UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF
REGISTERED MANAGEMENT INVESTMENT COMPANY
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: December 31, 2006
Item 1. Schedule of Investments.
Schedule of Investments (Unaudited)
Delaware Investments Minnesota Municipal Income Fund II, Inc.
_____________________________________________________________
December 31, 2006
Principal Market
Amount Value
Municipal Bonds - 157.19%
Corporate-Backed Revenue Bonds - 6.59%
Anoka County Solid Waste Disposal National Rural Co-Op Utility Revenue (United Power Association)
Series A 6.95% 12/1/08 (AMT) $ 300,000 $ 308,682
Cloquet Pollution Control Revenue (Potlatch Corporation Project) 5.90% 10/1/26 5,500,000 5,647,950
Laurentian Energy Authority I Cogeneration Revenue Series A 5.00% 12/1/21 3,325,000 3,399,314
Minneapolis Community Development Agency (Supported Limited Tax Common Bond Fund - Pajor Graphics)
Series A 6.75% 12/1/25 (LOC - US Bank NA) (AMT) 865,000 927,894
Sartell Environmental Improvement Revenue (International Paper) Series A
5.20% 6/1/27 1,000,000 1,031,370
_________
11,315,210
__________
Education Revenue Bonds - 8.64%
Minneapolis Art Center Facilities Revenue (Walker Art Center Project) 5.125% 7/1/21 4,250,000 4,437,680
Minnesota State Higher Education Facilities Authority Revenue
(Augsburg College) Series 6-J1 5.00% 5/1/28 750,000 776,318
(College of St. Benedict) Series 5-W 2,000,000 2,070,140
5.00% 3/1/20
5.25% 3/1/24 300,000 314,211
(St. Catherine College) Series 5-N1 5.375% 10/1/32 1,500,000 1,582,515
(St. Mary's University) Series 5-U 4.80% 10/1/23 1,400,000 1,429,134
(St. Thomas University) Series 5-Y 1,000,000 1,049,380
5.00% 10/1/24
5.25% 10/1/34 1,500,000 1,600,680
St. Cloud Housing & Redevelopment Authority Revenue (State University Foundation Project)
5.00% 5/1/23 1,000,000 1,045,390
University of the Virgin Islands Series A 5.375% 6/1/34 500,000 529,105
_______
14,834,553
__________
Electric Revenue Bonds - 21.42%
Chaska Electric Revenue (Generating Facilities) Series A 5.25% 10/1/25 250,000 268,955
Minnesota State Municipal Power Agency Electric Revenue Series A
5.00% 10/1/34 6,500,000 6,751,290
5.25% 10/1/19 1,610,000 1,725,984
Rochester Electric Utility Revenue 5.25% 12/1/30 (AMBAC) 600,000 630,066
Southern Minnesota Municipal Power Agency Supply System Revenue Series A
5.25% 1/1/16 (AMBAC) 1,500,000 1,663,965
Southern Minnesota Municipal Power Agency Supply System Revenue
&(1) 5.25% 1/1/15 (AMBAC) 3,000,000 3,305,460
&(2) 5.25% 1/1/14 (AMBAC) 14,000,000 15,296,751
Western Minnesota Municipal Power Agency Supply Revenue Series A 5.00% 1/1/30 (MBIA) 6,790,000 7,138,191
_________
36,780,662
__________
Escrowed to Maturity Bonds - 17.17%
Dakota/Washington Counties Housing & Redevelopment Authority Bloomington
Mortgage Single Family Residential Revenue 8.375% 9/1/21 (GNMA) (FHA) (VA) (AMT) 8,055,000 11,804,603
Southern Minnesota Municipal Power Agency Supply System Revenue Series B
5.50% 1/1/15 (AMBAC) 390,000 406,193
5.75% 1/1/11 (FGIC) 1,000,000 1,010,050
St. Paul Housing & Redevelopment Authority Sales Tax (Civic Center Project)
5.55% 11/1/23 2,300,000 2,381,420
5.55% 11/1/23 (MBIA) 4,200,000 4,348,680
University of Minnesota Hospital & Clinics 6.75% 12/1/16 2,580,000 3,114,163
University of Minnesota Series A 5.50% 7/1/21 4,000,000 4,640,160
Western Minnesota Municipal Power Agency Supply Revenue Series A 6.625% 1/1/16 1,535,000 1,789,303
_________
29,494,572
__________
Health Care Revenue Bonds - 21.60%
Bemidji Hospital Facilities First Meeting Revenue (North Country Health Services)
5.00% 9/1/24 (RADIAN) 1,500,000 1,554,945
Duluth Economic Development Authority Health Care Facilities Revenue (Benedictine
Health System - St. Mary's Hospital) 5.25% 2/15/33 5,000,000 5,230,900
Glencoe Health Care Facilities Revenue (Glencoe Regional Health Services Project)
5.00% 4/1/25 2,000,000 2,069,580
Maple Grove Health Care Facilities Revenue (North Memorial Health Care)
5.00% 9/1/29 1,515,000 1,580,418
Minneapolis Health Care System Revenue
(Allina Health Systems) Series A 5.75% 11/15/32 3,200,000 3,462,048
(Fairview Health Services) Series D
5.00% 11/15/30 (AMBAC) 1,500,000 1,589,805
5.00% 11/15/34 (AMBAC) 3,250,000 3,442,108
Minnesota Agricultural & Economic Development Board Revenue (Fairview Health Care System) Series A
5.75% 11/15/26 (MBIA) 100,000 103,580
6.375% 11/15/29 195,000 211,206
Northfield Hospital Revenue 5.375% 11/1/31 750,000 797,670
Rochester Health Care Facilities Revenue
(Mayo Clinic) 5.00% 11/15/36 2,000,000 2,106,220
(Mayo Foundation) Series B 5.50% 11/15/27 4,365,000 4,506,120
Shakopee Health Care Facilities Revenue (St. Francis Regional Medical Center)
5.25% 9/1/34 1,560,000 1,636,955
St. Louis Park Health Care Facilities Revenue (Park Nicollet Health Services) Series B
5.25% 7/1/30 1,250,000 1,320,150
St. Paul Housing & Redevelopment Authority Health Care Facilities Revenue
(Franciscan Health Project) 5.40% 11/20/42 (GNMA) (FHA) 2,700,000 2,862,081
(Healthpartners Obligation Group Project) 5.25% 5/15/36 2,000,000 2,102,980
(Regions Hospital Project) 5.30% 5/15/28 1,000,000 1,019,020
Waconia Health Care Facilities Revenue (Ridgeview Medical Center Project) Series A
6.10% 1/1/19 (RADIAN) 1,405,000 1,492,475
_________
37,088,261
__________
Housing Revenue Bonds - 9.71%
Chanhassen Multifamily Housing Revenue (Heritage Park Apartments Project-Section 8)
6.20% 7/1/30 (FHA) (AMT) 1,105,000 1,128,139
Dakota County Housing & Redevelopment Authority Single Family Mortgage Revenue
Series B 5.85% 10/1/30 (GNMA) (FHMA) (AMT) 17,000 17,365
Harmony Multifamily Housing Revenue Section 8 (Zedakah Foundation Project) Series A
5.95% 9/1/20 1,000,000 901,280
Minneapolis Multifamily Housing Revenue
(Gaar Scott Loft Project) 5.95% 5/1/30 (AMT) 950,000 991,534
(Olson Townhomes Project) 6.00% 12/1/19 (AMT) 890,000 890,178
(Seward Towers Project) 5.00% 5/20/36 (GNMA) 2,000,000 2,067,739
(Sumner Housing Project) Series A 5.15% 2/20/45 (GNMA) (AMT) 3,575,000 3,671,596
Minnesota State Housing Finance Agency Rental Housing Revenue
Series A 5.00% 2/1/35 (AMT) 1,000,000 1,019,910
Series D 5.95% 2/1/18 (MBIA) 130,000 130,250
Minnesota State Housing Finance Agency Single Family Mortgage Revenue
Series B 5.35% 1/1/33 (AMT) 1,775,000 1,827,522
Series I 5.15% 7/1/38 (AMT) 1,000,000 1,035,400
Series J 5.90% 7/1/28 (AMT) 1,035,000 1,066,309
Southeastern Minnesota Multi-County Housing & Redevelopment Authority Revenue (Winona County)
5.35% 1/1/28 1,170,000 1,170,667
Washington County Housing & Redevelopment Authority Governmental Revenue
(Woodland Park Apartments Project) 4.70% 10/1/32 750,000 757,673
_______
16,675,562
__________
Lease Revenue Bonds - 10.42%
Andover Economic Development Authority Public Facilities Lease Revenue (Andover Community Center)
5.125% 2/1/24 500,000 526,360
5.20% 2/1/29 1,000,000 1,056,890
Puerto Rico Public Buildings Authority Guaranteed Government Facilities Revenue
Series D 5.25% 7/1/27 530,000 558,297
St. Paul Port Authority Lease Revenue
(Cedar Street Office Building Project)
5.00% 12/1/22 2,385,000 2,517,296
5.125% 12/1/27 1,000,000 1,061,010
5.25% 12/1/27 4,800,000 5,099,136
(Robert Street Office Building Project)
5.00% 12/1/27 3,045,000 3,209,552
Series 9 5.25% 12/1/27 2,000,000 2,132,240
Virginia Housing & Redevelopment Authority Health Care Facility Lease Revenue
5.25% 10/1/25 680,000 712,259
5.375% 10/1/30 965,000 1,018,326
_________
17,891,366
__________
Local General Obligation Bonds - 25.45%
Centennial Independent School District #012 Series A 5.00% 2/1/20 (FSA) 800,000 843,072
Dakota County Community Development Agency Governmental Housing Series A
5.00% 1/1/23 1,100,000 1,168,904
Elk River Independent School District #728 Series A 5.00% 2/1/16 (FGIC) 1,500,000 1,620,015
Farmington Independent School District #192
Series A 5.00% 2/1/23 (FSA) 2,280,000 2,394,684
Series B 5.00% 2/1/27 (FSA) 1,500,000 1,595,805
Hennepin County Regional Railroad Authority 5.00% 12/1/26 3,500,000 3,629,640
Hennepin County Series B 5.00% 12/1/18 2,300,000 2,405,179
Lakeville Independent School District #194 Series A 4.75% 2/1/22 (FSA) 2,000,000 2,076,460
Metropolitan Council Waste Water Treatment Series B 5.00% 12/1/21 2,000,000 2,146,520
Minneapolis Special School District #001 5.00% 2/1/19 (FSA) 1,675,000 1,778,984
Minneapolis Sports Arena Project 5.125% 10/1/20 750,000 762,533
Minneapolis/St. Paul Metropolitan Area Council Series C 5.00% 2/1/22 1,000,000 1,041,940
Moorhead Economic Development Authority Tax Increment Series A
5.25% 2/1/25 (MBIA) 1,000,000 1,058,670
Moorhead Series B 5.00% 2/1/33 (MBIA) 3,250,000 3,433,365
Morris Independent School District #769 5.00% 2/1/28 (MBIA) 3,750,000 3,995,587
Mounds View Independent School District #621 Series A 5.00% 2/1/23 (FSA) 2,020,000 2,127,585
Princeton Independent School District #477 Series A 5.00% 2/1/24 (FSA) 1,000,000 1,067,420
Robbinsdale Independent School District #281 5.00% 2/1/21 (FSA) 500,000 526,920
St. Michael Independent School District #885
5.00% 2/1/22 (FSA) 2,000,000 2,118,100
5.00% 2/1/24 (FSA) 1,125,000 1,191,431
Washington County Housing & Redevelopment Authority Series B
5.50% 2/1/22 (MBIA) 1,705,000 1,821,230
5.50% 2/1/32 (MBIA) 2,140,000 2,276,767
Willmar (Rice Memorial Hospital Project) 5.00% 2/1/32 (FSA) 2,500,000 2,622,125
_________
43,702,936
__________
$ Pre-Refunded Bonds - 21.83%
Chaska Electric Revenue Series A 6.00% 10/1/25-10 1,000,000 1,081,890
Minneapolis Community Development Agency (Limited Tax Supported Common Bond Fund)
Series G-1 5.70% 12/1/19-11 1,100,000 1,189,650
Series G-3 5.45% 12/1/31-11 1,000,000 1,078,760
Minneapolis Health Care System Revenue (Fairview Health Services) Series A
5.625% 5/15/32-12 2,750,000 3,030,583
Minneapolis/St. Paul Metropolitan Airports Commission Revenue
Series A 5.00% 1/1/30-08 (AMBAC) 2,450,000 2,508,800
Series A 5.125% 1/1/25-09 (FGIC) 900,000 935,505
Series C 5.25% 1/1/32-11 (FGIC) 6,000,000 6,355,860
Minnesota Agricultural & Economic Development Board Revenue (Fairview Health Care System)
Series A 5.75% 11/15/26-07 (MBIA) 5,450,000 5,657,209
Series A 6.375% 11/15/29-10 6,105,000 6,740,224
Puerto Rico Commonwealth 6.00% 7/1/26-07 1,000,000 1,027,080
Puerto Rico Commonwealth Highway & Transportation Authority Revenue Series D
Series D 5.25% 7/1/38-12 1,000,000 1,082,520
Puerto Rico Commonwealth Public Improvement Series A 5.00% 7/1/27-12 1,250,000 1,337,663
Puerto Rico Public Buildings Authority Revenue (Guaranteed Government Facilities)
Series D 5.25% 7/1/27-12 1,470,000 1,586,733
Southern Minnesota Municipal Power Agency Supply Revenue Series A
5.75% 1/1/18-13 3,715,000 3,886,633
_________
37,499,110
__________
Special Tax Revenue Bonds - 1.64%
Minneapolis Community Development Agency Revenue (Limited Tax Supported
Common Bond Fund) Series 5 5.70% 12/1/27 375,000 379,046
Minneapolis Development Revenue (Limited Tax Supported Common Bond Fund)
5.50%12/1/24 (AMT) 1,000,000 1,067,360
Puerto Rico Commonwealth Infrastructure Financing Authority Special Tax Revenue
Series B 5.00% 7/1/46 800,000 836,640
Virgin Islands Public Finance Authority Revenue (Matching Fund Loan Notes)
5.25% 10/1/23 500,000 531,860
_______
2,814,906
_________
State General Obligation Bonds - 5.07%
Minnesota State
5.00% 8/1/21 5,025,000 5,305,194
5.00% 11/1/17 1,160,000 1,186,413
Puerto Rico Commonwealth Public Improvement Series A 5.50% 7/1/19 (MBIA) 1,000,000 1,157,700
Puerto Rico Government Development Bank Senior Notes Series B 5.00% 12/1/14 1,000,000 1,066,390
_________
8,715,697
_________
Transportation Revenue Bonds - 7.65%
Minneapolis/St. Paul Metropolitan Airports Commission Revenue
Series A 5.00% 1/1/22 (MBIA) 3,000,000 3,149,760
Series A 5.00% 1/1/28 (MBIA) 2,120,000 2,215,485
Series A 5.00% 1/1/35 (AMBAC) 2,000,000 2,105,740
Series A 5.25% 1/1/16 (MBIA) 1,000,000 1,074,150
Series B 5.25% 1/1/24 (FGIC) 1,000,000 1,039,460
St. Paul Housing & Redevelopment Authority Parking Revenue (Block 19 Ramp Project)
Series A 5.35% 8/1/29 (FSA) 3,350,000 3,555,891
_________
13,140,486
__________
Total Municipal Bonds (cost $256,733,450) 269,953,321
___________
~ Short-Term Investments - 0.06%
Variable Rate Demand Notes- 0.06%
Minneapolis Health Care System Revenue (Fairview Health Services) Series A
3.90% 11/15/32 (AMBAC) 100,000 100,000
_______
Total Short-Term Investments (cost $100,000) 100,000
_______
Total Market Value of Securities - 157.25%
(cost $256,833,450) 270,053,321
Liabilities Net of Receivables and Other Assets (See Notes) - (1.93%)* (3,321,966)
Liquidation Value of Preferred Stock - (55.32%) (95,000,000)
___________
Net Assets Applicable to 11,504,975 Shares Outstanding - 100.00% $171,731,355
____________
&(1) Security held in a trust in connection with the Inverse Floater security $1,500,000, 7.251%, 1/1/15.
&(2) Security held in a trust in connection with the Inverse Floater security $7,000,000, 6.466%, 1/1/14.
$ 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 3 in "Notes."
~ Variable rate security. The rate shown is the rate as of December 31, 2006.
* Includes $8,500,000 in liability for Inverse Floater programs. See Note 3 in "Notes."
For additional information on the Inverse Floater programs, see Note 3 in "Notes."
Summary of Abbreviations:
AMBAC - Insured by the AMBAC Assurance Corporation
AMT - Subject to Alternative Minimum Tax
FGIC - Insured by the Financial Guaranty Insurance Company
FHA - Insured by the Federal Housing Administration
FSA - Insured by Financial Security Assurance
GNMA - Insured by Government National Mortgage Association
LOC - Letter of Credit
MBIA - Insured by the Municipal Bond Insurance Association
RADIAN - Insured by Radian Asset Assurance
VA - Insured by the Veterans Administration
________________________________________________________________________________
Notes
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted
accounting principles and are consistently followed by Delaware Investments
Minnesota Municipal Income Fund II, Inc. (the "Fund").
Security Valuation - Long-term debt securities are valued by an independent
pricing service and such prices are believed to reflect the fair value of such
securities. Short-term debt securities having less than 60 days to maturity are
valued at amortized cost, which approximates market value. Other securities and
assets for which market quotations are not readily available are valued at fair
value as determined in good faith under the direction of the Fund's Board of
Directors. In determining whether market quotations are readily available or
fair valuation will be used, various factors will be taken into consideration,
such as market closures, aftermarket trading or significant events after local
market trading (e.g., government actions or pronouncements, trading volume or
volatility on markets, exchanges among dealers, or news events).
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 - The 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, 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 Fund's 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 the
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 Fund NAV
calculations as late as the Fund's last NAV calculation in the first required
financial statement reporting period. As a result, the Fund will incorporate FIN
48 in its semi annual report on March 31, 2007.
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 Fund's participation in inverse floater programs where the Fund
has transferred its own bonds to a trust that issues floating rate securities
and inverse floating rate securities with an aggregate principal amount equal to
the principal of the transferred bond. The Fund receives the inverse floating
rate securities and cash from the trust in consideration of the conveyance of
the municipal bonds to the trust. The cash received is treated as a liability
for accounting purposes. Interest expense is recorded by the Fund 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 period ended December 31, 2006, the Fund had an average daily liability
from the participation in inverse floater programs of $8,685,769 and recorded
interest expense at an average rate of 3.75%.
Other - Expenses directly attributable to the Fund are charged directly to the
Fund. Other expenses common to various funds within the Delaware Investments(R)
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. The Fund declares and pays dividends from net investment
income monthly and distributions from net realized gain on investments, if any,
at least annually. In addition, in order to satisfy certain distribution
requirements of the Tax Reform Act of 1986, the Fund 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 a Fund and
received by shareholders on the earlier of the date paid or December 31 of the
prior year.
2. Investments
At December 31, 2006, the cost of investments for federal income tax purposes
has been estimated since the final tax characteristics cannot be determined
until fiscal year end. At December 31, 2006, the cost of investments and
unrealized appreciation (depreciation) for the Fund were as follows:
Cost of investments $248,352,614
____________
Aggregate unrealized appreciation $ 13,319,151
Aggregate unrealized depreciation (118,444)
____________
Net unrealized appreciation $ 13,200,707
____________
For federal income tax purposes, at March 31, 2006, capital loss carryforwards
of $533,589 may be carried forward and applied against future capital gains.
Such capital loss carryforwards expire as follows: $339,543 expires in 2008,
$175,804 expires in 2009, $8,416 expires 2010 and $9,826 expires in 2013.
3. Credit and Market Risk
The Fund uses leverage in the form of preferred shares. Leveraging may result in
a higher degree of volatility because the 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 Fund concentrates its investments in securities issued by municipalities.
The value of these investments may be adversely affected by new legislation
within the state, regional or local economic conditions, and differing levels of
supply and demand for municipal bonds. Many municipalities insure repayment for
their obligations. Although bond insurance reduces the risk of loss due to
default by an issuer, such bonds remain subject to the risk that market value
may fluctuate for other reasons and there is no assurance that the insurance
company will meet its obligations. These securities have been identified in the
Schedule of Investments.
The Fund may participate in inverse floater programs where it 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 Fund
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 Fund typically
uses inverse floaters to adjust the duration of its portfolio. 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 Fund
transferred to the trust, the Fund seeks to adjust its portfolio's sensitivity
to changes in interest rates. The Fund may also invest in inverse floaters to
add additional income to the Fund or to adjust the Fund's exposure to a specific
segment of the yield curve. Such securities are identified on the Schedule of
Investments.
The Fund may invest in advanced refunded bonds, escrow secured bonds or defeased
bonds. Under current federal tax laws and regulations, state and local
government borrowers are permitted to refinance outstanding bonds by issuing new
bonds. The issuer refinances the outstanding debt to either reduce interest
costs or to remove or alter restrictive covenants imposed by the bonds being
refinanced. A refunding transaction where the municipal securities are being
refunded within 90 days 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 and 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
The 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 the 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, the Fund's Board of Directors has delegated to
Delaware Management Company the day-to-day functions of determining whether
individual securities are liquid for purposes of the Fund's limitation on
investments in illiquid assets. At December 31, 2006, there were no Rule 144A
securities and no securities have been determined to be illiquid under the
Fund's Liquidity Procedures.
Item 2. Controls and Procedures.
(a) The registrant's principal executive officer and principal financial
officer have evaluated the registrant's disclosure controls and procedures
within 90 days of the filing of this report and have concluded that they are
effective in providing reasonable assurance that the information required to be
disclosed by the registrant in its reports or statements filed under the
Securities Exchange Act of 1934 is recorded, processed, summarized and reported
within the time periods specified in the rules and forms of the Securities and
Exchange Commission.
There were no significant changes in the registrant's internal control over
financial reporting that occurred during the registrant's last fiscal quarter
that have materially affected, or are reasonably likely to materially affect,
the registrant's internal control over financial reporting.
(b) Management has made changes that have materially affected, or are
reasonably like to materially affect, registrant's internal controls over
financial reporting. To seek to increase the controls' effectiveness, these
changes provide for enhanced review of contracts relating to complex
transactions and the applicability of generally accepted accounting principles
to such transactions, including enhanced consultation with registrant's
independent public accountants in connection with such reviews.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Item 3. Exhibits.
File as exhibits as part of this Form a separate certification for each
principal executive officer and principal financial officer of the registrant as
required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2(a)), exactly as set
forth below: