Selected data for each share of the Fund outstanding throughout each period were as follows:
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 $10,100 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 $10,000 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 $1,800 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 $1,800 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 $248,076 and $199,060 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 | Total Assets | No. of Accounts | Total Assets in |
| | Accounts | Managed | with | Accounts with |
| | | | Performance- | Performance- |
| | | | Based Fees | 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 Florida Insured Municipal Income Fund
| 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 |
