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:
Richelle S. Maestro, Esq.
2005 Market Street
Philadelphia, PA 19103
Registrant's telephone number, including area code: (800) 523-1918
Date of fiscal year end: March 31
Date of reporting period: March 31, 2004
Item 1. Reports to Stockholders
Delaware
Investments(SM)
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A member of Lincoln Financial Group(R)
CLOSED END
Annual Report MARCH 31, 2004
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DELAWARE INVESTMENTS CLOSED-END
MUNICIPAL BOND FUNDS
[LOGO] POWERED BY RESEARCH.(SM)
TABLE
OF CONTENTS
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PORTFOLIO MANAGEMENT REVIEW 1
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PERFORMANCE SUMMARIES:
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Minnesota Municipal Income
Funds I, II, III 5
Arizona Municipal Income Fund 5
Florida Insured Municipal Income Fund 6
Colorado Insured Municipal Income Fund 6
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FINANCIAL STATEMENTS:
Statements of Net Assets 7
Statements of Operations 20
Statements of Changes in Net Assets 22
Financial Highlights 24
Notes to Financial Statements 30
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REPORT OF INDEPENDENT AUDITORS 34
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BOARD OF DIRECTORS/TRUSTEES
AND OFFICERS 35
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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 Arizona Municipal Income Fund, Florida Insured
Municipal Income Fund, Minnesota Municipal Income Fund I, and Minnesota
Municipal Income Fund II, all distributions of net investment income and capital
gains to common stock shareholders are automatically reinvested in additional
shares unless shareholders elect to receive all dividends and other
distributions in cash paid by check mailed directly to shareholders by the
dividend plan agent. Under the current policies of Colorado Insured Municipal
Income Fund and Minnesota Municipal Income Fund III, distributions of net
investment income and capital gains to common shareholders will be paid in cash
unless shareholders notify Mellon Investor Services, L.L.C. of their desire to
participate in the dividend reinvestment program.
After each Fund declares a dividend or determines to make a capital gains
distribution, the plan agent will, as agent for the participants, receive the
cash payment and use it to buy shares in the open market on the American Stock
Exchange. The Funds will not issue any new shares in connection with the plan.
You can contact Mellon at:
Mellon Investor Services, L.L.C.
Dividend Reinvestment Department
Overpeck Centre
85 Challenger Road
Ridgefield, NJ 07660
800 851-9677
Funds are not FDIC insured and are not guaranteed. It is possible to lose the
principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series
of Delaware Management Business Trust, which is a registered investment advisor.
(C) 2004 Delaware Distributors, L.P.
DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS
PORTFOLIO April 8, 2004
MANAGEMENT REVIEW
FUND MANAGERS
Andrew M. McCullagh
Senior Portfolio Manager
Arizona Municipal Income Fund,
Colorado Insured Municipal Income Fund
Patrick P. Coyne
Executive Vice President/Managing Director/Chief Investment Officer -
Fixed Income
Minnesota Municipal Income Funds I, II, III,
Florida Insured Municipal Income Fund
Denise Franchetti
Portfolio Manager
Minnesota Municipal Income Funds I, II, III,
Florida Insured Municipal Income Fund
Joseph Baxter
Portfolio Manager
Arizona Municipal Income Fund,
Colorado Insured Municipal Income Fund,
Minnesota Municipal Income Funds I, II, III,
Florida Insured Municipal Income Fund
MINNESOTA MUNICIPAL INCOME FUNDS I, II, and III
Q: WHAT KIND OF ENVIRONMENT FOR MUNICIPAL INVESTING DID
YOU ENCOUNTER IN MINNESOTA DURING THE REPORTING PERIOD?
A: Minnesota's economy continued to emerge from recession but generally remained
in solid financial shape compared to most other states. The state benefited from
a high degree of personal wealth, a diversified employment base, and low
unemployment relative to the national average. These factors led credit-rating
agency Standard & Poor's to maintain its AAA rating--the highest possible--on
Minnesota's general obligation (GO) debt. In June 2003, however, Moody's,
another leading credit rating institution, downgraded the state's GOs from Aaa
to Aa1 with a stable outlook. Moody's cited Minnesota's deteriorating financial
strength because of substantial spending commitments, a decrease in financial
reserves, and overly optimistic revenue projections.
New municipal issuance in the state surpassed $6.1 billion in 2003, representing
a 14 percent drop from the prior year's total. In the first quarter of 2004,
however, new supply in the state totaled $1.2 billion, an 85 percent increase in
issuance over the same time period a year earlier (Source: The Bond Buyer).
Q: HOW DID THE MINNESOTA MUNICIPAL INCOME FUNDS
PERFORM DURING THE FISCAL YEAR?
A: For the 12-month period ended March 31, 2004, Minnesota Municipal Income
Funds I, II, and III returned +6.62%, +7.99%, and +7.43%*, respectively (all
returns reflect shares at net asset value with distributions reinvested). For
the same period, Minnesota Municipal Income Funds I, II, and III returned
+13.86%, +16.87%, and +15.76%, respectively (all returns reflect shares at
market price with distributions reinvested). All three Funds outperformed their
national benchmark, the Lehman Brothers Municipal Bond Index, which gained
+5.86%. The Funds' dividends from net investment income during the past 12
months were exempt from federal income and Minnesota state personal income
taxes.+
We attribute much of the Funds' outperformance relative to the Lehman Brothers
Municipal Bond Index to the presence of older bonds in the portfolio. We opted
to hold onto these securities, issued during more favorable interest-rate
environments, because they offered higher amounts of coupon income. In our view,
selling these bonds would have passed along unwanted capital gains to our
shareholders as well as lowered the Funds' overall yields.
Q: WHAT WAS YOUR STRATEGY IN MANAGING THE
MINNESOTA FUNDS?
A: With interest rates at historically low levels throughout the period, we
anticipated an eventual rise in rates and continued to position the three Fund
portfolios for such a scenario. Specifically, we kept the Funds' durations
relatively modest to make the portfolios less vulnerable in the event rates
increase (duration is a common measure of a bond or bond fund's sensitivity to
interest rate changes; the longer the duration, the more sensitive the bond or
bond fund is to changes in interest rates). The Funds' durations did naturally
lengthen throughout the past 12 months as bonds matured from the portfolios and
we were forced to reinvest the proceeds at lower prevailing yields. This
activity was manageable throughout the period, however, and as of March 31,
2004, we believed the Funds were well-positioned for the possibility of higher
interest rates that are likely to accompany continued economic growth.
* Past performance is not a guarantee of future results.
+ A portion of the income from tax-exempt funds may be subject to the
alternative minimum tax.
1
When making new investments, we continued to emphasize public-power revenue
bonds, which at period-end made up 25.97%, 6.69%, and 17.06% of portfolio assets
in Minnesota Municipal Income Funds I, II, and III, respectively. Our focus was
on basic utilities, which provide essential services such as electric
generation, transmission, and distribution. Unlike some of their investor-owned
counterparts, the public-power utilities we favored provided relatively stable
revenue streams. We also liked that most bonds in this area are insured, giving
the Funds an extra layer of security. Because there was a healthy supply of
public-power bonds during the period, we were able to add to our position in
this sector.
We also favored the hospital sector during the period. Following a number of
credit problems in the late 1990s and early 2000s, most hospitals have
experienced improvements in their financial strength. Despite these
improvements, we believe many hospital bonds are still trading at somewhat
depressed levels, given the steady credit improvements made. Through careful
research, we have sought to identify attractive value opportunities that we
believe can offer higher yields with only a modest amount of additional risk. By
contrast, continuing care retirement community (CCRC) bonds represented one area
of the market that we de-emphasized. We had concerns about the issuers' ability
to meet lofty occupancy-rate targets at these care facilities for seniors.
ARIZONA MUNICIPAL INCOME FUND
Q: HOW DID THE FUND PERFORM DURING THE PERIOD?
A: During the 12-month period ended March 31, 2004, the Fund returned +7.86%*
(shares at net asset value with distributions reinvested). For the same period,
Arizona Municipal Income Fund returned +14.64% (shares at market price with
distributions reinvested). For the same period, the benchmark Lehman Brothers
Municipal Bond Index rose +5.86%. The Fund's dividends from net investment
income during the past 12 months were exempt from federal income and Arizona
state personal income taxes.+ The Fund's performance includes two major
components: tax-free dividend income as well as capital appreciation driven
primarily by modestly declining interest rates during the period.
Q: CAN YOU DESCRIBE SOME ASPECTS OF THE ARIZONA
MUNICIPAL BOND MARKET?
A: Over the past decade, growth has been driven by the high technology sector
and the relatively inexpensive cost of land and housing, in comparison to
Southern California. Standard & Poor's recently assigned an AA- rating to
Arizona, reflecting the state's declining tax collections and its low, but
increasing, debt burden.
Because of Arizona's reliance on the high technology industry, its economic
recovery has lagged the nation as a whole. That has led to relatively high
vacancies in commercial real estate projects, which in turn affected some bonds
in the portfolio. In one instance, a Ginnie Mae bond issued to finance apartment
complexes was called by the lender at par because vacancies in the project
exceeded a certain level. On the positive side, a number of bonds were "advance
refunded" by issuers seeking to take advantage of lower interest rates, which
effectively shortens the bonds' maturity, increases credit quality, and boosts
prices.
*Past performance is not a guarantee of future results.
+ A portion of the income from tax-exempt funds may be subject to the
alternative minimum tax.
2
FLORIDA INSURED MUNICIPAL INCOME FUND
Q: WHAT KIND OF ENVIRONMENT FOR MUNICIPAL INVESTING DID
YOU ENCOUNTER IN FLORIDA DURING THE REPORTING PERIOD?
A: Florida maintained a strong economy during the past 12 months, thanks in
large part to the state's healthy tourism sector. Florida's unemployment rate
remained stable and below the national average. Florida's revenues, accumulated
primarily through sales taxes, were strong throughout the period, despite the
national recession. The state enjoyed a revenue surplus for the 2003 fiscal year
and was expected to see the same in 2004 (Source: Standard & Poor's). A strong
financial reserve fund added to Florida's fiscal strength. At period end, the
state's tax-secured general obligation debt had a credit rating of AA+ from
Standard & Poor's and a comparable Aa2 rating from Moody's. Both ratings
reflected the state's rising debt levels.
Florida, the nation's fifth-leading issuer of municipal debt in 2003, brought
$21 billion in new supply to market that year, representing a 14 percent
increase over the prior year's total. Issuance tailed off dramatically during
the first three months of 2004, however, as new supply fell more than 40 percent
compared to the first three months of 2003 (Source: The Bond Buyer).
Q: HOW DID THE FLORIDA INSURED MUNICIPAL INCOME FUND
PERFORM DURING THE FISCAL YEAR?
A: For the 12-month period ended March 31, 2004, Florida Insured Municipal
Income Fund returned +5.59%* (shares at net asset value with distributions
reinvested). For the same period, Florida Insured Municipal Income Fund returned
+18.04% (shares at market price with distributions reinvested). During the same
period, the benchmark Lehman Brothers Municipal Bond Index gained +5.86%. The
Fund's dividends from net investment income during the year were exempt from
federal income and Florida intangible personal property taxes.+
The Fund's return at net asset value, which underperformed the Lehman Brothers
index, can be attributed to a short duration caused by having an overweighted
position in pre-refunded bonds. While these bonds provide desirable yield to the
portfolio, they do not benefit from price performance during a declining
interest rate environment.
Q: WHAT WAS YOUR STRATEGY IN MANAGING THE FUND?
A: We made relatively few changes to the portfolio during the reporting period.
With rates near historically low levels, we did not believe it was in the
shareholders' best interest to sell the Fund's older bonds issued during a more
attractive interest-rate environment. Doing so would have sacrificed yield as
well as resulted in taxable capital gains that would have passed through to
investors. With just over three percent of the Fund's assets maturing or called
from the portfolio during the period, turnover was very modest. As we mentioned,
this management strategy had a somewhat negative effect on the Fund's results
during the period. As bonds get closer to maturity, they become less sensitive
to declining interest rates. Since declining interest rates benefit bonds, the
Fund was not as well positioned to benefit as rates fell. However, we believe
that the portfolio's somewhat defensive stance will have a positive influence on
performance if interest rates do ultimately increase, as expected.
COLORADO INSURED MUNICIPAL INCOME FUND
Q: WHAT STRATEGIES WERE IMPLEMENTED DURING THE PERIOD?
A: The Fund is managed very conservatively in terms of "duration," a measure of
a bond fund's sensitivity to interest rate changes. The shorter the duration,
the less the bond fund's price will increase for a given decline in interest
rates. We maintained a shorter duration at a time when interest rates were
declining, which we believed was a prudent decision given the strengthening
economy. Typically, when the economy is recovering, interest rates rise as the
demand for credit intensifies and investors demand higher returns to compensate
for anticipated inflation.
In addition to its short duration, the Fund only holds AAA-rated insured bonds,
the highest possible quality. Issuers include education (Colorado State
University System), healthcare (North Colorado Medical Center), as well as a
number of bonds financing housing, water, and other utility projects. The Fund
contains no bonds that are subject to the alternative minimum tax (AMT), which
is significant because an increasing number of taxpayers are subject to the AMT.
* Past performance is not a guarantee of future results.
+ A portion of the income from tax-exempt funds may be subject to the
alternative minimum tax.
3
Q: HOW DID THE FUND PERFORM DURING THE FISCAL YEAR?
A: During the 12-month period ended March 31, 2004, the Fund returned +8.05%*
(shares at net asset value with distributions reinvested). For the same period,
Colorado Municipal Income Fund returned +8.77% (shares at market price with
distributions reinvested). For the same period, the benchmark Lehman Brothers
Municipal Bond Index rose +5.86%. The Fund's dividends from net investment
income during the past 12 months were exempt from federal income and Colorado
state personal income taxes.+
The Fund's performance included two major components: tax-free dividend income
as well as capital appreciation driven primarily by modestly declining interest
rates during the period. Since there are no other closed-end Colorado municipal
bond funds, the Lipper peer group to which it is compared is not truly an
"apples-to-apples" comparison, but serves as a general peer group comparison.
* Past performance is not a guarantee of future results.
+ A portion of the income from tax-exempt funds may be subject to the
alternative minimum tax.
4
DELAWARE INVESTMENTS DELAWARE INVESTMENTS
MINNESOTA MUNICIPAL ARIZONA MUNICIPAL INCOME FUND
INCOME FUNDS I, II, III
FUND BASICS FUND BASICS
As of March 31, 2004 As of March 31, 2004
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Fund Objective: Fund Objective:
The Funds seek to provide current income exempt from both regular The Fund seeks to provide current income exempt from
federal income tax and Minnesota personal income tax, consistent with both regular federal income tax and from Arizona
preservation of capital. personal income tax, consistent with preservation of
capital.
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Total Fund Net Assets: Total Fund Net Assets:
Fund I $38.98 million $46.43 million
Fund II $110.83 million -------------------------------------------------------
Fund III $26.60 million Number of Holdings:
----------------------------------------------------------------------- 44
Number of Holdings: -------------------------------------------------------
Fund I 53 Fund Start Date:
Fund II 88 February 26, 1993
Fund III 38 -------------------------------------------------------
----------------------------------------------------------------------- Your Fund Managers:
Fund Start Date: Andrew M. McCullagh joined Delaware Investments in
Fund I May 1, 1992 1997, after holding investment management positions at
Fund II February 26, 1993 Kirchner, Moore & Co. He holds a bachelor's degree from
Fund III October 29, 1993 Washington College and a graduate certificate in public
finance from the University of Michigan.
Joseph Baxter
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Your Fund Managers:
Patrick P. Coyne is a graduate of Harvard University with an MBA from
the University of Pennsylvania's Wharton School. Patrick Coyne joined
Delaware Investments' fixed-income department in 1990. Prior to joining
Delaware Investments, he was a manager of Kidder, Peabody & Co. Inc.'s
trading desk, and specialized in trading high-grade municipal bonds and
municipal futures contracts.
Denise Franchetti received bachelor's and MBA degrees from LaSalle
University. Prior to joining Delaware Investments in 1997, Ms.
Franchetti was a fixed-income trader for Provident Mutual Life
Insurance Company. Before that, she worked as an investment analyst for
General Accident Insurance Company. Ms. Franchetti, a CFA Charterholder,
is a member of the Association for Investment Management and Research
and the Financial Analysts of Philadelphia.
Joseph Baxter has been co-managing the Funds since April 2004, and he
replaced M. L. Conery. Mr. Baxter is a graduate of LaSalle University
and joined Delaware Investments in 1999. Prior to joining Delaware in
1999, he held investment positions with First Union. Most recently, he
served as a municipal portfolio manager for the Evergreen Funds.
5
DELAWARE INVESTMENTS DELAWARE INVESTMENTS
FLORIDA INSURED MUNICIPAL COLORADO INSURED MUNICIPAL
INCOME FUND INCOME FUND
FUND BASICS FUND BASICS
As of March 31, 2004 As of March 31, 2004
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Fund Objective: Fund Objective:
The Fund seeks to provide current income exempt from regular federal The Fund seeks to provide current income exempt from
income tax consistent with preservation of capital. The Fund will also both regular federal income tax and Colorado state
seek to maintain its portfolio so that the Fund's shares will be exempt personal income tax, consistent with preservation
from the Florida intangible personal property tax. of capital.
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Total Fund Net Assets: Total Fund Net Assets:
$39.24 million $77.90 million
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Number of Holdings: Number of Holdings:
33 47
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Fund Start Date: Fund Start Date:
February 26, 1993 July 29, 1993
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Your Fund Managers: Your Fund Managers:
Patrick P. Coyne Andrew M. McCullagh
Denise Franchetti Joseph Baxter
Joseph Baxter has been co-managing the Fund since April 2004,
and he replaced M. L. Conery.
6
DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND, INC.
STATEMENTS March 31, 2004
OF NET ASSETS
Principal Market
Amount Value
MUNICIPAL BONDS - 149.08%
Airport Revenue Bonds - 8.06%
Minneapolis/St. Paul Metropolitan
Airports Commission Revenue
Series A 5.00% 1/1/30 (AMBAC) $ 500,000 $ 514,570
Minneapolis/St. Paul Metropolitan
Airports Commission Revenue
Series C 5.25% 1/1/32 (FGIC) 2,500,000 2,626,925
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3,141,495
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City General Obligation Bonds - 2.70%
Willmar (Rice Memorial Hospital Project)
5.00% 2/1/32 (FSA) 1,000,000 1,051,910
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1,051,910
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Continuing Care/Retirement Revenue Bonds - 6.25%
Minnetonka Housing Facilities Revenue
(Beacon Hill Housing Project,
Presbyterian Homes & Services)
7.70% 6/1/25 1,500,000 1,510,710
St. Paul Housing & Redevelopment
Authority Revenue
(Franciscan Health Project)
5.40% 11/20/42 (GNMA)(FHA) 880,000 924,088
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2,434,798
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Corporate Backed Revenue Bonds - 4.38%
Anoka County Solid Waste Disposal
National Rural Co-Op Utility
(United Power Association)
Series A 6.95% 12/1/08 (CFC)(AMT) 675,000 680,312
Sartell Environmental Improvement
Revenue (International Paper)
Series A 5.20% 6/1/27 1,000,000 1,027,450
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1,707,762
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Escrowed to Maturity Bonds - 13.29%
Dakota/Washington Counties
Housing & Redevelopment
Authority Single Family
Mortgage Revenue
8.375% 9/1/21 (GNMA)(FHA)(AMT) 2,555,000 3,754,955
Southern Minnesota Municipal Power
Agency Series B
5.50% 1/1/15 (AMBAC) 390,000 399,341
5.75% 1/1/11 (FGIC) 1,000,000 1,024,330
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5,178,626
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Higher Education Revenue Bonds - 2.97%
University of Minnesota Series A
5.50% 7/1/21 1,000,000 1,157,670
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1,157,670
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Hospital Revenue Bonds - 19.60%
Bemidji County Health Care Facilities
(North Country Health Services)
5.00% 9/1/24 (RADIAN) 1,000,000 1,025,860
Duluth Economic Development Authority
Health Care Facilities Revenue
Benedictine Health Systems
(St. Mary's Hospital) 5.25% 2/15/33 1,250,000 1,279,425
Minneapolis Health Care Facilities
Revenue (Fairview Hospital &
Healthcare Service) Series A
5.25% 11/15/19 (MBIA) 1,500,000 1,533,435
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 $1,171,093
Minnesota Agricultural & Economic
Development Health Care System
(Fairview Hospital) Series A
6.375% 11/15/29 1,750,000 1,922,147
St. Paul Housing & Redevelopment
Authority Health Care Facilities
Revenue (Regions Hospital Project)
5.30% 5/15/28 700,000 706,671
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7,638,631
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Investor Owned Utilities Revenue Bonds - 5.50%
Bass Brook Pollution Control Revenue
(Minnesota Power & Light Company
Project) 6.00% 7/1/22 2,100,000 2,143,260
----------
2,143,260
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Miscellaneous Revenue Bonds - 7.04%
Minneapolis Art Center Facilities Revenue
(Walker Art Center Project)
5.125% 7/1/21 1,600,000 1,695,376
Minneapolis Community Development
Agency Supported Series G-3
5.45% 12/1/31 1,000,000 1,050,440
----------
2,745,816
----------
Multifamily Housing Revenue Bonds - 6.00%
Minneapolis Multifamily Housing
Revenue (Seward Towers Project)
5.00% 5/20/36 (GNMA) 1,000,000 1,031,060
Southeastern Minnesota Multi County
Housing & Redevelopment Authority
(Winona County) 5.35% 1/1/28 300,000 304,698
Washington County Housing &
Redevelopment Authority Revenue
(Woodland Park Apartments Project)
4.70% 10/1/32 1,000,000 1,004,730
----------
2,340,488
----------
Municipal Lease Revenue Bonds - 4.51%
St. Paul Port Authority Lease Revenue
(Cedar Street Office Building Project)
5.125% 12/1/27 500,000 529,800
5.25% 12/1/27 1,150,000 1,227,591
----------
1,757,391
----------
Parking Revenue Bonds - 1.79%
St. Paul Housing & Redevelopment
Authority Parking Revenue
(Block 19 Ramp Project) Series A
5.35% 8/1/29 (FSA) 650,000 698,763
----------
698,763
----------
Political Subdivision General Obligation Bonds - 8.64%
Hennepin County Series B 5.00% 12/1/18 1,300,000 1,402,726
Washington County Housing &
Redevelopment Authority Series B
5.50% 2/1/22 (MBIA) 855,000 916,988
5.50% 2/1/32 (MBIA) 1,000,000 1,047,310
----------
3,367,024
----------
7
DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND, INC.
STATEMENTS
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
*Pre-Refunded Bonds - 8.34%
Duluth Economic Development Authority
Health Care Facilities Revenue
(Duluth Clinic)
6.30% 11/1/22-04 (AMBAC) $ 730,000 $ 752,404
Puerto Rico Commonwealth
6.00% 7/1/26-07 1,000,000 1,143,210
St. Francis Independent School
District #15 Series A
6.30% 2/1/11-06 (FSA) 1,250,000 1,354,225
-----------
3,249,839
-----------
Public Power Revenue Bonds - 25.97%
Chaska Electric Revenue Series A
6.00% 10/1/25 1,000,000 1,072,380
Rochester Electric Utility Revenue
5.25% 12/1/30 (AMBAC) 150,000 159,093
**Southern Minnesota Municipal
Power Agency, Inverse Floater
Series A 9.36% 1/1/14 (AMBAC) 2,500,000 3,219,474
Southern Minnesota Municipal
Power Agency Series A
5.00% 1/1/12 (AMBAC) 1,000,000 1,127,390
5.00% 10/1/13 (MBIA) 500,000 563,915
5.25% 1/1/16 (AMBAC) 1,000,000 1,140,920
Western Minnesota Municipal
Power Agency Series A
5.00% 1/1/30 (MBIA) 1,900,000 1,982,631
Western Minnesota Municipal
Power Agency Series B
5.00% 1/1/15 (MBIA) 765,000 857,917
-----------
10,123,720
-----------
School District General Obligation Bonds - 13.57%
Centennial Independent School
District #012 Series 2002A
5.00% 2/1/20 (FSA) 400,000 425,684
Farmington Independent School
District #192 5.00% 2/1/23 (FSA) 1,200,000 1,263,036
Morris Independent School
District #769 5.00% 2/1/28 (MBIA) 1,000,000 1,046,670
Mounds View Independent School
District #621 5.00% 2/1/23 (FSA) 1,020,000 1,079,262
Robbinsdale Independent School
District #281 5.00% 2/1/21 (FSA) 500,000 530,035
St. Michael Independent School
District #885
5.00% 2/1/22 (FSA) 500,000 527,290
5.00% 2/1/24 (FSA) 400,000 418,568
-----------
5,290,545
-----------
Single Family Housing Revenue Bonds - 3.20%
Dakota County Housing & Redevelopment
Authority Single Family
Mortgage Revenue
5.85% 10/1/30 (GNMA)(FNMA)(AMT) 80,000 83,410
Minnesota State Housing Finance Agency
Single Family Mortgage Series J
5.90% 7/1/28 (AMT) 1,105,000 1,164,670
------------
1,248,080
-----------
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
State General Obligation Bonds - 2.73%
Minnesota State Refunding 5.00% 8/1/21 $1,000,000 $ 1,064,820
------------
1,064,820
------------
Territorial Revenue Bonds - 4.54%
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue
Series A 5.00% 7/1/38 300,000 306,189
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue
Series G 5.00% 7/1/42 250,000 257,030
Puerto Rico Public Buildings Authority
Revenue Series D 5.25% 7/1/27 1,150,000 1,205,338
------------
1,768,557
------------
TOTAL MUNICIPAL BONDS (cost $55,181,293) 58,109,195
------------
TOTAL MARKET VALUE OF SECURITIES - 149.08%
(cost $55,181,293) 58,109,195
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 2.23% 869,259
LIQUIDATION VALUE OF PREFERRED
STOCK - (51.31%) (20,000,000)
------------
NET ASSETS APPLICABLE TO 2,594,700 SHARES
OUTSTANDING - 100.00% $ 38,978,454
============
Net Asset Value Per Common Share
($38,978,454 / 2,594,700 Shares) $15.02
------
COMPONENTS OF NET ASSETS AT MARCH 31, 2004:
Common stock, $0.01 par value, 200 million shares
authorized to the Fund $ 35,426,619
Undistributed net investment income 805,302
Accumulated net realized loss on investments (181,369)
Net unrealized appreciation of investments 2,927,902
------------
Total net assets $ 38,978,454
============
*For Pre-Refunded Bonds, the stated maturity is followed by the year in which
the bond is pre-refunded.
**An inverse floater bond is a type of bond with variable or floating interest
rates that move in the opposite direction of short-term interest rates.
Interest rate disclosed is in effect as of March 31, 2004.
SUMMARY OF ABBREVIATIONS:
AMBAC - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
CFC - Insured by the National Rural Utilities Cooperative
Finance Corporation
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
See accompanying notes
8
DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND II, INC.
STATEMENTS March 31, 2004
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS - 152.94%
Airport Revenue Bonds - 6.66%
Minneapolis/St. Paul Metropolitan Airports
Commission Revenue Series A
5.00% 1/1/28 (MBIA) $1,370,000 $ 1,432,623
5.00% 1/1/30 (AMBAC) 1,200,000 1,234,968
Minneapolis/St. Paul Metropolitan Airports
Commission Revenue Series B
5.25% 1/1/24 (FGIC)(AMT) 1,000,000 1,038,750
Minneapolis/St. Paul Metropolitan Airports
Commission Revenue Series C
5.25% 1/1/32 (FGIC) 3,500,000 3,677,695
-----------
7,384,036
-----------
City General Obligation Bonds - 3.32%
Moorhead Series B 5.00% 2/1/33 (MBIA) 2,000,000 2,105,440
Willmar (Rice Memorial Hospital Project)
5.00% 2/1/32 (FSA) 1,500,000 1,577,865
-----------
3,683,305
-----------
Continuing Care/Retirement Revenue Bonds - 4.42%
Minneapolis Health Care Facility Revenue
(Jones-Harrison Residence Project)
6.00% 10/1/27 1,565,000 1,503,746
Minnetonka Housing Facilities Revenue
(Beacon Hill Senior Housing Project,
Presbyterian Homes & Services)
7.55% 6/1/19 2,365,000 2,388,981
Moorhead Economic Development
Authority Multifamily Revenue
(Eventide Lutheran Home Project)
Series B 6.00% 6/1/18 1,000,000 1,005,700
-----------
4,898,427
-----------
Corporate Backed Revenue Bonds - 5.20%
Burnsville Commonwealth Development
(Holiday Inn Project) 5.90% 4/1/08 1,430,000 1,457,470
Cloquet Pollution Control Revenue
(Potlatch Corporation) 5.90% 10/1/26 4,500,000 4,306,905
-----------
5,764,375
-----------
Escrowed to Maturity Bonds - 20.65%
Dakota/Washington Counties Housing &
Redevelopment Authority Single
Family Mortgage Revenue
8.375% 9/1/21 (GNMA)(FHA)(AMT) 5,500,000 8,083,075
Metropolitan Council Minneapolis/St. Paul
Area Sports Facilities Revenue
(Hubert H. Humphrey Metrodome)
6.00% 10/1/09 2,360,000 2,443,922
Southern Minnesota Municipal Power
Agency Supply Revenue Series A
5.75% 1/1/18 3,715,000 3,804,271
St. Paul Housing & Redevelopment
Authority Sales Tax (Civic Center Project)
5.55% 11/1/23 2,300,000 2,354,878
5.55% 11/1/23 (MBIA) 4,200,000 4,300,212
Western Minnesota Municipal Power
Agency Series A 6.625% 1/1/16 1,535,000 1,899,578
-----------
22,885,936
-----------
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Higher Education Revenue Bonds - 7.67%
Minnesota Higher Education Facilities
Authority (St. Mary University)
4.80% 10/1/23 $1,400,000 $ 1,387,232
Minnesota Higher Education Facilities
Authority (St. Thomas University)
Series 4-A1 5.625% 10/1/21 1,000,000 1,033,130
Minnesota State Higher Education Facilities
(St. Catherine College) Series 5-N1
5.375% 10/1/32 1,500,000 1,558,035
St. Cloud Housing & Redevelopment
Authority Revenue (State University
Foundation Project) 5.00% 5/1/23 1,000,000 1,046,290
University of Minnesota Series A
5.50% 7/1/21 3,000,000 3,473,010
-----------
8,497,697
-----------
Hospital Revenue Bonds - 23.72%
Brainerd Health Care (Evangelical Lutheran
Health Care Facilities) Series A
6.65% 3/1/17 (FSA) 1,195,000 1,200,139
Duluth Economic Development Authority
Health Care Facilities Revenue
Benedictine Health Systems
(St. Mary's Hospital) 5.25% 2/15/33 4,000,000 4,094,160
Minneapolis Health Care System Revenue
(Fairview Health Services)
Series A 5.625% 5/15/32 2,750,000 2,916,045
Minneapolis/St. Paul Housing &
Redevelopment Authority Health Care
Systems (Children's Health Care)
Series A 5.50% 8/15/25 (FSA) 1,400,000 1,483,706
Minnesota Agricultural & Economic
Development Health Care System
(Fairview Hospital) Series 97A
5.75% 11/15/26 (MBIA) 5,550,000 6,178,148
Minnesota Agricultural & Economic
Development Health Care System
(Fairview Hospital) Series A
6.375% 11/15/29 3,300,000 3,624,621
Rochester Health Care Facilities Revenue
(Mayo Foundation) Series B
5.50% 11/15/27 3,365,000 3,623,533
St. Louis Park Health Care Facilities
Revenue (Park Nicollet Health Services)
Series B 5.25% 7/1/30 1,250,000 1,289,400
St. Paul Housing & Redevelopment
Authority Health Care Facilities Revenue
(Regions Hospital Project)
5.30% 5/15/28 300,000 302,859
Waconia Health Care Facilities Revenue
(Ridgeview Medical Center Project)
Series A 6.10% 1/1/19 (RADIAN) 1,405,000 1,579,670
-----------
26,292,281
-----------
Investor Owned Utilities Revenue Bonds - 6.96%
Bass Brook Pollution Control Revenue
(Minnesota Power & Light Company
Project) 6.00% 7/1/22 7,560,000 7,715,736
-----------
7,715,736
-----------
9
DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND II, INC.
STATEMENTS
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Miscellaneous Revenue Bonds - 3.71%
Minneapolis Art Center Facilities Revenue
(Walker Art Center Project)
5.125% 7/1/21 $2,400,000 $ 2,543,064
Minneapolis Community Development
Agency (Supported Development
Revenue Limited Tax Common Bond
Fund) Series 5 5.70% 12/1/27 375,000 383,325
Minneapolis Community Development
Agency (Supported Development
Revenue Limited Tax Common Bond
Fund) Series G1 5.70% 12/1/19 1,100,000 1,183,721
-----------
4,110,110
-----------
Multifamily Housing Revenue Bonds - 10.97%
Chanhassen Multifamily Housing Revenue
(Heritage Park Project Section 8)
6.20% 7/1/30 (FHA)(AMT) 1,105,000 1,162,769
Harmony Multifamily Housing Revenue
Refunding Section 8 (Zedakah
Foundation Project)
Series A 5.95% 9/1/20 1,000,000 849,110
Minneapolis Multifamily Housing Revenue
(Sumner Housing Project)
Series A 5.15% 2/20/45 (GNMA)(AMT) 3,575,000 3,706,488
Minnesota State Housing Finance Agency
Series A 5.00% 2/1/35 1,000,000 1,021,630
Minnesota State Housing Finance Agency
Series D 5.95% 2/1/18 (MBIA) 995,000 1,025,636
Minnetonka Housing Facilities (Beacon Hill
Project, Presbyterian Homes & Services)
7.25% 6/1/09 1,225,000 1,229,092
7.50% 6/1/14 760,000 767,410
Southeastern Minnesota Multi County
Housing & Redevelopment Authority
(Winona County) 5.35% 1/1/28 870,000 883,624
Stillwater Multifamily Housing Revenue
(Stillwater Cottages) (Orleans Homes
Number One) 7.25% 11/1/27 (AMT) 1,540,000 1,514,267
-----------
12,160,026
-----------
Municipal Lease Revenue Bonds - 9.16%
St. Paul Port Authority Lease Revenue
(Cedar Street Office Building Project)
5.00% 12/1/22 2,385,000 2,523,163
5.25% 12/1/27 2,650,000 2,828,796
St. Paul Port Authority Lease Revenue
(Robert Street Office Building Project)
5.00% 12/1/27 2,545,000 2,667,516
St. Paul Port Authority Lease Revenue
(Robert Street Office Building Project)
Series 9 5.25% 12/1/27 2,000,000 2,134,940
-----------
10,154,415
-----------
Parking Revenue Bonds - 1.21%
St. Paul Housing & Redevelopment
Authority Parking Revenue
(Block 19 Ramp Project)
Series A 5.35% 8/1/29 (FSA) 1,250,000 1,343,775
-----------
1,343,775
-----------
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Political Subdivision General Obligation Bonds - 6.32%
Hennepin County Series B
5.00% 12/1/18 $1,000,000 $1,079,020
Hennepin Regional Railroad Authority
5.00% 12/1/26 3,500,000 3,649,765
Metropolitan Council Waste Water
Treatment Series B 5.00% 12/1/21 1,000,000 1,078,420
Washington County Housing &
Redevelopment Authority
Series B 5.50% 2/1/32 (MBIA) 1,140,000 1,193,933
----------
7,001,138
----------
*Pre-Refunded Bonds - 8.16%
Duluth Economic Development Authority
Health Care Facilities Revenue
(Duluth Clinic)
6.20% 11/1/12-04 (AMBAC) 280,000 288,431
6.30% 11/1/22-04 (AMBAC) 960,000 989,462
Esko Independent School District #99
5.65% 4/1/12-05 (FSA) 550,000 573,667
Hawley Independent School District #150
Series A 5.75% 2/1/17-06 (FSA) 1,000,000 1,073,490
Minnesota Public Facilities Authority
Water Pollution Control Revenue
Series A 6.25% 3/1/16-05 1,000,000 1,047,390
Puerto Rico Highway & Transportation
Authority Revenue Series Y
5.50% 7/1/26-06 3,000,000 3,304,079
**Stewartville Independent School
District, Inverse Floater #534
5.75% 2/1/17-05 1,705,000 1,767,949
----------
9,044,468
----------
Public Power Revenue Bonds - 6.69%
Rochester Electric Utility Revenue
5.25% 12/1/30 (AMBAC) 450,000 477,279
**Southern Minnesota Municipal Power
Agency, Inverse Floater Series A
9.36% 1/1/14 (AMBAC) 3,000,000 3,863,370
9.36% 1/1/15 1,500,000 1,927,785
Western Minnesota Municipal Power
Agency Series A 5.00% 1/1/30 (MBIA) 1,100,000 1,147,839
----------
7,416,273
----------
School District General Obligation Bonds - 8.31%
Centennial Independent School
District #012 Series 2002A
5.00% 2/1/20 (FSA) 400,000 425,684
Farmington Independent School
District #192 5.00% 2/1/23 (FSA) 1,080,000 1,136,732
Morris Independent School District #769
5.00% 2/1/28 (MBIA) 2,750,000 2,878,342
Mounds View Independent School
District #621 5.00% 2/1/23 (FSA) 1,000,000 1,058,100
Rosemount Independent School
District #196 Series A 5.70% 4/1/12 1,270,000 1,370,127
St. Michael Independent School
District #885
5.00% 2/1/22 (FSA) 1,500,000 1,581,870
5.00% 2/1/24 (FSA) 725,000 758,655
----------
9,209,510
----------
10
DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND II, INC.
STATEMENTS
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Single Family Housing Revenue Bonds - 4.02%
Minnesota State Housing Finance Agency
Series B 5.35% 1/1/33 (AMT) $1,160,000 $ 1,204,197
Minnesota State Housing Finance Agency
Single Family Housing Series 1992-C2
6.15% 7/1/23 (AMT) 920,000 935,796
Minnesota State Housing Finance Agency
Single Family Housing Series 1994-J
6.95% 7/1/26 (AMT) 745,000 760,757
Minnesota State Housing Finance Agency
Single Family Housing Series F
6.30% 7/1/25 565,000 576,938
Minnesota State Housing Finance Agency
Single Family Mortgage Series J
5.90% 7/1/28 (AMT) 930,000 980,220
------------
4,457,908
------------
State General Obligation Bonds - 3.99%
Minnesota State Refunding 5.00% 8/1/21 3,525,000 3,753,491
**Minnesota State, Inverse Floater
8.96% 11/1/17 570,000 665,760
------------
4,419,251
------------
Tax Increment/Special Assessment Bonds - 3.38%
Becker Tax Increment Series D
6.25% 8/1/15 (MBIA)(AMT) 3,700,000 3,749,765
------------
3,749,765
------------
Territorial General Obligation Bonds - 2.22%
Puerto Rico Commonwealth Public
Improvement Series A
5.00% 7/1/27 1,250,000 1,289,375
5.50% 7/1/19 (MBIA) 1,000,000 1,173,080
------------
2,462,455
------------
Territorial Revenue Bonds - 3.60%
Puerto Rico Commonwealth Highway &
Transportation Authority Revenue
Series G 5.00% 7/1/42 1,500,000 1,542,180
Puerto Rico Electric Power Authority Power
Revenue Series Z 5.25% 7/1/21 1,500,000 1,552,845
Puerto Rico Public Buildings Authority
Revenue Series D 5.25% 7/1/27 850,000 890,902
------------
3,985,927
------------
Variable Rate Demand Notes - 2.58%
Minneapolis Multifamily Housing Revenue
(Seven Corners Apartments Project)
0.97% 11/1/31 1,560,000 1,560,000
Minneapolis Variable Refunding
0.87% 12/1/18 SPA 800,000 800,000
Robbinsdale Health Care Facilities Revenue
(North Memorial Health Care-Tranche I)
0.95% 5/15/33 (AMBAC) 500,000 500,000
------------
2,860,000
------------
TOTAL MUNICIPAL BONDS (cost $161,077,199) 169,496,814
------------
TOTAL MARKET VALUE OF SECURITIES - 152.94%
(cost $161,077,199) $169,496,814
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 1.20% 1,331,032
LIQUIDATION VALUE OF PREFERRED STOCK - (54.14%) (60,000,000)
------------
NET ASSETS APPLICABLE TO 7,252,200 SHARES
OUTSTANDING - 100.00% $110,827,846
============
Net Asset Value Per Common Share
($110,827,846 / 7,252,200 Shares) $15.28
------
COMPONENTS OF NET ASSETS AT MARCH 31, 2004:
Common stock, $0.01 par value, 200 million
shares authorized to the Fund $ 99,710,000
Undistributed net investment income 3,358,447
Accumulated net realized loss on investments (660,216)
Net unrealized appreciation of investments 8,419,615
------------
Total net assets $110,827,846
============
*For Pre-Refunded Bonds, the stated maturity is followed by the year in which
the bond is pre-refunded.
**An inverse floater bond is a type of bond with variable or floating interest
rates that move in the opposite direction of short-term interest rates.
Interest rate disclosed is in effect as of March 31, 2004.
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
SPA - Stand-by Purchase Agreement
See accompanying notes
11
DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND III, INC.
STATEMENTS March 31, 2004
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
Municipal Bonds - 154.26%
Airport Revenue Bonds - 9.37%
Minneapolis/St. Paul Metropolitan Airports
Commission Revenue Series A
5.00% 1/1/28 (MBIA) $ 750,000 $ 784,283
5.00% 1/1/30 (AMBAC) 750,000 771,855
5.125% 1/1/25 (FGIC) 900,000 937,665
----------
2,493,803
----------
City General Obligation Bonds - 4.95%
Moorhead Series B 5.00% 2/1/33 (MBIA) 1,250,000 1,315,900
----------
1,315,900
----------
Continuing Care/Retirement Revenue Bonds - 9.37%
Minnesota Agriculture & Economic
Development Board Revenue
(Benedictine Health Systems)
5.75% 2/1/29 600,000 581,832
St. Paul Housing & Redevelopment Authority
Revenue (Franciscan Health Project)
5.40% 11/20/42 (GNMA)(FHA) 1,820,000 1,911,182
----------
2,493,014
----------
Corporate Backed Revenue Bonds - 7.12%
Cloquet Pollution Control Revenue
(Potlatch Corporation)
5.90% 10/1/26 1,000,000 957,090
Minneapolis Community Development
Agency Supported Development
Revenue (Pajor Graphics) Series 1
(LOC US Bank NA) 6.75% 12/1/25 (AMT) 865,000 937,963
----------
1,895,053
----------
Escrowed to Maturity Bonds - 12.18%
University of Minnesota Hospital & Clinics
6.75% 12/1/16 2,580,000 3,240,428
----------
3,240,428
----------
Higher Education Revenue Bonds - 9.02%
Minnesota Higher Education Facilities
Authority (College of St. Benedict)
Series 3-W 6.375% 3/1/20 345,000 345,462
Minnesota Higher Education Facilities
Authority (St. Mary's College)
Series 3-Q 6.15% 10/1/23 1,000,000 1,010,000
Minnesota Higher Education Facilities
Authority (St. Thomas University)
Series 4-A1 5.625% 10/1/21 1,010,000 1,043,462
----------
2,398,924
----------
Hospital Revenue Bonds - 19.40%
Bemidji County Health Care Facilities
(North Country Health Services)
5.00% 9/1/24 (RADIAN) 500,000 512,930
Duluth Economic Development Authority
Health Care Facilities Revenue
Benedictine Health Systems
(St. Mary's Hospital) 5.25% 2/15/33 1,000,000 1,023,540
Minneapolis Health Care System Revenue
(Allina Health Systems) Series A
5.75% 11/15/32 1,100,000 1,171,093
Minnesota Agricultural & Economic
Development Health Care System
(Fairview Hospital) Series A
6.375% 11/15/29 1,250,000 1,372,962
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Hospital Revenue Bonds (continued)
Rochester Health Care Facilities Revenue
(Mayo Foundation) Series B
5.50% 11/15/27 $1,000,000 $1,076,830
----------
5,157,355
----------
Investor Owned Utilities Revenue Bonds - 5.77%
Bass Brook Pollution Control Revenue
(Minnesota Power & Light Company
Project) 6.00% 7/1/22 1,505,000 1,536,003
----------
1,536,003
----------
Miscellaneous Revenue Bonds - 1.00%
Minneapolis Art Center Facilities Revenue
(Walker Art Center Project)
5.125% 7/1/21 250,000 264,903
----------
264,903
----------
Multifamily Housing Revenue Bonds - 15.33%
Burnsville Multifamily Housing Mortgage
Revenue SCA Tax Exempt Trust
Series A 7.10% 1/1/30 (FSA) 1,950,000 2,020,181
Minneapolis Multifamily Housing
Revenue (Gaar Scott Loft Project)
5.95% 5/1/30 (AMT) 985,000 1,067,602
Minneapolis Multifamily Housing Revenue
(Olson Townhomes Project)
6.00% 12/1/19 (AMT) 1,000,000 988,910
----------
4,076,693
----------
Municipal Lease Revenue Bonds - 7.97%
St. Paul Port Authority Lease Revenue
(Cedar Street Office Building Project)
5.125% 12/1/27 500,000 529,800
5.25% 12/1/27 1,000,000 1,067,470
St. Paul Port Authority Lease Revenue
(Robert Street Office Building Project)
5.00% 12/1/27 500,000 524,070
----------
2,121,340
----------
Parking Revenue Bonds - 5.86%
St. Paul Housing & Redevelopment
Authority Parking Revenue
(Block 19 Ramp Project) Series A
5.35% 8/1/29 (FSA) 1,450,000 1,558,779
----------
1,558,779
----------
Political Subdivision General Obligation Bonds - 8.48%
Metropolitan Council Waste Water
Treatment Series B 5.00% 12/1/21 500,000 539,210
Minneapolis Sports Arena Project
5.125% 10/1/20 750,000 804,765
Washington County Housing &
Redevelopment Authority Series B
5.50% 2/1/22 (MBIA) 850,000 911,625
----------
2,255,600
----------
*Pre-Refunded Bonds - 10.04%
Duluth Economic Development Authority
Health Care Facilities Revenue
(Duluth Clinic) 6.20% 11/1/12-04 (AMBAC) 420,000 432,646
Esko Independent School District #99
5.75% 4/1/17-05 (FSA) 2,145,000 2,239,423
----------
2,672,069
----------
12
DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND III, INC.
STATEMENTS
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Public Power Revenue Bonds - 17.06%
**Southern Minnesota Municipal Power
Agency, Inverse Floater Series A
9.36% 1/1/14 (AMBAC) $1,500,000 $ 1,931,684
Southern Minnesota Municipal Power
Agency Series A
5.00% 10/1/13 (MBIA) 500,000 563,915
5.25% 1/1/15 (AMBAC) 700,000 799,813
5.25% 1/1/16 (AMBAC) 500,000 570,460
Western Minnesota Municipal Power
Agency Series B 5.00% 1/1/15 (MBIA) 600,000 672,876
------------
4,538,748
------------
Single Family Housing Revenue Bonds - 2.54%
Minnesota State Housing Finance Agency
Series B 5.35% 1/1/33 (AMT) 650,000 674,765
------------
674,765
------------
Water & Sewer Revenue Bonds - 8.80%
Minnesota Public Facilities Authority Water
Pollution Control Revenue Series B
5.40% 3/1/15 2,200,000 2,341,306
------------
2,341,306
------------
TOTAL MUNICIPAL BONDS (cost $38,628,240) 41,034,683
------------
TOTAL MARKET VALUE OF SECURITIES - 154.26%
(cost $38,628,240) 41,034,683
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 2.13% 566,497
LIQUIDATION VALUE OF PREFERRED
STOCK - (56.39%) (15,000,000)
------------
NET ASSETS APPLICABLE TO 1,837,200 SHARES
OUTSTANDING - 100.00% $ 26,601,180
============
Net Asset Value Per Common Share
($26,601,180 / 1,837,200 Shares) $14.48
------
COMPONENTS OF NET ASSETS AT MARCH 31, 2004:
Common stock, $0.01 par value, 200 million
shares authorized to the Fund $23,985,129
Undistributed net investment income 758,251
Accumulated net realized loss on investments (548,643)
Net unrealized appreciation of investments 2,406,443
-----------
Total net assets $26,601,180
===========
*For Pre-Refunded Bonds, the stated maturity is followed by the year in which
the bond is pre-refunded.
**An inverse floater bond is a type of bond with variable or floating interest
rates that move in the opposite direction of short-term interest rates.
Interest rate disclosed is in effect as of March 31, 2004.
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
See accompanying notes
13
DELAWARE INVESTMENTS ARIZONA MUNICIPAL INCOME FUND, INC.
STATEMENTS March 31, 2004
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS - 149.44%
Airport Revenue Bonds - 6.69%
Phoenix Civic Improvement Corporation
Airport Revenue Senior Lien
Series A 5.00% 7/1/25 (FSA) $1,000,000 $ 1,025,810
Phoenix Civic Improvement Corporation
Airport Revenue Series B
5.25% 7/1/27 (FGIC)(AMT) 2,000,000 2,082,680
-----------
3,108,490
-----------
Charter School Revenue Bonds - 4.39%
Maricopa County Industrial Development
Authority (Arizona Charter Schools
Project I) Series A 6.75% 7/1/29 1,000,000 1,015,950
Pima County Industrial Development
Authority (Arizona Charter Schools
Project II) Series A 6.75% 7/1/31 1,000,000 1,023,060
-----------
2,039,010
-----------
City General Obligation Bonds - 1.13%
DC Ranch Community Facilities
5.00% 7/15/27 (AMBAC) 500,000 523,225
-----------
523,225
-----------
Continuing Care/Retirement Revenue Bonds - 3.42%
Yavapai County Industrial Development
Authority Residential Care Facilities
(Margaret T. Morris Center) Series A
5.40% 2/20/38 (GNMA) 1,575,000 1,586,198
-----------
1,586,198
-----------
Dedicated Tax & Fees Revenue Bonds - 7.76%
Glendale Municipal Property Corporation
5.00% 7/1/33 (AMBAC) 3,455,000 3,601,561
-----------
3,601,561
-----------
Escrowed to Maturity Bonds - 10.81%
Puerto Rico Commonwealth Infrastructure
Financing Series A 5.50% 10/1/40 4,500,000 5,017,590
-----------
5,017,590
-----------
Higher Education Revenue Bonds - 6.12%
South Campus Group Student Housing
Revenue (Arizona State University
South Campus Project)
5.625% 9/1/35 (MBIA) 1,000,000 1,106,410
Southern Arizona Capital Facilities
Finance Corporation
(University of Arizona Project)
5.00% 9/1/23 (MBIA) 1,150,000 1,207,546
University of Arizona Certificates of
Participation (University of Arizona
Project) Series B
5.125% 6/1/22 (AMBAC) 500,000 530,140
-----------
2,844,096
-----------
Hospital Revenue Bonds - 19.18%
Maricopa County Industrial Development
Authority (Mayo Clinic Hospital)
5.25% 11/15/37 2,000,000 2,064,480
Mohave County Industrial Development
Authority (Chris/Silver Ridge)
6.375% 11/1/31 (GNMA) 260,000 275,855
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Hospital Revenue Bonds (continued)
Scottsdale Industrial Development
Authority Hospital Revenue
(Scottsdale Healthcare)
5.80% 12/1/31 $1,000,000 $ 1,065,770
Show Low Industrial Development
Authority Hospital Revenue
(Navapache Regional Medical Center)
Series A 5.50% 12/1/17 (ACA) 1,600,000 1,683,632
University Medical Center Corporation
Arizona Hospital Revenue
5.00% 7/1/33 1,000,000 997,630
University of Arizona Medical Center
6.25% 7/1/16 (MBIA) 700,000 707,399
Yavapai County Industrial Development
Authority (Yavapai Regional Medical
Center) 5.25% 8/1/21 (RADIAN) 2,000,000 2,110,820
-----------
8,905,586
-----------
Miscellaneous Revenue Bonds - 8.04%
Arizona School Facilities Board Revenue
(State School Improvement)
Series 2001 5.00% 7/1/19 2,000,000 2,134,800
Arizona Student Loan Acquisition
Authority Revenue Series A-1
5.90% 5/1/24 (AMT) 1,500,000 1,597,110
-----------
3,731,910
-----------
Multiamily Housing Revenue Bonds - 3.88%
Maricopa County Industrial Development
Authority Multifamily Housing
Revenue (Sly-Mar Apartments Project)
6.10% 4/20/36 (GNMA)(AMT) 465,000 513,532
Peoria Industrial Development Authority
Multifamily Housing Revenue
(Casa Del Rio) Series A
7.30% 2/20/28 (GNMA) 1,230,000 1,286,174
-----------
1,799,706
-----------
Municipal Lease Revenue Bonds - 8.24%
Phoenix Civic Improvement Corporation
Excise Tax Senior Lien
(Municipal Courthouse Project)
Series A 5.25% 7/1/24 1,000,000 1,061,450
Prescott Valley Property Corporation
5.00% 1/1/27 (FGIC) 500,000 522,485
Tucson Certificates of Participation
5.60% 7/1/11 1,100,000 1,208,218
Yuma Municipal Property Corporation
5.00% 7/1/25 (AMBAC) 1,000,000 1,034,340
-----------
3,826,493
-----------
Political Subdivision General Obligation Bonds - 3.58%
Eagle Mountain Community Facilities
District Series A 6.40% 7/1/17 1,500,000 1,663,005
-----------
1,663,005
-----------
14
DELAWARE INVESTMENTS ARIZONA MUNICIPAL INCOME FUND, INC.
STATEMENTS
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
*Pre-Refunded Bonds - 11.79%
Arizona State Transportation Board
Highway Revenue Refunding
5.75% 7/1/18-09 $2,350,000 $2,720,360
Arizona Water Infrastructure Finance
Authority Revenue Water Quality
Series A 5.05% 10/1/20-11 1,500,000 1,692,270
Oro Valley Municipal Property
Corporation Excise Tax
5.00% 7/1/20-11 (FGIC) 1,000,000 1,063,480
----------
5,476,110
----------
Public Power Revenue Bonds - 2.24%
Salt River Project Arizona Agricultural
Improvement & Power District
Electric System Revenue
(Salt River Project) Series A
5.00% 1/1/31 1,000,000 1,041,270
----------
1,041,270
----------
School District General Obligation Bonds - 17.39%
Maricopa County School District #6
(Washington Elementary) Series A
5.375% 7/1/13 (FSA) 3,000,000 3,482,219
Maricopa County School District #6
(Washington Elementary School
Improvement Project of 2001)
Series B 5.00% 7/1/17 (FSA) 1,000,000 1,118,980
Maricopa County School District #38
(Madison Elementary)
5.00% 7/1/13 (FSA) 1,250,000 1,413,888
5.00% 7/1/14 (FSA) 825,000 931,153
Tempe Union High School District #213
5.00% 7/1/14 (FSA) 1,000,000 1,128,670
----------
8,074,910
----------
Single Family Housing Revenue Bonds - 6.77%
Phoenix Industrial Development
Authority Single Family Statewide
Series A 5.35% 6/1/20
(GNMA)(FNMA)(FHLMC)(AMT) 1,430,000 1,494,092
Phoenix Industrial Development
Authority Single Family Statewide
Series C 5.30% 4/1/20
(GNMA)(FNMA)(FHLMC)(AMT) 1,090,000 1,145,514
Pima County Industrial Development
Authority Single Family Mortgage
Revenue Series A 6.125% 11/1/33
(GNMA)(FNMA)(FHLMC)(AMT) 465,000 501,656
----------
3,141,262
----------
Territorial General Obligation Bonds - 0.56%
Puerto Rico Commonwealth Public
Improvement Series A 5.125% 7/1/31 250,000 258,853
----------
258,853
----------
Principal Market
Amount Value
Territorial Revenue Bonds - 22.23%
Puerto Rico Commonwealth Highway &
Transportation Authority
Transportation Refunding Series D
5.00% 7/1/32 (FSA) $8,500,000 $ 8,930,100
Virgin Islands Public Finance
Authority Revenue Series A
6.125% 10/1/29 (ACA) 1,250,000 1,391,038
------------
10,321,138
------------
Water & Sewer Revenue Bonds - 5.22%
Phoenix Civic Improvement Corporation
Wastewater Refunding Junior Lien
5.00% 7/1/24 (FGIC) 1,590,000 1,641,579
Phoenix Civic Improvement Corporation
Water Systems Revenue Junior Lien
5.00% 7/1/26 (FGIC) 750,000 782,123
------------
2,423,702
------------
TOTAL MUNICIPAL BONDS (cost $65,058,444) 69,384,115
------------
TOTAL MARKET VALUE OF SECURITIES - 149.44%
(cost $65,058,444) 69,384,115
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 4.41% 2,045,263
LIQUIDATION VALUE OF PREFERRED STOCK - (53.85%) (25,000,000)
------------
NET ASSETS APPLICABLE TO 2,982,200 COMMON
SHARES ($0.01 PAR VALUE) OUTSTANDING - 100.00% $ 46,429,378
============
Net Asset Value Per Common Share
($46,429,378 / 2,982,200 Shares) $15.57
------
COMPONENTS OF NET ASSETS AT MARCH 31, 2004:
Common stock, $0.01 par value, 200 million shares
authorized to the Fund $ 40,838,893
Undistributed net investment income 1,126,683
Accumulated net realized gain on investments 138,131
Net unrealized appreciation of investments 4,325,671
------------
Total net assets $ 46,429,378
============
*For Pre-Refunded Bonds, the stated maturity is followed by the year in which
the bond is pre-refunded.
SUMMARY OF ABBREVIATIONS:
ACA - Insured by American Capital Access
AMBAC - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
FGIC - Insured by the Financial Guaranty Insurance Company
FHLMC - Insured by the Federal Home Loan Mortgage Corporation
FNMA - Insured by Federal National Mortgage Association
FSA - Insured by 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
15
DELAWARE INVESTMENTS FLORIDA INSURED MUNICIPAL INCOME FUND
March 31, 2004
STATEMENTS
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS - 148.30%
Airport Revenue Bonds - 2.77%
Dade County Aviation Revenue Series 96B
5.60% 10/1/26 (MBIA) $1,000,000 $ 1,087,770
-----------
1,087,770
-----------
Dedicated Tax & Fees Revenue Bonds - 22.93%
Florida State Department of Transportation
5.00% 7/1/31 (FGIC) 1,400,000 1,461,558
Jacksonville Sales Tax Revenue
5.00% 10/1/30 (MBIA) 1,000,000 1,044,990
Jacksonville Transportation Revenue
5.25% 10/1/29 (MBIA) 2,000,000 2,117,420
Miami Beach Resort Tax Revenue
5.50% 10/1/16 (AMBAC) 1,000,000 1,103,440
Orange County Public Service Tax Revenue
6.00% 10/1/24 (FGIC) 3,000,000 3,271,650
-----------
8,999,058
-----------
Higher Education Revenue Bonds - 7.62%
Florida Agriculture & Mechanical
University Revenue
(Student Apartment Facility)
5.625% 7/1/21 (MBIA) 1,250,000 1,352,050
Volusia County Educational
Facilities Authority
(Stetson University Project)
Series A 5.50% 6/1/17 (MBIA) 1,500,000 1,638,450
-----------
2,990,500
-----------
Hospital Revenue Bonds - 28.03%
Escambia County Health Facilities
Authority (Florida Health Care
Facilities - VHA Program)
5.95% 7/1/20 (AMBAC) 3,075,000 3,234,284
Lee County Memorial Health System
Board of Directors
5.00% 4/1/20 (FSA) 1,000,000 1,052,840
Orange County Health Facilities
Authority Revenue
(Adventist Health Systems)
5.75% 11/15/25 (AMBAC) 1,500,000 1,614,465
Orange County Health Facilities
Authority Revenue
(Orlando Regional Healthcare)
Series A 6.25% 10/1/18 (MBIA) 2,000,000 2,455,400
Venice Health Care Revenue
(Bon Secours Health Systems Project)
5.60% 8/15/16 (MBIA) 2,405,000 2,641,604
-----------
10,998,593
-----------
Multifamily Housing Revenue Bonds - 22.95%
Broward County Housing
Finance Authority
(St. Croix Apartments Project)
Series A 5.45% 11/1/36 (FSA)(AMT) 1,000,000 1,043,740
Florida Housing Finance Agency
(Homeowner Mortgage) Series 2
5.90% 7/1/29 (MBIA)(AMT) 940,000 989,660
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Multifamily Housing Revenue Bonds (continued)
Florida Housing Finance Agency
(Leigh Meadows Apartments Section 8)
Series N 6.30% 9/1/36
(AMBAC)(AMT) $2,510,000 $2,632,715
Florida Housing Finance Agency
(Woodbridge Apartments Project) Series L
6.05% 12/1/16 (AMBAC)(AMT) 1,120,000 1,185,654
6.25% 6/1/36 (AMBAC)(AMT) 1,500,000 1,576,365
Volusia County Housing Finance Authority
(San Marco Apartments) Series A
5.60% 1/1/44 (FSA)(AMT) 1,500,000 1,576,875
----------
9,005,009
----------
Municipal Lease Revenue Bonds - 23.71%
Broward School Board Certificates
of Participation Series A
5.25% 7/1/24 (FSA) 1,000,000 1,067,830
Escambia County School Board
Certificates of Participation
Series 2 5.50% 2/1/22 (MBIA) 5,000,000 5,375,900
Orange County School Board Certificates
of Participation Series A
5.00% 8/1/27 (MBIA) 1,250,000 1,300,800
Palm Beach County School Board
Certificates of Participation
Series D 5.00% 8/1/28 (FSA) 1,500,000 1,562,025
----------
9,306,555
----------
Ports & Harbors Revenue Bonds - 2.63%
Florida Ports Financing Commission
State Transportation Trust Fund
5.375% 6/1/27 (MBIA)(AMT) 1,000,000 1,031,670
----------
1,031,670
----------
*Pre-Refunded Bonds - 21.96%
Dade County School Board Certificates
of Participation Series B
5.60% 8/1/17-06 (AMBAC) 1,000,000 1,101,300
Reedy Creek Improvement District
(Florida Sports Complex) Series A
5.75% 6/1/13-05 (MBIA) 2,300,000 2,423,188
Sunrise Utility System Revenue Series A
5.75% 10/1/26-06 (AMBAC) 2,500,000 2,776,300
Tampa Utility Tax Improvement Series A
6.125% 10/1/19-09 (AMBAC) 1,000,000 1,192,500
Village Center Community Development
District Recreational Revenue Series A
5.85% 11/1/16-06 (MBIA) 1,000,000 1,125,630
----------
8,618,918
----------
State General Obligation Bonds - 5.94%
Florida State Board of Education
(Capital Outlay Public Education)
Series C 6.00% 6/1/21 (FGIC) 2,000,000 2,329,560
----------
2,329,560
----------
16
DELAWARE INVESTMENTS FLORIDA INSURED MUNICIPAL INCOME FUND
STATEMENTS
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Water & Sewer Revenue Bonds - 9.76%
Dade County Water & Sewer System
Revenue 5.50% 10/1/25 (FGIC) $1,100,000 $ 1,171,203
Indian River County Water & Sewer
Revenue 5.50% 9/1/16 (FGIC) 1,000,000 1,100,960
Village Center Community Development
District Florida Utility Revenue
5.00% 10/1/36 (MBIA) 1,500,000 1,559,925
------------
3,832,088
------------
TOTAL MUNICIPAL BONDS
(cost $53,303,445) 58,199,721
------------
TOTAL MARKET VALUE OF SECURITIES - 148.30%
(cost $53,303,445) 58,199,721
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 2.66% 1,043,942
LIQUIDATION VALUE OF PREFERRED STOCK - (50.96%) (20,000,000)
------------
NET ASSETS APPLICABLE TO 2,422,200 SHARES
OUTSTANDING - 100.00% $ 39,243,663
============
Net Asset Value Per Common Share
($39,243,663 / 2,422,200 Shares) $16.20
------
COMPONENTS OF NET ASSETS AT MARCH 31, 2004:
Common stock, $0.01 par value, unlimited
shares authorized to the Fund $ 33,361,389
Undistributed net investment income 985,998
Net unrealized appreciation of investments 4,896,276
------------
Total net assets $ 39,243,663
============
*For Pre-Refunded Bonds, the stated maturity is followed by the year in which
the bond is pre-refunded.
SUMMARY OF ABBREVIATIONS:
AMBAC - Insured by the AMBAC 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
17
DELAWARE INVESTMENTS COLORADO INSURED MUNICIPAL INCOME FUND, INC.
March 31, 2004
STATEMENTS
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS - 148.84%
Airport Revenue Bonds - 10.22%
Denver City & County Airport Revenue
Refunding Series E
5.25% 11/15/23 (MBIA) $7,500,000 $ 7,960,275
-----------
7,960,275
-----------
City General Obligation Bonds - 2.68%
Bowles Metropolitan District
5.00% 12/1/33 (FSA) 2,000,000 2,086,340
-----------
2,086,340
-----------
Continuing Care/Retirement Revenue Bonds - 3.46%
Colorado Health Facilities Authority
Revenue (Porter Place) Series A
6.00% 1/20/36 (GNMA) 2,515,000 2,695,728
-----------
2,695,728
-----------
Convention Center/Auditorium/Hotel Revenue Bonds - 4.00%
Denver Convention Center Series A
5.00% 12/1/33 (XLCA) 3,000,000 3,115,170
-----------
3,115,170
-----------
Dedicated Tax & Fees Revenue Bonds - 11.08%
Broomfield County Sales & Use Tax
Revenue Refunding & Improvement
Series A 5.00% 12/1/31 (AMBAC) 650,000 676,150
Denver City & County Excise Tax Revenue
(Colorado Convention Center Project)
Series A 5.00% 9/1/20 (FSA) 6,500,000 6,882,330
Golden Sales & Use Tax Revenue
Improvement Series B
5.10% 12/1/20 (AMBAC) 1,000,000 1,071,140
-----------
8,629,620
-----------
Higher Education Revenue Bonds - 33.81%
Boulder County Development Revenue
(University Corporation for
Atmospheric Research)
5.00% 9/1/26 (MBIA) 4,500,000 4,676,355
Colorado Educational & Cultural Facilities
Authority (Johnson & Wales
University Project) Series A
5.00% 4/1/28 (XLCA) 3,000,000 3,114,510
Colorado Educational & Cultural Facilities
Authority (University of Colorado
Foundation Project)
5.00% 7/1/27 (AMBAC) 4,000,000 4,168,480
Colorado Educational & Cultural Facilities
Authority (University of Denver Project)
5.50% 3/1/21 (AMBAC) 3,200,000 3,536,032
Colorado Educational & Cultural Facilities
Authority (University of Northern
Colorado) 5.00% 7/1/31 (MBIA) 2,500,000 2,586,600
Colorado Springs Revenue
(Colorado College Project)
5.375% 6/1/32 (MBIA) 5,000,000 5,373,299
Colorado State Colleges Board of
Trustees Auxiliary Systems
Revenue (Adams State College)
5.75% 5/15/19 (MBIA) 1,000,000 1,015,730
Colorado State University Systems
5.00% 3/1/35 (AMBAC) 1,800,000 1,871,208
-----------
26,342,214
-----------
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
Hospital Revenue Bonds - 4.46%
Colorado Health Facilities Authority
(Boulder Community Hospital Project)
Series B 5.875% 10/1/23 (MBIA) $1,925,000 $ 1,998,035
Colorado Health Facilities Authority
(North Colorado Medical Center)
5.95% 5/15/12 (MBIA) 1,420,000 1,474,386
-----------
3,472,421
-----------
Multifamily Housing Revenue Bonds - 5.73%
Burlingame Multifamily Housing Revenue
Series A 6.00% 11/1/29 (MBIA) 2,290,000 2,442,400
Snowmass Village Multifamily Housing
Revenue (Essential-Function Housing)
6.25% 12/15/16 (FSA) 2,000,000 2,023,120
-----------
4,465,520
-----------
Municipal Lease Revenue Bonds - 17.51%
Arapahoe County Library District
Certificates of Participation
5.70% 12/15/10 (MBIA) 2,000,000 2,197,319
Aurora Certificates of Participation
5.50% 12/1/30 (AMBAC) 2,000,000 2,186,160
Aurora Educational Development
Revenue (Community College of
Aurora Foundation)
6.00% 10/15/15 (Connie Lee) 1,500,000 1,550,715
Broomfield City & County
Certificates of Participation
5.75% 12/1/24 (AMBAC) 1,500,000 1,684,905
Eagle County Certificates of
Participation 5.40% 12/1/18 (MBIA) 1,000,000 1,109,430
Lakewood Certificates of Participation
5.375% 12/1/22 (AMBAC) 2,000,000 2,171,480
Westminster Building Authority
Certificates of Participation
5.25% 12/1/22 (MBIA) 1,555,000 1,658,470
Westminster Certificates of Participation
(Ice Centre Project)
5.40% 1/15/23 (AMBAC) 1,000,000 1,078,260
-----------
13,636,739
-----------
Parking Revenue Bonds - 3.48%
Auraria Higher Education Center Parking
Facilities System Revenue
5.50% 4/1/26 (AMBAC) 2,485,000 2,708,377
-----------
2,708,377
-----------
Political Subdivision General Obligation Bonds - 8.21%
Arapahoe County Water & Wastewater
Public Improvement Refunding
Series A 5.125% 12/1/32 (MBIA) 1,000,000 1,049,360
G V R Metropolitan District
5.75% 12/1/19 (AMBAC) 1,000,000 1,142,170
Pueblo County
5.80% 6/1/11 (MBIA) 1,405,000 1,522,823
Pueblo County (Library District Project)
5.80% 11/1/19 (AMBAC) 1,395,000 1,597,931
Stonegate Village Metropolitan District
Refunding & Improvement Series A
5.50% 12/1/21 (FSA) 1,000,000 1,086,170
-----------
6,398,454
-----------
18
DELAWARE INVESTMENTS COLORADO INSURED MUNICIPAL INCOME FUND, INC.
STATEMENTS
OF NET ASSETS (CONTINUED)
Principal Market
Amount Value
MUNICIPAL BONDS (continued)
*Pre-Refunded Bonds - 8.71%
Archuleta & Hinsdale Counties
School District #50JT
5.55% 12/1/20-10 (MBIA) $4,000,000 $ 4,445,200
Denver City & County Certificates of
Participation Series B
5.50% 12/1/25-06 (AMBAC) 2,000,000 2,336,340
------------
6,781,540
------------
School District General Obligation Bonds - 14.32%
Adams & Arapahoe Counties
School District #28J
5.00% 12/1/22 (FSA) 2,000,000 2,123,480
Adams County School District #1
5.00% 12/1/16 (FSA) 1,490,000 1,636,616
Douglas County School District #Re-1
(Douglas & Elbert Counties)
5.00% 12/15/21 (MBIA) 1,000,000 1,048,110
El Paso County School District #20
5.625% 12/15/16 (AMBAC) 2,800,000 3,061,659
5.625% 12/15/16 (MBIA) 1,000,000 1,093,450
Larimer Weld & Boulder Counties
School Districts #R-2J
5.00% 12/15/15 (FSA) 1,950,000 2,195,876
------------
11,159,191
------------
Turnpike/Toll Road Revenue Bonds - 13.60%
E-470 Public Highway Authority Series A
5.75% 9/1/29 (MBIA) 3,000,000 3,385,980
5.75% 9/1/35 (MBIA) 1,700,000 1,926,559
Northwest Parkway Public Highway
Authority Series A
5.25% 6/15/41 (FSA) 5,000,000 5,285,550
------------
10,598,089
------------
Water & Sewer Revenue Bonds - 7.57%
Colorado Water Resources & Power
Development Authority Small Water
Resources Revenue Series A
5.80% 11/1/20 (FGIC) 2,000,000 2,292,880
Lafayette Water Revenue Series A
5.00% 12/1/27 (MBIA) 1,100,000 1,152,063
Ute Utility Water Conservancy
District Water Revenue
5.75% 6/15/20 (MBIA) 2,155,000 2,454,308
------------
5,899,251
------------
TOTAL MUNICIPAL BONDS (cost $107,364,015) 115,948,929
------------
TOTAL MARKET VALUE OF SECURITIES - 148.84%
(cost $107,364,015) 115,948,929
RECEIVABLES AND OTHER ASSETS
NET OF LIABILITIES - 2.51% 1,953,717
LIQUIDATION VALUE OF PREFERRED STOCK - (51.35%) (40,000,000)
------------
NET ASSETS APPLICABLE TO 4,837,100 SHARES
OUTSTANDING - 100.00% $ 77,902,646
------------
Net Asset Value Per Common Share
($77,902,646/4,837,100 Shares) $16.11
------
COMPONENTS OF NET ASSETS AT MARCH 31, 2004:
Common stock, $0.01 par value, 200 million
shares authorized to the Fund $67,238,110
Undistributed net investment income 2,003,077
Accumulated net realized gain on investments 76,545
Net unrealized appreciation of investments 8,584,914
------------
Total net assets $77,902,646
-----------
*For Pre-Refunded Bonds, the stated maturity is followed by the year in which
the bond is pre-refunded.
SUMMARY OF ABBREVIATIONS:
AMBAC - Insured by the AMBAC Assurance Corporation
Connie Lee - Insured by the College Construction Insurance Association
FGIC - Insured by the Financial Guaranty Insurance Company
FSA - Insured by Financial Security Assurance
GNMA - Insured by Government National Mortgage Association
MBIA - Insured by the Municipal Bond Insurance Association
XLCA - Insured by XL Capital Assurance
See accompanying notes
19
DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS
STATEMENTS Year Ended March 31, 2004
OF OPERATIONS
Delaware Delaware Delaware
Investments Investments Investments
Minnesota Minnesota Minnesota
Municipal Municipal Municipal
Income Income Income
Fund, Inc. Fund II, Inc. Fund III, Inc.
INVESTMENT INCOME:
Interest $3,066,885 $8,939,709 $2,223,386
---------- ---------- ----------
EXPENSES:
Management fees 238,071 678,695 165,582
Accounting and administration expenses 85,000 85,292 60,500
Remarketing agent fees 39,915 119,923 29,260
Legal and professional fees 36,827 41,323 32,152
Transfer agent fees and expenses 30,934 40,928 13,400
Reports and statements to shareholders 16,315 15,680 7,918
Rating agency fees 9,416 5,853 3,917
Directors'/Trustees' Fees 7,400 9,400 7,000
Stock exchange fees 2,641 6,015 1,432
Custodian fees 2,170 5,007 2,000
Other 9,684 15,937 4,358
---------- ---------- ----------
478,373 1,024,053 327,519
Less expenses paid indirectly (3,597) (9,016) (2,892)
---------- ---------- ----------
Total expenses 474,776 1,015,037 324,627
---------- ---------- ----------
NET INVESTMENT INCOME 2,592,109 7,924,672 1,898,759
---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 650,891 1,299,317 562,903
Net change in unrealized appreciation/depreciation of investments (316,556) 221,686 (350,631)
---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 334,335 1,521,003 212,272
---------- ---------- ----------
DIVIDENDS ON PREFERRED STOCK (262,664) (595,374) (152,709)
---------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,663,780 $8,850,301 $1,958,322
========== ========== ==========
See accompanying notes
20
DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS
STATEMENTS
OF OPERATIONS (CONTINUED)
Delaware Delaware Delaware
Investments Investments Investments
Arizona Florida Insured Colorado Insured
Municipal Municipal Municipal
Income Income Income
Fund, Inc. Fund Fund, Inc.
INVESTMENT INCOME:
Interest $3,522,532 $3,069,713 $5,824,466
---------- ---------- ----------
EXPENSES:
Management fees 283,694 237,523 469,030
Accounting and administration expenses 85,000 85,000 85,000
Remarketing agent fees 34,907 49,978 102,353
Legal and professional fees 28,607 35,421 39,615
Transfer agent fees and expenses 11,753 9,212 15,839
Directors'/Trustees' Fees 8,900 6,708 8,669
Reports and statements to shareholders 8,171 5,675 25,400
Rating agency fees 6,000 1,110 12,500
Stock exchange fees 3,973 2,036 2,702
Custodian fees 2,911 2,832 4,010
Other 10,867 3,080 17,844
---------- ---------- ----------
484,783 438,575 782,962
Less expenses paid indirectly (4,612) (3,174) (5,862)
---------- ---------- ----------
Total expenses 480,171 435,401 777,100
---------- ---------- ----------
NET INVESTMENT INCOME 3,042,361 2,634,312 5,047,366
---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments 315,397 52,390 223,885
Net change in unrealized appreciation/depreciation of investments 501,711 (362,616) 1,336,193
---------- ---------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 817,108 (310,226) 1,560,078
---------- ---------- ----------
DIVIDENDS ON PREFERRED STOCK (271,690) (209,938) (435,224)
---------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,587,779 $2,114,148 $6,172,220
========== ========== ==========
See accompanying notes
21
DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS
STATEMENTS
OF CHANGES IN NET ASSETS
Delaware Delaware
Investments Minnesota Investments Minnesota
Municipal Income Municipal Income
Fund, Inc. Fund II, Inc.
Year Ended Year Ended
3/31/04 3/31/03 3/31/04 3/31/03
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 2,592,109 $ 2,902,399 $ 7,924,672 $ 8,290,725
Net realized gain on investments 650,891 995,361 1,299,317 994,489
Net change in unrealized appreciation/depreciation of investments (316,556) 973,094 221,686 3,980,122
Dividends on preferred stock (262,664) (266,220) (595,374) (809,316)
----------- ----------- ------------ ------------
Net increase in net assets resulting from operations 2,663,780 4,604,634 8,850,301 12,456,020
----------- ----------- ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (2,432,531) (2,309,357) (7,234,070) (6,817,138)
Net realized gain on investments (1,375,191) (168,655) -- --
----------- ----------- ------------ ------------
(3,807,722) (2,478,012) (7,234,070) (6,817,138)
----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS (1,143,942) 2,126,622 1,616,231 5,638,882
NET ASSETS:
Beginning of period 40,122,396 37,995,774 109,211,615 103,572,733
----------- ----------- ------------ ------------
End of period $38,978,454 $40,122,396 $110,827,846 $109,211,615
=========== =========== ============ ============
Undistributed net investment income $ 805,302 $ 748,386 $ 3,358,447 $ 3,203,521
=========== =========== ============ ============
Delaware Delaware
Investments Minnesota Investments Arizona
Municipal Income Municipal Income
Fund III, Inc. Fund, Inc.
Year Ended Year Ended
3/31/04 3/31/03 3/31/04 3/31/03
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 1,898,759 $ 1,991,078 $ 3,042,361 $ 3,182,495
Net realized gain on investments 562,903 326,287 315,397 541,098
Net change in unrealized appreciation/depreciation of investments (350,631) 1,367,753 501,711 2,392,047
Dividends on preferred stock (152,709) (206,640) (271,690) (359,145)
----------- ----------- ------------ ------------
Net increase in net assets resulting from operations 1,958,322 3,478,478 3,587,779 5,756,495
----------- ----------- ------------ ------------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (1,616,736) (1,524,928) (2,862,912) (2,803,315)
Net realized gain on investments -- -- (462,241) (489,081)
----------- ----------- ------------ ------------
(1,616,736) (1,524,928) (3,325,153) (3,292,396)
----------- ----------- ------------ ------------
NET INCREASE IN NET ASSETS 341,586 1,953,550 262,626 2,464,099
NET ASSETS:
Beginning of period 26,259,594 24,306,044 46,166,752 43,702,653
----------- ----------- ------------ ------------
End of period $26,601,180 $26,259,594 $ 46,429,378 $ 46,166,752
=========== =========== ============ ============
Undistributed net investment income $ 758,251 $ 607,389 $ 1,126,683 $ 1,157,606
=========== =========== ============ ============
See accompanying notes
22
DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS
STATEMENTS
OF CHANGES IN NET ASSETS (CONTINUED)
Delaware Delaware
Investments Florida Investments Colorado
Insured Municipal Insured Municipal
Income Fund Income Fund, Inc.
Year Ended Year Ended
3/31/04 3/31/03 3/31/04 3/31/03
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS:
Net investment income $ 2,634,312 $ 2,625,096 $ 5,047,366 $ 5,167,308
Net realized gain on investments 52,390 384,200 223,885 770,424
Net change in unrealized appreciation/depreciation of investments (362,616) 2,487,451 1,336,193 5,600,747
Dividends on preferred stock (209,938) (264,652) (435,224) (587,820)
----------- ----------- ----------- -----------
Net increase in net assets resulting from operations 2,114,148 5,232,095 6,172,220 10,950,659
----------- ----------- ----------- -----------
DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (2,410,089) (2,276,965) (4,643,616) (4,546,921)
Net realized gain on investments (111,421) -- (614,312) (920,984)
----------- ----------- ----------- -----------
(2,521,510) (2,276,965) (5,257,928) (5,467,905)
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS (407,362) 2,955,130 914,292 5,482,754
NET ASSETS:
Beginning of period 39,651,025 36,695,895 76,988,354 71,505,600
----------- ----------- ----------- -----------
End of period $39,243,663 $39,651,025 $77,902,646 $76,988,354
=========== =========== =========== ===========
Undistributed net investment income $ 985,998 $ 960,590 $ 2,003,077 $ 1,971,928
=========== =========== =========== ===========
See accompanying notes
23
FINANCIAL
HIGHLIGHTS
Selected data for each share of the Fund outstanding
throughout each period were as follows:
DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND, INC.
Year Ended
3/31/04(6) 3/31/03 3/31/02(1) 3/31/01 3/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $15.460 $14.640 $14.790 $14.060 $15.380
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 0.999 1.119 1.191 1.155 1.180
Net realized and unrealized gain (loss) on investments 0.130 0.758 (0.323) 0.732 (1.256)
Dividends on preferred stock from:
Net investment income (0.054) (0.094) (0.178) (0.317) (0.272)
Net realized gain on investments (0.047) (0.008) -- -- (0.014)
-------- -------- -------- -------- --------
Total dividends on preferred stock (0.101) (0.102) (0.178) (0.317) (0.286)
-------- -------- -------- -------- --------
Total from investment operations 1.028 1.775 0.690 1.570 (0.362)
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (0.938) (0.890) (0.840) (0.840) (0.907)
Net realized gain on investments (0.530) (0.065) -- -- (0.051)
-------- -------- -------- -------- --------
Total dividends and distributions (1.468) (0.955) (0.840) (0.840) (0.958)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $15.020 $15.460 $14.640 $14.790 $14.060
======== ======= ======= ======= =======
MARKET VALUE, END OF PERIOD $16.600 $16.000 $14.450 $14.300 $13.563
======== ======= ======= ======= =======
TOTAL INVESTMENT RETURN BASED ON:(2)
Market value 13.86% 17.74% 7.00% 12.09% (12.39%)
Net asset value 6.62% 12.29% 4.81% 11.83% (2.56%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets applicable to common shares, end of period (000 omitted) $38,978 $40,122 $37,996 $33,386 $36,488
Ratio of expenses to average net assets applicable to common shares(3) 1.20% 1.21% 1.13% 1.23% 1.36%
Ratio of net investment income to average net assets applicable
to common shares(3) 6.57% 7.35% 8.00% 8.22% 8.05%
Ratio of net investment income to average net assets applicable
to common shares net of dividends to preferred shares(4) 5.90% 6.68% 6.84% 6.00% 6.17%
Portfolio turnover 50% 38% 15% 6% 12%
LEVERAGE ANALYSIS:
Value of preferred shares outstanding (000 omitted) $20,000 $20,000 $20,000 $20,000 $20,000
Net asset coverage per share of preferred shares, end of period $147,445 $150,306 $144,989 $145,964 $141,221
Liquidation value per share of preferred shares(5) $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
(1) As required, effective April 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies that require
amortization of all premiums and discounts on debt securities. The effect of
this change for the period ended March 31, 2002 was an increase in net
investment income per share of $0.006, a decrease in net realized and unrealized
gain (loss) per share of $0.006, and an increase in the ratio of net investment
income to average net assets of 0.04%. Per share data and ratios for periods
prior to April 1, 2001 have not been restated to reflect this change in
accounting.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of each
period reported. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Generally, total investment return based on
net asset value will be higher than total investment return based on market
value in periods where there is an increase in the discount or a decrease in the
premium of the market value to the net asset value from the beginning to the end
of such periods. Conversely, total investment return based on net asset value
will be lower than total investment return based on market value in periods
where there is a decrease in the discount or an increase in the premium of the
market value to the net asset value from the beginning to the end of such
periods.
(3) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(4) Ratio reflects total net investment income less dividends paid to preferred
shareholders divided by average net assets applicable to common shareholders.
(5) Excluding any accumulated but unpaid dividends.
(6) The average shares outstanding method has been applied for per share
information.
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
Year Ended
3/31/04(6) 3/31/03 3/31/02(1) 3/31/01 3/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $15.060 $14.280 $14.450 $13.590 $14.950
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 1.093 1.143 1.163 1.168 1.176
Net realized and unrealized gain (loss) on investments 0.207 0.689 (0.313) 0.850 (1.411)
Dividends on preferred stock from:
Net investment income (0.082) (0.112) (0.182) (0.340) (0.307)
-------- -------- -------- -------- --------
Total dividends on preferred stock (0.082) (0.112) (0.182) (0.340) (0.307)
-------- -------- -------- -------- --------
Total from investment operations 1.218 1.720 0.668 1.678 (0.542)
-------- -------- -------- -------- --------
LESS DIVIDENDS TO COMMON SHAREHOLDERS FROM:
Net investment income (0.998) (0.940) (0.838) (0.818) (0.818)
-------- -------- -------- -------- --------
Total dividends (0.998) (0.940) (0.838) (0.818) (0.818)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $15.280 $15.060 $14.280 $14.450 $13.590
======== ======== ======== ======== ========
Market value, end of period $16.800 $15.300 $14.050 $14.080 $12.438
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN BASED ON:(2)
Market value 16.87% 15.84% 5.75% 20.37% (12.28%)
Net asset value 7.99% 12.19% 4.73% 13.06% (3.43%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets applicable to common shares, end of period (000 omitted) $110,828 $109,212 $103,573 $104,775 $98,574
Ratio of expenses to average net assets applicable to common shares(3) 0.93% 1.03% 1.06% 1.01% 0.99%
Ratio of net investment income to average net assets applicable
to common shares(3) 7.23% 7.74% 8.03% 8.42% 8.44%
Ratio of net investment income to average net assets applicable
to common shares net of dividends to preferred shares(4) 6.69% 6.99% 6.79% 5.96% 6.24%
Portfolio turnover 34% 22% 7% 3% 4%
LEVERAGE ANALYSIS:
Value of preferred shares outstanding (000 omitted) $60,000 $60,000 $60,000 $60,000 $60,000
Net asset coverage per share of preferred shares, end of period $142,357 $141,010 $136,311 $137,312 $132,145
Liquidation value per share of preferred shares(5) $ 50,000 $ 50,000 $ 50,000 $ 50,000 $ 50,000
(1) As required, effective April 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies that require
amortization of all premiums and discounts on debt securities. The effect of
this change for the period ended March 31, 2002 was an increase in net
investment income per share of $0.003, a decrease in net realized and
unrealized gain (loss) per share of $0.003, and an increase in the ratio of
net investment income to average net assets of 0.02%. Per share data and
ratios for periods prior to April 1, 2001 have not been restated to reflect
this change in accounting.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of
each period reported. Dividends and distributions, if any, are assumed for
the purposes of this calculation, to be reinvested at prices obtained under
the Fund's dividend reinvestment plan. Generally, total investment return
based on net asset value will be higher than total investment return based
on market value in periods where there is an increase in the discount or a
decrease in the premium of the market value to the net asset value from the
beginning to the end of such periods. Conversely, total investment return
based on net asset value will be lower than total investment return based on
market value in periods where there is a decrease in the discount or an
increase in the premium of the market value to the net asset value from the
beginning to the end of such periods.
(3) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(4) Ratio reflects total net investment income less dividends paid to preferred
shareholders divided by average net assets applicable to common
shareholders.
(5) Excluding any accumulated but unpaid dividends.
(6) The average shares outstanding method has been applied for per share
information.
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.
Year Ended
3/31/04(6) 3/31/03 3/31/02(1) 3/31/01 3/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $14.290 $13.230 $13.420 $12.560 $13.970
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 1.034 1.084 1.064 1.065 1.075
Net realized and unrealized gain (loss) on investments 0.119 0.918 (0.306) 0.889 (1.425)
Dividends on preferred stock from:
Net investment income (0.083) (0.112) (0.183) (0.336) (0.302)
-------- -------- -------- -------- --------
Total dividends on preferred stock (0.083) (0.112) (0.183) (0.336) (0.302)
-------- -------- -------- -------- --------
Total from investment operations 1.070 1.890 0.575 1.618 (0.652)
-------- -------- -------- -------- --------
LESS DIVIDENDS TO COMMON SHAREHOLDERS FROM:
Net investment income (0.880) (0.830) (0.765) (0.758) (0.758)
-------- -------- -------- -------- --------
Total dividends (0.880) (0.830) (0.765) (0.758) (0.758)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $14.480 $14.290 $13.230 $13.420 $12.560
======== ======== ======== ======== ========
MARKET VALUE, END OF PERIOD $16.160 $14.800 $13.000 $13.000 $11.750
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN BASED ON:(2)
Market value 15.76% 20.72% 5.93% 17.57% (11.70%)
Net asset value 7.43% 14.53% 4.43% 13.54% (4.57%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets applicable to common shares, end of period (000 omitted) $26,601 $26,260 $24,306 $24,659 $23,075
Ratio of expenses to average net assets applicable to common shares(3) 1.23% 1.32% 1.49% 1.42% 1.33%
Ratio of net investment income to average net assets applicable
to common shares(3) 7.20% 7.80% 7.88% 8.30% 8.33%
Ratio of net investment income to average net assets applicable
to common shares net of dividends to preferred shares(4) 6.62% 6.99% 6.56% 5.68% 5.99%
Portfolio turnover 41% 23% 5% 5% 16%
LEVERAGE ANALYSIS:
Value of preferred shares outstanding (000 omitted) $15,000 $15,000 $15,000 $15,000 $15,000
Net asset coverage per share of preferred shares, end of period $138,670 $137,532 $131,007 $132,197 $126,916
Liquidation value per share of preferred shares(5) $50,000 $50,000 $50,000 $50,000 $50,000
(1) As required, effective April 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies that require
amortization of all premiums and discounts on debt securities. The effect of
this change for the period ended March 31, 2002 was an increase in net
investment income per share of $0.007, a decrease in net realized and unrealized
gain (loss) per share of $0.007, and an increase in the ratio of net investment
income to average net assets of 0.04%. Per share data and ratios for periods
prior to April 1, 2001 have not been restated to reflect this change in
accounting.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of each
period reported. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Generally, total investment return based on
net asset value will be higher than total investment return based on market
value in periods where there is an increase in the discount or a decrease in the
premium of the market value to the net asset value from the beginning to the end
of such periods. Conversely, total investment return based on net asset value
will be lower than total investment return based on market value in periods
where there is a decrease in the discount or an increase in the premium of the
market value to the net asset value from the beginning to the end of such
periods.
(3) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(4) Ratio reflects total net investment income less dividends paid to preferred
shareholders divided by average net assets applicable to common shareholders.
(5) Excluding any accumulated but unpaid dividends.
(6) The average shares outstanding method has been applied for per share
information.
See accompanying notes
26
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
DELAWARE INVESTMENTS ARIZONA MUNICIPAL INCOME FUND, INC.
Year Ended
3/31/04(6) 3/31/03 3/31/02(1) 3/31/01 3/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $15.480 $14.650 $14.970 $14.000 $15.290
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 1.020 1.067 1.113 1.124 1.115
Net realized and unrealized gain (loss) on investments 0.276 0.988 (0.257) 0.965 (1.333)
Dividends on preferred stock from:
Net investment income (0.075) (0.103) (0.164) (0.346) (0.299)
Net realized gain on investments (0.016) (0.018) (0.051) -- --
-------- -------- -------- -------- --------
Total dividends on preferred stock (0.091) (0.121) (0.215) (0.346) (0.299)
-------- -------- -------- -------- --------
Total from investment operations 1.205 1.934 0.641 1.743 (0.517)
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS TO COMMON SHAREHOLDERS FROM:
Net investment income (0.960) (0.940) (0.817) (0.773) (0.773)
Net realized gain on investments (0.155) (0.164) (0.144) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (1.115) (1.104) (0.961) (0.773) (0.773)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $15.570 $15.480 $14.650 $14.970 $14.000
======== ======== ======== ======== ========
MARKET VALUE, END OF PERIOD $16.560 $15.490 $14.750 $14.250 $12.625
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN BASED ON:(2)
Market value 14.64% 12.74% 10.22% 19.28% (11.65%)
Net asset value 7.86% 13.44% 4.21% 13.00% (3.10%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets applicable to common shares, end of period (000 omitted) $46,429 $46,167 $43,703 $44,637 $41,758
Ratio of expenses to average net assets applicable to common shares(3) 1.05% 1.16% 1.19% 1.18% 1.21%
Ratio of net investment income to average net assets applicable
to common shares(3) 6.63% 6.96% 7.41% 7.86% 7.84%
Ratio of net investment income to average net assets applicable
to common shares net of dividends to preferred shares(4) 6.04% 6.18% 5.99% 5.44% 5.74%
Portfolio turnover 30% 24% 43% 24% 41%
LEVERAGE ANALYSIS:
Value of preferred shares outstanding (000 omitted) $25,000 $25,000 $25,000 $25,000 $25,000
Net asset coverage per share of preferred shares, end of period $142,858 $142,334 $137,405 $139,274 $133,516
Liquidation value per share of preferred shares(5) $50,000 $50,000 $50,000 $50,000 $50,000
(1) As required, effective April 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies that require
amortization of all premiums and discounts on debt securities. The effect of
this change for the period ended March 31, 2002 was an increase in net
investment income per share of $0.002, a decrease in net realized and unrealized
gain (loss) per share of $0.002, and an increase in the ratio of net investment
income to average net assets of 0.02%. Per share data and ratios for periods
prior to April 1, 2001 have not been restated to reflect this change in
accounting.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of each
period reported. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Generally, total investment return based on
net asset value will be higher than total investment return based on market
value in periods where there is an increase in the discount or a decrease in the
premium of the market value to the net asset value from the beginning to the end
of such periods. Conversely, total investment return based on net asset value
will be lower than total investment return based on market value in periods
where there is a decrease in the discount or an increase in the premium of the
market value to the net asset value from the beginning to the end of such
periods.
(3) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(4) Ratio reflects total net investment income less dividends paid to preferred
shareholders divided by average net assets applicable to common shareholders.
(5) Excluding any accumulated but unpaid dividends.
(6) The average shares outstanding method has been applied for per share
information.
See accompanying notes
27
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
Year Ended
3/31/04(6) 3/31/03 3/31/02(1) 3/31/01 3/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $16.370 $15.150 $15.400 $14.340 $15.670
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 1.088 1.084 1.071 1.087 1.092
Net realized and unrealized gain (loss) on investments (0.130) 1.186 (0.337) 1.068 (1.368)
Dividends on preferred stock from:
Net investment income (0.082) (0.109) (0.179) (0.337) (0.296)
Net realized gain on investments (0.005) -- -- -- --
-------- -------- -------- -------- --------
Total dividends on preferred stock (0.087) (0.109) (0.179) (0.337) (0.296)
-------- -------- -------- -------- --------
Total from investment operations 0.871 2.161 0.555 1.818 (0.572)
-------- -------- -------- -------- --------
LESS DIVIDENDS TO COMMON SHAREHOLDERS FROM:
Net investment income (0.995) (0.941) (0.805) (0.758) (0.758)
Net realized gain on investments (0.046) -- -- -- --
-------- -------- -------- -------- --------
Total dividends (1.041) (0.941) (0.805) (0.758) (0.758)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $16.200 $16.370 $15.150 $15.400 $14.340
======== ======== ======== ======== ========
MARKET VALUE, END OF PERIOD $16.650 $15.050 $14.020 $13.180 $11.750
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN BASED ON:(2)
Market value 18.04% 14.17% 12.63% 19.06% (15.57%)
Net asset value 5.59% 14.92% 4.16% 13.99% (3.01%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets applicable to common shares, end of period
(000 omitted) $39,244 $39,651 $36,696 $37,300 $34,730
Ratio of expenses to average net assets applicable to
common shares(3) 1.11% 1.18% 1.34% 1.32% 1.31%
Ratio of net investment income to average net assets
applicable to common shares(3) 6.70% 6.81% 6.95% 7.38% 7.50%
Ratio of net investment income to average net assets
applicable to common shares net of dividends to
preferred shares(4) 6.16% 6.13% 5.79% 5.10% 5.47%
Portfolio turnover 3% 13% 13% 8% 6%
LEVERAGE ANALYSIS:
Value of preferred shares outstanding (000 omitted) $20,000 $20,000 $20,000 $20,000 $20,000
Net asset coverage per share of preferred shares,
end of period $148,110 $149,128 $141,740 $143,249 $136,825
Liquidation value per share of preferred shares(5) $50,000 $50,000 $50,000 $50,000 $50,000
(1) As required, effective April 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies that require
amortization of all premiums and discounts on debt securities. This change in
accounting had no effect on the Fund's results of operations for the period
ended March 31, 2002. Per share data and ratios for the periods prior to April
1, 2001 have not been restated to reflect this change in accounting.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of each
period reported. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Generally, total investment return based on
net asset value will be higher than total investment return based on market
value in periods where there is an increase in the discount or a decrease in the
premium of the market value to the net asset value from the beginning to the end
of such periods. Conversely, total investment return based on net asset value
will be lower than total investment return based on market value in periods
where there is a decrease in the discount or an increase in the premium of the
market value to the net asset value from the beginning to the end of such
periods.
(3) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(4) Ratio reflects total net investment income less dividends paid to preferred
shareholders divided by average net assets applicable to common shareholders.
(5) Excluding any accumulated but unpaid dividends.
(6) The average shares outstanding method has been applied for per share
information.
See accompanying notes
28
FINANCIAL
HIGHLIGHTS (CONTINUED)
Selected data for each share of the Fund outstanding
throughout each period were as follows:
DELAWARE INVESTMENTS COLORADO INSURED MUNICIPAL INCOME FUND, INC.
Year Ended
3/31/04(6) 3/31/03 3/31/02(1) 3/31/01 3/31/00
NET ASSET VALUE, BEGINNING OF PERIOD $15.920 $14.780 $15.260 $13.870 $15.220
INCOME (LOSS) FROM INVESTMENT OPERATIONS:
Net investment income 1.043 1.068 1.094 1.105 1.099
Net realized and unrealized gain (loss) on investments 0.324 1.324 (0.401) 1.373 (1.417)
Dividends on preferred stock from:
Net investment income (0.077) (0.098) (0.172) (0.342) (0.297)
Net realized gain on investments (0.013) (0.023) (0.051) -- --
-------- -------- -------- -------- --------
Total dividends on preferred stock (0.090) (0.121) (0.223) (0.342) (0.297)
-------- -------- -------- -------- --------
Total from investment operations 1.277 2.271 0.470 2.136 (0.615)
-------- -------- -------- -------- --------
LESS DIVIDENDS AND DISTRIBUTIONS TO COMMON
SHAREHOLDERS FROM:
Net investment income (0.960) (0.940) (0.818) (0.746) (0.735)
Net realized gain on investments (0.127) (0.191) (0.132) -- --
-------- -------- -------- -------- --------
Total dividends and distributions (1.087) (1.131) (0.950) (0.746) (0.735)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $16.110 $15.920 $14.780 $15.260 $13.870
======== ======== ======== ======== ========
MARKET VALUE, END OF PERIOD $16.960 $16.650 $14.700 $14.560 $12.563
======== ======== ======== ======== ========
TOTAL INVESTMENT RETURN BASED ON:(2)
Market value 8.76% 21.31% 7.52% 22.42% (11.05%)
Net asset value 8.05% 15.37% 3.15% 16.21% (3.62%)
RATIOS AND SUPPLEMENTAL DATA:
Net assets applicable to common shares, end of period
(000 omitted) $77,903 $76,988 $71,506 $73,817 $67,093
Ratio of expenses to average net assets applicable to
common shares(3) 1.01% 1.05% 1.01% 1.06% 1.08%
Ratio of net investment income to average net assets
applicable to common shares(3) 6.54% 6.83% 7.18% 7.68% 7.84%
Ratio of net investment income to average net assets
applicable to common shares net of dividends to
preferred shares(4) 5.98% 6.08% 5.71% 5.31% 5.72%
Portfolio turnover 13% 14% 37% 56% 37%
LEVERAGE ANALYSIS:
Value of preferred shares outstanding (000 omitted) $40,000 $40,000 $40,000 $40,000 $40,000
Net asset coverage per share of preferred shares,
end of period $147,379 $146,235 $139,382 $142,272 $133,867
Liquidation value per share of preferred shares(5) $50,000 $50,000 $50,000 $50,000 $50,000
(1) As required, effective April 1, 2001, the Fund adopted the provisions of the
AICPA Audit and Accounting Guide for Investment Companies that require
amortization of all premiums and discounts on debt securities. This change in
accounting had no effect on the Fund's results of operations for the period
ended March 31, 2002. Per share data and ratios for the periods prior to
April 1, 2001 have not been restated to reflect this change in accounting.
(2) Total investment return is calculated assuming a purchase of common stock on
the opening of the first day and a sale on the closing of the last day of each
period reported. Dividends and distributions, if any, are assumed for the
purposes of this calculation, to be reinvested at prices obtained under the
Fund's dividend reinvestment plan. Generally, total investment return based on
net asset value will be higher than total investment return based on market
value in periods where there is an increase in the discount or a decrease in the
premium of the market value to the net asset value from the beginning to the end
of such periods. Conversely, total investment return based on net asset value
will be lower than total investment return based on market value in periods
where there is a decrease in the discount or an increase in the premium of the
market value to the net asset value from the beginning to the end of such
periods.
(3) Ratios do not reflect the effect of dividend payments to preferred
shareholders.
(4) Ratio reflects total net investment income less dividends paid to preferred
shareholders divided by average net assets applicable to common shareholders.
(5) Excluding any accumulated but unpaid dividends.
(6) The average shares outstanding method has been applied for per share
information.
See accompanying notes
29
DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS
March 31, 2004
NOTES
TO FINANCIAL STATEMENTS
Delaware Investments Minnesota Municipal Income Fund, Inc. ("Minnesota Municipal
Fund"); Delaware Investments Minnesota Municipal Income Fund II, Inc.
("Minnesota Municipal Fund II"); Delaware Investments Minnesota Municipal Income
Fund III, Inc. ("Minnesota Municipal Fund III"); Delaware Investments Arizona
Municipal Income Fund, Inc. ("Arizona Municipal Fund"), and Delaware Investments
Colorado Insured Municipal Income Fund, Inc. ("Colorado Insured Municipal Fund")
are organized as Minnesota corporations and Delaware Investments Florida Insured
Municipal Income Fund ("Florida Insured Municipal Fund") is organized as a
Massachusetts Business Trust (each referred to as a "Fund" and collectively as
the "Funds"). The Minnesota Municipal Fund II, Florida Insured Municipal Fund
and Arizona Municipal Fund are diversified closed-end management investment
companies and Minnesota Municipal Fund, Minnesota Municipal Fund III and
Colorado Insured Municipal Fund are non-diversified closed-end management
investment companies under the Investment Company Act of 1940, as amended. The
Funds' shares trade on the American Stock Exchange.
The investment objective of each Fund is to provide current income exempt from
federal income tax and from the personal income tax of its state, if any,
consistent with the preservation of capital. Florida Insured Municipal Fund will
generally seek investments that will enable its shares to be exempt from
Florida's intangible personal property tax. Each Fund will seek to achieve its
investment objective by investing substantially all of its net assets in
investment grade, tax-exempt municipal obligations of its respective state.
1. SIGNIFICANT ACCOUNTING POLICIES
The following accounting policies are in accordance with accounting principles
generally accepted in the United States and are consistently followed by the
Funds.
Security Valuation -- Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Short-term debt securities having less than 60 days to maturity are
valued at amortized cost, which approximates market value. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith under the direction of the Funds' Board of
Trustees/Directors.
Federal Income Taxes -- Each Fund intends to continue to qualify for federal
income tax purposes as a regulated investment company and make the requisite
distributions to shareholders. Accordingly, no provision for federal income
taxes has been made in the financial statements.
Use of Estimates -- The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Other -- Expenses common to all funds within the Delaware Investments Family of
Funds are allocated amongst the Funds on the basis of average net assets.
Management fees and 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 order to satisfy certain distribution requirements of the Tax Reform Act of
1986, the Funds may declare special year-end dividend and capital gains
distributions during November or December to shareholders of record on a date in
such month. Such distributions, if received by shareholders by January 31, are
deemed to have been paid by the Funds and received by shareholders on the
earlier of the date paid or December 31 of the prior year.
Expenses Paid Indirectly -- Certain expenses of the Funds are paid through
commission arrangements with brokers. In addition, the Funds may receive
earnings credits from their custodian when positive cash balances are
maintained, which are used to offset custody fees. The expenses paid under the
above arrangements are included in their respective expense captions on the
Statements of Operations with the corresponding expense offset shown as
"expenses paid indirectly." The amounts of these expenses for the year ended
March 31, 2004 were as follows:
Minnesota Minnesota Minnesota Arizona Florida Insured Colorado Insured
Municipal Municipal Municipal Municipal Municipal Municipal
Fund I Fund II Fund III Fund Fund Fund
--------- --------- --------- ---------- --------------- ----------------
Pricing Reimbursements $1,427 $4,069 $992 $1,701 $1,424 $2,812
Earnings Credits 2,170 4,947 1,900 2,911 1,750 3,050
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS
WITH AFFILIATES
In accordance with the terms of its respective investment management agreement,
each Fund pays Delaware Management Company (DMC), a series of Delaware
Management Business Trust and the investment manager, an annual fee of 0.40%
which is calculated daily based on the average daily net assets of each Fund,
including assets attributable to any preferred stock that may be outstanding.
The Funds have engaged Delaware Service Company, Inc., (DSC), an affiliate of
DMC, to provide accounting and administration services which are based on
average net assets and paid on a monthly basis, subject to certain minimums.
At March 31, 2004, the Funds had liabilities payable to affiliates as follows:
Minnesota Minnesota Minnesota Arizona Florida Insured Colorado Insured
Municipal Municipal Municipal Municipal Municipal Municipal
Fund I Fund II Fund III Fund Fund Fund
--------- --------- --------- --------- --------------- ---------------
Investment management fee payable to DMC $19,871 $57,410 $13,992 $24,023 $19,884 $39,790
Accounting, administration and other expenses
payable to DSC 13,091 11,154 12,251 8,928 9,004 26,265
Other expenses payable to DMC and affiliates* 22,864 24,042 22,523 22,876 23,062 22,312
*DMC, as part of its administrative services, pays operating expenses on behalf
of the Funds and is reimbursed on a periodic basis. Such expenses include items
such as printing of shareholder reports, fees for audit, legal and tax services,
registration fees, and trustees'/directors' fees.
30
DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
2. INVESTMENT MANAGEMENT, ADMINISTRATION AGREEMENTS AND OTHER TRANSACTIONS WITH
AFFILIATES (CONTINUED)
Certain internal legal expenses are allocated to the Funds. For the year ended
March 31, 2004, the Delaware Investments Minnesota Municipal Income Fund,
Delaware Investments Minnesota Municipal Income Fund II, Delaware Investments
Minnesota Municipal Income Fund III, Delaware Investments Arizona Municipal
Income Fund, Delaware Investments Florida Insured Municipal Income Fund, and
Delaware Investments Colorado Insured Municipal Income Fund were allocated costs
of $4,514, $11,939, $2,803, $5,121, $4,489, and $8,503, respectively.
Certain officers of DMC and DSC are officers and/or directors/trustees of the
Funds. These officers and directors/trustees are paid no compensation by the
Funds.
3. INVESTMENTS
For the year ended March 31, 2004, the Funds made purchases and sales of
investment securities as follows:
Minnesota Minnesota Minnesota Arizona Florida Insured Colorado Insured
Municipal Municipal Municipal Municipal Municipal Municipal
Fund I Fund II Fund III Fund Fund Fund
----------- ----------- ---------- ----------- -------------- -----------------
Purchases $29,353,225 $56,028,577 $17,115,344 $20,812,342 $1,485,630 $14,677,342
Sales 30,674,078 55,972,120 16,852,681 22,047,239 1,837,000 15,794,859
At March 31, 2004, the cost of investments and unrealized appreciation
(depreciation) for federal income tax purposes for each Fund were as follows:
Minnesota Minnesota Minnesota Arizona Florida Insured Colorado Insured
Municipal Municipal Municipal Municipal Municipal Municipal
Fund I Fund II Fund III Fund Fund Fund
----------- ----------- ---------- ------------ -------------- ----------------
Cost of Investments $55,143,199 $160,910,606 $38,504,514 $65,040,026 $53,303,445 $107,365,110
=========== ============ =========== =========== =========== ============
Aggregate Unrealized Appreciation $2,996,799 $9,092,105 $2,589,940 $4,391,725 $4,896,276 $8,604,130
Aggregate Unrealized Depreciation (30,803) (505,897) (59,771) (47,636) -- (20,311)
----------- ------------ ----------- ----------- ----------- ------------
Net Unrealized Appreciation $2,965,996 $8,586,208 $2,530,169 $4,344,089 $4,896,276 $8,583,819
=========== ============ =========== =========== =========== ============
4. DIVIDEND AND DISTRIBUTION INFORMATION
Income and long-term capital gain distributions are determined in accordance
with federal income tax regulations, which may differ from accounting principles
generally accepted in the United States. The tax character of dividends and
distributions paid during the years ended March 31, 2004 and 2003 were as
follows:
Minnesota Municipal Fund Minnesota Municipal Fund II
-------------------------------- ---------------------------
3/31/04 3/31/03 3/31/04 3/31/03
Tax-exempt income $2,538,026 $2,553,713 $7,775,641 $7,626,454
Ordinary income 122,453 -- 53,803 --
Long-term capital gain 1,409,907 190,519 -- --
---------- ---------- ---------- ----------
Total $4,070,386 $2,744,232 $7,829,444 $7,626,454
========== ========== ========== ==========
Minnesota Municipal Fund III Arizona Municipal Fund
--------------------------------- --------------------------
3/31/04 3/31/03 3/31/04 3/31/03
Tax-exempt income $1,750,401 $1,731,568 $3,072,779 $3,107,004
Ordinary Income 19,044 -- 178,072 65,300
Long-term capital gain -- -- 345,992 479,237
---------- ---------- ---------- ----------
Total $1,769,445 $1,731,568 $3,596,843 $3,651,541
========== ========== ========== ==========
Florida Insured Municipal Fund Colorado Insured Municipal Fund
--------------------------------- -------------------------------
3/31/04 3/31/03 3/31/04 3/31/03
Tax-exempt income $2,608,022 $2,541,617 $5,016,217 $5,022,997
Ordinary Income -- -- 63,831 192,861
Long-term capital gain 123,426 -- 613,104 839,867
---------- ---------- ---------- ----------
Total $2,731,448 $2,541,617 $5,693,152 $6,055,725
========== ========== ========== ==========
31
DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
4. DIVIDEND AND DISTRIBUTION INFORMATION (CONTINUED)
As of March 31, 2004, the components of net assets on a tax basis were
as follows:
Minnesota Municipal Fund Minnesota Municipal Fund II Minnesota Municipal Fund III
------------------------ --------------------------- ----------------------------
Paid in capital $35,426,619 $99,710,000 $23,985,129
Undistributed tax-exempt income 805,302 3,358,447 758,251
Capital loss carry forward -- (826,809) (672,369)
Post-October loss (219,463) -- --
Unrealized appreciation 2,965,996 8,586,208 2,530,169
----------- ------------ -----------
Net assets $38,978,454 $110,827,846 $26,601,180
=========== ============ ===========
Arizona Municipal Fund Florida Insured Municipal Fund Colorado Insured Municipal Fund
---------------------- ------------------------------ -------------------------------
Paid in capital $40,838,893 $33,361,389 $67,238,110
Undistributed tax-exempt income 1,126,683 985,998 2,003,077
Undistributed ordinary income 81,954 -- 14,636
Undistributed long-term gains 37,759 -- 63,004
Unrealized appreciation 4,344,089 4,896,276 8,583,819
----------- ------------ -----------
Net assets $46,429,378 $39,243,663 $77,902,646
=========== ============ ===========
Post-October losses represent losses realized on investment transactions from
November 1, 2003 through March 31, 2004 that, in accordance with federal income
tax regulations, the Funds have elected to defer and treat as having arisen in
the following fiscal year.
For financial reporting purposes, capital accounts and distributions to
shareholders are adjusted to reflect the tax character of permanent book/tax
differences. For the year ended March 31, 2004, the Funds recorded the following
permanent reclassifications. Reclassifications are primarily due to tax
treatment of market discount on certain debt instruments and expiration of
capital loss carry forwards. Results of operations and net assets were not
affected by these reclassifications.
Minnesota Municipal Fund Minnesota Municipal Fund II Minnesota Municipal Fund III
------------------------ --------------------------- ----------------------------
Undistributed net investment income 37,290 59,698 21,548
Accumulated realized gain (loss) (37,290) (59,698) 847,228
Paid-in capital -- -- (868,776)
Arizona Municipal Fund Florida Insured Municipal Fund
---------------------- ------------------------------
Undistributed net investment income 14,007 (882)
Accumulated realized gain (loss) (14,007) 882
For federal income tax purposes, certain Funds had accumulated capital losses as
of March 31, 2004, which may be carried forward and applied against future
capital gains. Such capital loss carryforward amounts will expire as follows:
2005 2006 2008 2009 2010 Total
---- ---- ---- ---- ---- -----
Minnesota Municipal Fund II $73,298 $132,129 $437,162 $175,804 $8,416 $826,809
Minnesota Municipal Fund III 455,666 6,539 56,856 153,308 -- 672,369
5. CAPITAL STOCK
Pursuant to their articles of incorporation, Minnesota Municipal Fund, Minnesota
Municipal Fund II, Minnesota Municipal Fund III, Arizona Municipal Fund and
Colorado Insured Municipal Fund each have 200 million shares of $0.01 par value
common shares authorized. Florida Insured Municipal Fund has been authorized to
issue an unlimited amount of $0.01 par value common shares. The Funds did not
repurchase any shares under the Share Repurchase Program during the year ending
March 31, 2004. Shares issuable under the Fund's dividend reinvestment plan are
purchased by the Fund's transfer agent, Mellon Investor Services, LLC, in the
open market.
The Funds each have one million shares of $0.01 par value preferred shares
authorized, except for Florida Insured Municipal Fund, which has an unlimited
amount of $0.01 par value preferred shares authorized. Under resolutions adopted
by the Board of Directors/Trustees, Minnesota Municipal Fund is allowed to issue
up to 400 preferred shares, of which the entire amount was issued on August 6,
1992. On May 14, 1993, Minnesota Municipal Fund II, Arizona Municipal Fund and
Florida Insured Municipal Fund issued 1,200, 500 and 400 preferred shares,
respectively. On December 10, 1993, Minnesota Municipal Fund III issued 300
preferred shares and on September 23, 1993, Colorado Insured Municipal Fund
issued 800 preferred shares. The preferred shares of each Fund have a
liquidation preference of $50,000 per share plus an amount equal to accumulated
but unpaid dividends.
32
DELAWARE INVESTMENTS CLOSED-END MUNICIPAL BOND FUNDS
NOTES
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 year ended March 31, 2004 as
follows:
Fund Low High
---- ----- -----
Minnesota Municipal Fund 0.89% to 1.22%
Minnesota Municipal Fund II 0.75% to 1.25%
Minnesota Municipal Fund III 0.80% to 1.30%
Arizona Municipal Fund 0.82% to 1.12%
Florida Insured Municipal Fund 0.80% to 1.15%
Colorado Insured Municipal Fund 0.65% to 1.17%
Salomon Smith Barney, Inc. and Merrill Lynch Pierce, Fenner & Smith Inc.
(Colorado Insured Municipal Fund only), as the remarketing agents, receive an
annual fee from each of the Funds of 0.25% of the average amount of preferred
stock outstanding.
Under the 1940 Act, the Funds may not declare dividends or make other
distributions on common shares or purchase any such shares if, at the time of
the declaration, distribution or purchase, asset coverage with respect to the
outstanding preferred stock is less than 200%. The preferred shares are
redeemable at the option of the Funds, in whole or in part, on any dividend
payment date at $50,000 per share plus any accumulated but unpaid dividends
whether or not declared. The preferred shares are also subject to mandatory
redemption at $50,000 per share plus any accumulated but unpaid dividends
whether or not declared, if certain requirements relating to the composition of
the assets and liabilities of each Fund are not satisfied. The holders of
preferred shares have voting rights equal to the holders of common shares (one
vote per share) and will vote together with holders of common shares as a single
class. However, holders of preferred shares are also entitled to elect two of
each Fund's Directors. In addition, the 1940 Act requires that along with
approval by shareholders that might otherwise be required, the approval of the
holders of a majority of any outstanding preferred shares, voting separately as
a class, would be required to (a) adopt any plan of reorganization that would
adversely affect the preferred shares, and (b) take any action requiring a vote
of security holders pursuant of Section 13(a) of the 1940 Act, including, among
other things, changes in each of the Fund's subclassification as a closed-end
investment company or changes in their fundamental investment restrictions.
6. CREDIT AND MARKET RISKS
The Funds concentrate their investments in securities issued by municipalities.
The value of these investments may be adversely affected by new legislation
within the state, regional or local economic conditions, and differing levels of
supply and demand for municipal bonds. Many municipalities insure repayment for
their obligations. Although bond insurance reduces the risk of loss due to
default by an issuer, such bonds remain subject to the risk that 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.
7. CONTRACTUAL OBLIGATIONS
The Funds enter into contracts 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 and expect the risk of loss to be remote.
8. TAX INFORMATION (UNAUDITED)
The information set forth is for the Funds' fiscal year end as
required by federal laws. Shareholders, however, must report distributions on a
calendar year basis for income tax purposes, which may include distributions for
portions of two fiscal years of a fund. Accordingly, the information needed by
shareholders for income tax purposes was sent to them in early 2004. Please
consult your tax advisor for proper treatment of this information.
For the year ended March 31, 2004, each Fund designates as long-term capital
gains, ordinary income, and tax-exempt income distributions paid during the year
as follows:
Long-Term Long-Term Ordinary Tax Total
Capital Gains Capital Gains Income Exempt Distributions
Distributions-15%(a) Distributions-20% Distributions Income (Tax Basis)
Minnesota Municipal Fund I 8% 27% 3% 62% 100%
Minnesota Municipal Fund II -- -- 1% 99% 100%
Minnesota Municipal Fund III -- -- 1% 99% 100%
Arizona Municipal Fund 5% 5% 5% 85% 100%
Florida Insured Municipal Fund 2% 3% -- 95% 100%
Colorado Insured Municipal Fund 2% 9% 1% 88% 100%
(a) For the year ended March 31, 2004, certain long-term capital gains
distributions paid by the Funds may be subject to a maximum tax rate of 15%, as
provided by the Jobs and Growth Tax Relief Reconciliation Act of 2003. Minnesota
Municipal Income Fund, Arizona Municipal Income Fund, Florida Insured Municipal
Income Fund, and Colorado Insured Municipal Income Fund designated $307,077,
$178,521, $53,008, and $115,296, respectively, to be taxed at a maximum rate of
15%. Complete information was computed and reported in conjunction with your
2003 Form 1099-DIV.
33
REPORT
OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors/Trustees
Delaware Investments Minnesota Municipal Income Fund, Inc.
Delaware Investments Minnesota Municipal Income Fund II, Inc.
Delaware Investments Minnesota Municipal Income Fund III, Inc.
Delaware Investments Arizona Municipal Income Fund, Inc.
Delaware Investments Florida Insured Municipal Income Fund
Delaware Investments Colorado Insured Municipal Income Fund, Inc.
We have audited the accompanying statements of net assets of Delaware
Investments Minnesota Municipal Income Fund, Inc., Delaware Investments
Minnesota Municipal Income Fund II, Inc., Delaware Investments Minnesota
Municipal Income Fund III, Inc., Delaware Investments Arizona Municipal Income
Fund, Inc., Delaware Investments Florida Insured Municipal Income Fund, and
Delaware Investments Colorado Insured Municipal Income Fund, Inc. (the "Funds")
as of March 31, 2004, and the related statements of operations for the year then
ended, the statements of changes in net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of securities owned as of March 31, 2004, by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
respective Funds at March 31, 2004, the results of their operations for the year
then ended, the changes in their net assets for each of the two years in the
period then ended, and their financial highlights for each of the five years in
the period then ended, in conformity with accounting principles generally
accepted in the United States.
Ernst & Young LLP
Philadelphia, Pennsylvania
May 7, 2004
34
DELAWARE INVESTMENTS FAMILY OF FUNDS
BOARD OF DIRECTORS/TRUSTEES AND OFFICERS ADDENDUM
A fund is governed by a Board of Trustees/Directors (hereinafter referred to as
Trustees) which has oversight responsibility for the management of a fund's
business affairs. Trustees establish procedures and oversee and review the
performance of the investment manager, the distributor and others that perform
services for the fund. The independent fund Trustees, in particular, are
advocates for shareholder interests. The following is a list of the Trustees and
Officers with certain background and related information.
Principal Number of Other
Name, Position(s) Occupation(s) Portfolios in Fund Directorships
Address Held with Length of Time During Complex Overseen Held by Trustee
and Birthdate Fund(s) Served Past 5 Years by Trustee or Officer or Officer
-----------------------------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
JUDE T. DRISCOLL(2) Chairman and 4 Years - Since August 2000, 80 None
2005 Market Street Trustee(4) Executive Officer Mr. Driscoll has served in
Philadelphia, PA various executive capacities
19103 Trustee since at different times at
May 15, 2003 Delaware Investments(1)
March 10, 1963
Senior Vice President and
Director of Fixed-Income Process -
Conseco Capital Management
(June 1998 - August 2000)
Managing Director -
NationsBanc Capital Markets
(February 1996 - June 1998)
-----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES
WALTER P. BABICH Trustee 16 Years Board Chairman - 98 None
2005 Market Street Citadel Construction Corporation
Philadelphia, PA (1989 - Present)
19103
October 1, 1927
JOHN H. DURHAM Trustee 25 Years(3) Private Investor 98 Trustee - Abington
2005 Market Street Memorial Hospital
Philadelphia, PA
19103
August 7, 1937 President/Director -
22 WR Corporation
JOHN A. FRY Trustee(4) 3 Years President - 80 None
2005 Market Street Franklin & Marshall College
Philadelphia, PA (June 2002 - Present)
19103
Executive Vice President -
University of Pennsylvania
May 28, 1960 (April 1995 - June 2002)
ANTHONY D. KNERR Trustee 11 Years Founder/Managing Director - 98 None
2005 Market Street Anthony Knerr & Associates
Philadelphia, PA (Strategic Consulting)
19103 (1990 - Present)
December 7, 1938
35
Principal Number of Other
Name, Position(s) Occupation(s) Portfolios in Fund Directorships
Address Held with Length of Time During Complex Overseen Held by Trustee
and Birthdate Fund(s) Served Past 5 Years by Trustee or Officer or Officer
-----------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT TRUSTEES (CONTINUED)
ANN R. LEVEN Trustee 15 Years Treasurer/Chief Fiscal Officer - 98 Director - Andy
2005 Market Street National Gallery of Art Warhol Foundation
Philadelphia, PA (1994 - 1999)
19103 Director -
Systemax, Inc.
November 1, 1940
THOMAS F. MADISON Trustee 10 Years President/Chief 98 Director -
2005 Market Street Executive Officer - Banner Health
Philadelphia, PA MLM Partners, Inc.
19103 (Small Business Investing Director -
and Consulting) CenterPoint Energy
(January 1993 - Present)
February 25, 1936 Director - Digital
River Inc.
Director - Rimage
Corporation
JANET L. YEOMANS Trustee 5 Years Vice President/Mergers & 98 None
2005 Market Street Acquisitions - 3M Corporation
Philadelphia, PA (January 2003 - Present)
19103
Ms. Yeomans has held
July 31, 1948 various management
positions at 3M Corporation
since 1983.
-----------------------------------------------------------------------------------------------------------------------------------
OFFICERS
JOSEPH H. HASTINGS Executive Executive Mr. Hastings has served in 98 None
2005 Market Street Vice President Vice President various executive capacities
Philadelphia, PA and and at different times at
19103 Chief Financial Chief Financial Delaware Investments.
Officer Officer since
December 19, 1949 August 21, 2003
RICHELLE S. MAESTRO Executive Vice President, Chief Legal Ms. Maestro has served in 98 None
2005 Market Street Chief Legal Officer Officer since various executive capacities
Philadelphia, PA and Secretary March 17, 2003 at different times at
19103 Delaware Investments.
November 26, 1957
MICHAEL P. BISHOF Senior Vice President 8 Years Mr. Bishof has served in 98 None
2005 Market Street and Treasurer various executive capacities
Philadelphia, PA at different times at
19103 Delaware Investments.
August 18, 1962
(1) Delaware Investments is the marketing name for Delaware Management
Holdings, Inc. and its subsidiaries.
(2) Mr. Driscoll is considered to be an "Interested Trustee" because he is an
executive officer of the Fund's manager and distributor.
(3) Mr. Durham served as a Director Emeritus from 1995 through 1998.
(4) Mr. Driscoll and Mr. Fry are not Trustees of the portfolios of Voyageur
Insured Funds, Voyageur Intermediate Tax Free Funds, Voyageur Investment
Trust, Voyageur Mutual Funds, Voyageur Mutual Funds II, Voyageur Mutual
Funds III and Voyageur Tax Free Funds.
The Statement of Additional Information for the Fund(s) includes additional
information about the Trustees and Officers and is available, without charge,
upon request by calling 800 523-1918.
36
Delaware
Investments(SM)
--------------------------------------
A member of Lincoln Financial Group(R)
This annual report is for the information of Delaware Investments Closed-End
Municipal Bond Funds shareholders. 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 the Funds may, from
time-to-time, purchase shares of their common stock on the open market at market
prices.
BOARD OF TRUSTEES AFFILIATED OFFICERS CONTACT INFORMATION
JUDE T. DRISCOLL
Chairman JOSEPH H. HASTINGS INVESTMENT MANAGER
Delaware Investments Family of Funds Executive Vice President and Delaware Management Company
Philadelphia, PA Chief Financial Officer Philadelphia, PA
Delaware Investments Family of Funds
WALTER P. BABICH Philadelphia, PA INTERNATIONAL AFFILIATE
Board Chairman Delaware International Advisers Ltd.
Citadel Construction Corporation RICHELLE S. MAESTRO London, England
King of Prussia, PA Executive Vice President,
JOHN H. DURHAM Chief Legal Officer and Secretary PRINCIPAL OFFICE OF THE FUNDS
Private Investor Delaware Investments Family of Funds 2005 Market Street
Gwynedd Valley, PA Philadelphia, PA Philadelphia, PA 19103-7057
JOHN A. FRY MICHAEL P. BISHOF INDEPENDENT AUDITORS
President Senior Vice President and Treasurer Ernst & Young LLP
Franklin & Marshall College Delaware Investments Family of Funds 2001 Market Street
Lancaster, PA Philadelphia, PA Philadelphia, PA 19103
ANTHONY D. KNERR REGISTRAR AND STOCK TRANSFER AGENT
Managing Director Mellon Investor Services, L.L.C.
Anthony Knerr & Associates Overpeck Centre
New York, NY 85 Challenger Road
Ridgefield Park, NJ 07660
ANN R. LEVEN 800 851-9677
Former Treasurer/Chief Fiscal Officer
National Gallery of Art FOR SECURITIES DEALERS AND FINANCIAL
Washington, DC INSTITUTIONS REPRESENTATIVES
800 362-7500
THOMAS F. MADISON
President and Chief Executive Officer WEB SITE
MLM Partners, Inc. www.delawareinvestments.com
Minneapolis, MN
NUMBER OF RECORDHOLDERS AS OF
JANET L. YEOMANS MARCH 31, 2004:
Vice President/Mergers & Acquisitions Minnesota Municipal Income Fund I 336
3M Corporation Minnesota Municipal Income Fund II 542
St. Paul, MN Minnesota Municipal Income Fund III 130
Arizona Municipal Income Fund 103
Thomas F. Madison and Janet L. Yeomans were Florida Insured Municipal Income Fund 168
elected by the preferred Shareholders Colorado Insured Municipal
of the Delaware Investments Closed-End Income Fund 180
Municipal Bond Funds.
--------------------------------------------------------------------------------
A description of the policies and procedures that the Funds use to determine how
to vote proxies (if any) relating to portfolio securities is available without
charge (i) upon request, by calling 800 523-1918; (ii) on the Funds' website at
http://www.delawareinvestments.com; and (iii) on the Commission's website at
http://www.sec.gov.; and beginning no later than August 31, 2004, information
(if any) regarding how the Funds voted proxies relating to portfolio securities
during the most recent 12-month period ended June 30 is available without charge
(i) through the Funds' website at http://www.delawareinvestments.com; and (ii)
on the Commission's website at http://www.sec.gov.
--------------------------------------------------------------------------------
(8693) Printed in the USA
AR-CEMUNI [3/04] IVES 5/04 J9650
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the
registrant's principal executive officer, principal financial officer, principal
accounting officer or controller, or persons performing similar functions,
regardless of whether these individuals are employed by the registrant or a
third party. A copy of the registrant's Code of Business Ethics has been posted
on Delaware Investments' internet website at www.delawareinvestments.com. Any
amendments to the Code of Business Ethics, and information on any waiver from
its provisions granted by the registrant, will also be posted on this website
within five business days of such amendment or waiver and will remain on the
website for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant's Board of Trustees/Directors has determined that each
member of the registrant's Audit Committee is an audit committee financial
expert, as defined below. For purposes of this item, an "audit committee
financial expert" is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and
financial statements;
b. The ability to assess the general application of such principles in
connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial
statements that present a breadth and level of complexity of accounting issues
that are generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by the registrant's financial statements, or
experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial
reporting; and
e. An understanding of audit committee functions.
An "audit committee financial expert" shall have acquired such attributes
through:
a. Education and experience as a principal financial officer, principal
accounting officer, controller, public accountant, or auditor or experience in
one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer,
principal accounting officer, controller, public accountant, auditor, or person
performing similar functions;
c. Experience overseeing or assessing the performance of companies or
public accountants with respect to the preparation, auditing, or evaluation of
financial statements; or
d. Other relevant experience.
The registrant's Board of Trustees/Directors has also determined that
each member of the registrant's Audit Committee is independent. In order to be
"independent" for purposes of this item, the Audit Committee member may not: (i)
other than in his or her capacity as a member of the Board of Trustees/Directors
or any committee thereof, accept directly or indirectly any consulting, advisory
or other compensatory fee from the issuer; or (ii) be an "interested person" of
the registrant as defined in Section 2(a)(19) of the Investment Company Act of
1940.
The names of the audit committee financial experts on the registrant's
Audit Committee are set forth below:
Ann R. Leven
Thomas F. Madison
Janet L. Yeomans(1)
Item 4. Principal Accountant Fees and Services
(a) Audit fees.
The aggregate fees billed for services provided to the Registrant by
its independent auditors for the audit of the Registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $16,950 for
the fiscal year ended March 31, 2004.
The aggregate fees billed for services provided to the Registrant by
its independent auditors for the audit of the Registrant's annual financial
statements and for services normally provided by the independent auditors in
connection with statutory and regulatory filings or engagements were $26,550 for
the fiscal year ended March 31, 2003.
-----------------------
(1) The instructions to Form N-CSR require disclosure on the relevant experience
of persons who qualify as audit committee financial experts based on "other
relevant experience." The Board of Trustees/Directors has determined that Ms.
Yeomans qualifies as an audit committee financial expert by virtue of her
education and experience as the Treasurer of a large global corporation.
(b) Audit-related fees.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the Registrant's financial
statements and not reported under paragraph (a) of this Item were $9,900 for the
fiscal year ended March 31, 2004. The percentage of these fees relating to
services approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These audit-related services were as follows: quarterly
agreed-upon procedures with respect to the preferred stock rating agency
reports.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the Registrant's investment adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $15,750 for the Registrant's fiscal
year ended March 31, 2004. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These audit-related services were as follows: These
audit-related services were as follows: issuance of agreed-upon procedures
reports to the Fund's Board in connection with the annual accounting service
agent contract renewal and the pass-through of internal legal costs relating to
the operations of the Fund.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the Registrant's financial
statements and not reported under paragraph (a) of this Item were $9,000 for the
fiscal year ended March 31, 2003. The percentage of these fees relating to
services approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These audit-related services were as follows: quarterly
agreed-upon procedures with respect to the preferred stock rating agency
reports.
The aggregate fees billed by the Registrant's independent auditors for
services relating to the performance of the audit of the financial statements of
the Registrant's investment adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $21,800 for the Registrant's fiscal
year ended March 31, 2003. The percentage of these fees relating to services
approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%. These audit-related services were as follows: issuance of
agreed-upon procedures reports to the Fund's Board in connection with the annual
accounting service agent contract renewal and the pass-through of internal legal
costs relating to the operations of the Fund.
(c) Tax fees.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant were $1,250 for the fiscal year
ended March 31, 2004. The percentage of these fees relating to services approved
by the Registrant's Audit Committee pursuant to the de minimis exception from
the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
These tax-related services were as follows: review of income tax returns/review
of excise returns.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant's investment adviser(s) and
other service providers under common control with the adviser(s) and that relate
directly to the operations or financial reporting of the Registrant were $0 for
the Registrant's fiscal year ended March 31, 2004. The percentage of these fees
relating to services approved by the Registrant's Audit Committee pursuant to
the de minimis exception from the pre-approval requirement in Rule
2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant were $1,150 for the fiscal year
ended March 31, 2003. The percentage of these fees relating to services approved
by the Registrant's Audit Committee pursuant to the de minimis exception from
the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
These tax-related services were as follows: review of income tax returns/review
of excise returns.
The aggregate fees billed by the Registrant's independent auditors for
tax-related services provided to the Registrant's adviser(s) and other service
providers under common control with the adviser(s) and that relate directly to
the operations or financial reporting of the Registrant were $0 for the
Registrant's fiscal year ended March 31, 2003. The percentage of these fees
relating to services approved by the Registrant's Audit Committee pursuant to
the de minimis exception from the pre-approval requirement in Rule
2-01(c)(7)(i)(C) of Regulation S-X was 0%.
(d) All other fees.
The aggregate fees billed for all services provided by the independent
auditors to the Registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended March 31, 2004. The
percentage of these fees relating to services approved by the Registrant's Audit
Committee pursuant to the de minimis exception from the pre-approval requirement
in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed for all services other than those set forth
in paragraphs (b) and (c) of this Item provided by the Registrant's independent
auditors to the Registrant's adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $0 for the Registrant's fiscal year
ended March 31, 2004. The percentage of these fees relating to services approved
by the Registrant's Audit Committee pursuant to the de minimis exception from
the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed for all services provided by the independent
auditors to the Registrant other than those set forth in paragraphs (a), (b) and
(c) of this Item were $0 for the fiscal year ended March 31, 2003. The
percentage of these fees relating to services approved by the Registrant's Audit
Committee pursuant to the de minimis exception from the pre-approval requirement
in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed for all services other than those set forth
in paragraphs (b) and (c) of this Item provided by the Registrant's independent
auditors to the Registrant's adviser(s) and other service providers under common
control with the adviser(s) and that relate directly to the operations or
financial reporting of the Registrant were $0 for the Registrant's
fiscal year ended March 31, 2003. The percentage of these fees relating to
services approved by the Registrant's Audit Committee pursuant to the de minimis
exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of
Regulation S-X was 0%.
(e) The Registrant's Audit Committee has not established pre-approval
policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the Registrant's independent
auditors for services rendered to the Registrant and to its investment
adviser(s) and other service providers under common control with the adviser(s)
were $166,625 and $186,100 for the Registrant's fiscal years ended March 31,
2004 and March 31, 2003, respectively.
(h) In connection with its selection of the independent auditors, the
Registrant's Audit Committee has considered the independent auditors' provision
of non-audit services to the Registrant's investment adviser(s) and other
service providers under common control with the adviser(s) that were not
required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X.
The Audit Committee has determined that the independent auditors' provision of
these services is compatible with maintaining the auditors' independence.
Item 5. Audit Committee of Listed Registrants
The registrant has a separately-designated standing Audit Committee
established in accordance with Section 3(a)(58)(A) of the Securities Exchange
Act of 1934. The members of the registrant's Audit Committee are Ann R. Leven,
Thomas F. Madison and Janet L. Yeomans.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
The registrant has formally delegated to its investment adviser(s)
(including any sub-adviser) (the "Adviser") the ability to make all proxy voting
decisions in relation to portfolio securities held by the registrant. If and
when proxies need to be voted on behalf of the registrant, the Adviser will vote
such proxies pursuant to its Proxy Voting Policies and Procedures (the
"Procedures"). The Adviser has established a Proxy Voting Committee (the
"Committee") which is responsible for overseeing the Adviser's proxy voting
process for the registrant. One of the main responsibilities of the Committee is
to review and approve the Procedures to ensure that the Procedures are designed
to allow the Adviser to vote proxies in a manner consistent with the goal of
voting in the best interests of the registrant.
In order to facilitate the actual process of voting proxies, the
Adviser has contracted with Institutional Shareholder Services ("ISS") to
analyze proxy statements on behalf of the registrant and other Adviser clients
and vote proxies generally in accordance with the Procedures. The Committee is
responsible for overseeing ISS's proxy voting activities. If a proxy has been
voted for the registrant, ISS will create a record of the vote. Beginning no
later than August 31, 2004, information (if any) regarding how the registrant
voted proxies relating to portfolio securities during the most recent 12-month
period ended June 30 is available without charge (i) through the registrant's
website at http://www.delawareinvestments.com; and (ii) on the Commission's
website at http://www.sec.gov.
The Procedures contain a general guideline that recommendations of
company management on an issue (particularly routine issues) should be given a
fair amount of weight in determining how proxy issues should be voted. However,
the Adviser will normally vote against management's position when it runs
counter to its specific Proxy Voting Guidelines (the "Guidelines"), and the
Adviser will also vote against management's recommendation when it believes that
such position is not in the best interests of the registrant.
As stated above, the Procedures also list specific Guidelines on how to
vote proxies on behalf of the registrant. Some examples of the Guidelines are as
follows: (i) generally vote for shareholder proposals asking that a majority or
more of directors be independent; (ii) generally vote against proposals to
require a supermajority shareholder vote; (iii) votes on mergers and
acquisitions should be considered on a case-by-case basis, determining whether
the transaction enhances shareholder value; (iv) generally vote against
proposals to create a new class of common stock with superior voting rights; (v)
generally vote re-incorporation proposals on a case-by-case basis; (vi) votes
with respect to management compensation plans are generally determined on a
case-by-case basis; (vii) generally vote for reports on the level of greenhouse
gas emissions from a company's operations and products; and (viii) generally
vote for proposals requesting the company to report on its policies and
practices related to social, environmental and economic sustainability.
Because the registrant has delegated proxy voting to the Adviser, the
registrant is not expected to encounter any conflict of interest issues
regarding proxy voting and therefore does not have procedures regarding this
matter. However, the Adviser does have a section in its Procedures that
addresses the possibility of conflicts of interest. Most proxies which the
Adviser receives on behalf of the registrant are voted by ISS in accordance with
the Procedures. Because almost all registrant proxies are voted by ISS pursuant
to the pre-determined Procedures, it normally will not be necessary for the
Adviser to make an actual determination of how to vote a particular proxy,
thereby largely eliminating conflicts of interest for the Adviser during the
proxy voting process. In the very limited instances where the Adviser is
considering voting a proxy contrary to ISS's recommendation, the Committee will
first assess the issue to see if there is any possible conflict of interest
involving the Adviser or affiliated persons of the Adviser. If a member of the
Committee has actual knowledge of a conflict of interest, the Committee will
normally use another independent third party to do additional research on the
particular proxy issue in order to make a recommendation to the Committee on how
to vote the proxy in the best interests of the registrant. The Committee will
then review the proxy voting materials and recommendation provided by ISS and
the independent third party to determine how to vote the issue in a manner which
the Committee believes is consistent with the Procedures and in the best
interests of the registrant.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Companies and Affiliated Purchasers
Required only for periods ending on or after June 15, 2004.
Item 9. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 10. 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 registrant's last fiscal
half-year (the registrant's second fiscal half-year in the case of an annual
report) that have materially affected, or are reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 11. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial
Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940
are attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1
under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
are furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf, by the undersigned, thereunto duly authorized.
NAME OF REGISTRANT: Delaware Investments Minnesota Municipal Income Fund III,
Inc.
JUDE T. DRISCOLL
---------------------------
By: Jude T. Driscoll
--------------------
Title: Chairman
Date: 6/3/04
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: Chairman
Date: 6/3/04
JOSEPH H. HASTINGS
------------------------------------
By: Joseph H. Hastings
-----------------------------
Title: Chief Financial Officer
Date: 6/3/04