District #477 Series A 5.00% 2/1/24 (FSA) 500,000 530,010 St. Michael Independent School District #885 5.00% 2/1/22 (FSA) 1,500,000 1,584,180 5.00% 2/1/24 (FSA) 725,000 762,367 ----------- 14,181,702 ----------- Single Family Housing Revenue Bonds - 2.46% Minnesota State Housing Finance Agency Single Family Housing Series 1992-C2 6.15% 7/1/23 (AMT) 920,000 920,892 Minnesota State Housing Finance Agency Single Family Mortgage Series B 5.35% 1/1/33 (AMT) 1,140,000 1,172,319 Series J 5.90% 7/1/28 (AMT) 575,000 596,402 ----------- 2,689,613 ----------- State General Obligation Bonds - 4.37% Minnesota State 5.00% 8/1/21 3,875,000 4,150,048 &Minnesota State, Inverse Floater ROLs 7.30% 11/1/17 570,000 629,730 ----------- 4,779,778 ----------- 13 STATEMENTS DELAWARE INVESTMENTS MINNESOTA MUNICIPAL OF NET ASSETS (CONTINUED) INCOME FUND II, INC. Principal Market Amount Value MUNICIPAL BONDS (continued) Tax Increment/Special Assessment Bonds - 0.49% Moorhead Economic Development Authority Tax Increment Series A 5.25% 2/1/25 (MBIA) $ 500,000 $ 534,695 ----------- 534,695 ----------- Territorial General Obligation Bonds - 1.06% Puerto Rico Commonwealth Public Improvement Series A 5.50% 7/1/19 (MBIA) 1,000,000 1,160,300 ----------- 1,160,300 ----------- Territorial Revenue Bonds - 0.48% Virgin Islands Public Finance Authority 5.25% 10/1/23 500,000 530,360 ----------- 530,360 ----------- TOTAL MUNICIPAL BONDS (cost $157,954,752) 166,053,301 ----------- SHORT-TERM INVESTMENTS - 0.92% oVariable Rate Demand Notes - 0.92% Minneapolis Guthrie Parking Ramp 2.61% 12/1/33 (SPA) 1,000,000 1,000,000 ----------- TOTAL SHORT-TERM INVESTMENTS (cost $1,000,000) 1,000,000 ----------- TOTAL MARKET VALUE OF SECURITIES - 152.92% (cost $158,954,752) 167,053,301 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 2.00% 2,189,766 LIQUIDATION VALUE OF PREFERRED STOCK - (54.92%) (60,000,000) ----------- NET ASSETS APPLICABLE TO 7,252,200 SHARES OUTSTANDING - 100.00% $109,243,067 ============ Net Asset Value Per Common Share ($109,243,067 / 7,252,200 Shares) $15.06 ------ COMPONENTS OF NET ASSETS AT SEPTEMBER 30, 2005: Common stock, $0.01 par value, 200 million shares authorized to the Fund $ 99,710,000 Undistributed net investment income 1,667,580 Accumulated net realized loss on investments (233,062) Net unrealized appreciation of investments 8,098,549 ------------ Total net assets $109,243,067 ============ ss.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 September 30, 2005. See Notes 6 in "Notes to Financial Statements." oVariable rate securities. The interest rate shown is the rate as of September 30, 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 Government National Mortgage Association MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance ROLs - Residual Options Longs SPA - Stand-by Purchase Agreement VA - Insured by the Veterans Administration See accompanying notes 14 STATEMENTS DELAWARE INVESTMENTS MINNESOTA MUNICIPAL OF NET ASSETS (CONTINUED) INCOME FUND III, INC. September 30, 2005 (Unaudited) Principal Market Amount Value MUNICIPAL BONDS - 155.77% Airport Revenue Bonds - 9.56% Minneapolis/St. Paul Metropolitan Airports Commission Revenue Series A 5.00% 1/1/28 (MBIA) $ 750,000 $ 781,658 5.00% 1/1/30 (AMBAC) 750,000 765,893 5.125% 1/1/25 (FGIC) 900,000 941,822 ---------- 2,489,373 ---------- City General Obligation Bonds - 5.02% Moorhead Series B 5.00% 2/1/33 (MBIA) 1,250,000 1,307,563 ---------- 1,307,563 ---------- Continuing Care/Retirement Revenue Bonds - 7.35% St. Paul Housing & Redevelopment Authority Revenue (Franciscan Health Project) 5.40% 11/20/42 (GNMA) (FHA) 1,820,000 1,914,877 ---------- 1,914,877 ---------- Corporate-Backed Revenue Bonds - 7.48% Cloquet Pollution Control Revenue (Potlatch Corp. Project) 5.90% 10/1/26 1,000,000 1,013,690 Minneapolis Community Development Agency Supported Development Revenue (Pajor Graphics) Series 1 6.75% 12/1/25 (LOC US Bank NA) (AMT) 865,000 932,678 ---------- 1,946,368 ---------- Escrowed to Maturity Bonds - 12.09% University of Minnesota Hospital & Clinics 6.75% 12/1/16 2,580,000 3,148,142 ---------- 3,148,142 ---------- Higher Education Revenue Bonds - 5.15% Minnesota State Higher Education Facilities Authority (College of St. Benedict) Series 5-W 5.25% 3/1/24 300,000 312,225 (St. Thomas University) Series 4-A1 5.625% 10/1/21 1,010,000 1,029,917 ---------- 1,342,142 ---------- Hospital Revenue Bonds - 18.93% Bemidji Health Care Facilities First Mortgage Revenue (North Country Health Services) 5.00% 9/1/24 (RADIAN) 500,000 519,830 Duluth Economic Development Authority Health Care Facilities Revenue (Benedictine Health System-St. Mary's Hospital) 5.25% 2/15/33 1,000,000 1,033,810 Minneapolis Health Care System Revenue (Allina Health Systems) Series A 5.75% 11/15/32 1,100,000 1,170,201 (Fairview Health Services) Series D 5.00% 11/15/34 (AMBAC) 750,000 784,598 Minnesota Agricultural & Economic Development Broad Revenue (Fairview Health Care System) Series A 6.375% 11/15/29 40,000 43,552 Rochester Health Care Facilities Revenue (Mayo Foundation) Series B 5.50% 11/15/27 1,000,000 1,056,759 Principal Market Amount Value MUNICIPAL BONDS (continued) Hospital Revenue Bonds (continued) Shakopee Health Care Facilities Revenue (St. Francis Regional Medical Center) 5.25% 9/1/34 $ 310,000 $ 318,925 ---------- 4,927,675 ---------- Miscellaneous Revenue Bonds - 1.00% Minneapolis Art Center Facilities Revenue (Walker Art Center Project) 5.125% 7/1/21 250,000 261,668 ---------- 261,668 ---------- Multifamily Housing Revenue Bonds - 7.61% Minneapolis Multifamily Housing Revenue o(Gaar Scott Loft Project) 5.95% 5/1/30 (AMT) 970,000 1,015,755 (Olson Townhomes Project) 6.00% 12/1/19 (AMT) 965,000 965,357 ---------- 1,981,112 ---------- Municipal Lease Revenue Bonds - 12.49% Andover Economic Development Authority Public Facilities Lease Revenue (Andover Community Center) 5.125% 2/1/24 500,000 517,100 St. Paul Port Authority Lease Revenue (Cedar Street Office Building Project) 5.125% 12/1/27 500,000 527,395 5.25% 12/1/27 1,000,000 1,062,770 (Robert Street Office Building Project) 5.00% 12/1/27 500,000 523,690 Virgina Housing & Redevelopment Authority Health Care Facility (Lease Revenue) 5.375% 10/1/30 600,000 619,686 ---------- 3,250,641 ---------- Parking Revenue Bonds - 6.01% St. Paul Housing & Redevelopment Authority Parking Revenue (Block 19 Ramp Project) Series A 5.35% 8/1/29 (FSA) 1,450,000 1,564,289 ---------- 1,564,289 ---------- Political Subdivision General Obligation Bonds - 9.57% Metropolitan Council Waste Water Treatment Series B 5.00% 12/1/21 750,000 802,598 Minneapolis Sports Arena Project 5.125% 10/1/20 750,000 777,503 Washington County Housing & Redevelopment Authority Series B 5.50% 2/1/22 (MBIA) 850,000 911,106 ---------- 2,491,207 ---------- ss.Pre-Refunded Bonds - 18.11% Minnesota Agricultural & Economic Development Broad Revenue (Fairview Health Care System) Series A 6.375% 11/15/29-10 1,210,000 1,387,205 Minnesota Public Facilities Authority Water Pollution Control Revenue Series B 5.40% 3/1/15-06 2,200,000 2,223,869 Puerto Rico Commonwealth Highway & Transportation Authority Revenue Series D 5.25% 7/1/38-12 1,000,000 1,102,800 ---------- 4,713,874 ---------- 15 STATEMENTS DELAWARE INVESTMENTS MINNESOTA MUNICIPAL OF NET ASSETS (CONTINUED) INCOME FUND III, INC. Principal Market Amount Value MUNICIPAL BONDS (continued) Public Power Revenue Bonds - 24.64% Chaska Electric Revenue (Generating Facilities) Series A 5.25% 10/1/25 $ 250,000 $ 265,798 Minnesota State Municipal Power Agency Electric Revenue Series A 5.00% 10/1/34 750,000 774,308 5.25% 10/1/19 500,000 539,410 Southern Minnesota Municipal Power Agency Power Supply Systems Revenue Series A 5.00% 1/1/13 (MBIA) 500,000 543,475 5.25% 1/1/15 (AMBAC) 700,000 779,386 5.25% 1/1/16 (AMBAC) 500,000 556,790 &Southern Minnesota Municipal Power Agency Power Supply Systems Revenue, Inverse Floater ROLs Series II-R-189-3 7.626% 1/1/14 (AMBAC) 1,500,000 1,822,304 Western Minnesota Municipal Power Agency Series A 5.00% 1/1/30 (MBIA) 460,000 478,543 Series B 5.00% 1/1/15 (MBIA) 600,000 654,960 ---------- 6,414,974 ---------- School District General Obligation Bonds - 4.07% Farmington Independent School District #192 Series B 5.00% 2/1/27 (FSA) 500,000 528,425 Princeton Independent School District #477 Series A 5.00% 2/1/24 (FSA) 500,000 530,010 ---------- 1,058,435 ---------- Single Family Housing Revenue Bonds - 2.53% Minnesota State Housing Finance Agency Single Family Mortgage Series B 5.35% 1/1/33 (AMT) 640,000 658,144 ---------- 658,144 ---------- Territorial Revenue Bonds - 4.16% Puerto Rico Public Buildings Authority Guaranteed Government Facilities Revenue Series D (Unrefunded Balance) 5.25% 7/1/27 530,000 557,300 University of the Virgin Islands Series A 5.375% 6/1/34 500,000 524,950 ---------- 1,082,250 ---------- TOTAL MUNICIPAL BONDS (cost $38,496,378) 40,552,734 ---------- TOTAL MARKET VALUE OF SECURITIES - 155.77% (cost $38,496,378) 40,552,734 RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES - 1.85% 480,601 LIQUIDATION VALUE OF PREFERRED STOCK - (57.62%) (15,000,000) ---------- NET ASSETS APPLICABLE TO 1,837,200 SHARES OUTSTANDING - 100.00% $26,033,335 =========== Net Asset Value Per Common Share ($26,033,335 / 1,837,200 Shares) $14.17 ------ COMPONENTS OF NET ASSETS AT SEPTEMBER 30, 2005: Common stock, $0.01 par value, 200 million shares authorized to the Fund $23,648,910 Undistributed net investment income 384,886 Accumulated net realized loss on investments (56,817) Net unrealized appreciation of investments 2,056,356 ----------- Total net assets $26,033,335 =========== ss.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 September 30, 2005. See Notes 6 in "Notes to Financial Statements." oVariable rate securities. The interest rate shown is the rate as of September 30, 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 Government National Mortgage Association LOC - Letter of Credit MBIA - Insured by the Municipal Bond Insurance Association RADIAN - Insured by Radian Asset Assurance ROLs - Residual Options Longs See accompanying notes 16
STATEMENTS DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS OF ASSETS AND LIABILITIES September 30, 2005 (Unaudited) Delaware Delaware Delaware Delaware Delaware Delaware Investments Investments Investments Investments Investments Investments Arizona Colorado Insured Florida Insured Minnesota Minnesota Minnesota Municipal Municipal Municipal Municipal Municipal Municipal Income Income Income Income Income Income Fund, Inc. Fund, Inc. Fund Fund, Inc. Fund II, Inc. Fund III, Inc. ASSETS: Investments at market $68,653,479 $113,830,822 $56,099,232 $57,751,794 $167,053,301 $40,552,734 Cash 359,319 692,363 488,937 -- 4,272 -- Receivables for securities sold 170,000 -- 2,040,000 11,000 -- -- Interest receivable 967,932 1,570,567 1,021,809 734,654 2,490,382 639,705 ----------- ------------ ----------- ----------- ------------ ----------- Total assets 70,150,730 116,093,752 59,649,978 58,497,448 169,547,955 41,192,439 ----------- ------------ ----------- ----------- ------------ ----------- LIABILITIES: Preferred shares leveraged 25,000,000 40,000,000 20,000,000 20,000,000 60,000,000 15,000,000 Payables for securities purchased -- -- 2,634,867 -- -- -- Cash overdraft -- -- -- 96,371 -- 51,208 Distributions payable 47,945 79,780 41,808 39,124 116,220 31,644 Due to manager and affiliates 32,181 73,447 26,775 40,436 82,261 40,969 Other accrued expenses 42,861 45,549 38,568 43,372 106,407 35,283 ----------- ------------ ----------- ----------- ------------ ----------- Total liabilities 25,122,987 40,198,776 22,742,018 20,219,303 60,304,888 15,159,104 ----------- ------------ ----------- ----------- ------------ ----------- TOTAL NET ASSETS $45,027,743 $ 75,894,976 $36,907,960 $38,278,145 $109,243,067 $26,033,335 =========== ============ =========== =========== ============ =========== Investments at cost $64,981,133 $106,667,309 $53,761,021 $55,178,111 $158,954,752 $38,496,378
See accompanying notes 17
STATEMENTS DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS OF OPERATIONS Six Months Ended September 30, 2005 (Unaudited) Delaware Delaware Delaware Investments Investments Investments Arizona Colorado Insured Florida Insured Municipal Municipal Municipal Income Income Income Fund, Inc. Fund, Inc. Fund INVESTMENT INCOME: Interest $1,650,779 $2,847,830 $1,456,758 ---------- ---------- ---------- EXPENSES: Management fees 141,255 232,936 114,754 Remarketing agent fees 31,424 46,666 25,139 Accounting and administration expenses 21,652 28,445 19,683 Reports and statements to shareholders 11,662 14,944 8,929 Dividend disbursing and transfer agent fees and expenses 10,003 15,257 19,123 Rating agency fees 6,758 6,624 6,308 Legal and professional fees 5,840 7,016 4,793 Insurance 3,335 5,586 2,757 Stock exchange fees 2,153 3,485 1,709 Custodian fees 1,492 1,945 1,535 Taxes (other than taxes on income) 1,449 2,208 199 Directors'/Trustees' fees 1,234 2,000 979 Other 942 8,248 2,772 ---------- ---------- ---------- 239,199 375,360 208,680 Less expense paid indirectly (1,492) (1,937) (1,298) ---------- ---------- ---------- Total expenses 237,707 373,423 207,382 ---------- ---------- ---------- NET INVESTMENT INCOME 1,413,072 2,474,407 1,249,376 ---------- ---------- ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on investments (33,362) 142,936 624,719 Net change in unrealized appreciation/depreciation of investments 426,891 722,247 (642,622) ---------- ---------- ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 393,529 865,183 (17,903) ---------- ---------- ---------- DIVIDENDS ON PREFERRED STOCK (318,832) (486,828) (276,548) ---------- ---------- ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,487,769 $2,852,762 $ 954,925 ========== ========== ==========
See accompanying notes 18
STATEMENTS DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS OF OPERATIONS (CONTINUED) Six Months Ended September 30, 2005 (Unaudited) 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 $1,388,522 $4,115,738 $1,005,933 ---------- ---------- ---------- EXPENSES: Management fees 117,372 340,507 82,538 Dividend disbursing and transfer agent fees and expenses 23,616 38,084 16,388 Remarketing agent fees 21,151 75,417 18,855 Accounting and administration expenses 19,893 36,522 14,084 Reports and statements to shareholders 7,591 18,551 4,559 Legal and professional fees 7,544 9,714 12,303 Rating agency fees 5,125 6,308 4,708 Insurance 2,807 8,020 1,910 Stock exchange fees 1,747 4,897 1,138 Custodian fees 1,297 2,430 1,118 Directors'/Trustees' Fees 1,016 2,783 677 Other 3,065 2,991 5,339 ---------- ---------- ---------- 212,224 546,224 163,617 Less expense paid indirectly (1,297) (2,377) (1,115) ---------- ---------- ---------- Total expenses 210,927 543,847 162,502 ---------- ---------- ---------- NET INVESTMENT INCOME 1,177,595 3,571,891 843,431 ---------- ---------- ---------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: Net realized gain on investments 8,893 169,169 37,267 Net change in unrealized appreciation/depreciation of investments 673,730 1,696,351 412,215 ---------- ---------- ---------- NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS 682,623 1,865,520 449,482 ---------- ---------- ---------- DIVIDENDS ON PREFERRED STOCK (271,408) (779,946) (207,699) ---------- ---------- ---------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,588,810 $4,657,465 $1,085,214 ========== ========== ==========
See accompanying notes 19
STATEMENTS DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS OF CHANGES IN NET ASSETS Delaware Delaware Delaware Investments Arizona Investments Colorado Investments Florida Municipal Income Insured Municipal Insured Municipal Fund, Inc. Income Fund, Inc. Income Fund Six Months Year Six Months Year Six Months Year Ended Ended Ended Ended Ended Ended 9/30/05 3/31/05 9/30/05 3/31/05 9/30/05 3/31/05 (Unaudited) (Unaudited) (Unaudited) INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 1,413,072 $ 2,855,348 $ 2,474,407 $ 4,928,339 $ 1,249,376 $ 2,559,275 Net realized gain (loss) on investments (33,362) 83,408 142,936 80,722 624,719 286,142 Net change in unrealized appreciation/depreciation of investments 426,891 (1,080,216) 722,247 (2,143,648) (642,622) (1,915,443) Dividends on preferred stock (318,832) (361,013) (486,828) (615,308) (276,548) (297,142) ----------- ---------- ------------ ----------- ---------- ----------- Net increase in net assets resulting from operations 1,487,769 1,497,527 2,852,762 2,250,105 954,925 632,832 ----------- ---------- ------------ ----------- ---------- ----------- DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income (1,336,141) (2,862,911) (2,321,808) (4,643,616) (1,188,796) (2,470,644) Net realized gain on investments (59,644) (128,235) -- (145,113) (24,222) (239,798) ----------- ---------- ------------ ----------- ---------- ----------- (1,395,785) (2,991,146) (2,321,808) (4,788,729) (1,213,018) (2,710,442) ----------- ---------- ------------ ----------- ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS 91,984 (1,493,619) 530,954 (2,538,624) (258,093) (2,077,610) NET ASSETS: Beginning of period 44,935,759 46,429,378 75,364,022 77,902,646 37,166,053 39,243,663 ----------- ---------- ------------ ----------- ---------- ----------- End of period $45,027,743 $44,935,759 $ 75,894,976 $75,364,022 $36,907,960 $37,166,053 =========== ========== ============ =========== ========== =========== Undistributed net investment income $ 522,221 $ 765,316 $ 1,351,512 $ 1,685,741 $ 585,943 $ 799,507 =========== ========== ============ =========== ========== =========== Delaware Delaware Delaware Investments Minnesota Investments Minnesota Investments Minnesota Municipal Income Municipal Income Municipal Income Fund, Inc. Fund II, Inc. Fund III, Inc. Six Months Year Six Months Year Six Months Year Ended Ended Ended Ended Ended Ended 9/30/05 3/31/05 9/30/05 3/31/05 9/30/05 3/31/05 (Unaudited) (Unaudited) (Unaudited) INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income $ 1,177,595 $ 2,324,176 $ 3,571,891 $ 7,432,435 $ 843,431 $ 1,765,004 Net realized gain on investments 8,893 268,227 169,169 257,523 37,267 114,703 Net change in unrealized appreciation/depreciation of investments 673,730 (1,027,949) 1,696,351 (2,017,417) 412,215 (762,302) Dividends on preferred stock (271,408) (305,320) (779,946) (927,702) (207,699) (235,128) ------------ ----------- ----------- ------------ ---------- ----------- Net increase in net assets resulting from operations 1,588,810 1,259,134 4,657,465 4,744,839 1,085,214 882,277 ------------ ----------- ----------- ------------ ---------- ----------- DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income (1,037,880) (2,471,452) (3,372,273) (7,614,810) (771,624) (1,763,712) Net realized gain on investments (10,379) (28,542) -- -- -- -- ------------ ----------- ----------- ------------ ---------- ----------- (1,048,259) (2,499,994) (3,372,273) (7,614,810) (771,624) (1,763,712) ------------ ----------- ----------- ------------ ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS 540,551 (1,240,860) 1,285,192 (2,869,971) 313,590 (881,435) NET ASSETS: Beginning of period 37,737,594 38,978,454 107,957,875 110,827,846 25,719,745 26,601,180 ------------ ----------- ----------- ------------ ---------- ----------- End of period $38,278,145 $37,737,594 $109,243,067 $107,957,875 $26,033,335 $25,719,745 ============ =========== =========== ============ ========== =========== Undistributed net investment income $ 257,924 $ 389,101 $ 1,667,580 $ 2,250,617 $ 384,886 $ 522,026 ============ =========== =========== ============ ========== ===========
See accompanying notes 20 FINANCIAL HIGHLIGHTS Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Investments Arizona Municipal Income Fund, Inc. Six Months Ended Year Ended 9/30/05(1) 3/31/05 3/31/04 3/31/03 3/31/02(2) 3/31/01 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $15.070 $15.570 $15.480 $14.650 $14.970 $14.000 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.474 0.956 1.020 1.067 1.113 1.124 Net realized and unrealized gain (loss) on investments 0.123 (0.332) 0.276 0.988 (0.257) 0.965 Dividends on preferred stock from: Net investment income (0.105) (0.118) (0.075) (0.103) (0.164) (0.346) Net realized gain on investments (0.002) (0.003) (0.016) (0.018) (0.051) -- -------- -------- -------- -------- -------- -------- Total dividends on preferred stock (0.107) (0.121) (0.091) (0.121) (0.215) (0.346) -------- -------- -------- -------- -------- -------- Total from investment operations 0.490 0.503 1.205 1.934 0.641 1.743 -------- -------- -------- -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income (0.440) (0.960) (0.960) (0.940) (0.817) (0.773) Net realized gain on investments (0.020) (0.043) (0.155) (0.164) (0.144) -- -------- -------- -------- -------- -------- -------- Total dividends and distributions (0.460) (1.003) (1.115) (1.104) (0.961) (0.773) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $15.100 $15.070 $15.570 $15.480 $14.650 $14.970 ======= ======= ======= ======= ======= ======= MARKET VALUE, END OF PERIOD $15.900 $15.390 $16.560 $15.490 $14.750 $14.250 ======= ======= ======= ======= ======= ======= TOTAL INVESTMENT RETURN BASED ON:(3) Market value 6.36% (0.78%) 14.64% 12.74% 10.22% 19.28% Net asset value 3.15% 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) $45,028 $44,936 $46,429 $46,167 $43,703 $44,637 Ratio of expenses to average net assets applicable to common shares(4) 1.04% 1.18% 1.05% 1.16% 1.19% 1.18% Ratio of net investment income to average net assets applicable to common shares(4) 6.18% 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(5) 4.78% 5.54% 6.04% 6.18% 5.99% 5.44% Portfolio turnover 4% 8% 30% 24% 43% 24% LEVERAGE ANALYSIS: Value of preferred shares outstanding (000 omitted) $25,000 $25,000 $25,000 $25,000 $25,000 $25,000 Net asset coverage per share of preferred shares, end of period $140,055 $139,872 $142,858 $142,334 $137,405 $139,274 Liquidation value per share of preferred shares(6) $50,000 $50,000 $50,000 $50,000 $50,000 $50,000
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) As required, effective April 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that required amortization of all premiums and discounts on debt securities. The effect of these changes 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 for periods prior to April 1, 2001 have not been restated to reflect these changes in accounting. (3) 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. (4) Ratios do not reflect the effect of dividend payments to preferred shareholders. (5) 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. (6) Excluding any accumulated but unpaid dividends. See accompanying notes 21 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. Six Months Ended Year Ended 9/30/05(1) 3/31/05 3/31/04 3/31/03 3/31/02(2) 3/31/01 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $15.580 $16.110 $15.920 $14.780 $15.260 $13.870 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.512 1.019 1.043 1.068 1.094 1.105 Net realized and unrealized gain (loss) on investments 0.179 (0.432) 0.324 1.324 (0.401) 1.373 Dividends on preferred stock from: Net investment income (0.101) (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 (0.101) (0.127) (0.090) (0.121) (0.223) (0.342) -------- -------- -------- -------- -------- -------- Total from investment operations 0.590 0.460 1.277 2.271 0.470 2.136 -------- -------- -------- -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income (0.480) (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 (0.480) (0.990) (1.087) (1.131) (0.950) (0.746) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $15.690 $15.580 $16.110 $15.920 $14.780 $15.260 ======= ======= ======= ======= ======= ======= MARKET VALUE, END OF PERIOD $17.990 $17.180 $16.960 $16.650 $14.700 $14.560 ======= ======= ======= ======= ======= ======= TOTAL INVESTMENT RETURN BASED ON:(3) Market value 7.58% 7.42% 8.76% 21.31% 7.52% 22.42% Net asset value 3.46% 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) $75,895 $75,364 $77,903 $76,988 $71,506 $73,817 Ratio of expenses to average net assets applicable to common shares(4) 0.97% 1.03% 1.01% 1.05% 1.01% 1.06% Ratio of net investment income to average net assets applicable to common shares(4) 6.45% 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(5) 5.18% 5.69% 5.98% 6.08% 5.71% 5.31% Portfolio turnover 7% 5% 13% 14% 37% 56% LEVERAGE ANALYSIS: Value of preferred shares outstanding (000 omitted) $40,000 $40,000 $40,000 $40,000 $40,000 $40,000 Net asset coverage per share of preferred shares, end of period $144,869 $144,205 $147,379 $146,235 $139,382 $142,272 Liquidation value per share of preferred shares(6) $50,000 $50,000 $50,000 $50,000 $50,000 $50,000
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) As required, effective April 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that required 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 for periods prior to April 1, 2001 have not been restated to reflect this change in accounting. (3) 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. (4) Ratios do not reflect the effect of dividend payments to preferred shareholders. (5) 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. (6) Excluding any accumulated but unpaid dividends. See accompanying notes 22 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 Six Months Ended Year Ended 9/30/05(1) 3/31/05 3/31/04 3/31/03 3/31/02(2) 3/31/01 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $15.340 $16.200 $16.370 $15.150 $15.400 $14.340 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.516 1.057 1.088 1.084 1.071 1.087 Net realized and unrealized gain (loss) on investments (0.002) (0.675) (0.130) 1.186 (0.337) 1.068 Dividends on preferred stock from: Net investment income (0.113) (0.114) (0.082) (0.109) (0.179) (0.337) Net realized gain on investments (0.001) (0.009) (0.005) -- -- -- -------- -------- -------- -------- -------- -------- Total dividends on preferred stock (0.114) (0.123) (0.087) (0.109) (0.179) (0.337) -------- -------- -------- -------- -------- -------- Total from investment operations 0.400 0.259 0.871 2.161 0.555 1.818 -------- -------- -------- -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income (0.490) (1.020) (0.995) (0.941) (0.805) (0.758) Net realized gain on investments (0.010) (0.099) (0.046) -- -- -- -------- -------- -------- -------- -------- -------- Total dividends and distributions (0.500) (1.119) (1.041) (0.941) (0.805) (0.758) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $15.240 $15.340 $16.200 $16.370 $15.150 $15.400 ======== ======== ======== ======== ======== ======== MARKET VALUE, END OF PERIOD $16.310 $15.050 $16.650 $15.050 $14.020 $13.180 ======== ======== ======== ======== ======== ======== TOTAL INVESTMENT RETURN BASED ON:(3) Market value 11.65% (3.02%) 18.04% 14.17% 12.63% 19.06% Net asset value 2.29% 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) $36,908 $37,166 $39,244 $39,651 $36,696 $37,300 Ratio of expenses to average net assets applicable to common shares(4) 1.11% 1.24% 1.11% 1.18% 1.34% 1.32% Ratio of net investment income to average net assets applicable to common shares(4) 6.67% 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(5) 5.19% 5.97% 6.16% 6.13% 5.79% 5.10% Portfolio turnover 45% 11% 3% 13% 13% 8% LEVERAGE ANALYSIS: Value of preferred shares outstanding (000 omitted) $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 Net asset coverage per share of preferred shares, end of period $142,270 $142,915 $148,110 $149,128 $141,740 $143,249 Liquidation value per share of preferred shares(6) $50,000 $50,000 $50,000 $50,000 $50,000 $50,000
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) As required, effective April 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that required 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 for periods prior to April 1, 2001 have not been restated to reflect this change in accounting. (3) 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. (4) Ratios do not reflect the effect of dividend payments to preferred shareholders. (5) 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. (6) Excluding any accumulated but unpaid dividends. See accompanying notes 23 FINANCIAL HIGHLIGHTS (CONTINUED) Selected data for each share of the Fund outstanding throughout each period were as follows:
Delaware Investments Minnesota Municipal Income Fund, Inc. Six Months Ended Year Ended 9/30/05(1) 3/31/05 3/31/04 3/31/03 3/31/02(2) 3/31/01 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $14.540 $15.020 $15.460 $14.640 $14.790 $14.060 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.454 0.896 0.999 1.119 1.191 1.155 Net realized and unrealized gain (loss) on investments 0.264 (0.294) 0.130 0.758 (0.323) 0.732 Dividends on preferred stock from: Net investment income (0.104) (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 (0.104) (0.118) (0.101) (0.102) (0.178) (0.317) -------- -------- -------- -------- -------- -------- Total from investment operations 0.614 0.484 1.028 1.775 0.690 1.570 -------- -------- -------- -------- -------- -------- LESS DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM: Net investment income (0.400) (0.953) (0.938) (0.890) (0.840) (0.840) Net realized gain on investments (0.004) (0.011) (0.530) (0.065) -- -- -------- -------- -------- -------- -------- -------- Total dividends and distributions (0.404) (0.964) (1.468) (0.955) (0.840) (0.840) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $14.750 $14.540 $15.020 $15.460 $14.640 $14.790 ======== ======== ======== ======== ======== ======== MARKET VALUE, END OF PERIOD $14.580 $15.070 $16.600 $16.000 $14.450 $14.300 ======== ======== ======== ======== ======== ======== TOTAL INVESTMENT RETURN BASED ON:(3) Market value (0.57%) (3.52%) 13.86% 17.74% 7.00% 12.09% Net asset value 4.25% 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) $38,278 $37,738 $38,978 $40,122 $37,996 $33,386 Ratio of expenses to average net assets applicable to common shares(4) 1.09% 1.27% 1.20% 1.21% 1.13% 1.23% Ratio of net investment income to average net assets applicable to common shares(4) 6.07% 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(5) 4.67% 5.31% 5.90% 6.68% 6.84% 6.00% Portfolio turnover 3% 12% 50% 38% 15% 6% LEVERAGE ANALYSIS: Value of preferred shares outstanding (000 omitted) $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 Net asset coverage per share of preferred shares, end of period $145,695 $144,344 $147,445 $150,306 $144,989 $145,964 Liquidation value per share of preferred shares(6) $50,000 $50,000 $50,000 $50,000 $50,000 $50,000
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) As required, effective April 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that required 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. (3) 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. (4) Ratios do not reflect the effect of dividend payments to preferred shareholders. (5) 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. (6) Excluding any accumulated but unpaid dividends. See accompanying notes 24 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. Six Months Ended Year Ended 9/30/05(1) 3/31/05 3/31/04 3/31/03 3/31/02(2) 3/31/01 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $14.890 $15.280 $15.060 $14.280 $14.450 $13.590 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.493 1.025 1.093 1.143 1.163 1.168 Net realized and unrealized gain (loss) on investments 0.250 (0.237) 0.207 0.689 (0.313) 0.850 Dividends on preferred stock from: Net investment income (0.108) (0.128) (0.082) (0.112) (0.182) (0.340) -------- -------- -------- -------- -------- -------- Total dividends on preferred stock (0.108) (0.128) (0.082) (0.112) (0.182) (0.340) -------- -------- -------- -------- -------- -------- Total from investment operations 0.635 0.660 1.218 1.720 0.668 1.678 -------- -------- -------- -------- -------- -------- LESS DIVIDENDS TO COMMON SHAREHOLDERS FROM: Net investment income (0.465) (1.050) (0.998) (0.940) (0.838) (0.818) -------- -------- -------- -------- -------- -------- Total dividends (0.465) (1.050) (0.998) (0.940) (0.838) (0.818) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $15.060 $14.890 $15.280 $15.060 $14.280 $14.450 ======= ======= ======= ======= ======= ======= MARKET VALUE, END OF PERIOD $15.620 $16.370 $16.800 $15.300 $14.050 $14.080 ======= ======= ======= ======= ======= ======= TOTAL INVESTMENT RETURN BASED ON:(3) Market value (1.79%) 4.02% 16.87% 15.84% 5.75% 20.37% Net asset value 4.10% 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) $109,243 $107,958 $110,828 $109,212 $103,573 $104,775 Ratio of expenses to average net assets applicable to common shares(4) 0.98% 1.00% 0.93% 1.03% 1.06% 1.01% Ratio of net investment income to average net assets applicable to common shares(4) 6.46% 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(5) 5.05% 6.00% 6.69% 6.99% 6.79% 5.96% Portfolio turnover 11% 15% 34% 22% 7% 3% LEVERAGE ANALYSIS: Value of preferred shares outstanding (000 omitted) $60,000 $60,000 $60,000 $60,000 $60,000 $60,000 Net asset coverage per share of preferred shares, end of period $141,036 $139,965 $142,357 $141,010 $136,311 $137,312 Liquidation value per share of preferred shares(6) $50,000 $50,000 $50,000 $50,000 $50,000 $50,000
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) As required, effective April 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that required 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. (3) 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. (4) Ratios do not reflect the effect of dividend payments to preferred shareholders. (5) 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. (6) Excluding any accumulated but unpaid dividends. See accompanying notes 25 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. Six Months Ended Year Ended 9/30/05(1) 3/31/05 3/31/04 3/31/03 3/31/02(2) 3/31/01 (Unaudited) NET ASSET VALUE, BEGINNING OF PERIOD $14.000 $14.480 $14.290 $13.230 $13.420 $12.560 INCOME (LOSS) FROM INVESTMENT OPERATIONS: Net investment income 0.459 0.961 1.034 1.084 1.064 1.065 Net realized and unrealized gain (loss) on investments 0.244 (0.353) 0.119 0.918 (0.306) 0.889 Dividends on preferred stock from: Net investment income (0.113) (0.128) (0.083) (0.112) (0.183) (0.336) -------- -------- -------- -------- -------- -------- Total dividends on preferred stock (0.113) (0.128) (0.083) (0.112) (0.183) (0.336) -------- -------- -------- -------- -------- -------- Total from investment operations 0.590 0.480 1.070 1.890 0.575 1.618 -------- -------- -------- -------- -------- -------- LESS DIVIDENDS TO COMMON SHAREHOLDERS FROM: Net investment income (0.420) (0.960) (0.880) (0.830) (0.765) (0.758) -------- -------- -------- -------- -------- -------- Total dividends (0.420) (0.960) (0.880) (0.830) (0.765) (0.758) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $14.170 $14.000 $14.480 $14.290 $13.230 $13.420 ======== ======== ======== ======== ======== ======== MARKET VALUE, END OF PERIOD $14.430 $15.620 $16.160 $14.800 $13.000 $13.000 ======== ======== ======== ======== ======== ======== TOTAL INVESTMENT RETURN BASED ON:(3) Market value (5.03%) 3.00% 15.76% 20.72% 5.93% 17.57% Net asset value 4.05% 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) $26,033 $25,720 $26,601 $26,260 $24,306 $24,659 Ratio of expenses to average net assets applicable to common shares(4) 1.23% 1.33% 1.23% 1.32% 1.49% 1.42% Ratio of net investment income to average net assets applicable to common shares(4) 6.40% 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(5) 4.83% 5.92% 6.62% 6.99% 6.56% 5.68% Portfolio turnover 11% 12% 41% 23% 5% 5% LEVERAGE ANALYSIS: Value of preferred shares outstanding (000 omitted) $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 Net asset coverage per share of preferred shares, end of period $136,778 $135,732 $138,670 $137,532 $131,007 $132,197 Liquidation value per share of preferred shares(6) $50,000 $50,000 $50,000 $50,000 $50,000 $50,000
(1) Ratios and portfolio turnover have been annualized and total return has not been annualized. (2) As required, effective April 1, 2001, the Fund adopted the provisions of the AICPA Audit and Accounting Guide for Investment Companies that required 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. (3) 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. (4) Ratios do not reflect the effect of dividend payments to preferred shareholders. (5) 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. (6) Excluding any accumulated but unpaid dividends. See accompanying notes 26 NOTES DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS September 30, 2005 (Unaudited) Delaware Investments Arizona Municipal Income Fund, Inc. ("Arizona Municipal Fund"); Delaware Investments Colorado Insured Municipal Income Fund, Inc. ("Colorado Insured Municipal Fund"); Delaware Investments Minnesota Municipal Income Fund, Inc. ("Minnesota Municipal Fund"); Delaware Investments Minnesota Municipal Income Fund II, Inc. ("Minnesota Municipal Fund II") and Delaware Investments Minnesota Municipal Income Fund III, Inc. ("Minnesota Municipal Fund III") 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"). Arizona Municipal Fund, Florida Insured Municipal Fund and Minnesota Municipal Fund II are considered diversified closed-end management investment companies and Colorado Insured Municipal Fund, Minnesota Municipal Fund and Minnesota Municipal Fund III are considered non-diversified closed-end management investment companies under the Investment Company Act of 1940, as amended. The Funds' common shares trade on the American Stock Exchange. The Funds' preferred shares are traded privately through a remarketing agent. 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 each Fund's Board of Directors. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events). 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. 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 "expense paid indirectly." The amount of this expense for the six months ended September 30, 2005 was as follows:
Arizona Colorado Insured Florida Insured Minnesota Minnesota Minnesota Municipal Municipal Municipal Municipal Municipal Municipal Fund Fund Fund Fund Fund II Fund III ----------- ----------------- ---------------- ------------ ------------ ----------- Earnings Credits $1,492 $1,937 $1,298 $1,297 $2,377 $1,115
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 weekly net assets of each Fund, including assets attributable to any preferred stock that may be outstanding. 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, 2006. This waiver may be revoked at any time. Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting and administration services. Effective May 19, 2005, the Funds pay DSC a monthly fee computed at the annual rate of 0.04% of the Funds' average daily net assets for accounting and administration services. Prior to May 19, 2005, the Funds paid DSC a monthly fee based on average net assets subject to certain minimums for accounting and administration services. 27 NOTES DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS (CONTINUED) 2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH AFFILIATES (CONTINUED) At September 30, 2005, each Fund had liabilities payable to affiliates as follows:
Arizona Colorado Insured Florida Insured Minnesota Minnesota Minnesota Municipal Municipal Municipal Municipal Municipal Municipal Fund Fund Fund Fund Fund II Fund III --------- ---------------- --------------- --------- --------- --------- Investment management fee payable to DMC $23,492 $38,798 $19,073 $19,560 $56,760 $13,753 Accounting administration and other expenses payable to DSC 4,067 26,441 4,618 5,214 11,811 3,462 Other expenses payable to DMC and affiliates* 4,622 8,208 3,084 15,662 13,690 23,754
*DMC, as part of its administrative services, pays operating expenses on behalf of each Fund 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 directors/trustees' fees. As provided in the investment management agreement, each Fund bears the cost of certain legal services expenses, including internal legal services provided to each Fund by DMC employees. For the six months ended September 30, 2005, the cost for internal legal services provided by DMC was as follows:
Arizona Colorado Insured Florida Insured Minnesota Minnesota Minnesota Municipal Municipal Municipal Municipal Municipal Municipal Fund Fund Fund Fund Fund II Fund III --------- ---------------- --------------- --------- --------- --------- $1,138 $1,904 $773 $810 $2,680 $656
Certain officers of DMC and DSC are officers and/or directors of the Funds. These officers and directors are paid no compensation by the Funds. 3. INVESTMENTS For the six months ended September 30, 2005, the Funds made purchases and sales of investment securities other than short-term investments as follows:
Arizona Colorado Insured Florida Insured Minnesota Minnesota Minnesota Municipal Municipal Municipal Municipal Municipal Municipal Fund Fund Fund Fund Fund II Fund III --------- ---------------- --------------- --------- --------- --------- Purchases $2,969,655 $4,243,750 $12,692,368 $1,569,303 $12,595,393 $3,169,371 Sales 1,288,514 4,579,254 12,711,900 900,355 9,099,965 2,248,500
At September 30, 2005, the cost of investments for federal income tax purposes has been estimated since the final tax characteristics cannot be determined until fiscal year end. At September 30, 2005, the cost of investments and unrealized appreciation (depreciation) for each Fund were as follows:
Arizona Colorado Insured Florida Insured Minnesota Minnesota Minnesota Municipal Municipal Municipal Municipal Municipal Municipal Fund Fund Fund Fund Fund II Fund III --------- ---------------- --------------- --------- --------- --------- Cost of investments $64,956,545 $106,668,404 $53,761,021 $55,164,462 $158,796,208 $38,373,759 =========== ============ =========== =========== ============ =========== Aggregate unrealized appreciation 3,762,375 7,191,845 2,409,171 2,662,479 8,501,703 2,221,692 Aggregate unrealized depreciation (65,441) (29,427) (70,960) (75,147) (244,610) (42,717) ----------- ------------ ----------- ----------- ------------ ----------- Net unrealized appreciation $ 3,696,934 $ 7,162,418 $ 2,338,211 $ 2,587,332 $ 8,257,093 $ 2,178,975 =========== ============ =========== =========== ============ ===========
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 six months ended September 30, 2005 and the year ended March 31, 2005 was as follows:
Arizona Colorado Insured Florida Insured Minnesota Minnesota Minnesota Municipal Municipal Municipal Municipal Municipal Municipal Fund Fund Fund Fund Fund II Fund III --------- ---------------- --------------- --------- --------- --------- SIX MONTHS ENDED 9/30/05* Tax-exempt income $1,650,156 $2,808,636 $1,462,940 $1,308,260 $4,152,219 $ 979,323 Long-term capital gain 64,461 -- 26,626 11,407 -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total $1,714,617 $2,808,636 $1,489,566 $1,319,667 $4,152,219 $ 979,323 ========== ========== ========== ========== ========== ========== *Tax information for the six months ended September 30, 2005 is an estimate and the tax character of dividends and distributions may be redesignated at fiscal year end. YEAR ENDED 3/31/05 Tax-exempt income $3,210,970 $5,245,675 $2,745,766 $2,744,238 $8,535,622 $1,998,840 Ordinary income 84,725 14,636 -- 30,198 6,890 -- Long-term capital gain 56,464 143,726 261,818 30,878 -- -- ---------- ---------- ---------- ---------- ---------- ---------- Total $3,352,159 $5,404,037 $3,007,584 $2,805,314 $8,542,512 $1,998,840 ========== ========== ========== ========== ========== ==========
28 NOTES DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS (CONTINUED) 4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED) The components of net assets are estimated since the final tax characteristics cannot be determined until fiscal year end. As of September 30, 2005, the estimated components of net assets on a tax basis were as follows:
Arizona Colorado Insured Florida Insured Minnesota Minnesota Minnesota Municipal Municipal Municipal Municipal Municipal Municipal Fund Fund Fund Fund Fund II Fund III --------- ---------------- --------------- --------- --------- --------- Shares of beneficial interest $40,838,893 $67,238,110 $33,361,389 $35,426,619 $ 99,710,000 $23,648,910 Undistributed ordinary income -- -- -- 1,851 -- -- Undistributed tax-exempt income 522,221 1,351,512 585,943 257,924 1,667,580 384,886 Undistributed long-term gains -- 142,936 622,417 4,419 -- -- Capital loss carryforward (30,305) -- -- -- (391,606) (179,436) Unrealized appreciation of investments 3,696,934 7,162,418 2,338,211 2,587,332 8,257,093 2,178,975 ----------- ----------- ----------- ----------- ------------ ----------- Net assets $45,027,743 $75,894,976 $36,907,960 $38,278,145 $109,243,067 $26,033,335 =========== =========== =========== =========== ============ ===========
The difference between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales and tax treatment of market discount and premium on debt instruments. For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryforwards outstanding at March 31, 2005 will expire as follows: Minnesota Minnesota Municipal Municipal Fund II Fund III --------- --------- 2006 $ -- $ 6,539 2008 376,004 56,856 2009 175,804 153,308 2010 8,416 -- -------- -------- Total $560,224 $216,703 ======== ======== For the six months ended September 30, 2005, each Fund had capital gains (losses), which may reduce (increase) the capital loss carryforwards as follows: Arizona Minnesota Minnesota Municipal Municipal Municipal Fund Fund II Fund III --------- --------- ---------- $(30,305) $168,618 $37,267 For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. For the six months ended September 30, 2005, the Funds recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end. Reclassifications are primarily due to tax treatment of market discount and premium on certain debt instruments. Results of operations and net assets were not affected by these reclassifications. For the six months ended September 30, 2005, the Funds recorded the following reclassifications.
Arizona Minnesota Minnesota Minnesota Municipal Municipal Municipal Municipal Fund Fund Fund II Fund III --------- --------- --------- --------- Accumulated net investment income $(8,134) $(512) $(2,709) $(1,248) Accumulated net realized gain (loss) 8,134 512 2,709 1,248
5. CAPITAL STOCK Pursuant to their articles of incorporation, Arizona Municipal Fund, Colorado Insured Municipal Fund, Minnesota Municipal Fund, Minnesota Municipal Fund II, and Minnesota Municipal Fund III 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 six months ended September 30, 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 six months ended September 30, 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. 29 NOTES DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS (CONTINUED) 5. CAPITAL STOCK (CONTINUED) 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 six months ended September 30, 2005 as follows: Fund Low High ---- --- ---- Arizona Municipal Fund 2.10% to 2.95% Colorado Insured Municipal Fund 1.00% to 2.85% Florida Insured Municipal Fund 2.10% to 3.00% Minnesota Municipal Fund 1.75% to 2.95% Minnesota Municipal Fund II 1.90% to 3.05% Minnesota Municipal Fund III 2.20% to 3.00% Citigroup Global Markets, Inc. (formerly 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 to Section 13(a) of the 1940 Act, including, among other things, changes in each of the Fund's subclassificiation as a closed-end investment company or (c) changes in their fundamental investment restrictions. 6. CREDIT AND MARKET RISKS The Funds use leverage in the form of preferred shares. Leveraging may result in a higher degree of volatility because each Fund's net asset value could be more sensitive to fluctuations in short-term interest rates and changes in market value of portfolio securities attributable to the leverage. 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. Each Fund 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 the time, including any required premium. Bonds become "defeased" when the rights and interests of the bondholders and of 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 Investors Service, Inc., Standard & Poor's Ratings Group, 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 total 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 each Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. At September 30, 2005, there were no Rule 144A securities and no securities have been determined to be illiquid under the Funds' Liquidity Procedures. While maintaining oversight, each Fund's Board of Directors/Trustees has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of a Funds' limitation on investments in illiquid assets. 30 NOTES DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS TO FINANCIAL STATEMENTS (CONTINUED) 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 each Fund's existing contracts and expects the risk of loss to be remote. 8. SUBSEQUENT EVENT. On August 18, 2005, the Board of Directors of each of the Minnesota Municipal Income Fund, Minnesota Municipal Income Fund II and Minnesota Municipal Income Fund III approved an Agreement and Plan of Acquisition among Minnesota Municipal Income Fund and Minnesota Municipal Income Fund III (each, an "Acquired Fund," and collectively, the "Acquired Funds") and Minnesota Municipal Income Fund II (the "Acquiring Fund") and DMC providing for (i) the acquisition by the Acquiring Fund of substantially all of the assets of the Acquired Funds in exchange for common and/or preferred shares of the Acquiring Fund; (ii) the pro rata distribution of those Acquiring Fund common and/or preferred shares to shareholders of the Acquired Funds; and (iii) the subsequent dissolution of the Acquired Funds (the "Reorganization"). The Reorganization is designed to be a tax-free merger of investment companies. If approved by shareholders of both the Acquired and Acquiring Funds, it is expected that the Reorganization would close by the end of the first quarter of 2006. 31 OTHER DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS FUND INFORMATION PROXY RESULTS The shareholders of Delaware Investments Arizona Municipal Income Fund, Inc., Delaware Investments Colorado Insured Municipal Income Fund, Inc., Delaware Investments Florida Insured Municipal Income Fund, Delaware Investments Minnesota Municipal Income Fund, Inc., Delaware Investments Minnesota Municipal Income Fund II, Inc., and Delaware Investments Minnesota Municipal Income Fund III, Inc. (each, a "Fund") voted on the following proposals (as applicable) at the special meeting of shareholders on August 17, 2005 or as adjourned. The description of each proposal and number of shares voted are as follows: 1. To elect a Board of Directors for each Fund.
Common Shareholders Preferred Shareholders ------------------- ---------------------- Shares Shares Voted Shares Shares Voted Voted Withheld Voted Withheld For Authority For Authority DELAWARE INVESTMENTS ARIZONA MUNICIPAL INCOME FUND, INC. Thomas L. Bennett 2,893,182 37,402 -- Jude T. Driscoll 2,891,869 38,715 -- -- John A. Fry 2,884,269 46,315 -- -- Anthony D. Knerr 2,883,419 47,165 -- -- Lucinda S. Landreth 2,893,945 36,639 -- -- Ann R. Leven 2,880,212 50,372 -- -- Thomas F. Madison -- -- 450 -- Janet L. Yeomans -- -- 450 -- J. Richard Zecher 2,893,256 37,328 -- -- Common Shareholders Preferred Shareholders ------------------- ---------------------- Shares Shares Voted Shares Shares Voted Voted Withheld Voted Withheld For Authority For Authority DELAWARE INVESTMENTS COLORADO INSURED MUNICIPAL INCOME FUND, INC. Thomas L. Bennett 4,671,142 55,899 -- Jude T. Driscoll 4,681,327 45,714 -- -- John A. Fry 4,679,877 47,164 -- -- Anthony D. Knerr 4,678,877 48,164 -- -- Lucinda S. Landreth 4,671,192 55,849 -- -- Ann R. Leven 4,678,927 48,114 -- -- Thomas F. Madison -- -- 763 -- Janet L. Yeomans -- -- 763 -- J. Richard Zecher 4,668,577 58,464 -- -- Common Shareholders Preferred Shareholders ------------------- ---------------------- Shares Shares Voted Shares Shares Voted Voted Withheld Voted Withheld For Authority For Authority DELAWARE INVESTMENTS FLORIDA INSURED MUNICIPAL INCOME FUND Thomas L. Bennett 2,323,556 15,639 -- Jude T. Driscoll 2,324,114 15,081 -- -- John A. Fry 2,325,039 14,156 -- -- Anthony D. Knerr 2,323,114 16,081 -- -- Lucinda S. Landreth 2,323,556 15,639 -- -- Ann R. Leven 2,324,039 15,156 -- -- Thomas F. Madison -- -- 380 3 Janet L. Yeomans -- -- 380 3 J. Richard Zecher 2,326,139 13,056 -- --
32 OTHER DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS FUND INFORMATION (CONTINUED)
Common Shareholders Preferred Shareholders ------------------- ---------------------- Shares Shares Voted Shares Shares Voted Voted Withheld Voted Withheld For Authority For Authority DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND, INC: Thomas L. Bennett 2,438,161 21,888 -- -- Jude T. Driscoll 2,436,721 23,328 -- -- John A. Fry 2,438,621 21,428 -- -- Anthony D. Knerr 2,438,621 21,428 -- -- Lucinda S. Landreth 2,436,846 23,203 -- -- Ann R. Leven 2,439,206 20,843 -- -- Thomas F. Madison -- -- 340 -- Janet L. Yeomans -- -- 340 -- J. Richard Zecher 2,438,161 21,888 -- -- Common Shareholders Preferred Shareholders ------------------- ---------------------- Shares Shares Voted Shares Shares Voted Voted Withheld Voted Withheld For Authority For Authority DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND II, INC. Thomas L. Bennett 6,780,214 60,581 -- -- Jude T. Driscoll 6,782,186 58,609 -- -- John A. Fry 6,782,520 58,275 -- -- Anthony D. Knerr 6,781,138 59,657 -- -- Lucinda S. Landreth 6,779,912 60,883 -- -- Ann R. Leven 6,781,130 59,665 -- -- Thomas F. Madison -- -- 1,050 -- Janet L. Yeomans -- -- 1,050 -- J. Richard Zecher 6,779,880 60,915 -- -- Common Shareholders Preferred Shareholders ------------------- ---------------------- Shares Shares Voted Shares Shares Voted Voted Withheld Voted Withheld For Authority For Authority DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND III, INC. Thomas L. Bennett 1,694,810 29,397 -- Jude T. Driscoll 1,694,810 29,397 -- -- John A. Fry 1,694,810 29,397 -- -- Anthony D. Knerr 1,694,810 29,397 -- -- Lucinda S. Landreth 1,694,810 29,397 -- -- Ann R. Leven 1,694,810 29,397 -- -- Thomas F. Madison -- -- 242 -- Janet L. Yeomans -- -- 242 -- J. Richard Zecher 1,694,810 29,397 -- --
BOARD CONSIDERATION OF DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS INVESTMENT ADVISORY AGREEMENT At a meeting held on May 18-19, 2005 (the "Annual Meeting"), the Board of Directors, including a majority of disinterested or independent Directors, and the Board of Trustees, including a majority of disinterested or indepentent Trustees for the Delaware Investments Florida Insured Municipal Income Fund, (a "Fund"); approved the renewal of the Investment Advisory Agreements for the Delaware Investments Arizona Municipal Income Fund, Inc.; Delaware Investments Colorado Insured Municipal Income Fund, Inc.; Delaware Investments Minnesota Municipal Income Fund, Inc.; Delaware Investments Minnesota Municipal Income Fund II, Inc.; and Delaware Investments Minnesota Municipal Income Fund III, Inc. (each a "Fund" and together with Delaware Investments Florida Insured Municipal Income Fund the "Funds"). In making its decision, the Board considered information furnished throughout the year at regular Board meetings, as well as information prepared specifically in connection with the Annual Meeting. Information furnished and discussed throughout the year included reports detailing Fund performance, investment strategies, expenses, compliance matters and other services provided by Delaware Management Company ("DMC"), the investment advisor. Information furnished specifically in connection with the Annual Meeting included materials provided by DMC and its affiliates ("Delaware Investments") concerning, among other things, the level of services provided to the Funds, the costs of such services to the Funds, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, the Board separately received and reviewed independent historical and comparative reports prepared by Lipper Inc. ("Lipper"), an independent statistical compilation organization. The Lipper reports compared each Fund's investment performance and expenses with those of other comparable mutual funds. The Board also requested and received certain supplemental 33 OTHER DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS FUND INFORMATION (CONTINUED) information regarding management's policy with respect to advisory fee levels and its philosophy with respect to breakpoints; the structure of portfolio manager compensation; the investment manager's profitability organized by client type, including the Funds; and any constraints or limitations on the availability of securities in certain investment styles which might inhibit the advisor's ability to fully invest in accordance with the Funds' policies. In considering such materials, the independent Directors/Trustees received assistance and advice from and met separately with independent counsel and representatives from Lipper. At the meeting with representatives from Lipper, Jude Driscoll, Chairman of the Delaware Investments Family of Funds, and Chairman and Chief Executive Officer of the investment advisor, was present to respond to questions raised by Lipper and the independent Directors/Trustees. While the Board considered the Investment Advisory Agreements for all of the funds in the Delaware Investments Family of Funds at the same Board meeting, information was provided and considered by the Board for each fund individually. In approving the continuance of the Investment Advisory Agreements for the Funds, the Board, including a majority of independent Directors/Trustees, determined that the existing advisory fee structure was fair and reasonable and that the continuance of the Investment Advisory Agreements was in the best interests of the Funds and their shareholders. While attention was given to all information furnished, the following discusses the primary factors relevant to the Board's deliberations and determination, including those relating to the selection of the investment advisor and the approval of the advisory fee. NATURE, EXTENT AND QUALITY OF SERVICE. Consideration was given to the services provided by Delaware Investments to the Funds and their shareholders. In reviewing the nature, extent and quality of services, the Board emphasized reports furnished to it throughout the year at regular Board meetings covering matters such as the compliance of portfolio managers with the investment policies, strategies and restrictions for the Funds, the compliance of management personnel with the Code of Ethics adopted throughout the Delaware Investments Family of Funds complex, the adherence to fair value pricing procedures as established by the Board, and the accuracy of net asset value calculations. The Board noted that it was pleased with the current staffing of the Funds' investment advisor during the past year, the emphasis on research and the compensation system for advisory personnel. Favorable consideration was given to DMC's efforts to maintain, and in some instances increase, financial and human resources committed to fund matters. Other factors taken into account by the Board were Delaware Investments' preparedness for, and response to, legal and regulatory matters. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments. INVESTMENT PERFORMANCE. The Board considered the investment performance of DMC and the Funds. The Board was pleased by DMC's investment performance, noting Barron's ranking of the Delaware Investments Family of Funds in the top quartile of mutual fund families for 2002 -- 2004. The Board placed significant emphasis on the investment performance of the Funds in view of its importance to shareholders. While consideration was given to performance reports and discussions with portfolio managers at Board meetings throughout the year, particular attention in assessing performance was given to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for each Fund showed the investment performance of its shares in comparison to a group of similar funds as selected by Lipper (the "Performance Universe"). A fund with the highest performance is ranked first, and a fund with the lowest is ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25% -- the second quartile; the next 25% -- the third quartile; and the lowest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Funds was shown for the past one, three, five and 10 year periods ended February 28, 2005. The Board noted its objective that each Fund's performance be at or above the median of its Performance Universe. The following paragraphs summarize the performance results for the Funds and the Board's view of such performance. Delaware Investments Arizona Municipal Income Fund, Inc. -- The Performance Universe for this Fund consisted of the Fund and all leveraged closed-end other states municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one, five and 10 year periods was in the second quartile of such Performance Universe. The report further showed that the Fund's total return for the three year period was in the third quartile. The Board noted that the Fund's performance results were mixed but on an overall basis tended toward median, which was acceptable. Delaware Investments Colorado Insured Municipal Income Fund, Inc. -- The Performance Universe for this Fund consisted of the Fund and all leveraged closed-end other states municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one year period was in the fourth quartile of such Performance Universe. The report further showed that the Fund's total return for the three and 10 year periods was in the second quartile and the Fund's total return for the five year period was in the first quartile. The Board noted that the Fund's performance results were mixed but on an overall basis tended toward median, which was acceptable. Delaware Investments Florida Insured Municipal Income Fund -- The Performance Universe for this Fund consisted of the Fund and all leveraged closed-end Florida municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one, three and five year periods was in the fourth quartile of such Performance Universe. The report further showed that the Fund's total return for the 10 year period was in the first quartile. The Board noted that the Fund's performance results were not in line with the Board's objective. The Board also noted that the Performance Universe is not comprised solely of insured funds. Many of the funds (even certain of the insured funds) in the Performance Universe can maintain exposure to BBB rated bonds, which have significantly outperformed the AAA rated bonds that the Fund invests in. Based upon the Fund's investment restrictions and the composition of the Performance Universes, the Board was satisfied with the Fund's performance results. Delaware Investments Minnesota Municipal Income Fund, Inc. -- The Performance Universe for this Fund consisted of the Fund and all leveraged closed-end Minnesota municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one period was in the second quartile of such Performance Universe. The report further showed that the Fund's total return for the three, five and 10 year periods was in the fourth quartile. The Board noted that the Fund's performance results were mixed. The Board also noted that DMC serves as advisor to three of the five funds in the Performance Universe. Accordingly, poor relative performance can be misleading. Given the size and composition of the Performance Universe, the Board was satisfied with the Fund's performance results. Delaware Investments Minnesota Municipal Income Fund II, Inc. -- The Performance Universe for this Fund consisted of the Fund and all leveraged closed-end Minnesota municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one, 34 OTHER DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS FUND INFORMATION (CONTINUED) three, five and 10 year periods was in the first quartile of such Performance Universe. The Board was satisfied with such performance. Delaware Investments Minnesota Municipal Income Fund III, Inc. -- The Performance Universe for this Fund consisted of the Fund and all leveraged closed-end Minnesota municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund's total return for the one year period was in the third quartile of such Performance Universe. The report further showed that the Fund's total return for the three, five and 10 year periods was in the first quartile. The Board noted that the Fund's performance results were mixed. The Board also noted that DMC serves as advisor to three of the five funds in the Performance Universe. Accordingly, poor relative performance can be misleading. Given the size and composition of the Performance Universe, the Board was satisfied with the Fund's performance results. COMPARATIVE EXPENSES. The Board considered expense comparison data for the Delaware Investments Family of Funds, Delaware Investments' institutional separate account business and other lines of business at Delaware Investments. The Board stated its belief that, given the differing level of service provided to Delaware Investments' various clients and other factors that related to the establishment of fee levels, variations in the levels of fees and expenses were justified. The Board placed significant emphasis on the comparative analysis of the management fees and total expense ratios of each Fund compared with those of a group of similar leveraged closed-end funds as selected by Lipper (the "Expense Group") and among the other Delaware Investments funds. In reviewing comparative costs, each Fund's contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) of other funds within the Expense Group, taking into effect any applicable breakpoints and fee waivers. Each Fund's total expenses were also compared with those of its Expense Group. The Board noted its objective to limit each Fund's total expense ratio to an acceptable range as compared to the median of the Expense Group. The following paragraphs summarize the expense results for the Funds and the Board's view of such expenses. Delaware Investments Arizona Municipal Income Fund, Inc. -- The expense comparisons for the Fund showed that its management fee was in the quartile with the second lowest expenses of its Expense Group and its total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was satisfied with the management fees and total expenses of the Fund in comparison to its Expense Group as shown in the Lipper report. Delaware Investments Colorado Insured Municipal Income Fund, Inc. -- The expense comparisons for the Fund showed that its management fee and total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was satisfied with the management fees and total expenses of the Fund in comparison to its Expense Group as shown in the Lipper report. Delaware Investments Florida Insured Municipal Income Fund -- The expense comparisons for the Fund showed that its management fee was in the quartile with the second lowest expenses of its Expense Group and its total expenses were in the quartile with the second highest of its Expense Group. The Board gave favorable consideration to the Fund's management fee, but noted that the Fund's total expenses were not in line with the Board's objective. In evaluating the total expenses, the Board considered management's plans to implement an expense cap as of June 1, 2005. The Board was satisfied with management's efforts to improve the Fund's total expense ratio and bring it in line with the Board's objective. Delaware Investments Minnesota Municipal Income Fund, Inc. -- The expense comparisons for the Fund showed that its management fee and total expenses were in the quartile with the second lowest expenses of its Expense Group. The Board was satisfied with the management fees and total expenses of the Fund in comparison to its Expense Group as shown in the Lipper report. Delaware Investments Minnesota Municipal Income Fund II, Inc. -- The expense comparisons for the Fund showed that its management fee and total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was satisfied with the management fees and total expenses of the Fund in comparison to its Expense Group as shown in the Lipper report. Delaware Investments Minnesota Municipal Income Fund III, Inc. -- The expense comparisons for the Fund showed that its management fee and total expenses were in the quartile with the second lowest expenses of its Expense Group. The Board was satisfied with the management fees and total expenses of the Fund in comparison to its Expense Group as shown in the Lipper report. MANAGEMENT PROFITABILITY. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Funds. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments' business in providing management and other services to each of the individual funds and the Delaware Investments Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflected operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments' expenditures to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from the Sarbanes-Oxley Act and recent SEC initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds, the benefits from allocation of fund brokerage to improve trading efficiencies and the use of "soft" commission dollars to pay for proprietary and non-proprietary research. At the Board's request, management also provided information relating to Delaware Investments' profitability by client type. The information provided set forth the revenue, expenses and pre-tax income/loss attributable to the Delaware Investments Family of Funds, Delaware Investments' separate account business and other lines of business at Delaware Investments. Emphasis was given to the level and type of service provided to the various clients. The Board was satisfied with the level of profits realized by Delaware Investments from the relationships with the Funds and the Delaware Investments Family of Funds. ECONOMIES OF SCALE. As closed-end funds, the Funds do not issue shares on a continuous basis. Fund assets increase only to the extent that the value of the underlying securities in the Fund increase. Accordingly, the Board determined that the Funds were not likely to experience significant economies of scale due to asset growth and, therefore, a fee schedule with breakpoints to pass the benefit of such economies of scale on to shareholders was not likely to provide the intended effect. 35 ABOUT THE ORGANIZATION This semiannual 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 resold, 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 each Fund may, from time-to-time, purchase shares of its 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 a Series of Delaware Management Business Trust Philadelphia, PA Delaware Investments Family of Funds Philadelphia, PA Philadelphia, PA THOMAS L. BENNETT PRINCIPAL OFFICE OF THE FUNDS Private Investor DAVID F. CONNOR 2005 Market Street Rosemont, PA Vice President, Philadelphia, PA 19103-7057 Deputy General Counsel and Secretary JOHN A. FRY Delaware Investments Family of Funds INDEPENDENT REGISTERED PUBLIC President Philadelphia, PA ACCOUNTING FIRM Franklin & Marshall College Ernst & Young LLP Lancaster, PA DAVID P. O'CONNOR 2001 Market Street Senior Vice President, Philadelphia, PA 19103 ANTHONY D. KNERR General Counsel and Chief Legal Officer Managing Director Delaware Investments Family of Funds REGISTRAR AND STOCK TRANSFER AGENT Anthony Knerr & Associates Philadelphia, PA Mellon Investor Services, L.L.C. New York, NY Overpeck Centre JOHN J. O'CONNOR 85 Challenger Road LUCINDA S. LANDRETH Senior Vice President and Treasurer Ridgefield Park, NJ 07660 Former Chief Investment Officer Delaware Investments Family of Funds 800 851-9677 Assurant, Inc. Philadelphia, PA Philadelphia, PA FOR SECURITIES DEALERS AND FINANCIAL --------------------------------------- INSTITUTIONS REPRESENTATIVES ANN R. LEVEN Each Fund files its complete schedule 800 362-7500 Former Treasurer/Chief Fiscal Officer of portfolio holdings with the National Gallery of Art Securities and Exchange Commission for WEB SITE Washington, DC the first and third quarters of each www.delawareinvestments.com fiscal year on Form N-Q. Each Fund's THOMAS F. MADISON Forms N-Q, as well as a description of NUMBER OF RECORDHOLDERS AS OF President and Chief Executive Officer the policies and procedures that each SEPTEMBER 30, 2005: MLM Partners, Inc. Fund uses to determine how to vote Minneapolis, MN proxies (if any) relating to portfolio Arizona Municipal Income Fund 89 securities is available without charge Colorado Insured Municipal JANET L. YEOMANS (i) upon request, by calling 800 Income Fund 174 Vice President/Mergers & Acquisitions 523-1918; (ii) on each Fund's Web site Florida Insured Municipal Income Fund 149 3M Corporation at http://www.delawareinvestments.com; Minnesota Municipal Income Fund I 301 St. Paul, MN and (iii) on the Commission's Web site Minnesota Municipal Income Fund II 462 at http://www.sec.gov. Each Fund's Minnesota Municipal Income Fund III 102 J. RICHARD ZECHER Forms N-Q may be reviewed and copied at Founder the Commission's Public Reference Room Investor Analytics in Washington, DC; information on the Delaware Investments is the marketing name for Scottsdale, AZ operation of the Public Reference Room Delaware Management Holdings, Inc. and may be obtained by calling its subsidiaries. 1-800-SEC-0330. Information (if any) regarding how each Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available 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. ---------------------------------------
36 Delaware Investments(R) ----------------------------------- A member of Lincoln Financial Group (9878) Printed in the USA SA-CEMUNI [9/05] IVES 11/05 MF-05-10-348 PO10512 Item 2. Code of Ethics Not applicable. Item 3. Audit Committee Financial Expert Not applicable. Item 4. Principal Accountant Fees and Services Not applicable. Item 5. Audit Committee of Listed Registrants Not applicable. 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 Not applicable. Item 8. Portfolio Managers of Closed-End Management Investment Companies Applicable to Form N-CSRs filed after fiscal years ending on or after December 31, 2005. Not applicable. 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 second 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. DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND III, INC. Jude T. Driscoll -------------------------------- By: Jude T. Driscoll Title: Chief Executive Officer Date: December 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: December 7, 2005 Michael P. Bishof -------------------------------- By: Michael P. Bishof Title: Chief Financial Officer Date: December 7, 2005