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: 811-7420

Exact name of registrant as specified in charter:
Delaware Investments Minnesota Municipal Income Fund II, Inc.

Address of principal executive offices:
2005 Market Street
Philadelphia, PA 19103

Name and address of agent for service:
David F. Connor, Esq.
2005 Market Street
Philadelphia, PA 19103

Registrant’s telephone number, including area code: (800) 523-1918

Date of fiscal year end: March 31

Date of reporting period: March 31, 2007


Item 1. Reports to Stockholders

The Registrant’s shareholder reports are combined with the shareholder reports of other investment company registrants. This Form N-CSR pertains to the DELAWARE INVESTMENTS MINNESOTA MUNICIPAL INCOME FUND II, INC. of the Registrant, information on which is included in the following shareholder reports.













 

       Annual Report

Delaware

Investments

Closed-End

Municipal Bond

Funds

 

March 31, 2007

 
 
 
 
 
 
 
 
 

Closed-end funds

 
 
 
 


Table of contents

     > Porfolio management review  1 
 
> Performance summaries  7 
 
> Sector allocations and credit quality breakdowns  8 
 
> Financial statements:   
          Statements of net assets  10 
          Statements of operations  23 
          Statements of changes in net assets  24 
          Financial highlights  25 
          Notes to financial statements  29 
 
> Report of independent registered public accounting firm  36 
 
> Other fund information  37 
 
> Board of trustees/directors and officers addendum  41 
 
> About the organization  43 

Dividend Reinvestment Plans

Each Fund offers an automatic dividend reinvestment program. If Fund shares are registered in your name and you are not already reinvesting dividends but would like to do so, contact the dividend plan agent, Mellon Investor Services LLC, at 800 851-9677. You will be asked to put your request in writing. If you have shares registered in a “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, 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, distributions of net investment income and capital gains to common shareholders will be paid in cash unless shareholders notify Mellon Investor Services LLC 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 LLC
Dividend Reinvestment Department
Overpeck Centre
85 Challenger Road
Ridgefield, NJ 07660
800 851-9677






Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested.

Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management
Business Trust, which is a registered investment advisor.


Portfolio management review

Delaware Investments Closed-End Municipal Bond Funds

April 10, 2007

The managers of Delaware Closed-End Municipal Bond Funds provided the answers to the questions below as a review of the Funds’ activities for the fiscal year that ended March 31, 2007. Please see page 6 to learn more about the portfolio managers.

Q: What was the investment environment like for municipal bond funds during the fiscal year ended March 31, 2007?

A: Based on changing projections for inflation during the year, the U.S. Federal Reserve’s direction on monetary policy remained a topic of speculation and drove market volatility. Overall, rates fell during the year, primarily during the third and fourth quarters of calendar year 2006. The closely watched 10-year Treasury yield opened at a 4.86% and finished the fiscal year at a 4.65% (source: Municipal Market Data).

In the spring of 2006, economic reports showed strong growth for the first calendar quarter of 2006. Prices of oil and other commodities also rose in the spring, which led to inflationary pressure and uncertainty among investors about the timing of a Fed change in monetary policy. This helped push bond yields higher across all maturities and spurred an equity market pullback in May and June.

As the summer of 2006 progressed, inflation concerns began to cool because of weaker housing data and a steady drop in oil prices. Yields generally fell through the summer months after peaking on June 28, 2006 (source: Bloomberg). A broad-based bond rally that lasted into December seemed to be a result of investors having largely concluded that the Fed was finished boosting short-term interest rates after two years of restrictive policy measures.

During that rally, municipals performed well compared to U.S. Treasury bonds. We continued to feel the effect of nontraditional buyers in the municipal bond marketplace. In the past, demand for municipal bonds has traditionally been generated by individuals who are attracted to their tax-advantaged status. Today, analyzing the market entails an added layer of complexity, because hedge funds, banks, and corporations are entering the municipal bond market for other benefits. As an example, they might employ trading strategies aimed at capitalizing on the yield difference (known as a spread) between long and short bond yields.

In part because of an active fourth quarter, $383 billion of bonds were issued nationally for calendar year 2006. The total was just 6.1% lower than the record set in 2005 (source: Bond Buyer). The increased demand from nontraditional buyers helped to support prices in the market despite the high rate of new issuance. In the first quarter of 2007, the active pace of issuance continued, with $104 billion hitting the market, a total that beat the pace of issuance in the same period a year ago by 49%.

Q: What factors influenced performance in the Funds?

A: During a strong bond market rally, like the one that took place last fall, municipal bond prices tend to lag behind those of Treasury securities. Due to this fact, combined with a heavy supply of new municipal bonds entering the market at that time, we might reasonably have expected municipal bond prices to trail Treasuries by a considerable margin. However, the market remained stronger than taxable bonds through fiscal year-end. Demand, traditional and nontraditional, remained exceptionally high and the new issuance was scooped up by eager investors.

Demand also drove yields lower (and prices higher) for long maturity bonds, shrinking the yield spread between short and long-maturities. During the fiscal year, the spread between 2- and 30-year maturities narrowed by nearly a half percentage point.

During the market rally, we found what we believed to be good long-term opportunities, based on the attractiveness of the way certain bonds were structured. In the Funds without an insured mandate, our focus early in the year was on identifying value in the low and middle portion of the investment grade market segment — specifically, bonds rated BBB and A by Standard & Poor’s (S&P).


The views expressed are current as of the date of this report and are subject to change.

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Portfolio management review

Delaware Investments Closed-End Municipal Bond Funds

April 10, 2007

Arizona Municipal Income Fund

Q: What conditions prevailed in the Arizona debt market?

A: Arizona is one of the fastest growing, most dynamic economies in the nation. The state has a competitive business climate and tax structure, a skilled, knowledge-based workforce, and both cultural and scenic tourism resources. Job growth in Arizona continued to accelerate in 2006 and ranked second nationwide. For fiscal year 2006, the state’s non-farm payroll increased 4.8% (source: Nelson A. Rockefeller State Revenue Report #65). As of March 2007, the state’s unemployment rate of 3.9% was below the national unemployment rate of 4.4%, according to U.S. Department of Labor data.

For fiscal 2006, tax revenues increased 19.10%, led by very strong personal and sales tax (source: Nelson A. Rockefeller State Revenue Report #65). According to a recent Moody’s report, the state’s General Fund ended fiscal 2006 at $1.7 billion. The Arizona Budget Stabilization Fund totaled $651.0 million as of June 30, 2006, representing a $490.1 million increase over 2005. Arizona’s fiscal year 2007 General Fund budget currently totals $10.09 billion and increases base spending by about 7.70%. The three main spending priorities include public safety, education, and healthcare.

Q: How did the Arizona Municipal Income Fund perform versus its benchmark and peer group?

A: The Fund returned +5.26% at net asset value (share returns include distributions reinvested). The median return of the Fund’s peer group, the Lipper Other States Municipal Debt category, was +4.65% during the same period. As a broader benchmark, the Lehman Brothers Municipal Index returned +5.43% over the 12-month period (sources: Lipper, Lehman Brothers).

We remind shareholders that substantially all dividends in the Fund are free from federal income tax but may be subject to the alternative minimum tax, which applies to certain taxpayers. Capital gains, if any, are taxable. Additionally, past performance is not a guarantee of future results. Investors should consult with a tax professional regarding their specific solutions.

Q: What strategies affected Fund performance?

A: Bonds issued to finance hospitals and other healthcare projects outperformed other portions of the municipal bond market during the fiscal year. The healthcare industry currently appears stable and is growing based on the current and future needs of aging baby boomers. Healthcare bonds tend to be among the lower-rated investment grade issues (A or BBB, rated by S&P). An example of a strong performer in the Fund was a bond issued by University of Arizona Medical Center, rated Baa1 by Moody’s and BBB+ by S&P, which is due to mature in 2033.

On the downside, bonds that were pre-refunded were among the underperformers during the one-year period. An example in the Fund was an AAA-rated Arizona School Facilities Board Revenue bond paying 5.00% interest and scheduled for redemption in 2011. Many pre-refunded bonds in the Fund currently show fiscal-period total returns that are lower compared to other bonds in the Fund during market rallies, but they have the potential to provide attractive income payments. Traditionally, we have opted to hold these bonds, without realizing a taxable gain. A downside of this strategy is that the short call feature, or the ability of the issuer to redeem the bond early, restricts price appreciation. During periods of falling interest rates, this may constrain the bond’s total return.

In comparing returns to the benchmark index, one limiting factor for the Fund was that it did not utilize the noninvestment grade segment of the market. This rating category outperformed the Lehman Brothers Municipal Bond Index, posting a +9.84% return for the period. At its February 2007 meeting, the Fund’s board of directors approved a change that will allow us to invest up to 20% of the Fund’s net assets in municipal bonds that are rated lower than Ba1 by Moody’s or BB+ by S&P, or that are unrated but judged to be of comparable quality.

Investment in municipal bonds of below investment grade quality involves special risks as compared with investment in higher grade municipal bonds. These risks may include

2


greater sensitivity to a general economic downturn, greater market price volatility and less secondary market trading. Securities rated below investment grade are commonly known as “junk bonds.” Such securities are regarded, on balance, as predominantly speculative with respect to the issuer’s ability to pay interest and repay principal owed.

Colorado Insured Municipal Income Fund

Q: What conditions prevailed in the Colorado debt market?

A: After experiencing a sharper economic downturn than the nation in recent years, Colorado is now showing signs of recovering at a healthy pace. The state’s employment declines bottomed out in early 2004. For Colorado’s 2006 fiscal year, job growth was above national levels of 1.4%, with the state’s non-farm payroll increasing 2.1% (source: Nelson A. Rockefeller State Revenue Report #65). This is largely attributable to growth in construction, healthcare, and education. As of March 2007, the state’s unemployment rate of 3.8% was below the national unemployment rate of 4.4%, according to U.S. Department of Labor data.

For fiscal year 2006, Colorado tax revenues increased 11.6% (source: Nelson A. Rockefeller State Revenue Report #65). This growth is due to increases in personal income tax, sales tax, but most importantly corporate income tax. According to a recent Moody’s report, Colorado’s Required Statutory Reserve increased by $53 million to total $251.7 million in 2006. Colorado’s General Fund balance stood at $592.7 million as of June 30, 2006. Voter initiatives, such as the Tax Payer Bill of Rights, have limited Colorado’s financial flexibility.

In November 2005, Referendum C was approved by Colorado voters. This allowed the state to retain tax revenue collected in excess of the fiscal year’s budget for the following five years, estimated to be $3.7 billion. Highlights of the 2006-2007 budget include increased higher education and human services spending.

Q: How did the Fund perform versus its benchmark and peer group?

A: Colorado Insured Municipal Income Fund returned +4.35% at net asset value (share returns include distributions reinvested). The median return of the Fund’s peer group, the Lipper Other States Municipal Debt category, was +4.65% during the same period. A broader benchmark, the Lehman Brothers Municipal Index, returned +5.43% over the 12-month period (sources: Lipper, Lehman Brothers).

We remind shareholders that substantially all dividends in the Fund are free from federal income tax but may be subject to the alternative minimum tax, which applies to certain taxpayers. Capital gains, if any, are taxable. Additionally, past performance is not a guarantee of future results. Investors should consult with a tax professional regarding their specific situation.

Q: What strategies affected Fund performance?

A: We believe one of the reasons the Fund underperformed its Lipper peer group was due to the fundamental investment policy requiring the Fund to invest 80% of its assets in 100% insured or AAA-rated bonds. It should be noted that the Fund’s peer group is not strictly an insured universe. Over this 12-month period in the Lehman Municipal Bond Index, S&P AAA-rated bonds returned just +5.29%, while BBB-rated bonds returned +7.33%, and noninvestment grade bonds posted a +9.84% return (source: Lehman Brothers).

Another drag on performance for the period was the significant level of bonds in the Fund with short call dates. A call is a feature that allows the issuer to redeem the bond early. These bonds were typically purchased with 10 years or so of call protection and have since “rolled down the yield curve” as they near their call dates. They were originally purchased in favorable yield environments, earned above-market book yields, and most have experienced price appreciation. Traditionally, we have opted to hold these bonds, maintaining the high book yield and not realizing a taxable gain. A downside of this strategy is that the short call feature, or the ability of the issuer to redeem the bond early, restricts price appreciation. During periods of falling interest rates, this may constrain the bond’s total return.

Another facet of the Fund is older, pre-refunded bonds. Pre-refunded bonds are typically short in duration and

(continues)     3


Portfolio management review

Delaware Investments Closed-End Municipal Bond Funds

April 10, 2007

their performance will typically be close to that of bonds with short call dates. The pre-refunded portion of the Lehman Brothers Municipal Bond Index returned just 4.40% over the fiscal year. During the last six months, we purchased some longer bonds, funding those purchases with the sale proceeds of higher-quality, shorter-duration bonds – either pre-refunded bonds or bonds with very short calls.

Florida Insured Municipal Income Fund

Q: What conditions prevailed in the Florida debt market?

A: Florida’s economy is one of the strongest in the nation. Job growth remained robust with non-farm payroll increasing 3.2% in 2006 fiscal year (source: Nelson A. Rockefeller State Revenue Report #65). High population growth has given strength to the state’s economy but has also put pressure on government services for education, corrections, transportation, and health and human services.

One area of concern for the state economy is the housing market, which is currently experiencing a significant decline. Florida housing were down 47% in the last quarter of calendar 2006, compared to the same period of 2005 (source: Moody’s). As of July 2006, the state’s unemployment rate remained very low at 3.3% compared to the national unemployment rate of 4.4%, based on U.S. Department of Labor data.

For fiscal 2006, tax revenues were up 8.4%. Sales and use tax revenues, which account for approximately 72% of all taxes, grew 9.9% (source: Nelson A. Rockefeller State Revenue Report #65).

According to a recent Moody’s report, the state’s General Fund ended fiscal 2006 at $8.0 billion. Florida’s Budget Stabilization Fund totaled $999 million at the end of fiscal 2005 and $1.1 billion at the end of fiscal 2006. The Florida intangible personal property tax, which is a duty on stocks and bonds that affects some of Florida’s wealthiest, was voted out of existence by the state legislature on April 26, 2006, with annual tax savings estimated to be $161 million for an estimated 300,000 taxpayers. According to this report, the $74 billion fiscal 2007 budget provides for $298 million in tax cuts and sets aside $6.4 billion in reserves. The state has conservatively estimated net general revenue growth of 1.6% in 2007 compared to a historical average of 9.8%.

Q: How did the Fund perform versus its benchmark and peer group?

A: The Florida Insured Municipal Income Fund returned +5.27% at net asset value (share returns include distributions reinvested). The median return of the Fund’s peer group, the Lipper Florida Closed-End Municipal Debt Funds, was +5.89% during the same period. As a broader benchmark, the Lehman Brothers Municipal Index returned +5.43% over the 12-month period (sources: Lipper, Lehman Brothers).

We remind shareholders that substantially all dividends in the Fund are free from federal income tax but may be subject to the alternative minimum tax, which applies to certain taxpayers. Capital gains, if any, are taxable. Additionally, past performance is not a guarantee of future results. Investors should consult with a tax professional regarding their specific situations.

Q: What strategies affected Fund performance?

A: We believe one of the reasons that the Fund underperformed its Lipper peer group is due to the fundamental investment policy requiring the Fund to invest 80% of its assets in 100% insured or S&P AAA-rated bonds. It should be noted that the Fund’s peer group is not strictly an insured universe. Over this 12-month period in the Lehman Municipal Bond Index, AAA-rated bonds returned just +5.29%, while BBB-rated bonds returned +7.33%, and noninvestment grade bonds posted a +9.84% return (source: Lehman Brothers).

One of the other drags on performance was the significant level of bonds in the Fund with short call dates. A call is a feature that allows the issuer to redeem a bond early. These bonds were typically purchased with 10 years or so of call protection and have since “rolled down the yield curve” as they near their call dates. They were originally purchased in favorable yield

4


environments, earned above-market book yields, and most have experienced price appreciation. Traditionally, we have opted to hold these bonds, maintaining the high book yield and not realizing a taxable gain. A downside of this strategy is that the short call feature, or the ability of the issuer to redeem the bond early, restricts price appreciation. During periods of falling interest rates, this may constrain the bond’s total return.

Minnesota Municipal Income Fund II

Q: What conditions prevailed in the Minnesota debt market?

A: Minnesota has recovered from the 2001 recession and the resulting damage to the state’s finances. The state has steady demographic trends, high personal income levels, high employment diversity and performance, and low unemployment (source: Moody’s). In fiscal 2006, the state’s non-farm payroll increased 1.9% compared to national growth of 1.4% (source: Nelson A. Rockefeller State Revenue Report #65). As of March 2007, the state’s unemployment rate was slightly high at 4.5% compared to the national unemployment rate of 4.4% (source: U.S. Department of Labor).

For fiscal 2006, tax revenues were up 8.8% (source: Nelson A. Rockefeller State Revenue Report #65). According to a recent Moody’s report, the state’s General Fund ended fiscal 2006 at $838.8 million, a $745.8 million increase over 2005. The budget reserve has climbed back to $1.1 billion, on a budgetary basis (source: Fiscal Survey of the States, December 2006). The enacted 2006-2007 Budget projects total spending to increase 8.4%. Most of the spending increases are going toward K-12 education, health and human services, and public safety. The state is paying for these increases with approximately $1 billion in new ongoing revenues, including a $0.75 per pack increase in the cigarette tax.

Q: How did the Fund perform versus its benchmark and peer group?

A: Minnesota Municipal Income Fund II returned +6.05% at net asset value (share returns include distributions reinvested). The median return of the Fund’s peer group, the Lipper Other States Municipal Debt category, was +4.65% during the same period. As a broader benchmark, the Lehman Brothers Municipal Index returned +5.43% over the 12-month period (sources: Lipper, Lehman Brothers).

We remind shareholders that substantially all dividends in the Fund are free from federal income tax but may be subject to the alternative minimum tax, which applies to certain taxpayers. Capital gains, if any, are taxable. Additionally, past performance is not a guarantee of future results. Investors should consult with a tax professional regarding their specific situation.

Q: What strategies affected Fund performance?

A: Bonds issued to finance hospitals and other healthcare projects outperformed other portions of the municipal bond market during the fiscal year. The healthcare industry currently appears stable and is growing based on the current and future needs of aging baby boomers. Healthcare bonds tend to be among the lower-rated investment grade issues (A or BBB by S&P). An example in the Fund of one of the better performers is a bond issued by the City of Duluth for the Benedictine Health System, which is rated A- by S&P and A- by Fitch, and is due to mature in 2033.

Bonds issued to finance corporate-related projects, were the top-performing sector in the Lehman Brothers Municipal Bond Index for the period. The Fund was slightly overweight versus the benchmark in this sector. An example of a strong performer was a bond issued for an electric co-generation facility by Laurentian Energy Authority. The bond is currently rated Baa3 by Moody’s and matures in 2021.

On the downside, bonds that were pre-refunded were among the underperformers over a one-year period. An example in the Fund is an AAA-rated (by S&P) Minnesota Agriculture and Economic Development Board Revenue bond paying 5.75% interest and scheduled for redemption later in 2007.

Many pre-refunded bonds in the Fund showed fiscal year total returns for the period that were lower compared to other bonds in the Fund during market rallies, but they currently still

(continues)     5


Portfolio management review

Delaware Investments Closed-End Municipal Bond Funds

April 10, 2007

provide attractive income payments. Traditionally, we have opted to hold these bonds, maintaining the high book yield and not realizing a taxable gain. A downside of this strategy is that the short call dates may restrict price appreciation which, during periods of falling interest rates, constrains the bond’s total return.

In comparing returns to the benchmark index and some of the Fund’s peers, one limiting factor for the Fund was that it did not utilize the noninvestment grade segment of the market. This rating category outperformed the Lehman Brothers Municipal Bond Index, posting a +9.84% return. At its February 2007 meeting, the Fund’s board of directors approved a change that will allow us to invest up to 20% of the Fund’s net assets in municipal bonds that are rated lower than Ba1 by Moody’s or BB+ by S&P, or that are unrated but judged to be of comparable quality.

Investment in municipal bonds of below investment grade quality involves special risks as compared with investment in higher grade municipal bonds. These risks may include greater sensitivity to a general economic downturn, greater market price volatility and less secondary market trading. Securities rated below investment grade are commonly known as “junk bonds.” Such securities are regarded, on balance, as predominantly speculative with respect to the issuer’s ability to pay interest and repay principal owed.

Fund managers

Joseph Baxter
Senior Vice President, Head of Municipal Bond
Department, Senior Portfolio Manager
Arizona Municipal Income Fund,
Colorado Insured Municipal Income Fund,
Florida Insured Municipal Income Fund,
Minnesota Municipal Income Fund II

Mr. Baxter joined Delaware Investments in 1999. He heads the firm’s municipal bond department and is responsible for setting the department’s investment strategy. He is also a co-portfolio manager of the firm’s municipal bond funds and several client accounts. Before joining Delaware Investments, he held investment positions with First Union, most recently as a municipal portfolio manager with the Evergreen Funds. Mr. Baxter received a bachelor’s degree in finance and marketing from LaSalle University.

Robert Collins
Senior Vice President, Senior Portfolio Manager
Arizona Municipal Income Fund,
Colorado Insured Municipal Income Fund,
Florida Insured Municipal Income Fund,
Minnesota Municipal Income Fund II

Mr. Collins joined Delaware Investments in 2004 and is a co-portfolio manager of several of the firm’s municipal bond funds and client accounts. Prior to joining Delaware Investments, he spent five years as a co-manager of the municipal portfolio management group within PNC Advisors, where he oversaw the tax-exempt investments of high net worth and institutional accounts. Before that, he headed the municipal fixed income team at Wilmington Trust, where he managed funds and high net worth accounts. Mr. Collins earned a bachelor’s degree in economics from Ursinus College, and he is also a former president of the Financial Analysts of Wilmington, Delaware.

Denise Franchetti
Vice President, Portfolio Manager,
Senior Research Analyst
Arizona Municipal Income Fund,
Colorado Insured Municipal Income Fund,
Florida Insured Municipal Income Fund,
Minnesota Municipal Income Fund II

Ms. Franchetti joined Delaware Investments in 1997 as a research analyst for the municipal bond group. Currently, she is responsible for following the airports/airlines, education, hotels, leases, turnpike/toll, and transportation sectors for the group. In 2003, she was also named as portfolio manager on several of the tax-exempt funds in addition to her research duties. Previously, Ms. Franchetti was a fixed income trader at Provident Mutual Life Insurance and an investment analyst at General Accident Insurance. Ms. Franchetti received her bachelor’s degree and an MBA from LaSalle University, and she is a member of The CFA Society of Philadelphia.

6


Performance summaries

Delaware Investments
Arizona Municipal Income Fund, Inc.

Fund basics
As of March 31, 2007

Fund objective

The Fund seeks to provide current income exempt from both regular federal income tax and from Arizona personal income tax, consistent with preservation of capital.
 

Total Fund net assets

$43.9 million

 

Number of holdings

52

 

Fund start date

Feb. 26, 1993

Delaware Investments
Colorado Insured Municipal Income Fund, Inc.

Fund basics
As of March 31, 2007

Fund objective

The Fund seeks to provide current income exempt from both regular federal income tax and Colorado state personal income tax, consistent with preservation of capital.

 

Total Fund net assets 

$73.1 million 

 

Number of holdings

52

 

Fund start date

July 29, 1993

Delaware Investments
Florida Insured Municipal Income Fund

Fund basics
As of March 31, 2007

Fund objective

The Fund seeks to provide current income exempt from both regular federal income tax consistent with preservation of capital.

 

Total Fund net assets

$35.2 million
 

Number of holdings

39 

 

Fund start date

Feb. 26, 1993

Delaware Investments
Minnesota Municipal Income Fund II, Inc.

Fund basics
As of March 31, 2007

Fund objective

The Fund seeks to provide current income exempt from both regular federal income tax and Minnesota personal income tax, consistent with preservation of capital. 

 

Total Fund net assets 

$171.1 million 

 

Number of holdings

126 

 

Fund start date

Feb. 26, 1993

7


Sector allocations and credit quality breakdowns

As of March 31, 2007

Sector designations may be different than the sector designations presented in other Fund materials.

Delaware Investments
Arizona Municipal Income Fund, Inc.

Percentage
Sector of Net Assets
Municipal Bonds  152.47%  
Education Revenue Bonds 16.48%  
Electric Revenue Bonds 12.60%  
Escrowed to Maturity Bonds 6.09%  
Health Care Revenue Bonds 19.52%  
Housing Revenue Bonds 2.05%  
Lease Revenue Bonds 8.73%  
Local General Obligation Bonds 20.08%  
Pre-Refunded Bonds 36.30%  
Special Tax Revenue Bonds 8.36%  
Transportation Revenue Bonds 16.70%  
Water & Sewer Revenue Bonds 5.56%  
Short-Term Investments 3.64%  
Total Value of Securities 156.11%  
Receivables and Other Assets Net of Liabilities 0.82%  
Liquidation Value of Preferred Stock (56.93% )
Total Net Assets 100.00%  
   
Credit Quality Breakdown  
(as a % of fixed income investments)    
AAA 67.71%  
AA 15.24%  
A 8.20%  
BBB 7.41%  
Not Rated 1.44%  
Total 100.00%  

Delaware Investments
Colorado Insured Municipal Income Fund, Inc.

Percentage
Sector of Net Assets
Municipal Bonds  148.74%  
Education Revenue Bonds 29.87%  
Electric Revenue Bonds 1.48%  
Health Care Revenue Bonds 5.36%  
Lease Revenue Bonds 13.11%  
Local General Obligation Bonds 14.55%  
Pre-Refunded Bonds 49.08%  
Special Tax Revenue Bonds 5.54%  
Transportation Revenue Bonds 18.76%  
Water & Sewer Revenue Bonds 10.99%  
Short-Term Investments 1.50%  
Total Value of Securities 150.24%  
Receivables and Other Assets Net of Liabilities 4.51%  
Liquidation Value of Preferred Stock (54.75% )
Total Net Assets 100.00%  
   
Credit Quality Breakdown    
(as a % of fixed income investments)    
AAA 100.00%  
Total 100.00%  

8


As of March 31, 2007

Sector designations may be different than the sector designations presented in other Fund materials.

Delaware Investments
Florida Insured Municipal Income Fund

Percentage
Sector of Net Assets
Municipal Bonds  151.21%  
Education Revenue Bonds 3.56%  
Electric Revenue Bonds 5.81%  
Health Care Revenue Bonds 18.20%  
Housing Revenue Bonds 23.12%  
Lease Revenue Bonds 20.02%  
Local General Obligation Bonds 3.87%  
Pre-Refunded Bonds 9.15%  
Special Tax Revenue Bonds 26.35%  
State General Obligation Bonds 5.97%  
Transportation Revenue Bonds 15.51%  
Water & Sewer Revenue Bonds 19.65%  
Short-Term Investments 3.40%  
Total Value of Securities 154.61%  
Receivables and Other Assets Net of Liabilities 2.11%  
Liquidation Value of Preferred Stock (56.72% )
Total Net Assets 100.00%  
   
Credit Quality Breakdown    
(as a % of fixed income investments)    
AAA 100.00%  
Total 100.00%  

Delaware Investments
Minnesota Municipal Income Fund II, Inc.

Percentage
Sector of Net Assets
Municipal Bonds  158.45%
Corporate-Backed Revenue Bonds 6.60%
Education Revenue Bonds 8.65%
Electric Revenue Bonds 21.06%
Escrowed to Maturity Bonds 17.13%
Health Care Revenue Bonds 21.58%
Housing Revenue Bonds 9.76%
Lease Revenue Bonds 10.42%
Local General Obligation Bonds 25.98%
Pre-Refunded Bonds 22.91%
Special Tax Revenue Bonds 1.64%
State General Obligation Bonds 5.08%
Transportation Revenue Bonds 7.64%  
Short-Term Investments 0.47%  
Total Value of Securities 158.92%  
Liabilities Net of Receivables and Other Assets (3.41% )
Liquidation Value of Preferred Stock (55.51% )
Total Net Assets 100.00%  
 
Credit Quality Breakdown
(as a % of fixed income investments)    
AAA 57.03%
AA 14.38%
A 15.95%
BBB 9.21%
BB 2.16%
B 0.36%
Not Rated 0.91%  
Total 100.00%  

9


Statements of net assets

Delaware Investments Arizona Municipal Income Fund, Inc.

March 31, 2007

  Principal       
  Amount Value
Municipal Bonds – 152.47%       
Education Revenue Bonds – 16.48%    
     Arizona State University Certificates    
          of Participation (Research    
          Infrastructure Project)     
          5.00% 9/1/30 (AMBAC) $1,000,000 $1,048,890
     Arizona Student Loan Acquisition    
          Authority Revenue Refunding    
          Series A-1 5.90% 5/1/24 (AMT) 1,500,000 1,589,055
     Glendale Industrial Development    
          Authority Revenue Refunding    
          (Midwestern University)     
          5.00% 5/15/31 350,000 373,398
     Northern Arizona University    
          Certificates of Participation    
          (Northern Arizona University    
          Research Project)    
          5.00% 9/1/30 (AMBAC) 1,000,000 1,054,390
     Pima County Industrial    
          Development Authority (Tucson    
          Day School Project)    
          5.00% 6/1/37 500,000 502,145
     South Campus Group Student    
          Housing Revenue (Arizona     
          State University South Campus    
          Project) 5.625% 9/1/35 (MBIA) 1,000,000 1,096,500
     University of Arizona Certificates    
          of Participation (University    
          of Arizona Project) Series B    
          5.125% 6/1/22 (AMBAC) 500,000 527,680
     University of Puerto Rico Revenue    
          Series Q 5.00% 6/1/36 1,000,000 1,042,890
    7,234,948
Electric Revenue Bonds – 12.60%    
     Salt River Project Agricultural    
          Improvement & Power District    
          Electric System Revenue     
          (Salt River Project)    
          Series A 5.00% 1/1/31 1,500,000 1,573,170
          Series A 5.00% 1/1/37 2,500,000 2,646,000
          Series B 5.00% 1/1/25 1,250,000 1,315,563
    5,534,733
Escrowed to Maturity Bonds – 6.09%    
     Puerto Rico Commonwealth    
          Infrastructure Financing Authority    
          Series A 5.50% 10/1/40 2,500,000 2,674,950
    2,674,950
Health Care Revenue Bonds – 19.52%    
     Maricopa County Industrial    
          Development Authority Revenue    
          (Catholic Healthcare West)     
          Series A 5.50% 7/1/26 430,000 460,582
          (Mayo Clinic) 5.00% 11/15/36 750,000 784,343
     Maricopa County Industrial    
          Development Authority Health    
          Facilities Revenue         
          (Mayo Clinic Hospital)    
          5.25% 11/15/37 2,000,000 2,047,160
     Show Low Industrial Development    
          Authority Hospital Revenue     
          (Navapache Regional Medical    
          Center)    
          Series A 5.50% 12/1/17 (ACA) 1,600,000 1,643,968
     University Medical Center    
          Corporation Arizona Hospital    
          Revenue    
          5.00% 7/1/33 1,000,000 1,021,890
          5.00% 7/1/35 500,000 511,500
     Yavapai County Industrial    
          Development Authority    
          Revenue (Yavapai Regional     
          Medical Center) Series A     
          5.25% 8/1/21 (RADIAN) 2,000,000 2,104,859
    8,574,302
Housing Revenue Bonds – 2.05%    
     Phoenix Industrial Development    
          Authority Single Family     
          Statewide Revenue    
          Series A 5.35% 6/1/20 (GNMA)    
          (FNMA) (FHLMC) (AMT) 465,000 472,026
          Series C 5.30% 4/1/20 (GNMA)    
          (FNMA) (FHLMC) (AMT) 370,000 372,720
     Pima County Industrial    
          Development Authority Single    
          Family Mortgage Revenue     
          Series A-1 6.125% 11/1/33     
          (GNMA) (FNMA) (FHLMC) (AMT) 55,000 55,128
    899,874
Lease Revenue Bonds – 8.73%    
     Arizona Game & Fishing    
          Department & Commission    
          Beneficial Interest Certificates    
          (Administration Building Project)    
          5.00% 7/1/26 640,000 669,133
     Coconino County Unified School    
          District #8 (Page Impact Aid    
          Revenue Project of 2004)     
          Series A 5.00% 7/1/15 (MBIA) 1,000,000 1,078,350
     Nogales Development Authority    
          Municipal Facilities Revenue    
          5.00% 6/1/30 (AMBAC) 500,000 526,510
     Phoenix Civic Improvement    
          Corporation Excise Tax Senior    
          Lien (Municipal Courthouse     
          Project) Series A 5.25% 7/1/24 1,000,000 1,039,710

10



  Principal       
  Amount   Value
Municipal Bonds (continued)       
Lease Revenue Bonds (continued)      
     Prescott Valley Municipal Property      
          Corporation 5.00% 1/1/27      
          (FGIC) $   500,000 $    520,350
      3,834,053
Local General Obligation Bonds – 20.08%      
     Marana Tangerine Farm Road      
          Improvement District Revenue      
          4.60% 1/1/26 1,000,000   998,440
     Maricopa County School District #6      
          (Washington Elementary)      
          Refunding Series A      
          5.375% 7/1/13 (FSA) 3,000,000   3,280,679
          (Washington Elementary School      
          Improvement Project of 2001)      
          Series B 5.00% 7/1/17 (FSA) 1,000,000   1,096,160
     Maricopa County School District      
          #38 Refunding (Madison      
          Elementary) 5.00% 7/1/13 (FSA) 1,250,000   1,339,538
     Queen Creek Improvement      
          District #1 5.00% 1/1/32 1,000,000   1,021,030
     Tempe Union High School      
          District #213 5.00% 7/1/14 (FSA) 1,000,000   1,080,990
      8,816,837
§Pre-Refunded Bonds – 36.30%      
     Arizona School Facilities Board      
          Certificates of Participation      
          Series B 5.25% 9/1/19-14 (FSA) 1,000,000   1,097,150
     Arizona School Facilities Board      
          Revenue (State School      
          Improvement) Series 2001      
          5.00% 7/1/19-11 2,000,000   2,104,140
     Arizona Transportation Board      
          Highway Revenue Refunding      
          5.75% 7/1/18-09 2,350,000   2,457,465
     Arizona Water Infrastructure      
          Finance Authority Revenue      
          Water Quality Series A      
          5.05% 10/1/20-11 1,500,000   1,585,515
     Oro Valley Municipal Property      
          Corporation Excise Tax      
          5.00% 7/1/20-11 (FGIC) 1,000,000   1,055,780
     Puerto Rico Commonwealth      
          Public Improvement Revenue      
          Series A 5.125% 7/1/31-11 250,000   264,845
     Puerto Rico Highway &      
          Transportation Authority      
          Transportation Refunding      
          Series D 5.00% 7/1/32-12 (FSA) 3,475,000   3,694,654
     Scottsdale Industrial Development      
          Authority Hospital Revenue      
          (Scottsdale Healthcare)      
          5.80% 12/1/31-11 1,000,000   1,095,190
     Southern Arizona Capital    
          Facilities Finance Corporation    
          (University of Arizona Project)    
          5.00% 9/1/23-12 (MBIA) 1,150,000  1,224,221
     Virgin Islands Public Finance    
          Authority Revenue (Gross     
          Receipts Tax Loan Note) Series A    
          6.125% 10/1/29-10 (ACA)  1,250,000 1,361,663
    15,940,623
Special Tax Revenue Bonds – 8.36%    
     Arizona Tourism & Sports Authority    
          Tax Revenue Multipurpose     
          Stadium Facilities Series A    
          5.00% 7/1/31 (MBIA) 1,000,000 1,041,580
     Glendale Municipal Property    
          Corporation Series A    
          5.00% 7/1/33 (AMBAC) 2,000,000 2,107,300
     San Luis Civic Improvement    
          Corporation Municipal    
          Facilities Excise Tax Revenue    
          5.00% 7/1/38 (XLCA) 500,000 523,890
    3,672,770
Transportation Revenue Bonds – 16.70%    
     Phoenix Civic Improvement    
          Corporation Airport Revenue    
          Series B 5.25% 7/1/27    
          (FGIC) (AMT) 2,000,000 2,086,920
     Puerto Rico Commonwealth    
          Highway & Transportation    
          Authority Transportation     
          Refunding Series D    
          5.00% 7/1/32 (FSA) 5,025,000 5,244,894
    7,331,814
Water & Sewer Revenue Bonds – 5.56%    
     Phoenix Civic Improvement    
          Corporation Wastewater    
          Systems Revenue Junior Lien    
          5.00% 7/1/24 (FGIC) 1,590,000 1,657,209
          5.00% 7/1/26 (FGIC) 750,000 784,808
    2,442,017
Total Municipal Bonds     
     (cost $64,117,120)   66,956,921

(continues)     11


Statements of net assets

Delaware Investments Arizona Municipal Income Fund, Inc.

  Principal         
  Amount Value
Short-Term Investments – 3.64%      
Variable Rate Demand Notes – 3.64%    
     Arizona Health Facilities Authority    
          Revenue (Catholic West Health    
          Facilities) Series B    
          3.68% 7/1/35 $ 600,000 $ 600,000
     Coconino County Industrial    
          Development Authority    
          Industrial Development    
          Revenue (Scuff Steel Project)    
          3.75% 3/1/27 (LOC    
          Wells Fargo Bank NA) (AMT)  1,000,000 1,000,000
Total Short-Term Investments    
     (cost $1,600,000)   1,600,000
 
Total Value of Securities – 156.11%    
     (cost $65,717,120)   68,556,921
Receivables and Other Assets    
     Net of Liabilities – 0.82%   359,212
Liquidation Value of Preferred Stock – (56.93%)  (25,000,000 )
 
Net Assets Applicable to 2,982,200    
     Shares Outstanding – 100.00%   $ 43,916,133
 
Net Asset Value Per Common Share    
     ($43,916,133 / 2,982,200 Shares)   $14.73
 
Components of Net Assets at March 31, 2007:  
Common stock, $0.01 par value, 200 million shares  
     authorized to the Fund   $ 40,838,893
Accumulated net realized gain on investments 237,439
Net unrealized appreciation of investments   2,839,801
Total net assets   $ 43,916,133

§ Pre-Refunded bonds. Municipals that are generally backed or secured by U.S. Treasury bonds. For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 9 in “Notes to Financial Statements.”
   
Variable rate security. The rate shown is the rate as of March 31, 2007.

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 
LOC — Letter of Credit 
MBIA — Insured by the Municipal Bond Insurance Association 
RADIAN — Insured by Radian Asset Assurance 
XLCA — Insured by XL Capital Assurance 
 

See accompanying notes

12


Delaware Investments Colorado Insured Municipal Income Fund, Inc.

March 31, 2007

  Principal       
  Amount Value
Municipal Bonds – 148.74%       
Education Revenue Bonds – 29.87%    
     Boulder County Development    
          Revenue Refunding    
          (University Corporation for    
          Atmospheric Research)    
          5.00% 9/1/26 (MBIA) $4,500,000 $ 4,655,610
     Colorado Educational &    
          Cultural Facilities Authority    
          (Johnson & Wales University    
          Project) Series A    
          5.00% 4/1/28 (XLCA)  3,000,000 3,125,370
          (Littleton School Project)     
          4.375% 1/15/36 (CIFG)  1,200,000 1,173,012
          (University of Colorado     
          Foundation Project)    
          5.00% 7/1/27 (AMBAC)  4,000,000 4,185,640
          (University of Northern     
          Colorado) Series A    
          5.00% 7/1/31 (MBIA)  2,500,000 2,578,475
     Colorado State Board of Governors    
          (Colorado University) Series B    
          5.00% 3/1/35 (AMBAC)  1,800,000 1,892,052
     University of Northern Colorado    
          Revenue Refunding    
          5.00% 6/1/35 (FSA)  4,000,000 4,214,880
    21,825,039
Electric Revenue Bonds – 1.48%    
     Arkansas River Power Authority    
          Revenue Improvement    
          5.25% 10/1/32 (XLCA)  1,000,000 1,081,170
    1,081,170
Health Care Revenue Bonds – 5.36%    
     Colorado Health Facilities    
          Authority Revenue    
          (North Colorado Medical     
          Center) 5.95% 5/15/12 (MBIA)  1,250,000 1,255,388
          (Porter Place) Series A     
          6.00% 1/20/36 (GNMA)  2,515,000 2,657,902
    3,913,290
Lease Revenue Bonds – 13.11%    
     Colorado Educational & Cultural    
          Facilities Authority Revenue    
          Refunding (Bromley School     
          Project)    
          5.25% 9/15/32 (XLCA)  1,000,000 1,074,450
     Denver Convention Center Hotel    
          Authority Refunding Series A    
          5.00% 12/1/35 (XLCA)  5,000,000 5,258,350
     Glendale Certificates of    
          Participation    
          5.00% 12/1/25 (XLCA)  1,500,000 1,597,545
     Westminster Building Authority    
          Certificates of Participation    
          5.25% 12/1/22 (MBIA)  1,555,000 1,646,465
    9,576,810
Local General Obligation Bonds – 14.55%    
     Adams & Arapahoe Counties Joint    
          School District #28J (Aurora)    
          Series A 5.25% 12/1/25 (MBIA) 2,000,000  2,181,140
     Adams County School District #14    
          5.125% 12/1/31 (FSA) 500,000 537,980
     Arapahoe County Water &    
          Wastewater Public Improvement    
          District Refunding Series A    
          5.125% 12/1/32 (MBIA) 1,000,000 1,058,590
     Bowles Metropolitan District    
          Refunding 5.00% 12/1/33 (FSA) 2,000,000 2,102,320
     Centennial Downs Metropolitan    
          District Refunding    
          5.00% 12/1/28 (AMBAC) 1,000,000 1,055,630
     Douglas County School District    
          #Re-1 (Douglas & Elbert    
          Counties)    
          5.00% 12/15/21(MBIA) 1,000,000 1,051,890
     Garfield County School District    
          #Re-2 5.00% 12/1/25 (FSA)  1,000,000 1,071,610
     Green Valley Ranch Metropolitan    
          District Refunding    
          5.75% 12/1/19 (AMBAC) 1,000,000 1,051,470
     Sand Creek Metropolitan District    
          Refunding & Improvement    
          5.00% 12/1/31 (XLCA) 500,000 521,405
    10,632,035
§Pre-Refunded Bonds – 49.08%    
     Auraria Higher Education Center    
          Parking Facilities System     
          Revenue    
          5.50% 4/1/26-10 (AMBAC)  2,485,000 2,615,711
     Aurora Certificates of Participation    
          5.50% 12/1/30-10 (AMBAC)  2,000,000 2,123,420
     Burlingame Multifamily Housing    
          Revenue Series A    
          6.00% 11/1/29-09 (MBIA)  2,290,000 2,442,720
     Colorado Educational &    
          Cultural Facilities Authority    
          (University of Denver Project)    
          5.50% 3/1/21-11 (AMBAC)  3,200,000 3,412,480
          Series B 5.25% 3/1/35-16 (FGIC) 1,500,000 1,657,815
     Colorado Water Resources &    
          Power Development Authority    
          Revenue Series A    
          5.80% 11/1/20-10 (FGIC)  1,220,000 1,308,011
     Denver City & County Excise Tax    
          Revenue (Colorado Convention    
          Center Project)    
          Series A 5.00% 9/1/20-11 (FSA) 6,500,000 6,813,949

(continues)     13


Statements of net assets

Delaware Investments Colorado Insured Municipal Income Fund, Inc.

  Principal         
  Amount   Value  
Municipal Bonds (continued)      
§Pre-Refunded Bonds (continued)      
     Denver Convention Center Series A      
          5.00% 12/1/33-13 (XLCA)  $3,000,000 $   3,220,230
     E-470 Public Highway Authority      
          Series A      
          5.75% 9/1/29-10 (MBIA) 3,000,000   3,250,170
          5.75% 9/1/35-10 (MBIA) 1,700,000   1,841,763
     Eagle County Certificates of      
          Participation 5.40% 12/1/18-09      
          (MBIA) 1,000,000   1,054,070
     Garfield Pitkin & Eagle County      
          School District #Re-1 Series A      
          (Roaring Fork County) Series A      
          5.00% 12/15/27-14 (FSA)  1,500,000   1,625,055
     Lakewood Certificates of Participation       
          5.375% 12/1/22-10 (AMBAC)  2,000,000   2,118,440
     Pueblo County (Library District      
          Project) 5.80% 11/1/19-09       
          (AMBAC) 1,395,000   1,469,563
     Weld & Adams Counties School      
          District #Re-3J      
          5.00% 12/15/24-14 (FSA)  830,000   899,197
      35,852,594
Special Tax Revenue Bonds – 5.54%      
     Broomfield County Sales & Use      
          Tax Revenue Refunding &      
          Improvement Series A      
          5.00% 12/1/31 (AMBAC) 650,000   682,312
     Golden Sales & Use Tax Revenue      
          Improvement Series B      
          5.10% 12/1/20 (AMBAC) 1,000,000   1,055,750
     Gypsum Sales Tax & General      
          Funding Revenue 5.25% 6/1/30      
          (Assured Gty) 1,000,000   1,083,060
     Regional Transportation District      
          Sales Tax Revenue (Fastracks      
          Project) Series A      
          4.375% 11/1/31 (AMBAC) 1,250,000   1,227,775
      4,048,897
Transportation Revenue Bonds – 18.76%      
     Denver City & County      
          Airport Revenue      
          Series A 5.00% 11/15/25 (FGIC) 1,000,000   1,063,160
          Series E 5.25% 11/15/23 (MBIA) 7,500,000   7,636,650
     Northwest Parkway Public Highway      
          Authority Series A      
          5.25% 6/15/41 (FSA) 4,150,000   4,419,086
     Puerto Rico Commonwealth      
          Highway & Transportation      
          Authority Revenue      
          Refunding Series N      
          5.25% 7/1/39 (FGIC) 500,000   584,855
      13,703,751
Water & Sewer Revenue Bonds – 10.99%    
     Colorado Water Resources &    
          Power Development Authority    
          Small Revenue Series A    
          5.80% 11/1/20 (FGIC)  780,000  833,836
     Colorado Water Resources &    
          Power Development Authority    
          Water Resources Revenue     
          (Parker Water & Sanitation    
          District) Series D    
          5.125% 9/1/34 (MBIA)  1,500,000 1,589,475
          5.25% 9/1/43 (MBIA)  2,000,000 2,137,220
     Lafayette Water Revenue Series A    
          5.00% 12/1/27 (MBIA)  1,100,000 1,162,458
     Ute Water Conservancy District    
          Revenue 5.75% 6/15/20 (MBIA)  2,155,000 2,304,815
    8,027,804
Total Municipal Bonds     
     (cost $103,516,553)    108,661,390
 
Short-Term Investments – 1.50%       
Variable Rate Demand Notes – 1.50%    
     Colorado Housing & Finance    
          Authority Class I AA3    
          3.66% 5/1/36  1,100,000 1,100,000
Total Short-Term Investments     
     (cost $1,100,000)   1,100,000
Total Value of Securities – 150.24%     
     (cost $104,616,553)   109,761,390
Receivables and Other Assets     
     Net of Liabilities – 4.51%    3,294,347
Liquidation Value of Preferred Stock – (54.75%)   (40,000,000 )
Net Assets Applicable to 4,837,100     
     Shares Outstanding – 100.00%    $  73,055,737
 
Net Asset Value Per Common Share    
     ($73,055,737 / 4,837,100 Shares)   $15.10
 
Components of Net Assets at March 31, 2007   
Common stock, $0.01 par value, 200 million shares  
     authorized to the Fund   $  67,238,110
Undistributed net investment income   264,788
Accumulated net realized gain on investments 408,002
Net unrealized appreciation of investments   5,144,837
Total net assets   $  73,055,737

14



     
§ Pre-Refunded Bonds. Municipals that are generally backed or secured by U.S. Treasury bonds. For Pre-Refunded Bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 9 in “Notes to Financial Statements.”
   
Variable rate security. The rate shown is the rate as of March 31, 2007.

Summary of Abbreviations:   
AMBAC — Insured by the AMBAC Assurance Corporation 
Assured Gty — Insured by the Assured Guaranty Corporation 
CIFG — CDC IXIS Financial Guaranty 
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 

(continues)     15


Statements of net assets

Delaware Investments Florida Insured Municipal Income Fund

March 31, 2007

  Principal       
  Amount   Value
Municipal Bonds – 151.21%       
Education Revenue Bonds – 3.56%    
     Florida Agriculture &    
          Mechanical University Revenue    
          (Student Apartment Facility)    
          5.625% 7/1/21 (MBIA) $1,250,000 $1,256,075
    1,256,075
Electric Revenue Bonds – 5.81%    
     JEA Electric Systems Revenue    
          Series 3-A 5.00% 10/1/34 (FSA) 2,000,000 2,047,660
    2,047,660
Health Care Revenue Bonds – 18.20%    
     Escambia County Health Facilities    
          Authority (Florida Health Care    
          Facilities - VHA Program)     
          5.95% 7/1/20 (AMBAC) 355,000 368,774
     Lee County Memorial Health    
          System Board of Directors     
          Series A 5.00% 4/1/20 (FSA) 1,000,000 1,036,440
     Miami-Dade County Public    
          Facilities Revenue (Jackson    
          Health Systems) Series A     
          5.00% 6/1/35 (MBIA) 1,500,000 1,572,135
     Orange County Health Facilities    
          Authority Revenue (Orlando     
          Regional Healthcare) Series A    
          6.25% 10/1/18 (MBIA) 2,000,000 2,388,160
     South Broward Hospital Refunding    
          5.00% 5/1/35 (MBIA) 1,000,000 1,050,770
    6,416,279
Housing Revenue Bonds – 23.12%    
     Broward County Housing Finance    
          Authority (St. Croix Apartments    
          Project) Series A    
          5.45% 11/1/36 (FSA) (AMT)  935,000 964,658
     Florida Housing Finance Agency    
          (Homeowner Mortgage)    
          Series 2 5.90% 7/1/29    
          (MBIA) (AMT) 410,000 416,535
          (Leigh Meadows Apartments     
          HUD) Series N 6.30% 9/1/36     
          (AMBAC) (AMT) 2,510,000 2,554,579
          (Woodbridge Apartments    
          Project) Series L    
          6.05% 12/1/16 (AMBAC) (AMT) 1,120,000 1,142,310
          6.25% 6/1/36 (AMBAC) (AMT)  1,500,000 1,530,150
     Volusia County Multifamily    
          Housing Finance Authority (San    
          Marco Apartments) Series A     
          5.60% 1/1/44 (FSA) (AMT)  1,500,000 1,544,565
    8,152,797
Lease Revenue Bonds – 20.02%    
     Broward County School Board    
          Certificates of Participation    
          Series A 5.25% 7/1/24 (FSA) 1,000,000 1,062,470
     Florida State Municipal Loan    
          Council Revenue Series A     
          5.00% 2/1/35 (MBIA) 2,000,000 2,094,080
     Orange County School Board    
          Certificates of Participation    
          Series A 5.00% 8/1/27 (MBIA) 1,250,000 1,294,575
     Palm Beach County School Board    
          Certificates of Participation    
          Series D 5.00% 8/1/28 (FSA) 1,500,000 1,552,755
     South Florida Water Management    
          District Certificate of     
          Participation    
          5.00% 10/1/36 (AMBAC) 1,000,000 1,053,740
    7,057,620
Local General Obligation Bonds – 3.87%    
     Julington Creek Plantation    
          Community Development    
          District Special Assessment    
          5.00% 5/1/29 (MBIA) 295,000 306,824
     Port St. Lucie 5.00% 7/1/35 (MBIA) 1,000,000 1,057,600
    1,364,424
§Pre-Refunded Bonds – 9.15%    
     Florida State Board of Education    
          (Capital Outlay Public    
          Education) Series C 6.00%     
          6/1/21-10 (FGIC) 2,000,000 2,158,120
     Tampa Utility Tax Improvement    
          Series A 6.125% 10/1/19-09     
          (AMBAC) 1,000,000 1,068,940
    3,227,060
Special Tax Revenue Bonds – 26.35%    
     Flagler County Capital    
          Improvements Revenue    
          5.00% 10/1/35 (MBIA) 1,000,000 1,052,100
     Florida State Department of    
          Transportation (Right of Way)    
          5.00% 7/1/31 (FGIC) 1,525,000 1,606,816
     Jacksonville Sales Tax Revenue    
          5.00% 10/1/30 (MBIA) 1,500,000 1,583,385
     Jacksonville Transportation    
          Revenue 5.25% 10/1/29 (MBIA) 2,000,000 2,110,519
    Miami-Dade County Special    
          Obligation (Capital Appreciation    
          & Income) Series B    
          5.00% 10/1/35 (MBIA) 2,000,000 1,887,560
     Seminole County Sales Tax Revenue    
          Series A 5.00% 10/1/31 (MBIA) 1,000,000 1,048,320
    9,288,700

16



  Principal         
  Amount Value
Municipal Bonds (continued)      
State General Obligation Bonds – 5.97%  
     Florida State Board of Education  
          Public Education (Capital  
          Outlay) Series E 5.00% 6/1/34  
          (AMBAC) $2,000,000 $   2,105,460
    2,105,460
Transportation Revenue Bonds – 15.51%  
     Florida Ports Financing  
          Commission Revenue (State  
          Transportation Trust Fund)  
          5.375% 6/1/27 (MBIA) (AMT)  1,000,000 1,012,030
     Miami-Dade County Aviation  
          Revenue (Miami International  
          Airport) Series B  
          5.00% 10/1/37 (FGIC)  2,250,000 2,350,823
     Miami-Dade County Expressway  
          Authority Toll Systems Revenue  
          5.00% 7/1/37 (AMBAC)  1,000,000 1,057,210
          Series B 5.00% 7/1/33 (FGIC)  1,000,000 1,046,640
    5,466,703
Water & Sewer Revenue Bonds – 19.65%  
     Cape Coral Water & Sewer  
          Revenue 4.75% 10/1/31  
          (AMBAC)  1,000,000 1,028,120
     JEA Florida Water & Sewer Systems  
          Revenue Sub-Second Crossover  
          5.00% 10/1/25 (MBIA)  1,000,000 1,054,650
     Riviera Beach Utilities Special  
          District Water & Sewer Revenue  
          5.00% 10/1/34 (FGIC)  1,200,000 1,258,632
     Village Center Community  
          Development District Utility  
          Revenue 5.00% 10/1/36 (MBIA)  1,500,000 1,564,290
     Winter Haven Utilities Systems  
          Revenue 5.00% 10/1/30 (MBIA)  1,915,000 2,022,891
    6,928,583
Total Municipal Bonds   
     (cost $51,630,697)   53,311,361
 
Short-Term Investments – 3.40%       
Variable Rate Demand Notes – 3.40%  
     Orange County Health Facilities  
          Authority Revenue Series B  
          3.80% 10/1/41 (FGIC)  1,200,000 1,200,000
Total Short-Term Investments   
     (cost $1,200,000)   1,200,000
Total Value of Securities – 154.61%   
     (cost $52,830,697) $ 54,511,361
Receivables and Other Assets 
     Net of Liabilities – 2.11%  744,964
Liquidation Value of Preferred Stock – (56.72%)   (20,000,000 )
Net Assets Applicable to 2,422,200 
     Shares Outstanding – 100.00%  $ 35,256,325
 
Net Asset Value Per Common Share
     ($35,256,325 / 2,422,200 Shares)   $14.56
 
Components of Net Assets at March 31, 2007: 
Common stock, $0.01 par value, unlimited shares
     authorized to the Fund $ 33,361,389
Undistributed net investment income 71,820
Accumulated net realized gain on investments 142,452
Net unrealized appreciation of investments 1,680,664
Total net assets $ 35,256,325

Step coupon bond. Indicates security that has a zero coupon that remains in effect until a predetermined date at which time the stated interest rate becomes effective.
 
§ Pre-Refunded bonds. Municipals that are generally backed or secured by U.S. Treasury bonds. For pre-refunded bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 9 in “Notes to Financial Statements.”
   
Variable rate security. The rate shown is the rate as of March 31, 2007.

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 
HUD — Housing and Urban Development 
MBIA — Insured by the Municipal Bond Insurance Association 
VHA — Veterans Health Administration
 

See accompanying notes

(continues)     17


Statements of net assets

Delaware Investments Minnesota Municipal Income Fund II, Inc.

March 31, 2007

  Principal       
  Amount Value
Municipal Bonds – 158.45%       
Corporate-Backed Revenue Bonds – 6.60%    
     Anoka County Solid Waste    
          Disposal Revenue (National     
          Rural Utility) Series A     
          6.95% 12/1/08 (AMT) $    300,000 $    308,481
     Cloquet Pollution Control    
          Revenue Refunding (Potlatch    
          Corporation Project)    
          5.90% 10/1/26 5,500,000 5,642,945
     Laurentian Energy Authority I    
          Cogeneration Revenue    
          Series A 5.00% 12/1/21 3,325,000 3,398,715
     Minneapolis Community    
          Development Agency    
          Supported (Limited Tax    
          Common Bond Fund) Series A     
          6.75% 12/1/25    
          (LOC – US Bank NA) (AMT)  865,000 921,952
     Sartell Environmental Improvement    
          Revenue Refunding    
          (International Paper)    
          Series A 5.20% 6/1/27 1,000,000 1,032,550
    11,304,643
Education Revenue Bonds – 8.65%    
     Minneapolis Art Center Facilities    
          Revenue (Walker Art Center     
          Project) 5.125% 7/1/21 4,250,000 4,419,320
     Minnesota State Higher Education    
          Facilities Authority Revenue    
          (Augsburg College) Series 6-J1    
          5.00% 5/1/28 750,000 775,665
          (College of St. Benedict) Series 5-W    
          5.00% 3/1/20 2,000,000 2,070,300
          5.25% 3/1/24 300,000 314,424
          (St. Catherine College)     
          Series 5-N1 5.375% 10/1/32  1,500,000 1,576,770
          (St. Mary’s University)     
          Series 5-U 4.80% 10/1/23  1,400,000 1,431,052
          (St. Thomas University) Series 5-Y    
          5.00% 10/1/24 1,000,000 1,042,860
          5.25% 10/1/34 1,500,000 1,593,030
     St. Cloud Housing & Redevelopment     
          Authority Revenue (State     
          University Foundation Project)    
          5.00% 5/1/23 1,000,000 1,041,140
     University of the Virgin Islands    
          Improvement Series A    
          5.375% 6/1/34 500,000 531,410
    14,795,971
Electric Revenue Bonds – 21.06%    
     Chaska Electric Revenue Refunding    
          (Generating Facilities) Series A    
          5.25% 10/1/25 250,000 267,040
     Minnesota State Municipal Power    
          Agency Electric Revenue     
          Series A    
          5.00% 10/1/34 6,500,000 6,723,795
          5.25% 10/1/19 1,610,000 1,715,375
     Southern Minnesota Municipal    
          Power Agency Supply    
          System Revenue    
          &1 5.25% 1/1/14 (AMBAC) 14,000,000 15,254,750
          &2 5.25% 1/1/15 (AMBAC) 3,000,000 3,294,840
          Series A 5.25% 1/1/16 (AMBAC) 1,500,000 1,656,465
     Western Minnesota Municipal    
          Power Agency Supply Revenue    
          Series A 5.00% 1/1/30 (MBIA) 6,790,000 7,128,346
    36,040,611
Escrowed to Maturity Bonds – 17.13%    
     Dakota/Washington Counties    
          Housing & Redevelopment    
          Authority Bloomington    
          Mortgage Single Family    
          Residential Mortgage Revenue    
          8.375% 9/1/21 (GNMA) (FHA)     
          (VA) (AMT) 8,055,000 11,657,760
     Southern Minnesota Municipal    
          Power Agency Supply System     
          Revenue Series B    
          5.50% 1/1/15 (AMBAC) 390,000 413,150
          5.75% 1/1/11 (FGIC) 1,000,000 1,040,500
     St. Paul Housing &    
          Redevelopment Authority Sales    
          Tax (Civic Center Project)     
          5.55% 11/1/23 2,300,000 2,379,695
          5.55% 11/1/23 (MBIA) 4,200,000 4,345,530
     University of Minnesota Hospital &     
          Clinics 6.75% 12/1/16 2,580,000 3,091,408
     University of Minnesota Series A    
          5.50% 7/1/21 4,000,000 4,604,320
     Western Minnesota Municipal    
          Power Agency Supply Revenue    
          Series A 6.625% 1/1/16 1,535,000 1,777,131
    29,309,494

18



  Principal       
  Amount Value
Municipal Bonds (continued)      
Health Care Revenue Bonds – 21.58%    
     Bemidji Health Care Facilities    
          First Meeting Revenue (North    
          Country Health Services)     
          5.00% 9/1/24 (RADIAN) $1,500,000 $ 1,546,935
     Duluth Economic Development    
          Authority Health Care Facilities    
          Revenue (Benedictine    
          Health System-St. Mary’s     
          Hospital) 5.25% 2/15/33  5,000,000 5,217,849
     Glencoe Health Care Facilities    
          Revenue (Glencoe Regional     
          Health Services Project)     
          5.00% 4/1/25 2,000,000 2,062,520
     Maple Grove Health Care Facilities    
          Revenue (North Memorial     
          Health Care) 5.00% 9/1/29  1,515,000 1,576,161
     Minneapolis Health Care    
          System Revenue    
          (Allina Health Systems) Series A    
          5.75% 11/15/32 3,200,000 3,440,224
          (Fairview Health Services) Series D    
          5.00% 11/15/30 (AMBAC) 1,500,000 1,581,015
          5.00% 11/15/34 (AMBAC) 3,250,000 3,418,318
     Minnesota Agricultural & Economic    
          Development Board Revenue     
          Refunding (Fairview Health     
          Care System) Series A    
          5.75% 11/15/26 (MBIA) 100,000 103,078
          6.375% 11/15/29 195,000 210,210
     Northfield Hospital Revenue    
          5.375% 11/1/31 750,000 796,410
     Rochester Health Care Facilities    
          Revenue    
          (Mayo Clinic) 5.00% 11/15/36 2,000,000 2,093,120
          (Mayo Foundation) Series B     
          5.50% 11/15/27 4,365,000 4,484,688
     Shakopee Health Care Facilities    
          Revenue (St. Francis Regional    
          Medical Center) 5.25% 9/1/34 1,560,000 1,632,556
     St. Louis Park Health Care Facilities    
          Revenue (Park Nicollet Health    
          Services) Series B 5.25% 7/1/30 1,250,000 1,316,463
     St. Paul Housing & Redevelopment    
          Authority Health Care Facilities    
          Revenue    
          (Healthpartners Obligation     
          Group Project) 5.25% 5/15/36 2,000,000 2,103,260
          (Regions Hospital Project)     
          5.30% 5/15/28 1,000,000 1,016,840
     St. Paul Housing & Redevelopment    
          Authority Revenue    
          (Franciscan Health Project-    
          Elderly) 5.40% 11/20/42     
          (GNMA) (FHA) 2,700,000  2,846,205
     Waconia Health Care Facilities    
          Revenue (Ridgeview Medical     
          Center Project) Series A     
          6.10% 1/1/19 (RADIAN) 1,405,000 1,483,146
    36,928,998
Housing Revenue Bonds – 9.76%    
     Chanhassen Multifamily Housing    
          Revenue Refunding (Heritage    
          Park Apartments    
          Project HUD Section 8)    
          6.20% 7/1/30 (FHA) (AMT)  1,105,000 1,128,083
     Dakota County Housing &    
          Redevelopment Authority Single    
          Family Mortgage Revenue     
          5.85% 10/1/30 (GNMA)    
          (FNMA) (AMT) 16,000 16,304
     Harmony Multifamily Housing    
          Revenue HUD Section 8    
          (Zedakah Foundation Project)    
          Series A 5.95% 9/1/20 1,000,000 974,550
     Minneapolis Multifamily Housing    
          Revenue    
          (Gaar Scott Loft Project)     
          5.95% 5/1/30 (AMT) 950,000 986,509
          (Olson Townhomes Project)     
          6.00% 12/1/19 (AMT) 890,000 890,223
          (Seward Towers Project)     
          5.00% 5/20/36 (GNMA) 2,000,000 2,068,100
          (Sumner Housing Project)     
          Series A 5.15% 2/20/45    
          (GNMA) (AMT) 3,575,000 3,653,221
     Minnesota State Housing Finance    
          Agency Revenue (Rental    
          Housing) Series D    
          5.95% 2/1/18 (MBIA) 130,000 130,235
     Minnesota State Housing Finance    
          Agency Revenue    
          (Residential Housing)    
          Series B-1 5.35% 1/1/33 (AMT) 1,775,000 1,819,215
          Series I 5.15% 7/1/38 (AMT) 1,000,000 1,028,440
          (Single Family Mortgage)     
          Series A 5.00% 2/1/35 (AMT) 1,000,000 1,014,840
          Series J 5.90% 7/1/28 (AMT) 1,035,000 1,061,879

(continues)     19


Statements of net assets

Delaware Investments Minnesota Municipal Income Fund II, Inc.

  Principal       
  Amount Value
Municipal Bonds (continued)      
Housing Revenue Bonds (continued)    
     Southeastern Minnesota    
          Multi-County Housing &     
          Redevelopment Authority     
          Revenue (Winona County)     
          5.35% 1/1/28 $1,170,000 $ 1,171,568
     Washington County Housing &    
          Redevelopment Authority     
          Revenue Refunding    
          (Woodland Park Apartments     
          Project) 4.70% 10/1/32 750,000 757,785
    16,700,952
Lease Revenue Bonds – 10.42%    
     Andover Economic Development    
          Authority Public Facilities    
          Lease Revenue (Andover    
          Community Center)    
          5.125% 2/1/24 500,000 525,390
          5.20% 2/1/29 1,000,000 1,055,430
     Puerto Rico Public Buildings    
          Authority Revenue (Guaranteed    
          Government Facilities Bonds)    
          Series D 5.25% 7/1/27 530,000 555,827
     St. Paul Port Authority Lease    
          Revenue    
          (Cedar Street Office    
          Building Project)    
          5.00% 12/1/22 2,385,000 2,512,192
          5.25% 12/1/27 4,800,000 5,077,680
          Series 3-12 5.125% 12/1/27  1,000,000 1,056,660
          (Robert Street Office    
          Building Project)    
          Series 3-11 5.00% 12/1/27  3,045,000 3,195,179
          Series 9 5.25% 12/1/27 2,000,000 2,122,980
     Virginia Housing & Redevelopment    
          Authority Health Care Facility    
          Lease Revenue    
          5.25% 10/1/25 680,000 714,476
          5.375% 10/1/30 965,000 1,020,266
    17,836,080
Local General Obligation Bonds – 25.98%    
     Centennial Independent School    
          District #012 Series A    
          5.00% 2/1/20 (FSA) 800,000 843,992
     Dakota County Community    
          Development Agency    
          Governmental Housing    
          Refunding    
          (Senior Housing Facilities)    
          Series A 5.00% 1/1/23 1,100,000 1,163,239
     Elk River Independent School    
          District #728 Series A    
          5.00% 2/1/16 (FGIC) 1,500,000 1,613,535
     Farmington Independent School    
          District #192    
          Series A 5.00% 2/1/23 (FSA) 2,280,000  2,389,440
          Series B 5.00% 2/1/27 (FSA) 1,500,000 1,586,010
     Hennepin County Regional Railroad    
          Authority 5.00% 12/1/26  3,500,000 3,618,264
     Hennepin County Series B    
          5.00% 12/1/18 2,300,000 2,402,005
     Lakeville Independent School    
          District #194 Series A    
          4.75% 2/1/22 (FSA) 2,000,000 2,068,340
     Metropolitan Council Waste Water    
          Treatment Series B    
          4.375% 12/1/27 2,500,000 2,486,400
          5.00% 12/1/21 2,000,000 2,148,640
     Minneapolis Refunding (Sports    
          Arena Project) 5.125% 10/1/20 750,000 760,313
     Minneapolis Special School District    
          #001 5.00% 2/1/19 (FSA)  1,175,000 1,247,180
     Moorhead Economic Development    
          Authority Tax Increment     
          Series A 5.25% 2/1/25 (MBIA) 1,000,000 1,055,640
     Moorhead Improvement Series B    
          5.00% 2/1/33 (MBIA) 3,250,000 3,413,768
     Morris Independent School District    
          #769 5.00% 2/1/28 (MBIA)  3,750,000 3,982,349
     Mounds View Independent School    
          District #621 Series A    
          5.00% 2/1/23 (FSA) 2,020,000 2,117,142
     Princeton Independent School    
          District Refunding #477     
          Series A 5.00% 2/1/24 (FSA) 1,000,000 1,060,780
     Robbinsdale Independent School    
          District #281    
          5.00% 2/1/21 (FSA) 500,000 526,595
     St. Michael Independent School    
          District #885    
          5.00% 2/1/22 (FSA) 2,000,000 2,109,980
          5.00% 2/1/24 (FSA) 1,125,000 1,186,864
     Washington County Housing &    
          Redevelopment Authority     
          Refunding Series B    
          5.50% 2/1/22 (MBIA) 1,705,000 1,812,875
          5.50% 2/1/32 (MBIA) 2,140,000 2,265,768
     Willmar (Rice Memorial Hospital    
          Project) 5.00% 2/1/32 (FSA) 2,500,000 2,608,350
    44,467,469
§Pre-Refunded Bonds – 22.91%    
     Chaska Electric Revenue Series A    
          6.00% 10/1/25-10 1,000,000 1,077,130

20



  Principal  
  Amount      Value
Municipal Bonds (continued)      
§Pre-Refunded Bonds – (continued)    
     Minneapolis Community    
          Development Agency (Limited    
          Tax Common Bond Fund) Series    
          (Limited Tax Common Bond    
          Fund) Series G-1    
          5.70% 12/1/19-11 $1,100,000 $  1,183,996
          Series G-3 5.45% 12/1/31-11  1,000,000  1,074,140
     Minneapolis Health Care System    
          Revenue (Fairview Health Services)    
          Series A 5.625% 5/15/32-12 2,750,000 3,015,705
     Minneapolis/St. Paul Metropolitan    
          Airports Commission Revenue    
          Series A 5.00% 1/1/30-08    
          (AMBAC) 2,450,000 2,498,878
          Series A 5.125% 1/1/25-09    
          (FGIC) 900,000 931,284
          Series C 5.25% 1/1/32-11 (FGIC) 6,000,000 6,330,239
     Minneapolis/St. Paul Metropolitan    
          Area Council Series C    
          5.00% 2/1/22-11 1,000,000 1,044,770
     Minnesota Agricultural & Economic    
          Development Board Revenue    
          (Fairview Health Care System)    
          Series A    
          5.75% 11/15/26-07 (MBIA) 5,450,000 5,626,907
          6.375% 11/15/29-10 6,105,000 6,710,676
     Puerto Rico Commonwealth    
          6.00% 7/1/26-07 1,000,000 1,020,810
     Puerto Rico Commonwealth    
          Highway & Transportation    
          Authority Revenue Series D    
          5.25% 7/1/38-12 1,000,000 1,075,050
     Puerto Rico Commonwealth Public    
          Improvement Revenue Series A    
          5.00% 7/1/27-12 1,250,000 1,331,463
     Puerto Rico Public Buildings    
          Authority Revenue (Guaranteed    
          Government Facilities) Series D    
          5.25% 7/1/27-12 1,470,000 1,578,148
     Rochester Electric Utility Revenue    
          5.25% 12/1/30-10 (AMBAC) 600,000 627,414
     Southern Minnesota Municipal    
          Power Agency Supply Revenue    
          Refunding Series A    
          5.75% 1/1/18-13 3,715,000 4,089,398
    39,216,008
Special Tax Revenue Bonds – 1.64%    
     Minneapolis Community    
          Development Agency Revenue    
          (Limited Tax Supported    
          Common Bond Fund) Series 5    
          5.70% 12/1/27 375,000 377,989
     Minneapolis Development Revenue    
          (Limited Tax Supported    
          Common Bond Fund)    
          5.50%12/1/24 (AMT) 1,000,000   1,061,520
     Puerto Rico Commonwealth    
          Infrastructure Financing    
          Authority (Special Tax Revenue)    
          Series B 5.00% 7/1/46 800,000 831,416
     Virgin Islands Public Finance    
          Authority Revenue (Senior Lien    
          Matching Fund Loan Notes)    
          Series A 5.25% 10/1/23 500,000 532,495
    2,803,420
State General Obligation Bonds – 5.08%    
     Minnesota State    
          5.00% 11/1/17 1,160,000 1,184,244
          5.00% 8/1/21 5,025,000 5,293,637
     Puerto Rico Commonwealth Public    
          Improvement Series A    
          5.50% 7/1/19 (MBIA) 1,000,000 1,148,820
     Puerto Rico Government    
          Development Bank Senior Notes    
          Series B 5.00% 12/1/14 1,000,000 1,067,950
    8,694,651
Transportation Revenue Bonds – 7.64%    
     Minneapolis/St. Paul Metropolitan    
          Airports Commission Revenue    
          Series A    
          5.00% 1/1/22 (MBIA) 3,000,000 3,134,580
          5.00% 1/1/28 (MBIA) 2,120,000 2,207,386
          5.25% 1/1/16 (MBIA) 1,000,000 1,069,700
          Series B    
          5.00% 1/1/35 (AMBAC) 2,000,000 2,094,700
          5.25% 1/1/24 (FGIC) (AMT) 1,000,000 1,034,630
     St. Paul Housing & Redevelopment    
          Authority Parking Revenue    
          (Block 19 Ramp Project)    
          Series A    
          5.35% 8/1/29 (FSA) 3,350,000 3,541,318
    13,082,314
Total Municipal Bonds     
     (cost $258,872,962)   271,180,611
 
Short-Term Investments – 0.47%      
Variable Rate Demand Notes – 0.47%    
     University of Minnesota Series C    
          3.63% 12/1/36 800,000 800,000
Total Short-Term Investments     
     (cost $800,000)   800,000

(continues)     21


Statements of net assets

Delaware Investments Minnesota Municipal Income Fund II, Inc.

 
Total Value of Securities – 158.92%
     (cost $259,672,962) $271,980,611
Liabilities Net of Receivables and
     Other Assets – (3.41%)* (5,837,293 )
Liquidation Value of Preferred Stock – (55.51%) (95,000,000 )
Net Assets Applicable to 11,504,975 Shares
     Outstanding – 100.00% $171,143,318
 
Net Asset Value Per Common Share
     ($171,143,318 / 11,504,975 Shares) $14.88
 
Components of Net Assets at March 31, 2007:
Common stock, $0.01 par value, 200 million shares
     authorized to the Fund $158,785,529
Undistributed net investment income 93,893
Accumulated net realized loss on investments (43,753 )
Net unrealized appreciation of investments 12,307,649
Total net assets $171,143,318

&

1Security held in a trust in connection with the Inverse Floater security $7,000,000, 6.706%, 1/1/14.

 
& 2Security held in a trust in connection with the Inverse Floater security $1,500,000, 6.706%, 1/1/15.
 
§ Pre-Refunded bonds. Municipals that are generally backed or secured by U.S. Treasury bonds. For pre-refunded bonds, the stated maturity is followed by the year in which the bond is pre-refunded. See Note 9 in “Notes to Financial Statements.”
 
Variable rate security. The rate shown is the rate as of March 31, 2007.
 
*

Includes $8,500,000 in liability for Inverse Floater programs. See Note 8 in “Notes to Financial Statements.”

For additional information on the Inverse Floater Programs, see Note 8 in “Notes to Financial Statements”.

Summary of Abbreviations:
AMBAC — Insured by the AMBAC Assurance Corporation
AMT — Subject to Alternative Minimum Tax
FGIC — Insured by the Financial Guaranty Insurance Company
FHA — Insured by the Federal Housing Administration
FNMA — Insured by Federal National Mortgage Association
FSA — Insured by Financial Security Assurance
GNMA — Insured by Government National Mortgage Association
HUD — Housing and Urban Development
LOC — Letter of Credit
MBIA — Insured by the Municipal Bond Insurance Association
RADIAN — Insured by Radian Asset Assurance
VA — Insured by the Veterans Administration

See accompanying notes

22


Statements of operations

Delaware Investments Closed-End Municipal Bond Funds

Year Ended March 31, 2007

Delaware       Delaware       Delaware       Delaware
Investments Investments Investments Investments
Arizona Colorado Insured Florida Insured Minnesota
Municipal Municipal Municipal Municipal
Income Income   Income Income
Fund, Inc. Fund, Inc. Fund Fund II, Inc.
Investment Income:      
   Interest $ 3,241,635 5,502,486 $ 2,712,469   $ 13,128,934
 
Expenses:
   Management fees 275,385 453,667 221,241 1,061,139
   Interest and related expenses 339,001
   Remarketing agent fees 63,196 100,000  50,556 237,500
   Accounting and administration expenses 27,538 45,367  22,124 105,945
   Dividend disbursing and transfer agent fees and expenses 20,566 35,239  29,299 104,927
   Audit and tax fees 19,253  20,487  18,917 24,288
   Rating agency fees 13,425 13,121  13,425 33,025
   Reports and statements to shareholders 11,559 19,951  11,567 30,525
   Legal fees 8,347 14,113  5,806 28,248  
   Directors’/Trustees’ fees and benefits 7,927 13,275  6,382 30,713
   Taxes (other than taxes on income) 5,917  9,367  347 14,639
   Custodian fees 2,810  3,836  2,444 7,662
   Stock exchange fees 2,720  4,579  2,205 14,360
   Pricing fees 1,846  1,924  1,480 4,826
   Insurance fees 1,209  2,013  970 6,983
   Dues and services 1,120  1,983  827 3,193
   Consulting fees 1,038  2,987  788 3,470
   Registration fees 628  628  628 538
   Directors’/Trustees’ expenses 500  517  184 880
464,984 743,054  389,190 2,051,862
   Less expense paid indirectly (2,771 )  (3,772 )   (2,413 )  (7,396 ) 
   Total operating expenses 462,213 739,282  386,777 2,044,466
Net Investment Income 2,779,422 4,763,204  2,325,692 11,084,468
 
Net Realized and Unrealized Gain (Loss) on Investments:
   Net realized gain on investments 387,724 607,660 243,904 159,043
   Net change in unrealized appreciation/depreciation of investments 82,776 (275,520 )  79,273 2,367,602
Net Realized and Unrealized Gain on Investments 470,500 332,140 323,177 2,526,645
 
Dividends on Preferred Stock (925,058 )  (1,417,500 )  (733,838 )  (3,434,732 ) 
Net Increase in Net Assets Resulting from Operations $ 2,324,864 $  3,677,844 $ 1,915,031 $ 10,176,381

See accompanying notes

23


Statements of changes in net assets

Delaware Investments Closed-End Municipal Bond Funds

 Delaware  Delaware
 Investments Arizona  Investments Colorado
 Municipal Income  Insured Municipal
 Fund, Inc.  Income Fund, Inc.
 
 
Year Ended
 Year Ended
3/31/07       3/31/06       3/31/07       3/31/06
Increase (Decrease) in Net Assets from Operations:
   Net investment income $  2,779,422 $  2,835,929   $    4,763,204 $    4,925,858
   Net realized gain (loss) on investments 387,724   (34,038 ) 607,660 411,416
   Net change in unrealized appreciation/depreciation of investments 82,776 (488,430 ) (275,520 ) (1,020,909 )
   Dividends on preferred stock (925,058 ) (701,535 ) (1,417,500 ) (1,058,796 )
   Net increase in net assets resulting from operations 2,324,864 1,611,926 3,677,844 3,257,569
 
Dividends and Distributions to Common Shareholders from:
   Net investment income (2,236,650 ) (2,564,692 ) (4,111,535 ) (4,643,616 )
   Net realized gain on investments (95,430 ) (59,644 ) (343,434 ) (145,113 )
  (2,332,080 ) (2,624,336 ) (4,454,969 ) (4,788,729 )
 
Net Decrease in Net Assets (7,216 ) (1,012,410 ) (777,125 ) (1,531,160 )
 
Net Assets:
   Beginning of year 43,923,349 44,935,759 73,832,862 75,364,022
   End of year $43,916,133 $43,923,349 $  73,055,737 $  73,832,862
 
   Undistributed (Distributions in excess of) net investment income $             $     330,793 $      264,788 $       938,459
 
 Delaware  Delaware
 Investments Florida  Investments Minnesota
 Insured Municipal  Municipal Income
 Income Fund  Fund II, Inc.
 
 
Year Ended
 Year Ended
3/31/07 3/31/06 3/31/07 3/31/06
Increase (Decrease) in Net Assets from Operations:
   Net investment income $  2,325,692 $  2,462,489 $  11,084,468 $    7,447,276
   Net realized gain on investments 243,904 806,263 159,043 217,830
   Net change in unrealized appreciation/depreciation of investments 79,273 (1,379,442 ) 2,367,602 (1,110,246 )
   Dividends on preferred stock (733,838 ) (622,604 ) (3,434,732 ) (1,840,835 )
   Net increase in net assets resulting from operations 1,915,031 1,266,706 10,176,381 4,714,025
 
Dividends and Distributions to Common Shareholders from:
   Net investment income (1,986,204 ) (2,349,534 ) (8,513,682 ) (6,835,306 )
   Net realized gain on investments (164,710 ) (591,017 )
  (2,150,914 ) (2,940,551 ) (8,513,682 ) (6,835,306 )
 
Capital Share Transactions:
   Net assets from reorganization* 63,644,025
  63,644,025
Net Increase (Decrease) in Net Assets (235,883 ) (1,673,845 ) 1,662,699 61,522,744
 
Net Assets:
   Beginning of year 35,492,208 37,166,053 169,480,619 107,957,875
   End of year $35,256,325 $35,492,208 $171,143,318 $169,480,619
 
   Undistributed net investment income $      71,820 $     422,158 $        93,893 $      969,303

*See Note 7 in “Notes to Financial Statements.”

See accompanying notes

24


Financial highlights

Delaware Investments Arizona Municipal Income Fund, Inc.

 

Selected data for each share of the Fund outstanding throughout each period were as follows:

Year Ended
  3/31/07     3/31/06     3/31/05     3/31/04     3/31/03  
Net asset value, beginning of period $14.730      $15.070      $15.570      $15.480      $14.650
 
Income (loss) from investment operations:
Net investment income 0.932 0.951 0.956 1.020 1.067
Net realized and unrealized gain (loss) on investments 0.160 (0.177 ) (0.332 ) 0.276 0.988
Dividends on preferred stock from:
   Net investment income (0.297 ) (0.232 ) (0.118 ) (0.075 ) (0.103 )
   Net realized gain on investments (0.013 ) (0.002 ) (0.003 ) (0.016 ) (0.018 )
Total dividends on preferred stock (0.310 ) (0.234 ) (0.121 ) (0.091 ) (0.121 )
Total from investment operations 0.782 0.540 0.503 1.205 1.934
 
Less dividends and distributions to common shareholders from:
Net investment income (0.750 ) (0.860 ) (0.960 ) (0.960 ) (0.940 )
Net realized gain on investments (0.032 ) (0.020 ) (0.043 ) (0.155 ) (0.164 )
Total dividends and distributions (0.782 ) (0.880 ) (1.003 ) (1.115 ) (1.104 )
 
Net asset value, end of period $14.730 $14.730 $15.070 $15.570 $15.480
 
Market value, end of period $14.790 $15.980 $15.390 $16.560 $15.490
 
Total investment return based on:1
Market value (2.58% ) 9.74% (0.78% ) 14.64% 12.74%
Net asset value 5.26% 3.31% 3.34% 7.86% 13.44%
 
Ratios and supplemental data:
Net assets applicable to common shares, end of period (000 omitted) $43,916 $43,923 $44,936 $46,429 $46,167
 
Ratio of expenses to average net assets applicable to common shares2 1.05% 1.03% 1.18% 1.05% 1.16%
Ratio of net investment income to average net assets
    applicable to common shares2 6.34% 6.28% 6.34% 6.63% 6.96%
Ratio of net investment income to average net assets
   applicable to common shares net of dividends to preferred shares3 4.23% 4.72% 5.54% 6.04% 6.18%
Portfolio turnover 17% 2% 8% 30% 24%
 
Leverage analysis:
Value of preferred shares outstanding (000 omitted) $25,000 $25,000 $25,000 $25,000 $25,000
Net asset coverage per share of preferred shares, end of period $137,832 $137,847 $139,872 $142,858 $142,334
Liquidation value per share of preferred shares4 $50,000 $50,000 $50,000 $50,000 $50,000
 

1 Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods.
2 Ratios do not reflect the effect of dividend payments to preferred shareholders.
3 Ratio reflects total net investment income less dividends paid to preferred shareholders divided by average net assets applicable to common shareholders.
4 Excluding any accumulated but unpaid dividends.

See accompanying notes

(continues)     25


Financial highlights

Delaware Investments Colorado Insured Municipal Income Fund, Inc.

 

Selected data for each share of the Fund outstanding throughout each period were as follows:

Year Ended 
  3/31/07     3/31/06     3/31/05     3/31/04     3/31/03  
Net asset value, beginning of period $15.260      $15.580      $16.110      $15.920      $14.780
 
Income (loss) from investment operations:
Net investment income 0.985 1.018 1.019 1.043 1.068
Net realized and unrealized gain (loss) on investments 0.069 (0.129 ) (0.432 ) 0.324 1.324
Dividends on preferred stock from:
   Net investment income (0.274 ) (0.213 ) (0.124 ) (0.077 ) (0.098 )
   Net realized gain on investments (0.019 ) (0.006 ) (0.003 ) (0.013 ) (0.023 )
Total dividends on preferred stock (0.293 ) (0.219 ) (0.127 ) (0.090 ) (0.121 )
Total from investment operations 0.761 0.670 0.460 1.277 2.271
 
Less dividends and distributions to common shareholders from:
Net investment income (0.850 ) (0.960 ) (0.960 ) (0.960 ) (0.940 )
Net realized gain on investments (0.071 ) (0.030 ) (0.030 ) (0.127 ) (0.191 )
Total dividends and distributions (0.921 ) (0.990 ) (0.990 ) (1.087 ) (1.131 )
 
Net asset value, end of period $15.100 $15.260 $15.580 $16.110 $15.920
 
Market value, end of period $15.940 $18.650 $17.180 $16.960 $16.650
 
Total investment return based on:1
Market value (9.86% ) 14.64% 7.42% 8.76% 21.31%
Net asset value 4.35% 3.44% 2.56% 8.05% 15.37%
 
Ratios and supplemental data:
Net assets applicable to common shares, end of period (000 omitted) $73,056 $73,833 $75,364 $77,903 $76,988
 
Ratio of expenses to average net assets applicable to common shares2 1.01% 0.95% 1.03% 1.01% 1.05%
Ratio of net investment income to average net assets
   applicable to common shares2 6.49% 6.51% 6.51% 6.54% 6.83%
Ratio of net investment income to average net assets
    applicable to common shares net of dividends to preferred shares3 4.56% 5.11% 5.69% 5.98% 6.08%
Portfolio turnover 11% 12% 5% 13% 14%
 
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 $141,320 $142,291 $144,205 $147,379 $146,235
Liquidation value per share of preferred shares4 $50,000 $50,000 $50,000 $50,000 $50,000
 

1 Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods.
2 Ratios do not reflect the effect of dividend payments to preferred shareholders.
3 Ratio reflects total net investment income less dividends paid to preferred shareholders divided by average net assets applicable to common shareholders.
4 Excluding any accumulated but unpaid dividends.

See accompanying notes

26


Delaware Investments Florida Insured Municipal Income Fund

 

Selected data for each share of the Fund outstanding throughout each period were as follows:

Year Ended
  3/31/07     3/31/06     3/31/05     3/31/04     3/31/03  
Net asset value, beginning of period $14.650      $15.340      $16.200      $16.370      $15.150
 
Income (loss) from investment operations:
Net investment income 0.960 1.017 1.057 1.088 1.084
Net realized and unrealized gain (loss) on investments 0.141 (0.236 ) (0.675 ) (0.130 ) 1.186
Dividends on preferred stock from:  
   Net investment income (0.285 ) (0.202 ) (0.114 ) (0.082 ) (0.109 )
   Net realized gain on investments (0.018 ) (0.055 ) (0.009 ) (0.005 )
Total dividends on preferred stock (0.303 ) (0.257 ) (0.123 ) (0.087 ) (0.109 )
Total from investment operations 0.798 0.524 0.259 0.871 2.161
 
Less dividends and distributions to common shareholders from:
Net investment income (0.820 ) (0.970 ) (1.020 ) (0.995 ) (0.941 )
Net realized gain on investments (0.068 ) (0.244 ) (0.099 ) (0.046 )
Total dividends and distributions (0.888 ) (1.214 ) (1.119 ) (1.041 ) (0.941 )
 
Net asset value, end of period $14.560 $14.650 $15.340 $16.200 $16.370
 
Market value, end of period $14.530 $16.050 $15.050 $16.650 $15.050
 
Total investment return based on:1
Market value (4.12% ) 14.75% (3.02% ) 18.04% 14.17%
Net asset value 5.27% 2.76% 1.59% 5.59% 14.92%
 
Ratios and supplemental data:
Net assets applicable to common shares, end of period (000 omitted) $35,256 $35,492 $37,166 $39,244 $39,651
 
Ratio of expenses to average net assets applicable to common shares2 1.10% 1.07% 1.24% 1.11% 1.18%
Ratio of net investment income to average net assets
   applicable to common shares2 6.58% 6.70% 6.75% 6.70% 6.81%
Ratio of net investment income to average net assets
   applicable to common shares net of dividends to preferred shares3 4.51% 5.01% 5.97% 6.16% 6.13%
Portfolio turnover 9% 28% 11% 3% 13%
 
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 $138,141 $138,731 $142,915 $148,110 $149,128
Liquidation value per share of preferred shares4 $50,000 $50,000 $50,000 $50,000 $50,000
 

1 Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods.
2 Ratios do not reflect the effect of dividend payments to preferred shareholders.
3 Ratio reflects total net investment income less dividends paid to preferred shareholders divided by average net assets applicable to common shareholders.
4 Excluding any accumulated but unpaid dividends.

See accompanying notes

(continues)     27


Financial highlights

Delaware Investments Minnesota Municipal Income Fund II, Inc.

 

Selected data for each share of the Fund outstanding throughout each period were as follows:

Year Ended 
  3/31/07        3/31/06        3/31/05        3/31/04        3/31/03  
Net asset value, beginning of period $14.730 $14.890 $15.280 $15.060 $14.280
 
Income (loss) from investment operations:
Net investment income 0.963 0.971 1.025 1.093 1.143
Net realized and unrealized gain (loss) on investments 0.225 0.012 (0.237 ) 0.207 0.689
Dividends on preferred stock from:
   Net investment income (0.298 ) (0.243 ) (0.128 ) (0.082 ) (0.112 )
Total dividends on preferred stock (0.298 ) (0.243 ) (0.128 ) (0.082 ) (0.112 )
Total from investment operations 0.890 0.740 0.660 1.218 1.720
 
Less dividends to common shareholders from:
Net investment income (0.740 ) (0.900 ) (1.050 ) (0.998 ) (0.940 )
Total dividends (0.740 ) (0.900 ) (1.050 ) (0.998 ) (0.940 )
 
Net asset value, end of period $14.880 $14.730 $14.890 $15.280 $15.060
 
Market value, end of period $14.640 $16.200 $16.370 $16.800 $15.300
 
Total investment return based on:1
Market value (5.13% ) 4.73% 4.02% 16.87% 15.84%
Net asset value 6.05% 4.69% 4.03% 7.99% 12.19%
 
Ratios and supplemental data:
Net assets applicable to common shares, end of period (000 omitted) $171,143 $169,481 $107,958 $110,828 $109,212
 
Ratio of expenses to average net assets applicable to common shares2 1.20%5 1.07% 1.00% 0.93% 1.03%
Ratio of net investment income to average net assets
   applicable to common shares2 6.52% 6.45% 6.85% 7.23% 7.74%
Ratio of net investment income to average net assets
   applicable to common shares net of dividends to preferred shares3 4.50% 4.86% 6.00% 6.69% 6.99%
Portfolio turnover 3% 8% 15% 34% 22%
 
Leverage analysis:
Value of preferred shares outstanding (000 omitted) $95,000 $95,000 $60,000 $60,000 $60,000
Net asset coverage per share of preferred shares, end of period $140,075 $139,200 $139,965 $142,357 $141,010
Liquidation value per share of preferred shares4 $50,000 $50,000 $50,000 $50,000 $50,000
 

1 Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods.
2 Ratios do not reflect the effect of dividend payments to preferred shareholders.
3 Ratio reflects total net investment income less dividends paid to preferred shareholders divided by average net assets applicable to common shareholders.
4 Excluding any accumulated but unpaid dividends.
5 The ratio of expenses to average net assets applicable to common shares includes interest and related expenses which include, but are not limited to, interest expense, remarketing fees, liquidity fees, and trustees’ fees in connection with the Fund’s participation in inverse floater programs. See Notes 1 and 8 in “Notes to Financial Statements”.

See accompanying notes

28


Notes to financial statements

Delaware Investments Closed-End Municipal Bond Funds

March 31, 2007

Delaware Investments Arizona Municipal Income Fund, Inc. (“Arizona Municipal Fund”); Delaware Investments Colorado Insured Municipal Income Fund, Inc. (“Colorado Insured Municipal Fund”) and Delaware Investments Minnesota Municipal Income Fund II, Inc. (“Minnesota Municipal Fund II”) 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”). Arizona Municipal Fund, Florida Insured Municipal Fund and Minnesota Municipal Fund II are considered diversified closed-end management investment companies and Colorado Insured Municipal Fund is considered a non-diversified closed-end management investment company under the Investment Company Act of 1940, as amended. The Funds’ common shares trade on the American Stock Exchange. The Funds’ preferred shares are traded privately through a remarketing agent.

The investment objective of each Fund is to provide high current income exempt from federal income tax and from the personal income tax of its state, if any, consistent with the preservation of capital. Each Fund will seek to achieve its investment objective by investing substantially all of its net assets in investment grade, tax-exempt municipal obligations of its respective state.

1. Significant Accounting Policies

The following accounting policies are in accordance with U.S. generally accepted accounting principles and are consistently followed by the Funds.

Security Valuation — Long-term debt securities are valued by an independent pricing service and such prices are believed to reflect the fair value of such securities. Short-term debt securities having less than 60 days to maturity are valued at amortized cost, which approximates market value. Other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of each Fund’s Board of Directors/Trustees. In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures, aftermarket trading or significant events after local market trading (e.g., government actions or pronouncements, trading volume or volatility on markets, exchanges among dealers, or news events).

In September 2006, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 157 “Fair Value Measurements” (Statement 157). Statement 157 establishes a framework for measuring fair value in generally accepted accounting principles, clarifies the definition of fair value within that framework, and expands disclosures about the use of fair value measurements. Statement 157 is intended to increase consistency and comparability among fair value estimates used in financial reporting. Statement 157 is effective for fiscal years beginning after November 15, 2007. Management does not expect the adoption of Statement 157 to have an impact on the amounts reported in the financial statements.

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.

On July 13, 2006, the FASB released FASB Interpretation No. 48 “Accounting for Uncertainty in Income Taxes” (FIN 48). FIN 48 provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the financial statements. FIN 48 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Funds’ tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. Adoption of FIN 48 is required for fiscal years beginning after December 15, 2006 and is to be applied to all open tax years as of the effective date. Recent SEC guidance allows implementing FIN 48 in each Fund’s net asset value calculations as late as each Fund’s last net asset value calculation in the first required financial statement reporting period. As a result, the Funds will incorporate FIN 48 in its semiannual report on September 30, 2007. Although each Fund’s tax positions are currently being evaluated, management does not expect the adoption of FIN 48 to have a material impact on the Funds’ financial statements.

Use of Estimates — The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Interest and Related Expenses — Interest and related expenses include, but are not limited to, interest expense, remarketing fees, liquidity fees, and trustees’ fees from the Minnesota Municipal Fund II’s participation in inverse floater programs where the Fund has transferred its own bonds to a trust that issues floating rate securities with an aggregate principal amount equal to the principal of the transferred bonds. In consideration of the conveyance of the bond, the Fund receives the inverse floating rate securities and cash from the trust. As a result of certain rights retained by the Fund, the transfer of the bond is not considered a sale, but rather a form of financing for accounting purposes whereby the cash received is recorded as a liability and interest expense is recorded based on the interest rate of the floating rate securities. Remarketing fees, liquidity fees, and trustees’ fees expenses are recorded on the accrual basis.

For the year ended March 31, 2007, the Minnesota Municipal Fund II had an average daily liability from the participation in inverse floater programs of $8,832,630 and recorded interest expense at an average rate of 3.80%

(continues)     29


Notes to financial statements

Delaware Investments Closed-End Municipal Bond Funds

 

1. Significant Accounting Policies (continued)

Other — Expenses directly attributable to a Fund are charged directly to that Fund. Other expenses common to various funds within the Delaware Investments ® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Discounts and premiums are amortized to interest income over the lives of the respective securities. Each Fund declares and pays dividends from net investment income monthly and distributions from net realized gain on investments, if any, annually. In addition, in order to satisfy certain distribution requirements of the Tax Reform Act of 1986, the Funds may declare special year-end dividend and capital gains distributions during November or December to shareholders of record on a date in such month. Such distributions, if received by shareholders by January 31, are deemed to have been paid by the Funds and received by shareholders on the earlier of the date paid or December 31 of the prior year.

The Funds receive earnings credits from their custodian when positive cash balances are maintained, which are used to offset custody fees. The expense paid under this arrangement is included in custodian fees and on the Statements of Operations with the corresponding expense offset shown as “expense paid indirectly.”

2. Investment Management, Administration Agreements and Other Transactions with Affiliates

In accordance with the terms of its respective investment management agreement, each Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee of 0.40% which is calculated daily based on the average weekly net assets of each Fund, excluding the liquidation value of the preferred stock.

Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides accounting and administration services. Each Fund pays DSC a monthly fee computed at the annual rate of 0.04% of the Funds’ average daily net assets, excluding the liquidation value of preferred stock, for accounting and administration services.

At March 31, 2007, each Fund had liabilities payable to affiliates as follows:

  Arizona            Colorado Insured            Florida Insured            Minnesota 
  Municipal  Municipal  Municipal    Municipal 
  Fund    Fund  Fund  Fund II 
Investment management fee payable to DMC  $23,034  $37,815    $18,493  $89,045 
Accounting administration and other expenses payable to DSC      2,397    11,705      1,920      9,244 
Other expenses payable to DMC and affiliates*      3,623      5,397      1,661      7,179 

*DMC, as part of its administrative services, pays operating expenses on behalf of each Fund and is reimbursed on a periodic basis. Such expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, stock exchange fees, custodian fees and directors/trustees’ fees.

As provided in the investment management agreement, each Fund bears the cost of certain legal and tax services, including internal legal and tax services provided to each Fund by DMC and/or its affiliates’ employees. For the year ended March 31, 2007, each Fund was charged for internal legal and tax services provided by DMC and/or its affiliates’ employees as follows:

Arizona            Colorado Insured            Florida Insured            Minnesota 
Municipal    Municipal    Municipal    Municipal 
Fund  Fund  Fund  Fund II 
$2,062  $3,448  $1,660  $8,008 

Directors’/Trustees’ fees and benefits include expenses accrued by the Funds for each Director’s/Trustee’s retainer, per meeting fees and retirement benefits. Independent Directors/Trustees with over five years of uninterrupted service were eligible to participate in a retirement plan that provided for the payment of benefits upon retirement. The amount of the retirement benefit was determined based on factors set forth in the plan, including the number of years of service. On November 16, 2006, the Board of Directors/Trustees unanimously voted to terminate the retirement plan. Payments equal to the net present value of the earned benefits were made in 2007 to those independent trustees so entitled. The retirement benefit payout for the Arizona Municipal Fund, Colorado Insured Municipal Fund, Florida Insured Municipal Fund and Minnesota Municipal Fund II was $5,506, $9,218, $4,431 and $21,329, 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.

30


3. Investments

For the year ended March 31, 2007, the Funds made purchases and sales of investment securities other than short-term investments as follows:

Arizona Colorado Insured Florida Insured Minnesota 
Municipal Municipal Municipal Municipal 
Fund            Fund           Fund           Fund II 
Purchases  $ 11,091,543    $ 11,974,513    $ 4,897,981    $ 14,657,319  
Sales 12,291,084   15,396,413   6,179,060   9,374,946  

At March 31, 2007, the cost of investments and unrealized appreciation (depreciation) for federal income tax purposes for each Fund were as follows:

 
Arizona          Colorado Insured          Florida Insured             Minnesota
Municipal Municipal Municipal Municipal 
Fund  Fund    Fund    Fund II 
Cost of investments  $ 65,701,368  $ 104,617,648  $ 52,830,697  $ 250,847,275
Aggregate unrealized appreciation  $ 2,910,098  $ 5,164,859  $ 1,699,424  $ 12,687,120
Aggregate unrealized depreciation   (54,545 )   (21,117 )   (18,760 )   (53,784 )
Net unrealized appreciation  $ 2,855,553  $ 5,143,742  $ 1,680,664  $ 12,633,336

4. Dividend and Distribution Information

Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. generally accepted accounting principles. Additionally, net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended March 31, 2007 and 2006 was as follows: 

Arizona Colorado Insured Florida Insured   Minnesota
Municipal Municipal Municipal Municipal 
Fund            Fund            Fund            Fund II 
Year Ended 3/31/07  
Ordinary income  $ 15,433    $  $  $
Tax-exempt income 3,106,771 5,436,875 2,676,030 11,948,414
Long-term capital gain   134,934   435,594   208,722  
Total  $ 3,257,138  $ 5,872,469  $ 2,884,752  $ 11,948,414
 
Year Ended 3/31/06
Tax-exempt income  $ 3,261,410  $ 5,673,140  $ 2,839,838  $ 8,676,141
Long-term capital gain   64,461   174,385   723,317  
Total  $ 3,325,871   $ 5,847,525  $ 3,563,155  $ 8,676,141

5. Components of Net Assets on a Tax Basis

As of March 31, 2007, the components of net assets on a tax basis were as follows:

 
Arizona Colorado Insured Florida Insured   Minnesota
Municipal            Municipal            Municipal            Municipal 
Fund  Fund  Fund  Fund II 
Shares of beneficial interest  $ 40,838,893  $ 67,238,110  $ 33,361,389  $ 158,785,529
Undistributed tax-exempt income    264,788 71,820 93,893
Undistributed long-term gains 221,687 409,097 142,452
Capital loss carryforwards (369,440 )
Unrealized appreciation of investments   2,855,553   5,143,742   1,680,664   12,633,336
Net assets  $ 43,916,133   $ 73,055,737   $ 35,256,325   $ 171,143,318

(continues)      31


Notes to financial statements

Delaware Investments Closed-End Municipal Bond Funds

 

5. Components of Net Assets on a Tax Basis (continued)

The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales, tax treatment of market discount on debt instruments, and tax treatment of participation in inverse floater programs.

For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of dividends and distributions, tax treatment of market discount on certain debt instruments and tax treatment of participation in inverse floater programs. Results of operations and net assets were not affected by these reclassifications. For the year ended March 31, 2007, the Funds recorded the following reclassifications:

  Arizona                      Minnesota 
  Municipal  Municipal 
  Fund    Fund II 
Undistributed (Accumulated) net investment income (loss)  $ 13,438  $ (11,464) 
Accumulated net realized gains (losses)  (13,438)  11,464  

For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryforwards remaining at March 31, 2007 will expire as follows:

  Minnesota                                 
  Municipal 
  Fund II   
2008   $175,394 
2009  175,804 
2010  8,416 
2013  9,826 
Total  $369,440 

For the year ended March, 31 2007, Arizona Municipal Fund and Minnesota Municipal Fund II utilized $30,981 and $164,149, respectively, of capital loss carryforwards.

6. Capital Stock

Pursuant to their articles of incorporation, Arizona Municipal Fund, Colorado Insured Municipal Fund and Minnesota Municipal Fund II each have 200 million shares of $0.01 par value common shares authorized. Florida Insured Municipal Fund has been authorized to issue an unlimited amount of $0.01 par value common shares. The Funds did not repurchase any shares under the Share Repurchase Program during the year ended March 31, 2007. Shares issuable under the Funds’ dividend reinvestment plan are purchased by the Funds’ transfer agent, Mellon Investor Services, LLC, in the open market.

For the year ended March 31, 2007, the Funds did not have any transactions in common shares.

The Funds each have one million shares of $0.01 par value preferred shares authorized, except for Florida Insured Municipal Fund, which has an unlimited amount of $0.01 par value preferred shares authorized. On May 14, 1993, Arizona Municipal Fund and Florida Insured Municipal Fund issued 500 and 400 preferred shares, respectively. Also on that date, Minnesota Municipal Fund II issued 600 Series A and 600 Series B preferred shares. 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.

In connection with the reorganizations described in Note 7 on the next page, shareholders of Minnesota Municipal Income Fund II approved amendments to its charter to create two new series to absorb the preferred stock of Delaware Investments Minnesota Municipal Income Fund, Inc. (“Minnesota Municipal Fund”) and Delaware Investments Minnesota Municipal Income Fund III, Inc. (“Minnesota Municipal Fund III”). These series have identical rights and preferences (including liquidation rights) in all material respects to the preferred shares of Minnesota Municipal Fund and Minnesota Municipal Fund III, and are substantially similar to the Series A and B preferred shares of Minnesota Municipal Fund II with respect to their preferences, voting powers, restrictions, limitation as to dividends, qualifications, liquidation rights, and term and conditions of redemption. Minnesota Municipal Fund II issued 400 Series C Preferred Shares to preferred shareholders of Minnesota Municipal Fund in exchange for that Fund’s preferred shares and 300 Series D Preferred Shares to preferred shareholders of Minnesota Municipal Fund III in exchange for that Fund’s preferred shares at the close of the reorganization on February 24, 2006.

32


6. 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, 2007 as follows:

Fund    Low                        High 
Arizona Municipal Fund   3.00%     to  4.45% 
Colorado Insured Municipal Fund   3.05%   to  4.11% 
Florida Insured Municipal Fund   3.00%   to  4.35% 
Minnesota Municipal Fund II   3.21%   to  3.95% 

Citigroup Global Markets, Inc. (formerly Salomon Smith Barney, Inc.) and Merrill Lynch Pierce, Fenner & Smith Inc. (Colorado Insured Municipal Fund only), as the remarketing agents, receive an annual fee from each of the Funds of 0.25% of the average amount of preferred stock outstanding.

Under the 1940 Act, the Funds may not declare dividends or make other distributions on common shares or purchase any such shares if, at the time of the declaration, distribution or purchase, asset coverage with respect to the outstanding preferred stock is less than 200%. The preferred shares are redeemable at the option of the Funds, in whole or in part, on any dividend payment date at $50,000 per share plus any accumulated but unpaid dividends whether or not declared. The preferred shares are also subject to mandatory redemption at $50,000 per share plus any accumulated but unpaid dividends whether or not declared, if certain requirements relating to the composition of the assets and liabilities of each Fund are not satisfied. The holders of preferred shares have voting rights equal to the holders of common shares (one vote per share) and will vote together with holders of common shares as a single class. However, holders of preferred shares are also entitled to elect two of each Fund’s Directors. In addition, the 1940 Act requires that along with approval by shareholders that might otherwise be required, the approval of the holders of a majority of any outstanding preferred shares, voting separately as a class would be required to (a) adopt any plan of reorganization that would adversely affect the preferred shares, and (b) take any action requiring a vote of security holders pursuant to Section 13(a) of the 1940 Act, including, among other things, changes in each of the Fund’s subclassification as a closed-end investment company or (c) changes in their fundamental investment restrictions.

7. Fund Reorganization

At the close of business on February 24, 2006, Minnesota Municipal Income Fund II acquired substantially all of the assets of Minnesota Municipal Fund and Minnesota Municipal Fund III, each pursuant to an Agreement and Plan of Acquisition (the “Reorganization”). The common shareholders of Minnesota Municipal Fund and Minnesota Municipal Fund III each received common shares of Minnesota Municipal Fund II equal to the aggregate net asset value of their respective shares prior to the Reorganization. The preferred shares of Minnesota Municipal Fund and Minnesota Municipal Fund III received the same number of Series C and Series D preferred shares, respectively, of Minnesota Municipal Fund II as they held in their respective Funds prior to the Reorganization (see Note 6). The Reorganizations were treated as non-taxable events and, accordingly, Minnesota Municipal Fund II’s basis in the securities acquired reflected the historical cost basis as of the date of transfer. The net assets, net unrealized appreciation and accumulated net realized gain (loss) of Minnesota Municipal Fund and Minnesota Municipal Fund III as of the close of business on February 24, 2006, were as follows:

          Net Unrealized           Accumulated Net
Net Assets   Appreciation   Realized Gain/Loss
Minnesota Municipal Fund   $38,077,404   $2,648,640 $ 2,145  
Minnesota Municipal Fund III    25,566,621   1,999,455 (81,744 )

The net assets of Minnesota Municipal Fund II prior to the Reorganizations were $108,531,274. The combined net assets of Minnesota Municipal Fund II after the Reorganization were $172,175,299.

Minnesota Municipal Fund II continues to trade and is listed on the American Stock Exchange. Beginning on February 27, 2006 and going forward, however, Minnesota Municipal Fund and Minnesota Municipal Fund III will no longer trade or be listed on the American Stock Exchange, and their corporate existence will be liquidated and dissolved. In January 2007, shareholders of Minnesota Municipal Fund and Minnesota Municipal Fund III received Form 1099-DIV that reported the amount and character of each Fund’s distributions paid in calendar year 2006.

Common and preferred shares of Minnesota Municipal Fund II issued to shareholders of Minnesota Municipal Fund and Minnesota Municipal Fund III in connection with the Reorganizations were as follows:

Common            Exchange            Preferred           Exchange
Shares Issued   Ratio   Shares Issued   Ratio
Minnesota Municipal Fund  2,543,581   1.02 to 1 400   1 to 1 
Minnesota Municipal Fund III  1,709,194 1.08 to 1 300 1 to 1 

(continues)     33


Notes to financial statements

Delaware Investments Closed-End Municipal Bond Funds

 

8. Inverse Floaters

The Funds may participate in inverse floater programs where a fund transfers its own bonds to a trust that issues floating rate securities and inverse floating rate securities (“inverse floaters”) with an aggregate principal amount equal to the principal of the transferred bonds. The inverse floaters received by the Funds are derivative tax-exempt obligations 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 the inverse floaters will generally be more volatile than other tax-exempt investments. The Funds typically use inverse floaters to adjust the duration of their portfolios. Duration measures a portfolio’s sensitivity to changes in interest rates. By holding inverse floaters with a different duration than the underlying bonds that the Funds transferred to the trust, the Funds seek to adjust its portfolio’s sensitivity to changes in interest rates. The Funds may also invest in inverse floaters to add additional income to the Funds or to adjust the Funds’ exposure to a specific segment of the yield curve. Securities held in trust relating to inverse floater programs are identified on the Statements of Net Assets.

Previously, the Funds treated these transactions as a sale of the bonds and as a purchase of the inverse floating rate securities. Under Statement of Financial Accounting Standards No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (FAS 140), the transfer of the bonds is not considered a sale, but rather a form of financing for accounting purposes.

9. Credit and Market Risk

The Funds use leverage in the form of preferred shares. Leveraging may result in a higher degree of volatility because each Fund’s net asset value could be more sensitive to fluctuations in short-term interest rates and changes in market value of portfolio securities attributable to the leverage.

The Funds concentrate their investments in securities issued by municipalities. The value of these investments may be adversely affected by new legislation within the states, regional or local economic conditions, and differing levels of supply and demand for municipal bonds. Many municipalities insure repayment for their obligations. Although bond insurance reduces the risk of loss due to default by an issuer, such bonds remain subject to the risk that 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 advanced refunded bonds, escrow secured bonds or defeased bonds. Under current federal tax laws and regulations, state and local government borrowers are permitted to refinance outstanding bonds by issuing new bonds. The issuer refinances the outstanding debt to either reduce interest costs or to remove or alter restrictive covenants imposed by the bonds being refinanced. A refunding transaction where the municipal securities are being refunded within 90 days from the issuance of the refunding issue is known as a “current refunding.” “Advance refunded bonds” are bonds in which the refunded bond issue remains outstanding for more than 90 days following the issuance of the refunding issue. In an advance refunding, the issuer will use the proceeds of a new bond issue to purchase high grade interest bearing debt securities which are then deposited in an irrevocable escrow account held by an escrow agent to secure all future payments of principal and interest and bond premium of the advance refunded bond. Bonds are “escrowed to maturity” when the proceeds of the refunding issue are deposited in an escrow account for investment sufficient to pay all of the principal and interest on the original interest payment and maturity dates. Bonds are considered “pre-refunded” when the refunding issue’s proceeds are escrowed only until a permitted call date or dates on the refunded issue with the refunded issue being redeemed at the time, including any required premium. Bonds become “defeased” when the rights and interests of the bondholders and of their lien on the pledged revenues or other security under the terms of the bond contract are substituted with an alternative source of revenues (the escrow securities) sufficient to meet payments of principal and interest to maturity or to the first call dates. Escrowed secured bonds will often receive a rating of AAA from Moody’s Investors Service, Inc., Standard & Poor’s Ratings Group, and/or Fitch Ratings due to the strong credit quality of the escrow securities and the irrevocable nature of the escrow deposit agreement.

Each Fund may invest up to 15% of its total assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair each Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, each Fund’s Board of Trustees/Directors has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of each Fund’s limitation on investments in illiquid assets. At March 31, 2007, there were no Rule 144A securities and no securities have been determined to be illiquid under the Funds’ Liquidity Procedures.

10. Contractual Obligations

The Funds enter into contracts in the normal course of business that contain a variety of indemnifications. The Funds’ maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these contracts. Management has reviewed the Funds’ existing contracts and expects the risk of loss to be remote.

34


11. Tax Information (Unaudited)

The information set forth below is for each Fund’s fiscal year as required by federal laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information.

For the fiscal year ended March 31, 2007, each Fund designates distributions paid during the year as follows:

(A)   (B)  
Long-Term   Tax-  
Capital Gains   Exempt   Total
Distributions           Distributions           Distributions
(Tax Basis)    (Tax Basis)   (Tax Basis)
Arizona Municipal Fund   4%   96% 100% 
Colorado Insured Municipal Fund   7% 93% 100% 
Florida Insured Municipal Fund   7% 93% 100% 
Minnesota Municipal Fund II   100% 100% 
  
(A) and (B) are based on a percentage of each Fund’s total distributions.  

35


Report of independent
registered public accounting firm



To the Shareholders and Board of Directors/Trustees
Delaware Investments Arizona Municipal Income Fund, Inc.
Delaware Investments Colorado Insured Municipal Income Fund, Inc.
Delaware Investments Florida Insured Municipal Income Fund
Delaware Investments Minnesota Municipal Income Fund II, Inc.

We have audited the accompanying statements of net assets of Delaware Investments Arizona Municipal Income Fund, Inc., Delaware Investments Colorado Insured Municipal Income Fund, Inc., Delaware Investments Florida Insured Municipal Income Fund and Delaware Investments Minnesota Municipal Income Fund II, Inc. (the “Funds”), as of March 31, 2007, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and financial highlights, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of March 31, 2007, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. 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, 2007, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.

Philadelphia, Pennsylvania
May 15, 2007

36


Other Fund information

Delaware Investments Closed-End Municipal Bond Funds

 

Changes to the Funds’ Investment Policies

At a meeting on August 16-17, 2006, the Funds’ Boards of Directors/Trustees approved the following changes and clarifications to the Funds’ non-fundamental investment policies. The changes became effective on September 1, 2006.

Delaware Investments Arizona Municipal Income Fund, Inc. — The Fund may invest up to 20% of its net assets in municipal obligations issued by or on behalf of territories of the United States – such as Guam, the U.S. Virgin Islands or Puerto Rico – that are exempt from Arizona and federal income tax, subject to the Fund’s fundamental investment policy to invest 80% of its net assets in Arizona municipal obligations.

The Fund may invest in the lowest tier of investment grade rated bonds (i.e., rated Baa by Moody’s or BBB by S&P).

Delaware Investments Colorado Insured Municipal Income Fund, Inc. — The Fund may invest up to 20% of its net assets in municipal obligations issued by or on behalf of territories of the United States – such as Guam, the U.S. Virgin Islands or Puerto Rico – that are exempt from Colorado and federal income tax, subject to the Fund’s fundamental investment policy to invest 80% of its net assets in Colorado municipal obligations.

Delaware Investments Florida Insured Municipal Income Fund — The Fund may invest up to 20% of its net assets in municipal obligations issued by or on behalf of territories of the United States – such as Guam, the U.S. Virgin Islands or Puerto Rico – that are exempt from federal income tax subject to the Fund’s fundamental investment policy to invest 80% of its net assets in Florida municipal obligations.

Delaware Investments Minnesota Municipal Income Fund II, Inc. — The Fund may invest in municipal obligations issued by or on behalf of territories of the United States – such as Guam, the U.S. Virgin Islands or Puerto Rico – that are exempt from Minnesota and federal income tax to the extent that not more than 5% of the Fund’s exempt interest dividends are derived from such obligations, subject to the Fund’s fundamental investment policy to invest 80% of its net assets in Minnesota municipal obligations.

The Fund may invest in the lowest tier of investment grade rated bonds (i.e., rated Baa by Moody’s or BBB by S&P).

Proxy Results

The shareholders of Delaware Investments Arizona Municipal Income Fund, Inc., Delaware Investments Colorado Insured Municipal Income Fund, Inc., Delaware Investments Florida Insured Municipal Income Fund, and Delaware Investments Minnesota Municipal Income Fund II, Inc. (each, a “Fund”) voted on the following proposals (as applicable) at the annual meeting of shareholders on August 16, 2006 (the “Annual Meeting”). The description of each proposal and number of shares voted are as follows:

1. To elect a Board of Directors for each Fund.

Delaware Investments Arizona Municipal Income Fund, Inc.

   Common Shareholders Preferred Shareholders
         Shares Voted                Shares Voted 
   Shares Voted For   Withheld Authority   Shares Voted For   Withheld Authority 
Patrick P. Coyne *  2,922,669  23,287  
Thomas L. Bennett  2,922,156  23,800  
John A. Fry  2,922,669  23,287  
Anthony D. Knerr  2,922,669  23,287  
Lucinda S. Landreth  2,922,669  23,287  
Ann R. Leven  2,922,669  23,287
Thomas F. Madison    490 0
Janet L. Yeomans    490 0
J. Richard Zecher  2,922,669  23,287  

(continues)     37


Other Fund information

Delaware Investments Closed-End Municipal Bond Funds

 

Delaware Investments Colorado Insured Municipal Fund, Inc.

   Common Shareholders   Preferred Shareholders 
         Shares Voted                 Shares Voted 
   Shares Voted For   Withheld Authority   Shares Voted For   Withheld Authority 
Patrick P. Coyne *   4,582,707  56,914  
Thomas L. Bennett   4,549,334  90,287  
John A. Fry   4,582,207  57,414  
Anthony D. Knerr   4,583,741  55,880  
Lucinda S. Landreth   4,584,407  55,214  
Ann R. Leven   4,584,688  54,933
Thomas F. Madison     507 0
Janet L. Yeomans     507 0
J. Richard Zecher   4,584,157  55,464  

Delaware Investments Florida Insured Municipal Fund

   Common Shareholders Preferred Shareholders
         Shares Voted                Shares Voted 
   Shares Voted For   Withheld Authority   Shares Voted For   Withheld Authority 
Patrick P. Coyne *    2,272,312  13,322
Thomas L. Bennett   2,267,912  17,722
John A. Fry   2,272,312  13,322
Anthony D. Knerr   2,272,312  13,322
Lucinda S. Landreth   2,272,312  13,322
Ann R. Leven   2,270,212  15,422
Thomas F. Madison  398 2
Janet L. Yeomans  398 2
J. Richard Zecher   2,270,212  15,422

Delaware Investments Minnesota Municipal Income Fund II, Inc.

   Common Shareholders Preferred Shareholders
         Shares Voted                Shares Voted 
   Shares Voted For   Withheld Authority   Shares Voted For   Withheld Authority 
Patrick P. Coyne *   9,972,071   367,397 
Thomas L. Bennett   9,966,036   373,432 
John A. Fry   9,971,763   367,705 
Anthony D. Knerr   9,968,331   371,137 
Lucinda S. Landreth   9,974,924   364,544 
Ann R. Leven   9,976,761   362,707 
Thomas F. Madison   1,416   0 
Janet L. Yeomans   1,416   0 
J. Richard Zecher   9,969,705   369,763 
 
*Subsequent to the mailing of the proxy materials for the Annual Meeting, Jude T. Driscoll, a Director/Trustee and one of the nominees for election to the Board of each Fund, resigned from the Board of each Fund, effective August 1, 2006. As a result, Mr. Driscoll withdrew from the election. At a regularly scheduled Board meeting on August 16, 2006, each Fund’s Nominating Committee recommended to the applicable Fund’s Board substituting Patrick P. Coyne for Mr. Driscoll as a nominee for election to the Board and each Board recommended naming Mr. Coyne as a substitute nominee for election to the Board.

38


As disclosed in the Proxy Statement, in the case of the withdrawal of a nominee for election, the power given by shareholders in the Proxy Card may be used by the persons named as proxies to vote for a substitute nominee or nominees as recommended by the existing Board. Accordingly, the proxies exercised their discretion to vote for the Mr. Coyne, the substitute nominee for election to each Board, at the Annual Meeting.

As described in a press release dated August 17, 2006, Delaware Investments Arizona Municipal Income Fund, Inc. and Delaware Investments Minnesota Municipal Income Fund II, Inc. announced that each Fund’s Board of Directors/Trustees approved the following clarifications to the Funds’ non-fundamental investment policies at a meeting held on August 16-17, 2006. These clarifications became effective September 4, 2006.

Delaware Investments Arizona Municipal Income Fund, Inc.

The Fund may invest up to 20% of its net assets in municipal obligations issued by or on behalf of territories of the United States – such as Guam, the U.S. Virgin Islands or Puerto Rico – that are exempt from Arizona and federal income tax, subject to the Fund’s fundamental investment policy to invest 80% of its net assets in Arizona municipal obligations. The Fund may invest without limit in the lowest tier of investment grade rated bonds (i.e., rated Baa by Moody’s or BBB by S&P).

Delaware Investments Colorado Insured Municipal Income Fund, Inc.

The Fund may invest up to 20% of its net assets in municipal obligations issued by or on behalf of territories of the United States – such as Guam, the U.S. Virgin Islands or Puerto Rico – that are exempt from Colorado and federal income tax, subject to the Fund’s fundamental investment policy to invest 80% of its net assets in Colorado insured municipal obligations.

Delaware Investments Florida Insured Municipal Income Fund

The Fund may invest up to 20% of its net assets in municipal obligations issued by or on behalf of territories of the United States – such as Guam, the U.S. Virgin Islands or Puerto Rico – that are exempt from federal income tax subject to the Fund’s fundamental investment policy to invest 80% of its net assets in Florida insured municipal obligations.

Delaware Investments Minnesota Municipal Income Fund II, Inc.

The Fund may invest in municipal obligations issued by or on behalf of territories of the United States – such as Guam, the U.S. Virgin Islands or Puerto Rico – that are exempt from Minnesota and federal income tax to the extent that not more than 5% of the Fund’s exempt interest dividends are derived from such obligations, subject to the Fund’s fundamental investment policy to invest 80% of its net assets in Minnesota municipal obligations. The Fund may invest without limit in the lowest tier of investment grade rated bonds (i.e., rated Baa by Moody’s or BBB by S&P).

As described in a press release dated February 20, 2007, Delaware Investments Arizona Municipal Income Fund, Inc. and Delaware Investments Minnesota Municipal Income Fund II, Inc. announced that each Fund’s Board of Directors approved the following changes to the Funds’ non-fundamental investment policies at a meeting held on February 14-15, 2007. These changes became effective April 23, 2007.

Delaware Investments Arizona Municipal Income Fund, Inc.

The Fund will invest at least 80% of its net assets in investment grade quality Arizona municipal bonds. The Fund may invest up to 20% of its net assets in municipal bonds that are rated Ba1/BB+ or lower or that are unrated but judged to be of comparable quality by the Fund’s investment adviser. Investment in municipal bonds of below investment grade quality involves special risks as compared with investment in higher grade municipal bonds. These risks may include greater sensitivity to a general economic downturn, greater market price volatility and less secondary market trading. Securities rated below investment grade are commonly known as “junk bonds.” Such securities are regarded, on balance, as predominantly speculative with respect to the issuer’s ability to pay interest and repay principal owed.

Delaware Investments Minnesota Municipal Income Fund II, Inc.

The Fund will invest at least 80% of its net assets in investment grade quality Minnesota municipal bonds. The Fund may invest up to 20% of its net assets in municipal bonds that are rated Ba1/BB+ or lower or that are unrated but judged to be of comparable quality by the Fund’s investment adviser. Investment in municipal bonds of below investment grade quality involves special risks as compared with investment in higher grade municipal bonds. These risks may include greater sensitivity to a general economic downturn, greater market price volatility and less secondary market trading. Securities rated below investment grade are commonly known as “junk bonds.” Such securities are regarded, on balance, as predominantly speculative with respect to the issuer’s ability to pay interest and repay principal owed.

As described in a press release dated May 16, 2007, Delaware Investments Colorado Insured Municipal Income Fund, Inc. and Delaware Investments Florida Insured Municipal Income Fund announced that each Fund’s Board of Directors/Trustees approved the following changes to the Funds’ fundamental investment policies be submitted to shareholders at each Fund’s upcoming annual shareholder meeting to be held in August 2007.

(continues)     39


Other Fund information

Delaware Investments Closed-End Municipal Bond Funds

 

Delaware Investments Colorado Insured Municipal Income Fund, Inc.

The Fund will seek approval of the elimination of a fundamental policy requiring it to invest 80% of its net assets in Colorado municipal bonds insured by insurance companies with AAA-rated claims-paying ability. If approved, this fundamental investment policy would be replaced by non-fundamental investment policies permitting the Fund to invest without limitation in uninsured, Colorado municipal securities rated investment grade (including below AAA) as well as invest up to 20% of its net assets in non-investment grade Colorado municipal securities. Investment in municipal bonds of below investment grade quality involves special risks as compared with investment in higher grade municipal bonds. These risks may include greater sensitivity to a general economic downturn, greater market price volatility and less secondary market trading. Securities rated below investment grade are commonly known as “junk bonds.” Such securities are regarded, on balance, as predominantly speculative with respect to the issuer’s ability to pay interest and repay principal owed. Coincident with the proposed changes, the Fund’s name would be changed to “Delaware Investments Colorado Municipal Income Fund, Inc.”

Delaware Investments Florida Insured Municipal Income Fund

The Fund will seek approval of the elimination of a fundamental policy requiring it to invest 80% of its net assets in Florida municipal bonds insured by insurance companies with AAA-rated claims-paying ability. If approved, this fundamental investment policy would be replaced by non-fundamental investment policies permitting the Fund to invest without limitation in uninsured, municipal securities of any state that are rated investment grade (including below AAA) as well as invest up to 20% of its net assets in non-investment grade municipal securities. Investment in municipal bonds of below investment grade quality involves special risks as compared with investment in higher grade municipal bonds. These risks may include greater sensitivity to a general economic downturn, greater market price volatility and less secondary market trading. Securities rated below investment grade are commonly known as “junk bonds.” Such securities are regarded, on balance, as predominantly speculative with respect to the issuer’s ability to pay interest and repay principal owed. Coincident with the proposed changes, the Fund’s name would be changed to “Delaware Investments National Municipal Income Fund.” If approved by shareholders, the Fund anticipates that for an undetermined period of time it would remain significantly invested in Florida municipal bonds, and would gradually transition to a more nationally diversified portfolio in an attempt to help minimize the tax impact of the transition on shareholders.

40


Board of directors/trustees
and officers addendum

Delaware Investments® Family of Funds

A mutual fund is governed by a Board of Directors/Trustees, which has oversight responsibility for the management of a fund’s business affairs. Directors/Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund directors/trustees, in particular, are advocates for shareholder interests. Each director/trustee has served in that capacity since he or she was elected to or appointed to the Board of Directors, and will continue to serve until his or her retirement or the election of a new director/trustee in his or her place. The following is a list of the Directors and Officers with certain background and related information.

        Number of  
        Portfolios in Fund Other
Name,       Complex Overseen Directorships
Address, Position(s) Length of Principal Occupation(s) by Director Held by
and Birth Date Held with Fund(s) Time Served During Past 5 Years or Officer Director or Officer
 Interested Trustees            
Patrick P. Coyne1 Chairman, Chairman and Director Patrick P. Coyne has served in 83 None
2005 Market Street President, since August 16, 2006 various executive capacities    
Philadelphia, PA Chief Executive   at different times at    
19103 Officer, and President and Delaware Investments.2    
  Director  Chief Executive Officer      
April 14, 1963   since August 1, 2006      
 Independent Trustees           
Thomas L. Bennett Director  Since Private Investor — 83 None
2005 Market Street   March 2005 (March 2004–Present)    
Philadelphia, PA          
19103     Investment Manager —    
      Morgan Stanley & Co.    
October 4, 1947     (January 1984–March 2004)    
John A. Fry Director  Since President — 83 Director —
2005 Market Street   January 2001 Franklin & Marshall College   Community Health
Philadelphia, PA     (June 2002–Present)   Systems
19103          
      Executive Vice President —   Director —
May 28, 1960     University of Pennsylvania   Allied Barton
      (April 1995–June 2002)   Security Holdings
Anthony D. Knerr Director  Since Founder and Managing Director — 83 None
2005 Market Street   April 1990 Anthony Knerr & Associates    
Philadelphia, PA     (Strategic Consulting)    
19103     (1990–Present)    
 
December 7, 1938          
Lucinda S. Landreth Director  Since Chief Investment Officer — 83 None
2005 Market Street   March 2005 Assurant, Inc.    
Philadelphia, PA     (Insurance)    
19103     (2002–2004)    
 
June 24, 1947          
Ann R. Leven Director  Since Consultant — 83 Director and
2005 Market Street   September 1989 ARL Associates   Audit Committee
Philadelphia, PA     (Financial Planning)   Chairperson — Andy
19103     (1983–Present)   Warhol Foundation
 
November 1, 1940         Director and Audit
          Committee Member —
          Systemax, Inc.

(continues)     41



        Number of   
        Portfolios in Fund  Other 
Name,        Complex Overseen  Directorships 
Address,  Position(s)  Length of  Principal Occupation(s)  by Director  Held by 
and Birth Date  Held with Fund(s)  Time Served  During Past 5 Years  or Officer  Director or Officer 
 Independent Trustees (continued)         
Thomas F. Madison  Director  Since  President and Chief  83  Director — 
2005 Market Street    May 1997 Executive Officer —    Banner Health 
Philadelphia, PA      MLM Partners, Inc.     
19103      (Small Business Investing    Director — 
      and Consulting)    CenterPoint Energy 
February 25, 1936      (January 1993–Present)   
          Director and Audit 
Committee Member — 
Digital River, Inc. 
 
          Director and Audit 
          Committee Member —
          Rimage 
          Corporation 
 
          Director — Valmont 
          Industries, Inc. 
Janet L. Yeomans  Director  Since  Vice President  83  None 
2005 Market Street    April 1999  (January 2003–Present)     
Philadelphia, PA      and Treasurer     
19103      (January 2006–Present)     
      3M Corporation     
July 31, 1948           
      Ms. Yeomans has held     
      various management positions     
      at 3M Corporation since 1983.     
J. Richard Zecher  Director  Since  Founder —  83  Director and Audit 
2005 Market Street    March 2005  Investor Analytics 

 

Committee Member — 

Philadelphia, PA      (Risk Management)    Investor Analytics 
19103      (May 1999–Present)     
          Director and Audit 
July 3, 1940      Founder —  Committee Member — 
      Sutton Asset Management    Oxigene, Inc. 
      (Hedge Fund)     
      (September 1998–Present)     
 Officers           
David F. Connor  Vice President,  Vice President since  David F. Connor has served as  83  None3
2005 Market Street  Deputy General  September 21, 2000  Vice President and Deputy     
Philadelphia, PA  Counsel, and Secretary  and Secretary  General Counsel of     
19103    since  Delaware Investments     
    October 2005  since 2000.     
December 2, 1963           
David P. O’Connor  Senior Vice  Senior Vice President,  David P. O’Connor has served in  83  None3
2005 Market Street  President,  General Counsel, and  various executive and legal     
Philadelphia, PA  General Counsel,  Chief Legal Officer  capacities at different times     
19103  and Chief  since  at Delaware Investments.     
  Legal Officer  October 2005       
February 21, 1966           
John J. O’Connor  Senior Vice President  Treasurer  John J. O’Connor has served in  83  None3 
2005 Market Street  and Treasurer  since  various executive capacities     
Philadelphia, PA    February 2005  at different times at     
19103      Delaware Investments.     
 
June 16, 1957           
Richard Salus  Senior  Chief Financial  Richard Salus has served in  83  None3 
2005 Market Street  Vice President  Officer since  various executive capacities     
Philadelphia, PA  and  November 1, 2006  at different times at     
19103  Chief Financial    Delaware Investments.     
  Officer         
October 4, 1963           
1 Patrick P. Coyne is considered to be an “Interested Director” because he is an executive officer of the Fund’s investment advisor.
2 Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s investment advisor and its administrator.
3 David F. Connor, David P. O’Connor, John J. O’Connor, and Richard Salus serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor as the registrant. John J. O’Connor also serves in a similar capacity for Lincoln Variable Insurance Products Trust, which has the same investment advisor as the registrant.

42


About the organization

This annual report is for the information of Delaware Investments Closed-End Municipal Bond Funds shareholders, but it may be used with prospective investors when preceded or accompanied by a current prospectus for Delaware Investments Closed-End Municipal Bond Funds and the Delaware Investments® Performance Update for the most recently completed calendar quarter. The prospectus sets forth details about charges, expenses, investment objectives, and operating policies of the Fund. You should read the prospectus carefully before you invest. The figures in this report represent past results that are not a guarantee of future results. The return and principal value of an investment in the Fund will fluctuate so that shares, when sold, may be worth more or less than their original cost.


Board of trustees

Patrick P. Coyne
Chairman, President, and
Chief Executive Officer
Delaware Investments® Family of Funds
Philadelphia, PA

Thomas L. Bennett
Private Investor
Rosemont, PA

John A. Fry
President
Franklin & Marshall College
Lancaster, PA

Anthony D. Knerr
Founder and Managing Director
Anthony Knerr & Associates
New York, NY

Lucinda S. Landreth
Former Chief Investment Officer
Assurant, Inc.
Philadelphia, PA

Ann R. Leven
Consultant
ARL Associates
New York, NY

Thomas F. Madison
President and Chief Executive Officer
MLM Partners, Inc.
Minneapolis, MN

Janet L. Yeomans
Vice President and Treasurer
3M Corporation
St. Paul, MN

J. Richard Zecher
Founder
Investor Analytics
Scottsdale, AZ

      Affiliated officers

David F. Connor
Vice President, Deputy General Counsel,
and Secretary
Delaware Investments Family of Funds
Philadelphia, PA

David P. O’Connor
Senior Vice President, General Counsel,
and Chief Legal Officer
Delaware Investments Family of Funds
Philadelphia, PA

John J. O’Connor
Senior Vice President and Treasurer
Delaware Investments Family of Funds
Philadelphia, PA

Richard Salus
Senior Vice President and
Chief Financial Officer
Delaware Investments Family of Funds
Philadelphia, PA

Each Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. Each Fund’s Form N-Q, as well as a description of the policies and procedures that each Fund uses 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 each Fund’s Web site at http://www.delawareinvestments.com; and (iii) on the Commission’s Web site at http://www.sec.gov. Each Fund’s Form N-Q may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.

Information (if any) regarding how each Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through each Fund’s Web site at http://www.delawareinvestments.com; and (ii) on the Commission’s Web site at http://www.sec.gov.

     

Contact information

Investment Manager
Delaware Management Company
a series of Delaware Management
Business Trust
Philadelphia, PA

Principal Office of the Funds
2005 Market Street
Philadelphia, PA 19103-7057

Independent Registered Public
Accounting Firm
Ernst & Young LLP
2001 Market Street
Philadelphia, PA 19103

Registrar and Stock Transfer
Agent

Mellon Investor Services
480 Washington Blvd.
Jersey City, NJ 07310
800 851-9677

For Securities Dealers
and Financial Institutions
Representatives

800 362-7500

Web Site
www.delawareinvestments.com

Delaware Investments is the marketing
name of Delaware Management Holdings,
Inc. and its subsidiaries.

Number of Recordholders as of
March 31, 2007:

Arizona Municipal Income Fund      
Colorado Insured Municipal
Income Fund
Florida Insured Municipal
Income Fund
Minnesota Municipal Income
Fund II
  72
 
158
 
135
 
701

43




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Register for Account Access today! Please visit us at www.delawareinvestments.com, select Individual Investors, and click Account Access.

Please call our Shareholder Service Center at 800 523-1918 Monday through Friday from 8:00 a.m. to 7:00 p.m., Eastern Time, for assistance with any questions.


 

(1805)  Printed in the USA 
AR-CEMUNI [3/07] CGI 5/07  MF-07-04-352  PO11857 


Item 2. Code of Ethics

     The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of the registrant’s Code of Business Ethics has been posted on Delaware Investments’ internet website at www.delawareinvestments.com. Any amendments to the Code of Business Ethics, and information on any waiver from its provisions granted by the registrant, will also be posted on this website within five business days of such amendment or waiver and will remain on the website for at least 12 months.

Item 3. Audit Committee Financial Expert

     The registrant’s Board of Trustees/Directors has determined that each member of the registrant’s Audit Committee is an audit committee financial expert, as defined below. For purposes of this item, an “audit committee financial expert” is a person who has the following attributes:

     a. An understanding of generally accepted accounting principles and financial statements;

     b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves;

     c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements, or experience actively supervising one or more persons engaged in such activities;

     d. An understanding of internal controls and procedures for financial reporting; and

     e. An understanding of audit committee functions.

An “audit committee financial expert” shall have acquired such attributes through:

     a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions;

     b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions;

     c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or

     d. Other relevant experience.


     The registrant’s Board of Trustees/Directors has also determined that each member of the registrant’s Audit Committee is independent. In order to be “independent” for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees/Directors or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an “interested person” of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940.

     The names of the audit committee financial experts on the registrant’s Audit Committee are set forth below:

     Thomas L. Bennett 1
     
Thomas F. Madison
     Janet L. Yeomans
1
     
J. Richard Zecher

Item 4. Principal Accountant Fees and Services

     (a) Audit fees.

     The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant’s annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $14,100 for the fiscal year ended March 31, 2007.

 

____________________
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 Mr. Bennett qualifies as an audit committee financial expert by virtue of his education, Chartered Financial Analyst designation, and his experience as a credit analyst, portfolio manager and the manager of other credit analysts and portfolio managers. The Board of Trustees/Directors has determined that Ms. Yeomans qualifies as an audit committee financial expert by virtue of her education and experience as the Treasurer of a large global corporation.


     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 $24,800 for the fiscal year ended March 31, 2006.

     (b) Audit-related fees.

     The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the registrant’s financial statements and not reported under paragraph (a) of this Item were $6,868 for the fiscal year ended March 31, 2007. 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 report with respect to the preferred stock rating agency report.

     The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the financial statements of the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended March 31, 2007.

     The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the registrant’s financial statements and not reported under paragraph (a) of this Item were $6,700 for the fiscal year ended March 31, 2006. 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 report with respect to the preferred stock rating agency report.

     The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the financial statements of the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $15,000 for the registrant’s fiscal year ended March 31, 2006. 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 report to the registrant’s Board in connection with the pass-through of internal legal cost relating to the operations of the registrant.

     (c) Tax fees.

     The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $2,600 for the fiscal year ended March 31, 2007. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax return and review of annual excise distribution calculation.


     The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended March 31, 2007.

     The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $900 for the fiscal year ended March 31, 2006. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax return and review of annual excise distribution calculation.

     The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant’s adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended March 31, 2006.

     (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, 2007.

     The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant’s independent auditors to the registrant’s adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended March 31, 2007.

     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, 2006.

     The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant’s independent auditors to the registrant’s adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended March 31, 2006.


     (e) The registrant’s Audit Committee has established pre-approval policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X (the “Pre-Approval Policy”) with respect to services provided by the registrant’s independent auditors. Pursuant to the Pre-Approval Policy, the Audit Committee has pre-approved the services set forth in the table below with respect to the registrant up to the specified fee limits. Certain fee limits are based on aggregate fees to the registrant and other registrants within the Delaware Investments Family of Funds.

Service   Range of Fees 
Audit Services   
Statutory audits or financial audits for new Funds  up to $25,000 per Fund
Services associated with SEC registration statements (e.g., Form N-1A, Form N-14, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g., comfort letters for closed-end Fund offerings, consents), and assistance in responding to SEC comment letters up to $10,000 per Fund
Consultations by Fund management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be considered “audit-related services” rather than “audit services”) up to $25,000 in the aggregate
Audit-Related Services   
Consultations by Fund management as to the accounting or disclosure treatment of transactions or events and /or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be considered “audit services” rather than “audit-related services”) up to $25,000 in the aggregate
Tax Services   
U.S. federal, state and local and international tax planning and advice (e.g., consulting on statutory, regulatory or administrative developments, evaluation of Funds’ tax compliance function, etc.) up to $25,000 in the aggregate
U.S. federal, state and local tax compliance (e.g., excise distribution reviews, etc.)  up to $5,000 per Fund
Review of federal, state, local and international income, franchise and other tax returns  up to $5,000 per Fund

     Under the Pre-Approval Policy, the Audit Committee has also pre-approved the services set forth in the table below with respect to the registrant’s investment adviser and other entities controlling, controlled by or under common control with the investment adviser that provide ongoing services to the registrant (the “Control Affiliates”) up to the specified fee limit. This fee limit is based on aggregate fees to the investment adviser and its Control Affiliates.

Service   Range of Fees 
Non-Audit Services   
Services associated with periodic reports and other documents filed with the SEC and assistance in responding to SEC comment letters up to $10,000 in the aggregate

     The Pre-Approval Policy requires the registrant’s independent auditors to report to the Audit Committee at each of its regular meetings regarding all services initiated since the last such report was rendered, including those services authorized by the Pre-Approval Policy.

     (f) Not applicable.


     (g) The aggregate non-audit fees billed by the registrant’s independent auditors for services rendered to the registrant and to its investment adviser and other service providers under common control with the adviser were $248,876 and $198,160 for the registrant’s fiscal years ended March 31, 2007 and March 31, 2006, respectively.

     (h) In connection with its selection of the independent auditors, the registrant’s Audit Committee has considered the independent auditors’ provision of non-audit services to the registrant’s investment adviser and other service providers under common control with the adviser that were not required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit Committee has determined that the independent auditors’ provision of these services is compatible with maintaining the auditors’ independence.

Item 5. Audit Committee of Listed Registrants

     The registrant has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The members of the registrant’s Audit Committee are Thomas L. Bennett, Thomas F. Madison, Janet L. Yeomans and J. Richard Zecher.


Item 6. Schedule of Investments

     Included as part of report to shareholders filed under Item 1 of this Form N-CSR.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies

     The registrant has formally delegated to its investment adviser (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. By no later than August 31 of each year, information (if any) regarding how the registrant voted proxies relating to portfolio securities during the most recently disclosed 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 equity-based compensation plans are generally determined on a case-by-case basis; and (vii) generally vote for proposals requesting reports on the level of greenhouse gas emissions from a company’s operations and products.


     Because the registrant has delegated proxy voting to the Adviser, the registrant is not expected to encounter any conflict of interest issues regarding proxy voting and therefore does not have procedures regarding this matter. However, the Adviser does have a section in its Procedures that addresses the possibility of conflicts of interest. Most proxies which the Adviser receives on behalf of the registrant are voted by ISS in accordance with the Procedures. Because almost all registrant proxies are voted by ISS pursuant to the pre-determined Procedures, it normally will not be necessary for the Adviser to make an actual determination of how to vote a particular proxy, thereby largely eliminating conflicts of interest for the Adviser during the proxy voting process. In the very limited instances where the Adviser is considering voting a proxy contrary to ISS’s recommendation, the Committee will first assess the issue to see if there is any possible conflict of interest involving the Adviser or affiliated persons of the Adviser. If a member of the Committee has actual knowledge of a conflict of interest, the Committee will normally use another independent third party to do additional research on the particular proxy issue in order to make a recommendation to the Committee on how to vote the proxy in the best interests of the registrant. The Committee will then review the proxy voting materials and recommendation provided by ISS and the independent third party to determine how to vote the issue in a manner which the Committee believes is consistent with the Procedures and in the best interests of the registrant.

Item 8. Portfolio Managers of Closed-End Management Investment Companies

     Other Accounts Managed

     The following chart lists certain information about types of other accounts for which each portfolio manager is primarily responsible as of December 31, 2006. Any accounts managed in a personal capacity appear under “Other Accounts” along with other accounts managed on a professional basis. The personal account information is current as of the most recent calendar quarter end for which account statements are available.

  No. of
Accounts
Total Assets
Managed
No. of Accounts
with
Performance-
Based Fees
Total Assets in
Accounts with
Performance-
Based Fees
Joseph R. Baxter        
Registered Investment
Companies
20 $3.5 billion -- $ --
Other Pooled
Investment Vehicles
-- $ -- -- $ --
Other Accounts 29 $1.8 million -- $ --
Robert F. Collins        
Registered Investment
Companies
20 $3.5 billion -- $ --
Other Pooled
Investment Vehicles
-- $ -- -- $ --
Other Accounts 40 $1.8 billion -- $ --
Denise A. Franchetti        
Registered Investment
Companies
6 $388.5 million -- $ --
Other Pooled
Investment Vehicles
-- $ -- -- $ --
Other Accounts -- $ -- -- $ --


DESCRIPTION OF MATERIAL CONFLICTS OF INTEREST

Individual portfolio managers may perform investment management services for other accounts similar to those provided to the Funds and the investment action for each account and Fund may differ. For example, one account or Fund may be selling a security, while another account or Fund may be purchasing or holding the same security. As a result, transactions executed for one account and Fund may adversely affect the value of securities held by another account. Additionally, the management of multiple accounts and Funds may give rise to potential conflicts of interest, as a portfolio manager must allocate time and effort to multiple accounts and Funds. A portfolio manager may discover an investment opportunity that may be suitable for more than one account or Fund. The investment opportunity may be limited, however, so that all accounts and Funds for which the investment would be suitable may not be able to participate. Delaware has adopted procedures designed to allocate investments fairly across multiple accounts.

COMPENSATION STRUCTURE

Each portfolio’s manager’s compensation consists of the following:

BASE SALARY – Each named portfolio manager receives a fixed base salary. Salaries are determined by a comparison to industry data prepared by third parties to ensure that portfolio manager salaries are in line with salaries paid at peer investment advisory firms.

BONUS -- Each portfolio manager is eligible to receive an annual cash bonus, which is based on quantitative and qualitative factors. There is one pool for bonus payments for the fixed income department. The amount of the pool for bonus payments is first determined by mathematical equation based on all assets managed (including investment companies, insurance product-related accounts and other separate accounts), management fees and related expenses (including fund waiver expenses) for registered investment companies, pooled vehicles, and managed separate accounts. Generally, 50%-70% of the bonus is quantitatively determined. For more senior portfolio managers, a higher percentage of the bonus is quantitatively determined. For investment companies, each manager is compensated according the Fund’s Lipper peer group percentile ranking on a one-year and three-year basis, equally weighted. For managed separate accounts the portfolio managers are compensated according to the composite percentile ranking against the Frank Russell and Callan Associates databases on a one-year and three-year basis, with three-year performance more heavily weighted. There is no objective award for a fund that falls below the 50th percentile over the three-year period. There is a sliding scale for investment companies that are ranked above the 50th percentile. The remaining 30%-50% portion of the bonus is discretionary as determined by Delaware Investments and takes into account subjective factors.


DEFERRED COMPENSATION – Each named portfolio manager is eligible to participate in the Lincoln National Corporation Executive Deferred Compensation Plan, which is available to all employees whose income exceeds a designated threshold. The Plan is a non-qualified unfunded deferred compensation plan that permits participating employees to defer the receipt of a portion of their cash compensation.

STOCK OPTION INCENTIVE PLAN/EQUITY COMPENSATION PLAN - Portfolio managers may be awarded options to purchase common shares of Delaware Investments U.S., Inc. pursuant to the terms the Delaware Investments U.S., Inc. Stock Option Plan (non-statutory or “non-qualified” stock options). In addition, certain managers may be awarded restricted stock units, or “performance shares”, in Lincoln National Corporation. Delaware Investments U.S., Inc., is an indirect subsidiary of Delaware Management Holdings, Inc. Delaware Management Holdings, Inc., is in turn a indirect, wholly-owned subsidiary of Lincoln National Corporation.

The Delaware Investments U.S., Inc. Stock Option Plan was established in 2001 in order to provide certain Delaware investment personnel with a more direct means of participating in the growth of the investment manager. Under the terms of the plan, stock options typically vest in 25% increments on a four-year schedule and expire ten years after issuance. Options are awarded from time to time by the investment manager in its full discretion. Option awards may be based in part on seniority. The fair market value of the shares is normally determined as of each June 30 and December 31. Shares issued upon the exercise of such options must be held for six months and one day, after which time the shareholder may put them back to the issuer or the shares may be called back from the shareholder.

Portfolio managers who do not participate in the Delaware Investments U.S., Inc. Stock Option Plan are eligible to participate in Lincoln’s Long-Term Incentive Plan, which is designed to provide a long-term incentive to officers of Lincoln. Under the plan, a specified number of performance shares are allocated to each unit and are awarded to participants in the discretion of their managers in accordance with recommended targets related to the number of employees in a unit that may receive an award and the number of shares to be awarded. The performance shares have a three year vesting schedule and, at the end of the three years, the actual number of shares distributed to those who received awards may be equal to, greater than or less than the amount of the award based on Lincoln’s achievement of certain performance goals relative to a pre-determined peer group.

OTHER COMPENSATION - Portfolio managers may also participate in benefit plans and programs available generally to all employees.

OWNERSHIP OF SECURITIES

As of March 31, 2007, the portfolio managers of the Funds did not own any Fund shares.

Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers

     Not applicable.


Item 10. Submission of Matters to a Vote of Security Holders

     Not applicable.

Item 11. Controls and Procedures

     The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

     There were no significant changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report to stockholders included herein (i.e., the registrant’s fourth fiscal quarter) that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.


Item 12. Exhibits

(a) (1) Code of Ethics

         Not applicable.

(2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT.

(3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934.

         Not applicable.

(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT.


SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.

Name of Registrant: Delaware Investments Minnesota Municipal Income Fund II, Inc.

PATRICK P. COYNE       
By:     Patrick P. Coyne 
Title:  Chief Executive Officer 
Date:  June 7, 2007

     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.

PATRICK P. COYNE       
By:     Patrick P. Coyne 
Title:  Chief Executive Officer 
Date:  June 7, 2007

RICHARD SALUS       
By:     Richard Salus 
Title:  Chief Financial Officer 
Date:  June 7, 2007