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)
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A member of Lincoln Financial Group
SEMIANNUAL REPORT SEPTEMBER 30, 2005
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DELAWARE INVESTMENTS CLOSED-END
MUNICIPAL BOND FUNDS
[LOGO] POWERED BY RESEARCH(R)
TABLE
OF CONTENTS
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SECTOR ALLOCATIONS 1
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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
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OTHER FUND INFORMATION 32
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ABOUT THE ORGANIZATION 36
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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%
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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%
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TOTAL MARKET VALUE OF SECURITIES 152.47%
------------------------------------------------------------------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 3.05%
------------------------------------------------------------------------
LIQUIDATION VALUE OF PREFERRED STOCK (55.52%)
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TOTAL NET ASSETS 100.00%
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DELAWARE INVESTMENTS COLORADO INSURED MUNICIPAL INCOME FUND, INC.
PERCENTAGE
SECTOR OF NET ASSETS
------------------------------------------------------------------------
MUNICIPAL BONDS 149.98%
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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%
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TOTAL MARKET VALUE OF SECURITIES 149.98%
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RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 2.72%
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LIQUIDATION VALUE OF PREFERRED STOCK (52.70%)
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TOTAL NET ASSETS 100.00%
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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%
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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%
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TOTAL MARKET VALUE OF SECURITIES 152.00%
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RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 2.19%
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LIQUIDATION VALUE OF PREFERRED STOCK (54.19%)
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TOTAL NET ASSETS 100.00%
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DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND, INC.
PERCENTAGE
SECTOR OF NET ASSETS
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MUNICIPAL BONDS 150.87%
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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%)
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TOTAL NET ASSETS 100.00%
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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%
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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%
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SHORT-TERM INVESTMENTS 0.92%
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TOTAL MARKET VALUE OF SECURITIES 152.92%
------------------------------------------------------------------------
RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 2.00%
------------------------------------------------------------------------
LIQUIDATION VALUE OF PREFERRED STOCK (54.92%)
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TOTAL NET ASSETS 100.00%
------------------------------------------------------------------------
DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND III, INC.
PERCENTAGE
SECTOR OF NET ASSETS
------------------------------------------------------------------------
MUNICIPAL BONDS 155.77%
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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%
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RECEIVABLES AND OTHER ASSETS NET OF LIABILITIES 1.85%
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LIQUIDATION VALUE OF PREFERRED STOCK (57.62%)
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TOTAL NET ASSETS 100.00%
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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
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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
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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
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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