UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES

Investment Company Act file number: 811-07420
 
Exact name of registrant as specified in charter: Delaware Investments® Minnesota
Municipal Income Fund II, Inc.
 
Address of principal executive offices: 2005 Market Street
Philadelphia, PA 19103
 
Name and address of agent for service: David F. Connor, Esq.
2005 Market Street
  Philadelphia, PA 19103
 
Registrant’s telephone number, including area code: (800) 523-1918
 
Date of fiscal year end: March 31
 
Date of reporting period: March 31, 2014



Item 1. Reports to Stockholders

Table of Contents

Delaware Investments® Closed-End Municipal

Bond Funds

Annual report

March 31, 2014

 

 

 

 

The figures in the annual report for Delaware Investments Closed-End Municipal Bond Funds represent past results, which are not

a guarantee of future results. A rise or fall in interest rates can have a significant impact on bond prices. Funds that invest in

bonds can lose their value as interest rates rise.

Closed-end funds

 

LOGO


Table of Contents

Table of contents

 

Portfolio management review

     1   

Fund basics

     3   

Security type / Sector / State allocations

     4   

Schedules of investments

     6   

Statements of assets and liabilities

     22   

Statements of operations

     23   

Statements of changes in net assets

     24   

Statements of cash flows

     26   

Financial highlights

     27   

Notes to financial statements

     30   

Report of independent registered public accounting firm

     43   

Other Fund information

     44   

Board of trustees / directors and officers addendum

     48   

About the organization

     51   

Delaware Management Holdings, Inc. and its subsidiaries (collectively known by the marketing name of Delaware Investments) are wholly owned subsidiaries of Macquarie Group Limited, a global provider of banking, financial, advisory, investment and funds management services. For more information, including press releases, please visit delawareinvestments.com.

Unless otherwise noted, views expressed herein are current as of March 31, 2014, and subject to change. Information is as of the date indicated and subject to change.

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

Mutual fund advisory services are provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. Delaware Investments, a member of Macquarie Group, refers to Delaware Management Holdings, Inc. and its subsidiaries. Macquarie Group refers to Macquarie Group Limited and its subsidiaries and affiliates worldwide.

Investments in Delaware Investments Closed-End Municipal Bond Funds are not and will not be deposits with or liabilities of Macquarie Bank Limited ABN 46 008 583 542 and its holding companies, including their subsidiaries or related companies (Macquarie Group), and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. No Macquarie Group company guarantees or will guarantee the performance of the Funds, the repayment of capital from the Funds, or any particular rate of return.

© 2014 Delaware Management Holdings, Inc.

All third-party marks cited are the property of their respective owners.


Table of Contents

Portfolio management review

Delaware Investments® Closed-End Municipal Bond Funds

April 8, 2014

 

Municipal bond market conditions

The Funds’ fiscal year ended March 31, 2014 saw the U.S. tax-exempt bond market return 0.39% as measured by the Barclays Municipal Bond Index. Several factors contributed to this less-than-stellar performance. To begin with, the market turned negative in May 2013 when the U.S. Federal Reserve announced its plan to taper its so-called quantitative easing program, which had injected record amounts of cash into the capital markets. Investors withdrew significant amounts from all major fixed income asset classes in June and July 2013 due to rising interest rate fears. In addition, the municipal bond market experienced heightened investor fears when the city of Detroit filed for bankruptcy in late July and Puerto Rico related securities came under credit related scrutiny. These combined investor fears resulted in $71 billion of redemptions out of municipal bond funds between late May 2013 and mid-January 2014. The extent of those outflows eroded the balance between supply and demand, pushing up yields for municipal bonds.

In addition to the credit fears in the municipal bond market, interest rate markets in general spent the remainder of 2013 waiting on a decision by the Federal Open Market Committee (FOMC) about the timing of tapering and to what extent rates would be tapered. After a surprise decision not to begin the taper at the September FOMC meeting, the Fed finally began its quantitative easing tapering program in December 2013. By that time, the 10-year U.S. Treasury settled into a trading range between 2.50% and 3.03% (source: Bloomberg).

As the calendar turned to 2014, the economy and international events took center stage. A slowing in the U.S. economy (gross domestic product in the first quarter of 2014 was reported as 0.1%) which may have been weather related, continued deflationary fears in Europe, economic weakness in China and Japan, along with Russia’s annexation of the Crimea region of Ukraine led to a flight-to-quality and a strong rally (yield decline) in U.S. Treasury bonds and related fixed income markets.

The municipal bond market followed this trend as the market segmented the Detroit and Puerto Rico concerns as unique to these issuers and not systemic to the municipal market. In the first quarter of 2014, open-end municipal bond funds experienced positive flows, which resulted in positive municipal bond returns; in turn this had a positive influence on municipal bond closed-end funds as well.

With these events as a backdrop, the top-performing bonds for the Funds’ fiscal year were generally at the short end of the maturity ranges within the Barclays Municipal Bond Index, notably the 3-year bond segment, which returned +1.09%, followed by the 5-year segment, which was up 0.97%. The two weakest-performing segments were at the longer end of the curve: The 20-year segment posted a total return of +0.14%, while the long-bond category (22 years and longer) declined by 0.82%. In terms of credit quality,

higher-rated bonds tended to lead the way, with the AAA-rated bonds returning +0.55%, and AA-rated bonds returning +0.64%.

Fund positioning: commitment to a credit driven selection process

Within the context of alternating levels of demand, fluctuations in yields, and expectations for higher interest rates, we adhered to our credit-driven investment philosophy. Our strategy encompassed the belief that the most predictable component of total return is income, and that by concentrating on relatively lower-grade credits, the Funds would likely have the greatest opportunity to generate higher coupon income which could offset negative price action.

However, the confluence of events in 2013 and the Funds’ equal-to-overweight positions at the longer end of the curve detracted from performance versus the benchmark. In addition, the Funds were overweight both the A-rated bond segment, which returned 0.55%, and BBB-rated bond segment, which was down -3.06%. The Funds were underweight in both AA- and AAA-rated credits, where performance was nearly 300 basis points higher (one basis point equals 1/100 of one percentage point). At the same time, the Funds held positions in Puerto Rico bonds for most of the fiscal year, because these bonds offered both significant coupon income and triple tax-exemption attributes. The average Puerto Rico exposure during the fiscal year for each Fund as a percentage of net assets was as follows: Delaware Investments National Municipal Income Fund was 2.71%, Delaware Investments Minnesota Municipal Income Fund II, Inc. was 1.03%, and Delaware Investments Colorado Municipal Income Fund, Inc. was 4.70%. Although we had exited those positions completely by the end of the Funds’ fiscal year, their time in the Funds’ portfolios had a negative effect on performance.

Momentum seemed to take a better turn toward the end of the fiscal year, as the long end of the curve began to outperform, driven by a decrease in overall municipal supply. The Funds’ performance improved in kind.

Performance effects

Although all three Funds had negative returns for the fiscal year, we responded to the events detailed above in two ways. First, we marginally moved up in credit quality by selling lower-rated bonds and purchasing securities with higher ratings. Second, we sold a small percentage of longer-dated maturities in exchange for shorter-to intermediate-term debt. We continued to maintain our commitment to focus on our bottom-up (bond-by-bond), fundamental approach to security selection. This approach involved evaluating each investment opportunity and selecting those bonds that we believed offered a good balance between risk and potential reward.

 

 

            (continues)    1


Table of Contents

Portfolio management review

Delaware Investments® Closed-End Municipal Bond Funds

 

Notes about each Fund individually:

    For Delaware Investments Colorado Municipal Income Fund, Inc., the strongest-performing bonds were within the healthcare sector. For example, the Colorado Health Facilities Authority issued a bond with a 5.6% coupon, maturing in 2043. This A-rated bond generated a total return of +11.25% for the Fund, supporting our credit-selection philosophy and investment selection at the longer end of the curve, where coupon income is higher. Conversely, the weaker performers were Puerto Rico issues. An example was a BBB+-rated bond issued by the Puerto Rico Electric Power Authority, which had a 5% coupon and a 2037 maturity date. The total return for the bond was -29.69% for the fiscal year.

    For Delaware Investments Minnesota Municipal Income Fund II, Inc., the strongest performer was a healthcare bond issued by the Duluth Minnesota Economic Development Authority. This bond, with no credit rating, had a coupon of 5.75% and a maturity date of 2032. It generated a total return of +9.54% during the fiscal year, helping to offset the weaker performers which included a Puerto Rico sales tax bond, maturing in 2044, which fell by 25.71% during the fiscal year.

    Across all three Funds, the strongest-performing bond was held by Delaware Investments National Municipal Income Fund. It was issued as a Texas Private Activity Revenue Bond, rated Baa3 by Moody’s, with a 6.75% coupon and a 2043 maturity date. It produced a 17.25% total return over the fiscal year. That strong performance was in stark contrast to the Fund’s weakest performer, a Puerto Rico sales tax zero coupon bond maturing in 2032, which declined by 35.04% for the fiscal period.

 

 

2


Table of Contents

Fund basics

 

Delaware Investments®

Colorado Municipal Income Fund, Inc.

As of March 31, 2014

Fund objective

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

Total Fund net assets

$70 million

Number of holdings

73

Fund start date

July 29, 1993

CUSIP number

246101109

Delaware Investments

Minnesota Municipal Income Fund II, Inc.

As of March 31, 2014

Fund objective

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

Total Fund net assets

$165 million

Number of holdings

142

Fund start date

Feb. 26, 1993

CUSIP number

24610V103

Delaware Investments

National Municipal Income Fund

As of March 31, 2014

Fund objective

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

Total Fund net assets

$63 million

Number of holdings

161

Fund start date

Feb. 26, 1993

CUSIP number

24610T108

 

 

3


Table of Contents

Security type / Sector / State allocations

As of March 31, 2014 (Unaudited)

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

 

Delaware Investments®

Colorado Municipal Income Fund, Inc.

 

Security type / Sector    Percentage
of net
assets
 

Municipal Bonds*

     140.65

Corporate-Backed Revenue Bonds

     2.85

Education Revenue Bonds

     25.45

Electric Revenue Bonds

     3.65

Healthcare Revenue Bonds

     43.62

Housing Revenue Bonds

     0.48

Lease Revenue Bonds

     9.39

Local General Obligation Bonds

     13.82

Pre-Refunded / Escrowed to Maturity Bonds

     10.37

Special Tax Revenue Bonds

     18.53

Transportation Revenue Bonds

     9.43

Water & Sewer Revenue Bonds

     3.06

Total Value of Securities

     140.65

Liquidation Value of Preferred Stock

     (42.99 )% 

Receivables and Other Assets Net of Liabilities

     2.34

Total Net Assets

     100.00

* As of the date of this report, Delaware Investments Colorado Municipal Income Fund, Inc. held bonds issued by or on behalf of territories of the United States as follows:

 

Territory    Percentage
of net
assets
 

Guam

     1.47

Delaware Investments

Minnesota Municipal Income Fund II, Inc.

 

Sector type / Sector    Percentage
of net
assets
 

Municipal Bonds*

     143.85

Corporate-Backed Revenue Bonds

     6.74

Education Revenue Bonds

     17.26

Electric Revenue Bonds

     10.00

Healthcare Revenue Bonds

     38.61

Housing Revenue Bonds

     4.59

Lease Revenue Bonds

     15.38

Local General Obligation Bonds

     8.86

Pre-Refunded/Escrowed to Maturity Bonds

     18.01

Special Tax Revenue Bonds

     5.44

State General Obligation Bonds

     11.86

Transportation Revenue Bonds

     5.45

Water & Sewer Revenue Bonds

     1.65

Total Value of Securities

     143.85

Liquidation Value of Preferred Stock

     (45.57 )% 

Receivables and Other Assets Net of Liabilities

     1.72

Total Net Assets

     100.00

* As of the date of this report, Delaware Investments Minnesota Municipal Income Fund II, Inc. held bonds issued by or on behalf of territories of the United States as follows:

 

Territory    Percentage
of net
assets
 

Guam

     0.10
 

 

4


Table of Contents

Delaware Investments®

National Municipal Income Fund

 

Security type / Sector    Percentage
of net
assets
 

Municipal Bonds

     146.14

Corporate-Backed Revenue Bonds

     15.90

Education Revenue Bonds

     25.17

Electric Revenue Bonds

     1.74

Healthcare Revenue Bonds

     21.11

Housing Revenue Bonds

     2.62

Lease Revenue Bonds

     12.61

Local General Obligation Bonds

     1.79

Special Tax Revenue Bonds

     22.90

State General Obligation Bonds

     7.33

Transportation Revenue Bonds

     27.93

Water & Sewer Revenue Bonds

     7.04

Short-Term Investment

     0.80

Total Value of Securities

     146.94

Liquidation Value of Preferred Stock

     (47.98 )% 

Receivables and Other Assets Net of Liabilities

     1.04

Total Net Assets

     100.00
State / territory    Percentage
of net
assets
 

Alaska

     0.51

Arizona

     14.89

California

     20.87

Colorado

     2.29

District of Columbia

     0.41

Florida

     6.54

Georgia

     4.46

Guam

     2.28

Hawaii

     0.51

Idaho

     1.66

Illinois

     4.26

Indiana

     0.92

Kansas

     0.18

Louisiana

     3.38

Maine

     0.52

Maryland

     3.49

Massachusetts

     1.47

Minnesota

     8.55

Missouri

     4.14

New Hampshire

     0.53

New Jersey

     9.27

New Mexico

     0.83

New York

     19.88

North Carolina

     0.43

North Dakota

     0.42

Ohio

     2.68

Oregon

     5.43

Pennsylvania

     11.96

Texas

     9.46

Virginia

     2.75

West Virginia

     0.79

Wisconsin

     0.76

Wyoming

     0.42

Total

     146.94
 

 

5


Table of Contents

Schedules of investments

Delaware Investments® Colorado Municipal Income Fund, Inc.

March 31, 2014

 

      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds – 140.65%          

Corporate-Backed Revenue Bonds – 2.85%

  

Public Authority for Colorado Energy Revenue

     

6.25% 11/15/28

     865,000       $ 1,042,437   

Public Authority of Colorado Energy Natural Gas Revenue Series 2008

     

6.50% 11/15/38

     750,000         948,248   
     

 

 

 
        1,990,685   
     

 

 

 

Education Revenue Bonds – 25.45%

  

Colorado Educational & Cultural Facilities Authority Revenue (Academy Charter School Project)

     

5.50% 5/1/36 (SGI)

     1,720,000         1,726,020   

(Bromley Charter School Project)

     

5.25% 9/15/32 (SGI)

     3,245,000         3,315,352   

(Charter School - Community Leadership Academy)
7.45% 8/1/48

     500,000         522,015   

(Liberty Charter School) Series A
5.00% 1/15/44

     1,000,000         976,460   

(Littleton Charter School Project)
4.375% 1/15/36 (AGC)

     1,200,000         1,143,948   

(Student Housing - Campus Village Apartments)
5.00% 6/1/23

     1,065,000         1,165,525   

Colorado School of Mines Series B
5.00% 12/1/42

     2,500,000         2,657,900   

Colorado State Board of Governors (University Enterprise System) Series A 5.00% 3/1/39

     10,000         10,669   

University of Colorado

     

5.00% 6/1/31

     3,185,000         3,499,137   

Series A 5.00% 6/1/33

     1,000,000         1,105,560   

Series A 5.375% 6/1/38

     750,000         844,935   

Western State College

     

5.00% 5/15/34

     750,000         789,180   
     

 

 

 
          17,756,701   
     

 

 

 
      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Electric Revenue Bonds – 3.65%

  

Colorado Springs Utilities System Improvement Revenue Series C

     

5.50% 11/15/48

     750,000       $ 837,803   

Platte River Power Authority Series HH
5.00% 6/1/28

     1,500,000           1,711,320   
     

 

 

 
        2,549,123   
     

 

 

 

Healthcare Revenue Bonds – 43.62%

  

Aurora Hospital Revenue (Children’s Hospital Association Project) Series A

     

5.00% 12/1/40

     4,000,000         4,108,600   

Colorado Health Facilities Authority Revenue (Boulder Community Hospital Project)
5.00% 10/1/32

     500,000         528,345   

(Catholic Health Initiatives)

     

Series A 5.00% 7/1/39

     750,000         768,367   

Series A 5.00% 2/1/41

     2,400,000         2,471,208   

Series A 5.25% 2/1/33

     1,625,000         1,702,724   

Series A 5.25% 1/1/45

     1,000,000         1,054,420   

Series C-1

     

5.10% 10/1/41 (AGM)

     1,000,000         1,025,080   

Series D 6.125% 10/1/28

     750,000         854,070   

(Christian Living

Community Project)

     

6.375% 1/1/41

     615,000         646,340   

Series A 5.75% 1/1/37

     885,000         895,770   

(Covenant Retirement

Communities Inc.)

     

Series A 5.00% 12/1/33

     1,000,000         987,600   

Series A 5.75% 12/1/36

     1,000,000         1,026,010   

(Evangelical Lutheran Good

Samaritan Society)

     

5.00% 6/1/28

     1,250,000         1,305,037   

5.50% 6/1/33

     2,000,000         2,133,260   

5.625% 6/1/43

     1,000,000         1,055,970   

(Healthcare Facilities -

American Baptist)

     

8.00% 8/1/43

     500,000         501,260   

(Mental Health Center of

Denver Project) Series A

5.75% 2/1/44

     1,500,000         1,528,065   

(National Jewish Health Project) 5.00% 1/1/27

     500,000         515,180   
 

 

6


Table of Contents

 

 

      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Healthcare Revenue Bonds (continued)

  

Colorado Health Facilities Authority Revenue (Sisters of Charity of Leavenworth Health System) Series A

     

5.00% 1/1/40

     4,750,000       $ 4,886,990   

(Total Long-Term Care)

     

Series A 6.00% 11/15/30

     400,000         428,100   

Denver Health & Hospital Authority Health Care Revenue (Recovery Zone Facilities)

     

5.625% 12/1/40

     750,000         779,685   

University of Colorado Hospital Authority Revenue Series A
5.00% 11/15/37

     500,000         505,990   

Series A 6.00% 11/15/29

     650,000         729,079   
     

 

 

 
          30,437,150   
     

 

 

 

Housing Revenue Bonds – 0.48%

  

Colorado Housing & Finance Authority

     

(Single Family Mortgage - Class 1) Series A

     

5.50% 11/1/29 (FHA) (VA) (HUD)

     325,000         337,067   
     

 

 

 
        337,067   
     

 

 

 

Lease Revenue Bonds – 9.39%

  

Aurora Certificates of Participation Series A 5.00% 12/1/30

     630,000         696,364   

Colorado Building Excellent Schools Today Certificates of Participation Series G

     

5.00% 3/15/32

     2,000,000         2,160,040   

Glendale Certificates of Participation
5.00% 12/1/25 (SGI)

     1,500,000         1,618,890   

Pueblo County Certificates of Participation (County Judicial Complex Project)

     

5.00% 9/15/42 (AGM)

     2,000,000         2,077,480   
     

 

 

 
        6,552,774   
     

 

 

 

Local General Obligation Bonds – 13.82%

  

Arapahoe County School District No. 1 Englewood 5.00% 12/1/31

     2,935,000         3,248,399   
      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Local General Obligation Bonds (continued)

  

Boulder Larimer & Weld Counties St. Vrain Valley School District No. Re-1J 5.00% 12/15/33

     750,000       $ 834,337   

Central Colorado Water Conservancy District (Limited Tax)

     

5.00% 12/1/33

     750,000         811,163   

Denver City & County (Better Denver & Zoo) Series A 5.00% 8/1/25

     650,000         741,182   

(School District No. 1)

     

4.00% 12/1/28

     975,000         1,022,599   

Denver International Business Center Metropolitan District No. 1 Series REF
5.00% 12/1/30

     650,000         675,136   

Jefferson County School District No. R-1
5.25% 12/15/24

     750,000         919,688   

Pueblo County School District No. 70

     

5.00% 12/1/31

     500,000         551,500   

Rangely Hospital District

     

6.00% 11/1/26

     750,000         839,708   
     

 

 

 
          9,643,712   
     

 

 

 

Pre-Refunded/Escrowed to Maturity Bonds – 10.37%§

   

Adams & Arapahoe Counties Joint School District No. 28J (Aurora)

     

6.00% 12/1/28-18

     600,000         730,506   

Colorado State Board of Governors Series A
5.00% 3/1/39-19

     690,000         810,336   

Colorado Water Resources & Power Development Authority Revenue (Parker Water & Sanitation District) Series D

     

5.25% 9/1/43-14
(NATL-RE)

     1,500,000         1,531,770   

Regional Transportation District Revenue (FasTracks Project) Series A

     

4.375% 11/1/31-16 (AMBAC)

     1,250,000         1,373,250   
 

 

            (continues)    7


Table of Contents

Schedules of investments

Delaware Investments® Colorado Municipal Income Fund, Inc.

 

      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Pre-Refunded/Escrowed to Maturity Bonds§ (continued)

   

Regional Transportation

     

District Revenue Series A

     

5.00% 11/1/28-16 (AMBAC)

     2,500,000       $ 2,788,250   
     

 

 

 
        7,234,112   
     

 

 

 

Special Tax Revenue Bonds – 18.53%

  

Denver Convention Center

     

Hotel Authority Revenue

     

5.00% 12/1/35 (SGI)

     2,875,000         2,895,297   

Guam Government Business Privilege Tax Revenue

     

Series A 5.125% 1/1/42

     435,000         443,322   

Series A 5.25% 1/1/36

     565,000         581,803   

Regional Transportation District Revenue

     

Series A 5.375% 6/1/31

     460,000         498,157   

(Denver Transit Partners)

     

6.00% 1/15/41

     2,175,000         2,300,541   

(FasTracks Project) Series A

     

4.50% 11/1/36 (AGM)

     1,500,000         1,528,530   

Series A 5.00% 11/1/38

     4,085,000         4,398,851   

Tallyns Reach Metropolitan District No. 3 (Limited Tax Convertible)

     

5.125% 11/1/38

     295,000         285,640   
     

 

 

 
          12,932,141   
     

 

 

 

Transportation Revenue Bonds – 9.43%

  

Colorado High Performance Transportation Enterprise Revenue (Senior U.S. 36 & I-25 Managed Lanes)

     

5.75% 1/1/44 (AMT)

     1,110,000         1,118,991   

Denver City & County Airport System Revenue

     

Series A 5.25% 11/15/36

     750,000         811,297   

Series B 5.00% 11/15/27

     1,000,000         1,107,050   

Series B 5.00% 11/15/28

     1,000,000         1,100,220   

Series B 5.00% 11/15/37

     2,000,000         2,106,500   
      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Transportation Revenue Bonds (continued)

  

E-470 Public Highway Authority Series C
5.25% 9/1/25

     310,000       $ 332,091   
     

 

 

 
        6,576,149   
     

 

 

 

Water & Sewer Revenue Bonds – 3.06%

  

City of Aurora Water Revenue First Lien Series A

     

5.00% 8/1/36 (AMBAC)

     2,000,000         2,135,600   
     

 

 

 
        2,135,600   
     

 

 

 

Total Municipal Bonds
(cost $94,352,538)

        98,145,214   
     

 

 

 

Total Value of
Securities – 140.65%

     

(cost $94,352,538)

      $   98,145,214   
     

 

 

 

 

  ° Principal amount shown is stated in U.S. dollars unless noted that the security is denominated in another currency.
  § Pre-refunded bonds. Municipal bonds 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 7 in “Notes to financial statements.”

Summary of abbreviations:

AGC – Insured by Assured Guaranty Corporation

AGM – Insured by Assured Guaranty Municipal Corporation

AMBAC – Insured by AMBAC Assurance Corporation

AMT – Subject to Alternative Minimum Tax

FHA – Federal Housing Administration

HUD – Housing and Urban Development Section 8

NATL-RE – Insured by National Public Finance Guarantee Corporation

SGI – Insured by Syncora Guarantee Inc.

VA – Veterans Administration Collateral

See accompanying notes, which are an integral part of the financial statements.

 

 

8


Table of Contents

Delaware Investments® Minnesota Municipal Income Fund II, Inc.

March 31, 2014

 

      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds – 143.85%          

Corporate-Backed Revenue Bonds – 6.74%

  

Cloquet Pollution Control Revenue (Potlatch Project) 5.90% 10/1/26

     5,500,000       $ 5,501,595   

Laurentian Energy Authority I Cogeneration Revenue Series A 5.00% 12/1/21

     3,325,000         3,139,365   

St. Paul Port Authority Revenue (Gerdau St. Paul Steel Mill Project) Series 7
4.50% 10/1/37 (AMT)

     3,005,000         2,447,512   
     

 

 

 
          11,088,472   
     

 

 

 

Education Revenue Bonds – 17.26%

  

Baytown Township Lease Revenue (St. Croix Preparatory Academy)
5.75% 8/1/42

     300,000         287,451   

Deephaven Charter School (Eagle Ridge Academy Project) Series A
5.50% 7/1/43

     500,000         500,310   

Forest Lake Minnesota Charter School Revenue (Lake International Language Academy) 5.75% 8/1/44

     705,000         726,538   

Minnesota Higher Education Facilities Authority Revenue (Augsburg College) Series 6-J1 5.00% 5/1/28

     1,500,000         1,510,860   

(Carleton College) Series 6-T
5.00% 1/1/28

     1,000,000         1,097,010   

Series D 5.00% 3/1/30

     1,120,000         1,235,942   

(College of St. Benedict) Series 7-M
5.00% 3/1/31

     300,000         308,253   

Series 7-M 5.125% 3/1/36

     275,000         281,606   

(St. Catherine University) Series 7-Q
5.00% 10/1/32

     700,000         726,747   

(St. Mary’s University) Series 5U
4.80% 10/1/23

     1,400,000         1,401,470   

(St. Scholastic College) Series H
5.25% 12/1/35

     1,000,000         1,039,360   

(University of St. Thomas) Series 6-X 5.00% 4/1/29

     2,250,000         2,435,017   

Series 7-A 5.00% 10/1/39

     1,000,000         1,052,210   
      Principal
Amount°
     Value
(U.S. $)
 

Municipal Bonds (continued)

  

Education Revenue Bonds (continued)

  

Minnesota Higher Education Facilities Authority Revenue

     

Series 7-U
5.00% 4/1/20

     495,000       $ 574,249   

Series 7-U
5.00% 4/1/21

     450,000         522,239   

Series 7-U
5.00% 4/1/22

     750,000         874,275   

St. Paul Housing & Redevelopment Authority Charter School Lease Revenue

     

(Nova Classical Academy) Series A 6.375% 9/1/31

     750,000         787,853   

University of Minnesota

     

Series A 5.25% 4/1/29

     1,000,000         1,141,520   

Series C 5.00% 12/1/19

     1,290,000         1,514,886   

Series D 5.00% 12/1/27

     1,110,000         1,270,661   

Series D 5.00% 12/1/28

     1,880,000         2,140,681   

Series D 5.00% 12/1/29

     2,265,000         2,564,003   

Series D 5.00% 12/1/31

     1,000,000         1,118,950   

Series D 5.00% 12/1/36

     3,000,000         3,299,100   
     

 

 

 
          28,411,191   
     

 

 

 

Electric Revenue Bonds – 10.00%

  

Central Minnesota Municipal Power Agency Revenue (Brookings Southeast Twin Cities Transportation)
5.00% 1/1/32

     1,130,000         1,215,903   

(Brookings Twin Cities Transmission Project) 5.00% 1/1/42

     1,000,000         1,048,010   

Chaska Electric Revenue (Generating Facilities) Series A 5.25% 10/1/25

     250,000         266,593   

Minnesota Municipal Power Agency Electric Revenue

     

Series A 5.00% 10/1/34

     3,400,000         3,472,522   

Series A 5.25% 10/1/19

     1,610,000         1,648,286   

Northern Municipal Power Agency

     

Series A 5.00% 1/1/26

     100,000         113,842   

Series A 5.00% 1/1/30

     340,000         375,037   

Rochester Electric Utility Revenue

     

Series B 5.00% 12/1/30

     1,300,000         1,476,397   

Series B 5.00% 12/1/43

     1,000,000         1,093,310   

Southern Minnesota Municipal Power Agency Supply Revenue Series A 5.25% 1/1/30

     1,030,000         1,105,159   
 

 

            (continues)    9


Table of Contents

Schedules of investments

Delaware Investments® Minnesota Municipal Income Fund II, Inc.

 

      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Electric Revenue Bonds (continued)

  

Western Minnesota Municipal Power Agency Supply Revenue

     

Series A 5.00% 1/1/25

     3,000,000       $ 3,495,000   

Series A 5.00% 1/1/26

     1,000,000         1,158,290   
     

 

 

 
          16,468,349   
     

 

 

 

Healthcare Revenue Bonds – 38.61%

  

Anoka Health Care Facilities Revenue (Homestead Anoka Project) Series A 7.00% 11/1/46

     1,200,000         1,198,368   

Center City Health Care Facilities Revenue (Hazelden Foundation Project)

     

4.75% 11/1/31

     850,000         869,627   

5.00% 11/1/41

     1,600,000         1,656,624   

Cloquet Housing Facilities Revenue (HADC Cloquet Project) Refunding Series A 5.00% 8/1/48

     500,000         463,675   

Deephaven Housing & Healthcare Revenue (St. Therese Senior Living Project)

     

Series A 5.00% 4/1/38

     280,000         257,970   

Series A 5.00% 4/1/40

     270,000         246,920   

Duluth Economic Development Authority (St. Luke’s Hospital Authority Obligation Group) 5.75% 6/15/32

     1,000,000         1,029,540   

Duluth Economic Development Authority Revenue (St. Luke’s Hospital Authority Obligation Group)
6.00% 6/15/39

     1,000,000         1,031,230   

Fergus Falls Health Care Facilities Revenue (Lake Region Healthcare) 5.00% 8/1/30

     1,000,000         1,014,790   

Maple Grove Health Care System Revenue (Maple Grove Hospital)
5.25% 5/1/37

     1,100,000         1,115,873   
      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Healthcare Revenue Bonds (continued)

  

Minneapolis Health Care System Revenue (Fairview Health Services) Series A 6.375% 11/15/23

     1,105,000       $   1,286,121   

Series A 6.625% 11/15/28

     1,150,000         1,352,929   

Series B 6.50% 11/15/38 (ASSURED GTY)

     2,295,000         2,669,062   

Series D 5.00% 11/15/34 (AMBAC)

     2,000,000         2,017,560   

Minneapolis Revenue (National Marrow Donor Program Project) Series NMDP 4.875% 8/1/25

     1,000,000         1,023,580   

Minneapolis – St. Paul Housing & Redevelopment Authority Health Care Revenue (Children’s Health Care Facilities) Series A1 5.00% 8/15/34 (AGM)

     500,000         521,850   

Minnesota Agricultural & Economic Development Board Revenue Un-Refunded Balance Series A
5.75% 11/15/26 (NATL-RE)

     100,000         100,133   

Series A 6.375% 11/15/29

     195,000         195,868   

Rochester Health Care & Housing Revenue (Samaritan Bethany) Series A
7.375% 12/1/41

     1,220,000         1,337,864   

(The Homestead) Series A
6.875% 12/1/48

     1,220,000         1,282,037   

Rochester Health Care Facilities Revenue (Mayo Clinic) 4.00% 11/15/41

     5,105,000         5,058,405   

Series C 4.50% 11/15/38

     2,000,000         2,283,440   

Sartell Health Care Facilities Revenue (Country Manor Campus Project)
5.25% 9/1/30

     1,000,000         985,360   

Series A 5.30% 9/1/37

     600,000         576,492   
 

 

10


Table of Contents

 

 

      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Healthcare Revenue Bonds (continued)

  

Shakopee Health Care Facilities Revenue (St. Francis Regional Medical Center)
5.25% 9/1/34

     1,560,000       $   1,564,602   

St. Cloud Health Care Revenue (Centracare Health System Project) 5.50% 5/1/39 (ASSURED GTY)

     1,500,000         1,606,440   

Series A 5.125% 5/1/30

     5,175,000         5,624,656   

St. Louis Park Health Care Facilities Revenue (Park Nicollet Health Services)
5.75% 7/1/39

     3,315,000         3,532,099   

Series C 5.50% 7/1/23

     1,000,000         1,083,630   

St. Paul Housing & Redevelopment Authority Health Care Facilities Revenue (Allina Health System) Series A
5.00% 11/15/18

     

(NATL-RE)

     1,380,000         1,553,811   

Series A-1
5.25% 11/15/29

     1,395,000         1,516,560   

(Health Partners Obligation Group Project) 5.25% 5/15/36

     2,000,000         2,048,040   

St. Paul Housing & Redevelopment Authority Hospital Revenue (Health East Project)

     

6.00% 11/15/30

     2,775,000         2,841,434   

6.00% 11/15/35

     2,500,000         2,553,950   

St. Paul Housing & Redevelopment Authority Housing & Health Care Facilities Revenue (Senior Carondelet Village Project) Series A 6.00% 8/1/42

     770,000         787,741   

(Senior Episcopal Homes Project)
5.125% 5/1/48

     1,200,000         1,083,732   

Series A 4.75% 11/1/31

     740,000         676,367   
      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Healthcare Revenue Bonds (continued)

  

Washington County Housing & Redevelopment Authority Revenue (Birchwood & Woodbury Projects) Series A
5.625% 6/1/37

     1,500,000       $ 1,450,875   

Wayzata Senior Housing Revenue (Folkestone Senior Living Community)

     

Series A
5.50% 11/1/32

     420,000         432,125   

Series A
5.75% 11/1/39

     945,000         976,554   

Series A
6.00% 5/1/47

     1,475,000         1,541,139   

Winona Health Care Facilities Revenue (Winona Health Obligated Group)

     

4.75% 7/1/27

     785,000         799,648   

5.00% 7/1/23

     1,010,000         1,060,227   

5.00% 7/1/34

     750,000         763,635   

(Winona Health Obligation)
4.65% 7/1/26

     465,000         473,421   
     

 

 

 
          63,546,004   
     

 

 

 

Housing Revenue Bonds – 4.59%

  

Minneapolis Multifamily Housing Revenue (Gaar Scott Loft Project) 5.95% 5/1/30 (AMT) (LOC-U.S. Bank N.A.)

     815,000         817,657   

(Olson Townhomes Project)
6.00% 12/1/19 (AMT)

     540,000         540,232   

(Seward Towers Project) 5.00% 5/20/36 (GNMA)

     1,980,000         2,026,134   

Minnesota State Housing Finance Agency (Residential Housing)

     

Series D 4.75% 7/1/32

     795,000         800,167   

Series I 5.15% 7/1/38

     585,000         589,528   

Series L 5.10% 7/1/38

     1,250,000         1,309,900   

Minnesota State Housing Finance Agency Homeownership (Mortgage-Backed Securities Program) 4.40% 7/1/32 (GNMA) (FNMA) (FHLMC)

     1,380,000         1,465,381   
     

 

 

 
        7,548,999   
     

 

 

 
 

 

            (continues)    11


Table of Contents

Schedules of investments

Delaware Investments® Minnesota Municipal Income Fund II, Inc.

 

      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Lease Revenue Bonds – 15.38%

  

Minnesota General Fund Revenue Appropriations

     

Series A 5.00% 6/1/38

     5,500,000       $ 6,040,045   

Series A 5.00% 6/1/43

     1,750,000         1,896,370   

Series B 4.00% 3/1/26

     3,375,000         3,603,926   

Series B 5.00% 3/1/29

     3,525,000         3,974,755   

Minnesota State General Fund Revenue Appropriations

     

Series A 5.00% 6/1/32

     780,000         871,361   

Series B 5.00% 3/1/21

     1,500,000         1,773,465   

University of Minnesota Special Purpose Revenue (State Supported Biomed Science Research)

     

5.00% 8/1/35

     1,040,000         1,140,942   

5.00% 8/1/36

     4,000,000         4,348,520   

Virginia Housing & Redevelopment Authority Health Care Facility Lease Revenue

     

5.25% 10/1/25

     680,000         689,044   

5.375% 10/1/30

     965,000         980,758   
     

 

 

 
          25,319,186   
     

 

 

 

Local General Obligation Bonds – 8.86%

  

City of Willmar (Rice Memorial Hospital Project) Series A
4.00% 2/1/32

     2,940,000         3,006,091   

Dakota County Community Development Agency (Senior Housing Facilities) Series A
5.00% 1/1/23

     1,100,000         1,138,401   

Hopkins Independent School District No. 270 Series A 5.00% 2/1/28

     1,000,000         1,123,630   

Rocori Independent School District No. 750 (School Building)

     

Series B 5.00% 2/1/22

     1,010,000         1,142,583   

Series B 5.00% 2/1/24

     1,075,000         1,211,084   

Series B 5.00% 2/1/25

     1,115,000         1,251,599   

Series B 5.00% 2/1/26

     1,155,000         1,296,499   

St. Paul Independent School District No. 625 (School Building)

     

Series B 5.00% 2/1/22

     1,300,000         1,547,221   

Series B 5.00% 2/1/26

     1,000,000         1,166,590   
      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Local General Obligation Bonds (continued)

  

Thief River Falls Independent School District No. 564 (School Building)
Series A 4.00% 2/1/32

     495,000       $ 511,436   

Washington County Housing & Redevelopment Authority Series B 5.50% 2/1/22
(NATL-RE)

     525,000         527,027   

Series B 5.50% 2/1/32 (NATL-RE)

     655,000         657,528   
     

 

 

 
          14,579,689   
     

 

 

 

Pre-Refunded/Escrowed to Maturity Bonds – 18.01%§

  

Dakota-Washington Counties Housing & Redevelopment Authority Revenue (Bloomington Single Family Residential Mortgage) Series B 8.375% 9/1/21 (GNMA) (FHA) (VA)

     7,055,000         9,605,030   

Southern Minnesota Municipal Power Agency Power Supply Revenue Series A 5.75% 1/1/18

     2,750,000         2,907,328   

St. Paul Housing & Redevelopment Authority Sales Tax (Civic Center Project)

     

5.55% 11/1/23

     2,300,000         2,495,684   

5.55% 11/1/23
(NATL-RE) (IBC)

     4,200,000         4,557,336   

University of Minnesota

     

Series A 5.50% 7/1/21

     4,000,000         4,784,320   

Series A 5.75% 7/1/18

     2,000,000         2,381,860   

University of Minnesota Hospital & Clinics 6.75% 12/1/16

     2,580,000         2,907,944   
     

 

 

 
        29,639,502   
     

 

 

 

Special Tax Revenue Bonds – 5.44%

  

Guam Government Business Privilege Tax Revenue Series A 5.25% 1/1/36

     150,000         154,461   

Hennepin County Sales Tax Revenue (Second Lien-Ballpark Project) Series B
4.75% 12/15/27

     1,905,000         2,068,887   
 

 

12


Table of Contents

 

 

      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Special Tax Revenue Bonds (continued)

  

Minneapolis Community Planning & Economic Development Department (Limited Tax Supported Common Bond Fund)

     

6.25% 12/1/30

     1,000,000       $ 1,156,090   

Series 1 5.50% 12/1/24

     1,000,000         1,027,740   

Series 5 5.70% 12/1/27

     375,000         376,785   

Minnesota Public Safety Radio 5.00% 6/1/23

     2,845,000         3,224,352   

St. Paul Port Authority (Brownsfields Redevelopment Tax) Series 2
5.00% 3/1/37

     895,000         942,077   
     

 

 

 
        8,950,392   
     

 

 

 

State General Obligation Bonds – 11.86%

  

Minnesota State (State Trunk Highway)

     

Series B 5.00% 10/1/22

     5,500,000         6,544,725   

Series B 5.00% 10/1/29

     3,315,000         3,780,028   

(Various Purposes) Series F
5.00% 10/1/22

     5,000,000         6,034,750   

Minnesota State Refunding (State Various Purpose) Series D
5.00% 8/1/24

     2,700,000         3,162,996   
     

 

 

 
          19,522,499   
     

 

 

 

Transportation Revenue Bonds – 5.45%

  

Minneapolis – St. Paul Metropolitan Airports Commission Revenue

     

5.00% 1/1/21

     2,600,000         3,012,698   

5.00% 1/1/22

     670,000         767,371   

Series A 5.00% 1/1/35 (AMBAC)

     2,000,000         2,049,760   

Subordinate

     

Series B 5.00% 1/1/26

     540,000         606,026   

Series B 5.00% 1/1/27

     1,190,000         1,325,136   

Series B 5.00% 1/1/30

     500,000         546,060   

Series B 5.00% 1/1/31

     250,000         271,447   

St. Paul Port Authority Revenue (Amherst H Wilder Foundation) Series 3
5.00% 12/1/36

     380,000         395,812   
     

 

 

 
        8,974,310   
     

 

 

 
      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Water & Sewer Revenue Bonds – 1.65%

  

Metropolitan Council Waste Water Revenue Series B 4.00% 9/1/27

     1,145,000       $ 1,216,288   

St. Paul Sewer Revenue Series D
5.00% 12/1/21

     1,325,000         1,501,636   
     

 

 

 
        2,717,924   
     

 

 

 

Total Municipal Bonds
(cost $229,800,912)

        236,766,517   
     

 

 

 

Total Value of
Securities – 143.85%

   

(cost $229,800,912)

      $   236,766,517   
     

 

 

 

 

  ° Principal amount shown is stated in U.S. dollars unless noted that the security is denominated in another currency.
  Variable rate security.The rate shown is the rate as of March 31, 2014. Interest rates reset periodically.
  § Pre-refunded bonds. Municipal bonds 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 7 in “Notes to financial statements.”

Summary of abbreviations:

AGM – Insured by Assured Guaranty Municipal Corporation

AMBAC – Insured by AMBAC Assurance Corporation

AMT – Subject to Alternative Minimum Tax

ASSURED GTY – Insured by Assured Guaranty Corporation

FHA – Federal Housing Administration

FHLMC – Federal Home Loan Mortgage Corporation Collateral

FNMA – Federal National Mortgage Association Collateral

GNMA – Government National Mortgage Association Collateral

IBC – Insured Bond Certificate

NATL-RE – Insured by National Public Finance Guarantee Corporation

VA – Veterans Administration Collateral

See accompanying notes, which are an integral part of the financial statements.

 

 

            (continues)    13


Table of Contents

Schedules of investments

Delaware Investments® National Municipal Income Fund

March 31, 2014

 

      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds – 146.14%  

Corporate-Backed Revenue Bonds – 15.90%

  

Buckeye, Ohio Tobacco Settlement Financing Authority Asset-Backed -2

     

Series A-2 5.875% 6/1/47

     500,000       $ 404,605   

Series A-2 6.50% 6/1/47

     430,000         376,194   

City of Valparaiso, Indiana (Pratt Paper Project)

     

7.00% 1/1/44 (AMT)

     240,000         256,762   

Gaston County Industrial Facilities & Pollution Control Financing Authority (Exempt Facilities-National Gypsum Project)

     

5.75% 8/1/35 (AMT)

     290,000         266,936   

Golden State, California Tobacco Securitization Corporation Settlement Revenue (Asset-Backed Senior Notes) Series A-1

     

5.75% 6/1/47

     1,000,000         813,540   

Harris County, Texas Industrial Development Corporation Solid Waste Disposal Revenue (Deer Park Refining Project)

     

5.00% 2/1/23

     150,000         161,425   

Illinois Railsplitter Tobacco Settlement Authority

     

6.25% 6/1/24

     500,000         552,145   

Louisiana Local Government Environmental Facilities & Community Development Authority (Westlake Chemical)

     

Series A 6.50% 8/1/29

     645,000         723,277   

Series A-1 6.50% 11/1/35

     255,000         281,023   

Maryland Economic Development Corporation Facilities Revenue (CNX Marine Terminals)

     

5.75% 9/1/25

     600,000         637,938   

M-S-R Energy Authority, California Gas Series C

     

7.00% 11/1/34

     1,000,000           1,312,300   

New Jersey Economic Development Authority (Continental Airlines Project)

     

5.625% 11/15/30 (AMT)

     225,000         228,607   
      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)  

Corporate-Backed Revenue Bonds (continued)

  

New Jersey Economic Development Authority Special Facility Revenue (Continental Airlines Project)

     

5.25% 9/15/29 (AMT)

     500,000       $ 500,765   

Ohio State Air Quality Development Authority Revenue (First Energy Generation) Series A

     

5.70% 8/1/20

     260,000         292,383   

Pima County, Arizona Industrial Development Authority Pollution Control Revenue (Tucson Electric Power San Juan)

     

5.75% 9/1/29

     250,000         255,145   

Salt Verde Financial, Arizona Gas Revenue Senior Note

     

5.00% 12/1/37

     400,000         422,900   

St. John the Baptist Parish, Louisiana (Marathon Oil) Series A

     

5.125% 6/1/37

     500,000         513,730   

Suffolk County, New York Tobacco Asset Securitization Series B

     

5.00% 6/1/32

     750,000         767,880   

Tobacco Settlement Financing Corporation, Louisiana Asset-Backed Note Series A

     

5.25% 5/15/35

     460,000         478,570   

Tobacco Settlement Financing Corporation, New Jersey Series 1A

     

5.00% 6/1/41

     500,000         379,130   

Town of Shoals, Indiana (Amt-National Gypsum Project)

     

7.25% 11/1/43 (AMT)

     310,000         318,801   
     

 

 

 
          9,944,056   
     

 

 

 

Education Revenue Bonds – 25.17%

  

Bowling Green, Ohio Student Housing Revenue (CFP I State University Project)
6.00% 6/1/45

     260,000         265,949   
 

 

14


Table of Contents

 

 

      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)  

Education Revenue Bonds (continued)

  

California Statewide Communities Development Authority School Facility Revenue (Aspire Public Schools)

     

6.125% 7/1/46

     625,000       $   610,756   

California Statewide Communities Development Authority Student Housing Revenue (Irvine, LLC - UCI East Campus)

     

6.00% 5/15/23

     470,000         523,129   

(Lancer Plaza Project)

     

5.625% 11/1/33

     1,000,000         971,650   

Delaware County, Pennsylvania Authority (Villanova University)

     

5.00% 8/1/20

     390,000         449,666   

Health & Educational Facilities Authority of the State of Missouri (St. Louis College of Pharmacy Project)

     

5.25% 5/1/33

     500,000         521,810   

(Washington University)

     

Series B 5.00% 11/15/30

     600,000         678,366   

Marietta, Georgia Development Authority Revenue (Life University Income Project)

     

7.00% 6/15/39

     430,000         433,719   

Maryland Health & Higher Educational Facilities Authority (Loyola University) Series A

     

5.00% 10/1/39

     650,000         684,710   

Maryland State Economic Development Student Housing Revenue (University of Maryland College Park Projects)

     

5.75% 6/1/33

     370,000         384,589   

Massachusetts State Health & Educational Facilities Authority Revenue (Harvard University) Series A

     

5.00% 12/15/29

     600,000         680,064   
      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)  

Education Revenue Bonds (continued)

  

Monroe County, New York Industrial Development Revenue (Nazareth College Rochester Project)

     

5.50% 10/1/41

     495,000       $   521,868   

Montgomery County, Pennsylvania Higher Education & Health Authority Revenue (Arcadia University)

     

5.25% 4/1/30

     550,000         565,801   

New Jersey Economic Development Authority Revenue (MSU Student Housing Project)

     

5.875% 6/1/42

     585,000         628,834   

New York City, New York Trust For Cultural Resources (Whitney Museum of American Art)

     

5.00% 7/1/31

     500,000         531,875   

New York State Dormitory Authority (Columbia University)

     

5.00% 10/1/41

     600,000         652,536   

Oregon State Facilities Authority Revenue (Concordia University Project) Series A 144A

     

6.125% 9/1/30 #

     135,000         140,025   

Pennsylvania State Higher Educational Facilities Authority Revenue (Edinboro University Foundation)

     

5.80% 7/1/30

     400,000         404,576   

(University Properties - East Stoudsbourg University)

     

5.25% 7/1/19

     510,000         558,950   

Philadelphia Authority for Industrial Development (First Philadelphia Preparatory College)

     

7.25% 6/15/43

     370,000         375,939   

Phoenix, Arizona Industrial Development Authority Revenue (Eagle College Preparatory Project) Series A

     

5.00% 7/1/43

     500,000         455,700   
 

 

            (continues)    15


Table of Contents

Schedules of investments

Delaware Investments® National Municipal Income Fund

 

      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)  

Education Revenue Bonds (continued)

  

Phoenix, Arizona Industrial Development Authority Revenue (Rowan University Project)

     

5.00% 6/1/42

     1,000,000       $ 1,023,150   

Pima County, Arizona Industrial Development Authority Education Revenue (Edkey Charter School Project) Series REF

     

6.00% 7/1/48

     500,000         451,210   

Private Colleges & Universities Authority Revenue, Georgia (Mercer University) Series A

     

5.00% 10/1/32

     135,000         137,579   

Swarthmore Borough Authority, Pennsylvania (Swarthmore College Project)

     

5.00% 9/15/32

     490,000         546,012   

Troy, New York Capital Resource Revenue (Rensselaer Polytechnic) Series A

     

5.125% 9/1/40

     600,000         624,234   

University of Arizona Series A

     

5.00% 6/1/39

     500,000         535,020   

University of California Series AI

     

5.00% 5/15/32

     1,000,000         1,115,000   

Wyoming Community Development Authority Student Housing Revenue (CHF-Wyoming LLC)

     

6.50% 7/1/43

     250,000         262,595   
     

 

 

 
          15,735,312   
     

 

 

 

Electric Revenue Bonds – 1.74%

  

Jea Electric System Revenue Series A

     

5.00% 10/1/33

     1,000,000         1,087,870   
     

 

 

 
        1,087,870   
     

 

 

 

Healthcare Revenue Bonds – 21.11%

  

Arizona Health Facilities Authority Revenue (Catholic Healthcare West) Series D

     

5.00% 7/1/28

     500,000         523,920   

Brevard County, Florida Health Facilities Authority Revenue (Health First Project)

     

7.00% 4/1/39

     350,000         387,635   
      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)  

Healthcare Revenue Bonds (continued)

  

Butler County, Pennsylvania Hospital Authority Revenue (Butler Health System Project)

     

7.125% 7/1/29

     450,000       $ 525,699   

Colorado Health Facilities Authority Revenue (Healthcare Facilities - American Baptist)

     

8.00% 8/1/43

     330,000         330,832   

Duluth, Minnesota Economic Development Authority Revenue (St. Luke’s Hospital Authority Obligation Group)

     

5.75% 6/15/32

     400,000         411,816   

Hawaii Pacific Health Special Purpose Revenue Series A

     

5.50% 7/1/40

     300,000         316,332   

Illinois Finance Authority Revenue (Silver Cross & Medical Centers)

     

7.00% 8/15/44

     950,000           1,049,759   

Koyukuk, Alaska Revenue (Tanana Chiefs Conference Health Care Facility Project)

     

7.75% 10/1/41

     300,000         321,393   

Louisiana Public Facilities Authority Revenue (Ochsner Clinic Foundation Project)

     

6.50% 5/15/37

     105,000         118,419   

Lycoming County, Pennsylvania Authority Health System Revenue (Susquehanna Health System Project) Series A

     

5.50% 7/1/28

     500,000         525,975   

Maine Health & Higher Educational Facilities Authority Revenue (Maine General Medical Center)

     

6.75% 7/1/41

     300,000         322,140   

Maricopa County, Arizona Industrial Development Authority Health Facilities Revenue (Catholic Healthcare West) Series A

     

6.00% 7/1/39

     500,000         537,220   
 

 

16


Table of Contents

 

 

      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Healthcare Revenue Bonds (continued)

  

Monroe County, Pennsylvania Hospital Authority Revenue (Pocono Medical Center) Series A
5.00% 1/1/41

     500,000       $   504,440   

Montgomery County, Pennsylvania Industrial Development Authority Revenue (Mortgage - Whitemarsh Continuing Care) 6.25% 2/1/35

     675,000         682,243   

New Hampshire Health and Education Facilities Authority Revenue (Dartmouth - Hitchock Medical Center)
6.00% 8/1/38

     300,000         329,598   

New Jersey Health Care Facilities Financing Authority Revenue (St. Peters University Hospital)
6.25% 7/1/35

     300,000         312,999   

New Mexico Hospital Equipment Loan Council Revenue (Presbyterian Healthcare)
5.00% 8/1/39

     500,000         515,650   

New York State Dormitory Authority Revenue Non State Supported Debt (Orange Regional Medical Center)
6.25% 12/1/37

     500,000         500,745   

Orange County, Florida Health Facilities Authority Revenue (Mayflower Retirement Center)

     

5.00% 6/1/32

     400,000         407,204   

5.00% 6/1/36

     250,000         253,137   

5.125% 6/1/42

     750,000         760,500   

Oregon State Facilities Authority Revenue (Peacehealth Project) Series A
5.00% 11/15/29

     500,000         546,925   

St. Cloud, Minnesota Health Care Revenue (Centracare Health System Project) Series A
5.125% 5/1/30

     820,000         891,250   
      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Healthcare Revenue Bonds (continued)

  

State of Ohio (Cleveland Clinic Health) Series A
5.50% 1/1/39

     300,000       $ 334,575   

University of Medical Center, Tuscon, Arizona Hospital Revenue
6.50% 7/1/39

     500,000         547,475   

West Virginia Hospital Finance Authority Revenue (Highland Hospital Obligation Group)
9.125% 10/1/41

     500,000         491,365   

Yavapai County, Arizona Industrial Development Authority Revenue (Yavapai Regional Medical Center) Series A
5.00% 8/1/28

     720,000         749,930   
     

 

 

 
          13,199,176   
     

 

 

 

Housing Revenue Bonds – 2.62%

  

California Municipal Finance Authority Mobile Home Park Revenue (Caritas Project) Series A 5.50% 8/15/47

     750,000         772,493   

(Caritas Projects) Series A 6.40% 8/15/45

     430,000         452,842   

City of Williston, Nevada (Eagle Crest Apartments Project) 7.75% 9/1/38

     255,000         259,055   

Florida Housing Finance Homeowner Mortgage Revenue Series
2 5.90% 7/1/29 (AMT) (NATL-RE)

     155,000         156,091   
     

 

 

 
        1,640,481   
     

 

 

 

Lease Revenue Bonds – 12.61%

  

California State Public Works Board Lease Revenue (Various Capital Projects) Series A
5.00% 4/1/37

     1,000,000         1,050,760   

Idaho State Building Authority Revenue (Health & Welfare Project) Series A
5.00% 9/1/24

     135,000         157,134   

(State Police) Series I 5.00% 9/1/23

     760,000         883,295   
 

 

            (continues)    17


Table of Contents

Schedules of investments

Delaware Investments® National Municipal Income Fund

 

      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Lease Revenue Bonds (continued)

  

Minnesota State General Revenue Appropriations Series B
5.00% 3/1/29

     2,000,000       $ 2,255,180   

New Jersey Economic Development Authority (School Facilities Construction) Series EE
5.00% 9/1/18

     100,000         115,137   

New York City, New York Industrial Development Agency (Senior Trips) Series A 5.00% 7/1/28

     250,000         256,783   

Pima County, Arizona Industrial Development Authority Metro Police Facility Revenue (Nevada Project)

     

Series A 5.25% 7/1/31

     500,000         522,195   

Series A 5.375% 7/1/39

     500,000         525,105   

Public Finance Authority, Wisconsin Airport Facilities Revenue (AFCO Investors II Portfolio)
5.75% 10/1/31

     500,000         473,625   

San Jose, California Financing Authority Revenue (Civic Center Project) Series A
5.00% 6/1/28

     500,000         558,980   

Tobacco Settlement Financing Corporation, New York Revenue Asset-Backed Series B
5.00% 6/1/21

     1,000,000         1,085,770   
     

 

 

 
          7,883,964   
     

 

 

 

Local General Obligation Bonds – 1.79%

  

City of New York, New York

     

Series A-1 5.25% 8/15/21

     250,000         289,723   

Series I-1 5.375% 4/1/36

     250,000         283,935   

Gila County, Arizona Unified School District No. 10 (Payson School Improvement Project of 2006) Series A
5.25% 7/1/27 (AMBAC)

     500,000         545,430   
     

 

 

 
        1,119,088   
     

 

 

 
      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Special Tax Revenue Bonds – 22.90%

  

Anne Arundel County, Maryland Special Obligation Revenue (National Business Park - North Project)
6.10% 7/1/40

     200,000       $ 210,148   

Brooklyn Arena Local Development, New York Pilot Revenue (Barclays Center Project)

     

6.25% 7/15/40

     940,000           1,017,418   

6.50% 7/15/30

     300,000         332,508   

California State Economic Recovery Series A
5.25% 7/1/21

     260,000         308,539   

California Statewide Communities Development Authority Revenue (Statewide Inland Regional Center Project)
5.375% 12/1/37

     500,000         508,600   

Guam Government Business Privilege Tax Revenue

     

Series A 5.00% 1/1/22

     775,000         880,578   

Series B-1 5.00% 1/1/42

     540,000         546,010   

Massachusetts Bay Transportation Authority Senior Series A
5.25% 7/1/29

     200,000         240,418   

Miami-Dade County, Florida Special Obligation (Capital Appreciation & Income) Series B
5.00% 10/1/35
(NATL-RE)

     1,000,000         1,039,320   

Mosaic District, Virginia Community Development Authority Revenue Series A 6.875% 3/1/36

     520,000         585,099   

New Jersey Economic Development Authority Revenue

     

5.00% 6/15/28

     200,000         211,352   

5.00% 6/15/29

     800,000         838,608   

(School Facilities Construction) Series AA 5.50% 12/15/29

     900,000         989,649   

New Jersey Transportation Trust Fund

     

Series A 5.00% 6/15/42

     110,000         114,921   

Series AA 5.00% 6/15/44

     340,000         356,463   
 

 

18


Table of Contents

 

 

      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Special Tax Revenue Bonds (continued)

  

New York City, New York Industrial Development Agency Civic Facility Revenue (YMCA of Greater New York Project)

     

5.00% 8/1/36

     595,000       $ 600,760   

New York State Dormitory Authority Series A

     

5.00% 3/15/33

     1,000,000         1,098,720   

(State Personal Income Tax Revenue-Education) Series A

     

5.00% 3/15/38

     570,000         620,998   

Northampton County, Pennsylvania Industrial Development Authority Revenue (Route 33 Project)

     

7.00% 7/1/32

     230,000         234,276   

Peoria, Arizona Municipal Development Authority Sales Tax & Excise Shared Revenue (Senior Lien & Subordinate Lien)

     

5.00% 1/1/18

     1,085,000         1,235,077   

Regional Transportation District, Colorado Tax Revenue (Denver Transit Partners)

     

6.00% 1/15/41

     500,000         528,860   

(Fastracks Project) Series A

     

5.00% 11/1/26

     500,000         573,530   

Virginia Public Building Authority Series A

     

5.00% 8/1/26

     1,000,000         1,135,150   

Wyandotte County, Kansas City, Kansas Unified Government Special Obligation Revenue (Capital Appreciation) Sales Tax Subordinate Lien

     

6.07% 6/1/21 ^

     165,000         113,597   
     

 

 

 
          14,320,599   
     

 

 

 

State General Obligation Bonds – 7.33%

  

California State Various Purposes

     

5.00% 10/1/41

     440,000         465,784   

5.25% 11/1/40

     320,000         348,250   

6.00% 4/1/38

     105,000         122,252   
      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

State General Obligation Bonds (continued)

  

State of Minnesota Various Purposes Series F

     

5.00% 10/1/20

     1,500,000       $   1,788,360   

State of New York Series A

     

5.00% 2/15/39

     300,000         331,251   

State of Oregon Series K

     

5.00% 5/1/22

     1,275,000         1,525,741   
     

 

 

 
        4,581,638   
     

 

 

 

Transportation Revenue Bonds – 27.93%

  

Bay Area, California Toll Authority Revenue (San Francisco Bay Area)

     

5.00% 4/1/27

     750,000         867,840   

Bay Area, California Toll Authority Toll Bridge Revenue (San Francisco Bay Area) Series F1

     

5.00% 4/1/34

     1,000,000         1,090,920   

Central Texas Regional Mobility Authority Revenue Senior Lien

     

6.00% 1/1/41

     520,000         558,048   

City of Atlanta, Georgia Department of Aviation Series B

     

5.00% 1/1/29

     1,000,000         1,119,880   

City of Chicago, Illinois O’Hare International Airport Revenue (General-Senior Lien) Series D

     

5.25% 1/1/34

     1,000,000         1,061,480   

Maryland State Economic Development Revenue (Transportation Facilities Project) Series A

     

5.75% 6/1/35

     255,000         263,968   

Metropolitan Transit Authority of Harris County, Texas Series A

     

5.00% 11/1/24

     500,000         573,685   

Metropolitan Transportation Authority, New York

     

Series A 5.00% 11/15/41

     500,000         522,355   

Series C 5.00% 11/15/30

     500,000         527,655   

Metropolitan Washington D.C. Airports Authority Dulles Toll Road Revenue (First Senior Lien) Series A

     

5.25% 10/1/44

     245,000         256,111   

New Jersey State Turnpike Authority Revenue Series A

     

5.00% 1/1/27

     1,000,000         1,119,170   
 

 

            (continues)    19


Table of Contents

Schedules of investments

Delaware Investments® National Municipal Income Fund

 

      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Transportation Revenue Bonds (continued)

  

New York Liberty Development Revenue (1 World Trade Center Port Authority Construction)

     

5.00% 12/15/41

     500,000       $ 524,560   

North Texas Tollway Authority Special Projects System Series A

     

5.00% 9/1/20

     250,000         293,983   

Pennsylvania Turnpike Commission Subordinate (Special Motor License Foundation)

     

5.00% 12/1/22

     500,000         567,695   

Series B 5.00% 12/1/41

     500,000         521,795   

Port Authority of Allegheny County, Pennsylvania

     

5.75% 3/1/29

     900,000           1,015,461   

Port Authority of New York & New Jersey Special Project (JFK International Air Terminal)

     

6.00% 12/1/42

     230,000         252,161   

6.50% 12/1/28

     500,000         522,635   

St. Louis Missouri Airport Revenue (Lambert St. Louis International)

     

5.00% 7/1/32 (AMT)

     1,000,000         1,020,590   

St. Louis, Missouri Airport Revenue (Lambert St. Louis International) Series A-1

     

6.625% 7/1/34

     325,000         368,631   

State of Oregon Department of Transportation Series A

     

5.00% 11/15/26

     1,000,000         1,183,150   

Texas Private Activity Bond Surface Transportation Corporate Senior Lien Revenue (LBJ Infrastructure)

     

7.00% 6/30/40

     285,000         324,048   

7.50% 6/30/33

     665,000         773,362   

(Mobility Partners)

     

7.50% 12/31/31

     500,000         576,570   

(NTE Mobility Partners)

     

6.75% 6/30/43 (AMT)

     225,000         251,051   

6.875% 12/31/39

     1,000,000         1,118,250   
      Principal
Amount°
     Value
(U.S. $)
 
Municipal Bonds (continued)          

Transportation Revenue Bonds (continued)

  

Texas Private Activity Bond Surface Transportation Corporate Senior Lien Revenue

     

7.00% 12/31/38 (AMT)

     165,000       $ 188,470   
     

 

 

 
          17,463,524   
     

 

 

 

Water & Sewer Revenue Bonds – 7.04%

  

Atlanta, Georgia Water & Wastewater Revenue Series A

     

6.25% 11/1/39

     950,000         1,098,257   

Los Angeles, California Wastewater System Revenue Series A

     

5.00% 6/1/27

     500,000         577,475   

New York City, New York Municipal Water Finance Authority (Second General Resolution) Series BB

     

5.25% 6/15/44

     525,000         566,134   

Phoenix, Arizona Civic Improvement Wastewater Systems Revenue (Junior Lien) Series A

     

5.00% 7/1/39

     900,000         982,908   

San Francisco, California City & County Public Utilities Commission Water Revenue Series F

     

5.00% 11/1/27

     500,000         580,135   

Texas State Series C

     

5.00% 8/1/22

     500,000         593,270   
     

 

 

 
        4,398,179   
     

 

 

 

Total Municipal Bonds
(cost $87,832,503)

        91,373,887   
     

 

 

 
 

 

20


Table of Contents

 

 

      Principal
Amount°
     Value
(U.S. $)
 
Short-Term Investment – 0.80%          

Variable Rate Demand Note – 0.80%¤

  

Lower Neches Valley, Texas Authority Industrial Development (ExxonMobil Project) 0.03% 11/1/51

     500,000       $ 500,000   
     

 

 

 

Total Short-Term Investment
(cost $500,000)

        500,000   
     

 

 

 

Total Value of
Securities – 146.94%

     

(cost $88,332,503)

      $   91,873,887   
     

 

 

 

 

  # Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At March 31, 2014, the aggregate value of Rule 144A securities was $140,025, which represents 0.22% of the Fund’s net assets. See Note 7 in “Notes to financial statements.”
  ¤ Tax-exempt obligations that contain a floating or variable interest rate adjustment formula and an unconditional right of demand to receive payment of the unpaid principal balance plus accrued interest upon a short notice period (generally up to 30 days) prior to specified dates either from the issuer or by drawing on a bank letter of credit, a guarantee or insurance issued with respect to such instrument. The rate shown is the rate as of March 31, 2014.
  ° Principal amount shown is stated in U.S. dollars unless noted that the security is denominated in another currency.
  ^ Zero coupon security. The rate shown is the yield at the time of purchase.

Summary of abbreviations:

AMBAC – Insured by AMBAC Assurance Corporation

AMT – Subject to Alternative Minimum Tax

NATL-RE – Insured by National Public Finance Guarantee Corporation

See accompanying notes, which are an integral part of the financial statements.

 

 

21


Table of Contents

Statements of assets and liabilities

Delaware Investments® Closed-End Municipal Bond Funds

March 31, 2014

 

 

     Delaware
Investments
Colorado
Municipal
Income
Fund, Inc.
    Delaware
Investments
Minnesota
Municipal
Income
Fund II, Inc.
    Delaware
Investments
National
Municipal
Income
Fund
 

Assets:

      

Investments, at value1

   $ 98,145,214      $ 236,766,517      $ 91,373,887   

Short-term investments, at value2

                   500,000   

Cash

     151,409               282,363   

Interest income receivable

     1,409,975        3,525,021        1,334,462   

Offering cost for preferred shareholders

     149,125        266,811        211,878   

Receivables for securities sold

            73,001        10,148   
  

 

 

   

 

 

   

 

 

 

Total assets

     99,855,723        240,631,350        93,712,738   
  

 

 

   

 

 

   

 

 

 

Liabilities:

      

Cash overdraft

            868,916          

Liquidation value of preferred stock

     30,000,000        75,000,000        30,000,000   

Payable for securities purchased

                   1,107,900   

Investment management fees payable

     33,801        81,336        31,364   

Audit fees payable

     33,535        33,535        33,535   

Other accrued expenses

     5,021        42,788        9,447   

Other affiliates payable

     2,628        5,550        4,249   

Trustees’ fees and expenses payable

     195        465        176   
  

 

 

   

 

 

   

 

 

 

Total liabilities

     30,075,180        76,032,590        31,186,671   
  

 

 

   

 

 

   

 

 

 

Total Net Assets Applicable to Common Shareholders

   $ 69,780,543      $ 164,598,760      $ 62,526,067   
  

 

 

   

 

 

   

 

 

 

Net Assets Applicable to Common Shareholders Consist of:

      

Paid-in capital ($0.001 par value)3,4

   $ 66,918,121      $ 157,931,075      $ 60,617,476   

Undistributed (distributions in excess of) net investment income

     854,468        1,435,077        785,029   

Accumulated net realized loss on investments

     (1,784,722     (1,732,997     (2,417,821

Net unrealized appreciation of investments

     3,792,676        6,965,605        3,541,383   
  

 

 

   

 

 

   

 

 

 

Total Net Assets Applicable to Common Shareholders

   $ 69,780,543      $ 164,598,760      $ 62,526,067   
  

 

 

   

 

 

   

 

 

 

Net Asset Value per Common Share

   $ 14.43      $ 14.31      $ 13.81   
  

 

 

   

 

 

   

 

 

 

1Investments, at cost

     94,352,538        229,800,912        87,832,503   

2Short-term investments, at cost

                   500,000   

3Common shares outstanding

     4,837,100        11,504,975        4,528,443   

4Common shares authorized

     200 million        200 million        unlimited   

See accompanying notes, which are an integral part of the financial statements.

 

22


Table of Contents

Statements of operations

Delaware Investments® Closed-End Municipal Bond Funds

Year Ended March 31, 2014

 

     Delaware
Investments
Colorado
Municipal
Income
Fund, Inc.
    Delaware
Investments
Minnesota
Municipal
Income
Fund II, Inc.
    Delaware
Investments
National
Municipal
Income
Fund
 

Investment Income:

      

Interest

   $ 4,427,948      $ 9,938,070      $ 4,193,287   
  

 

 

   

 

 

   

 

 

 

Expenses:

      

Management fees

     396,814        956,949        368,434   

Interest expense

     386,456        1,039,124        384,060   

Rating agency fees

     48,749        42,361        24,045   

Offering costs

     40,176        84,939        55,053   

Audit and tax

     38,375        49,334        33,535   

Accounting and administration expenses

     37,260        89,856        34,596   

Dividend disbursing and transfer agent fees and expenses

     30,760        68,538        31,384   

Legal fees

     22,247        66,182        19,295   

Reports and statements to shareholders

     17,231        43,007        4,646   

Stock exchange fees

     4,700        10,944          

Trustee’s fees and expenses

     3,576        8,558        3,242   

Custodian fees

     1,551        4,077        2,240   

Registration fees

     778        778        778   

Other

     10,911        21,515        18,218   
  

 

 

   

 

 

   

 

 

 

Total operating expenses

     1,039,584        2,486,162        979,526   
  

 

 

   

 

 

   

 

 

 

Net Investment Income

     3,388,364        7,451,908        3,213,761   
  

 

 

   

 

 

   

 

 

 

Net Realized and Unrealized Loss:

      

Net realized loss on investments

     (1,803,532     (1,865,333     (2,041,010

Net change in unrealized appreciation (depreciation) of investments

     (2,742,772     (7,344,025     (3,307,566
  

 

 

   

 

 

   

 

 

 

Net Realized and Unrealized Loss

     (4,546,304     (9,209,358     (5,348,576
  

 

 

   

 

 

   

 

 

 

Net Decrease in Net Assets Resulting from Operations

   $ (1,157,940   $ (1,757,450   $ (2,134,815
  

 

 

   

 

 

   

 

 

 

See accompanying notes, which are an integral part of the financial statements.

 

 

23


Table of Contents

Statements of changes in net assets

Delaware Investments® Closed-End Municipal Bond Funds

 

     Delaware Investments
Colorado Municipal
Income Fund, Inc.
 
     Year ended  
     3/31/14     3/31/13
(As Restated)
 

Increase (Decrease) in Net Assets from Operations:

    

Net investment income1

   $ 3,388,364      $ 3,546,421   

Net realized gain (loss)

     (1,803,532     89,037   

Net change in unrealized appreciation (depreciation)

     (2,742,772     1,916,263   
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     (1,157,940     5,551,721   
  

 

 

   

 

 

 

Dividends and Distributions to Common Shareholders from:

    

Net investment income

     (3,337,599     (3,337,599

Net realized gain

     (72,556     (478,873
  

 

 

   

 

 

 
     (3,410,155     (3,816,472
  

 

 

   

 

 

 

Net Increase (Decrease) in Net Assets Applicable to Common Shareholders

     (4,568,095     1,735,249   

Net Assets Applicable to Common Shareholders:

    

Beginning of year

     74,348,638        72,613,389   
  

 

 

   

 

 

 

End of year

   $ 69,780,543      $ 74,348,638   
  

 

 

   

 

 

 

Undistributed net investment income

   $ 854,468      $ 800,128   
  

 

 

   

 

 

 
     Delaware Investments
Minnesota Municipal Income
Fund II, Inc.
 
     Year ended  
     3/31/14     3/31/13
(As Restated)
 

Increase (Decrease) in Net Assets from Operations:

    

Net investment income2

   $ 7,451,908      $ 8,222,244   

Net realized gain (loss)

     (1,865,333     2,208,718   

Net change in unrealized appreciation (depreciation)

     (7,344,025     1,762,327   
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     (1,757,450     12,193,289   
  

 

 

   

 

 

 

Dividends and Distributions to Common Shareholders from:

    

Net investment income

     (7,938,433     (7,938,433

Net realized gain

     (1,334,577     (460,199
  

 

 

   

 

 

 
     (9,273,010     (8,398,632
  

 

 

   

 

 

 

Net Increase (Decrease) in Net Assets Applicable to Common Shareholders

     (11,030,460     3,794,657   

Net Assets Applicable to Common Shareholders:

    

Beginning of year

     175,629,220        171,834,563   
  

 

 

   

 

 

 

End of year

   $ 164,598,760      $ 175,629,220   
  

 

 

   

 

 

 

Undistributed net investment income

   $ 1,435,077      $ 1,759,475   
  

 

 

   

 

 

 

 

24


Table of Contents

 

 

     Delaware
Investments
National
Municipal
Income
Fund
 
     Year ended  
     3/31/14     3/31/13
(As Restated)
 

Increase (Decrease) in Net Assets from Operations:

    

Net investment income3

   $ 3,213,761      $ 3,271,838   

Net realized gain (loss)

     (2,041,010     1,281,216   

Net change in unrealized appreciation (depreciation)

     (3,307,566     2,597,893   
  

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

     (2,134,815     7,150,947   
  

 

 

   

 

 

 

Dividends and Distributions to Common Shareholders from:

    

Net investment income

     (3,215,195     (2,762,350
  

 

 

   

 

 

 
     (3,215,195     (2,762,350
  

 

 

   

 

 

 

Net Increase (Decrease) in Net Assets Applicable to Common Shareholders

     (5,350,010     4,388,597   

Net Assets Applicable to Common Shareholders:

    

Beginning of year

     67,876,077        63,487,480   
  

 

 

   

 

 

 

End of year

   $ 62,526,067      $ 67,876,077   
  

 

 

   

 

 

 

Undistributed net investment income

   $ 785,029      $ 792,940   
  

 

 

   

 

 

 

1Net investment income includes amounts that should have been classified as interest expense rather than dividends paid to preferred shareholders from net investment income of $383,862 and from realized capital gains of $27,664 for the year ended March 31, 2013. Such amounts are restated and classified as interest expense. See Note 9 in “Notes to financial statements.”

2Net investment income includes amounts that should have been classified as interest expense rather than dividends paid to preferred shareholders from net investment income of $966,323 and from realized capital gains of $59,112 for the year ended March 31, 2013. Such amounts are restated and classified as interest expense. See Note 9 in “Notes to financial statements.”

3Net investment income includes amounts that should have been classified as interest expense rather than dividends paid to preferred shareholders from net investment income of $406,627 for the year ended March 31, 2013. Such amounts are restated and classified as interest expense. See Note 9 in “Notes to financial statements.”

See accompanying notes, which are an integral part of the financial statements.

 

25


Table of Contents

Statements of cash flows

Delaware Investments® Closed-End Municipal Bond Funds

Year Ended March 31, 2014

 

     Delaware
Investments
Colorado
Municipal
Income
Fund, Inc.
    Delaware
Investments
Minnesota
Municipal
Income
Fund II, Inc.
    Delaware
Investments
National
Municipal
Income
Fund
 

Net Cash Provided by (Used for) Operating Activities:

      

Net decrease in net assets resulting from operations

   $ (1,157,940   $ (1,757,450   $ (2,134,815
  

 

 

   

 

 

   

 

 

 

Adjustments to reconcile net increase in net assets from operations to cash provided by (used for) operating activities:

      

Amortization of premium and accretion of discount on investments

     340,659        1,547,660        444,998   

Amortization of offering costs for preferred shareholders

     56,758        101,550        71,675   

Purchase of investment securities

     (25,951,101     (41,604,647     (37,052,440

Proceeds from disposition of investment securities

     25,550,962        40,513,073        37,362,513   

(Purchase of) proceeds from short-term investment securities, net

     200,000               (500,000

Net realized loss on investments

     1,803,532        1,865,333        2,041,010   

Net change in net unrealized appreciation (depreciation) of investments

     2,742,772        7,344,025        3,307,566   

Increase (decrease) in receivable for securities sold

            (67,946     5,073   

Increase in interest receivable

     (43,158     (14,407     (73,662

Decrease in payable for securities purchased

                   (33,350

Decrease in interest payable

     (33,394     (83,486     (33,394

Decrease in investment management fees payable

     (1,762     (3,877     (1,927

Decrease in Trustees’ fees and expenses payable

     (14     (26     (15

Increase in audit fees payable

     33,535        33,535        33,535   

Increase in other affiliates payable

     1,300        2,748        3,158   

Increase (decrease) in other accrued expenses

     (9,233     3,973        (13,967
  

 

 

   

 

 

   

 

 

 

Total adjustments

     4,690,856        9,637,508        5,560,773   
  

 

 

   

 

 

   

 

 

 

Net cash provided by operating activities

     3,532,916        7,880,058        3,425,958   
  

 

 

   

 

 

   

 

 

 

Cash Flows Used for Financing Activities:

      

Cash dividends and distributions paid to common shareholders

     (3,410,155     (9,273,010     (3,215,195
  

 

 

   

 

 

   

 

 

 

Net cash used for financing activities

     (3,410,155     (9,273,010     (3,215,195
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     122,761        (1,392,952     210,763   

Cash at beginning of period

     28,648        524,036        71,600   
  

 

 

   

 

 

   

 

 

 

Cash at end of period

   $ 151,409      $ (868,916   $ 282,363   
  

 

 

   

 

 

   

 

 

 

Cash paid for interest on leverage

   $ 419,850      $ 1,122,610      $ 417,454   
  

 

 

   

 

 

   

 

 

 

See accompanying notes, which are an integral part of the financial statements.

 

26


Table of Contents

Financial highlights

Delaware Investments® Colorado Municipal Income Fund, Inc.

 

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

 

     Year ended
      3/31/14     3/31/13
(As Restated)
    3/31/12
(As Restated)
    3/31/11     3/31/10       

Net asset value, beginning of period

   $ 15.370      $ 15.010      $ 13.370      $ 13.990      $ 13.220     

Income (loss) from investment operations:

            

Net investment income1,2

     0.700        0.733        0.638        0.601        0.607     

Net realized and unrealized gain (loss)

     (0.935     0.416        1.582        (0.651     0.733     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total from investment operations

     (0.235     1.149        2.220        (0.050     1.340     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Less dividends and distributions to common shareholders from:

            

Net investment income

     (0.690     (0.690     (0.580     (0.570     (0.570  

Net realized gain

     (0.015     (0.099                       
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total dividends and distributions

     (0.705     (0.789     (0.580     (0.570     (0.570  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net asset value, end of period

   $ 14.430      $ 15.370      $ 15.010      $ 13.370      $ 13.990     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Market value, end of period

   $ 13.330      $ 14.840      $ 14.600      $ 12.450      $ 13.390     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total investment return based on:3

            

Market value

     (5.25%     6.92%        22.41%        (3.00%     24.49%     

Net asset value

     (0.97%     7.71%        17.19%        (0.30%     10.55%     

Ratios and supplemental data:

            

Net assets applicable to common shares, end of period (000 omitted)

   $ 69,781      $ 74,349      $ 72,613      $ 64,689      $ 67,651     

Ratio of expenses to average net assets applicable to common shareholders4,5

     1.49%        1.44%        0.95%        0.56%        0.56%     

Ratio of net investment income to average net assets applicable to common shareholders6,7

     4.90%        4.72%        4.46%        4.31%        4.41%     

Portfolio turnover

     26%        8%        64%        10%        20%     

Leverage analysis:

            

Value of preferred shares outstanding (000 omitted)8

   $ 30,000      $ 30,000      $ 30,000      $      $     

Net asset coverage per share of preferred shares, end of period8

   $ 332,602      $ 347,829      $ 342,045      $      $     

Liquidation value per share of preferred shares8

   $ 100,000      $ 100,0009      $ 100,0009      $      $     

 

 

1  Net investment income includes dividends paid to preferred shareholders from net investment income of $0.078 per share and from realized capital gains of $0.002 per share for the year ended March 31, 2014.
2  Net investment income includes amounts that should have been classified as interest expense rather than dividends paid to preferred shareholders from net investment income of $0.079 and $0.031 per share and from realized capital gains of $0.006 and $0.000 per share for the years ended March 31, 2013 and 2012, respectively. Such amounts are restated and classified as interest expense. See Note 9 in “Notes to financial statements.”
3  Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods.
4  The ratio of expenses to average net assets applicable to common shareholders excluding interest expense for the years ended March 31, 2014, 2013 and 2012 were 0.94%, 0.89% and 0.73%, respectively. There was no interest expense for the years ended March 31, 2011 and 2010.
5  The ratio of expenses to average net assets applicable to common shareholders has been restated for the years ended March 31, 2013 and 2012 to include interest expense of 0.55% and 0.22%, respectively.
6  The ratio of net investment income to average net assets applicable to common shareholders has been restated for the years ended March 31, 2013 and 2012 to include interest expense of 0.55% and 0.22%, respectively.
7  The ratio of net investment income excluding interest expense for the years ended March 31, 2014, 2013 and 2012 were 5.45%, 5.27% and 4.68%, respectively. There was no interest expense for the years ended March 31, 2011 and 2010.
8  In November 2011, the Fund issued a new series of 300 variable rate preferred shares, with a liquidation preference of $100,000 per share.
9  Excluding any accumulated but unpaid dividends.

See accompanying notes, which are an integral part of the financial statements.

 

            (continues)    27


Table of Contents

Financial highlights

Delaware Investments® Minnesota Municipal Income Fund II, Inc.

 

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

 

     Year ended
      3/31/14     3/31/13
(As Restated)
    3/31/12
(As Restated)
    3/31/11     3/31/10       

Net asset value, beginning of period

   $ 15.270      $ 14.940      $ 13.700      $ 14.060      $ 13.140     

Income (loss) from investment operations:

            

Net investment income1,2

     0.648        0.715        0.640        0.612        0.602     

Net realized and unrealized gain (loss)

     (0.802     0.345        1.180        (0.402     0.888     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total from investment operations

     (0.154     1.060        1.820        0.210        1.490     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Less dividends and distributions to common shareholders from:

            

Net investment income

     (0.690     (0.690     (0.580     (0.570     (0.570  

Net realized gain

     (0.116     (0.040                       
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total dividends and distributions

     (0.806     (0.730     (0.580     (0.570     (0.570  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net asset value, end of period

   $ 14.310      $ 15.270      $ 14.940      $ 13.700      $ 14.060     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Market value, end of period

   $ 13.340      $ 15.630      $ 14.230      $ 12.600      $ 12.740     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total investment return based on:3

            

Market value

     (9.26%     15.18%        17.95%        3.32%        18.58%     

Net asset value

     (0.36%     7.18%        13.90%        1.80%        12.04%     

Ratios and supplemental data:

            

Net assets applicable to common shares, end of period (000 omitted)

   $ 164,599      $ 175,629      $ 171,835      $ 157,655      $ 161,723     

Ratio of expenses to average net assets applicable to common shareholders4,5

     1.51%        1.40%        0.93%        0.56%        0.56%     

Ratio of net investment income to average net assets applicable to common shareholders6,7

     4.54%        4.65%        4.44%        4.35%        4.36%     

Portfolio turnover

     17%        24%        44%        9%        19%     

Leverage analysis:

            

Value of preferred shares outstanding (000 omitted)8

   $ 75,000      $ 75,000      $ 75,000      $      $     

Net asset coverage per share of preferred shares, end of period8

   $ 319,465      $ 334,172      $ 329,113      $      $     

Liquidation value per share of preferred shares8

   $ 100,000      $ 100,0009      $ 100,0009      $      $     

 

 

1  Net investment income includes dividends paid to preferred shareholders from net investment income of $0.076 per share and from realized capital gains of $0.014 per share for the year ended March 31, 2014.
2  Net investment income includes amounts that should have been classified as interest expense rather than dividends paid to preferred shareholders from net investment income of $0.084 and $0.033 per share and from realized capital gains of $0.005, and $0.000 per share for the years ended March 31, 2013 and 2012, respectively. Such amounts are restated and classified as interest expense. See Note 9 in “Notes to financial statements.”
3  Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods.
4  The ratio of expenses to average net assets applicable to common shareholders excluding interest expense for the years ended March 31, 2014, 2013 and 2012 were 0.88%, 0.82% and 0.70%, respectively. There was no interest expense for the years ended March 31, 2011 and 2010.
5  The ratio of expenses to average net assets applicable to common shareholders has been restated for the years ended March 31, 2013 and 2012 to include interest expense of 0.58% and 0.23%, respectively.
6  The ratio of net investment income to average net assets applicable to common shareholders has been restated for the years ended March 31, 2013 and 2012 to include interest expense of 0.58% and 0.23%, respectively.
7  The ratio of net investment income excluding interest expense to average net assets for the years ended March 31, 2014, 2013 and 2012 were 5.17%, 5.23% and 4.67%, respectively. There was no interest expense for the years ended March 31, 2011 and 2010.
8  In November 2011, the Fund issued a new series of 750 variable rate preferred shares, with a liquidation preference of $100,000 per share.
9  Excluding any accumulated but unpaid dividends.

See accompanying notes, which are an integral part of the financial statements.

 

28


Table of Contents

Delaware Investments® National Municipal Income Fund, Inc.

 

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

 

     Year ended
      3/31/14     3/31/13
(As Restated)
    3/31/12
(As Restated)
    3/31/11     3/31/10       

Net asset value, beginning of period

   $ 14.990      $ 14.020      $ 12.620      $ 13.070      $ 11.960     

Income (loss) from investment operations:

            

Net investment income1,2

     0.710        0.722        0.531        0.610        0.571     

Net realized and unrealized gain (loss)

     (1.180     0.858        1.409        (0.532     1.049     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total from investment operations

     (0.470     1.580        1.940        0.078        1.620     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Less dividends and distributions to common shareholders from:

            

Net investment income

     (0.710     (0.610     (0.540     (0.528     (0.510  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total dividends and distributions

     (0.710     (0.610     (0.540     (0.528     (0.510  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Net asset value, end of period

   $ 13.810      $ 14.990      $ 14.020      $ 12.620      $ 13.070     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Market value, end of period

   $ 12.350      $ 14.480      $ 13.240      $ 12.200      $ 12.140     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

Total investment return based on:3

            

Market value

     (9.65%     14.12%        13.19%        4.78%        16.69%     

Net asset value

     (2.41%     11.56%        15.87%        0.67%        13.97%     

Ratios and supplemental data:

            

Net assets applicable to common shares, end of period (000 omitted)

   $ 62,526      $ 67,876      $ 63,487      $ 30,559      $ 31,650     

Ratio of expenses to average net assets applicable to common shareholders4,5

     1.58%        1.56%        1.02%        0.65%        0.63%     

Ratio of net investment income to average net assets applicable to common shareholders6,7

     5.17%        4.86%        3.96%        4.64%        4.48%     

Portfolio turnover

     40%        42%        101%        50%        69%     

Leverage analysis:

            

Value of preferred shares outstanding (000 omitted)8

   $ 30,000      $ 30,000      $ 30,000      $      $     

Net asset coverage per share of preferred shares, end of period8

   $ 308,420      $ 326,254      $ 311,625      $      $     

Liquidation value per share of preferred shares8

   $ 100,000      $ 100,0009      $ 100,0009      $      $     

 

 

1  Net investment income includes dividends paid to preferred shareholders from net investment income of $0.085 per share for the year ended March 31, 2014.
2  Net investment income includes amounts that should have been classified as interest expense rather than dividends paid to preferred shareholders from net investment income of $0.090 and $0.004 per share for the years ended March 31, 2013 and 2012, respectively. Such amounts are restated and classified as interest expense. See Note 9 in “Notes to financial statements.”
3  Total investment return is calculated assuming a purchase of common stock on the opening of the first day and a sale on the closing of the last day of each period reported. Dividends and distributions, if any, are assumed for the purposes of this calculation to be reinvested at prices obtained under the Fund’s dividend reinvestment plan. Generally, total investment return based on net asset value will be higher than total investment return based on market value in periods where there is an increase in the discount or a decrease in the premium of the market value to the net asset value from the beginning to the end of such periods. Conversely, total investment return based on net asset value will be lower than total investment return based on market value in periods where there is a decrease in the discount or an increase in the premium of the market value to the net asset value from the beginning to the end of such periods.
4  The ratio of expenses to average net assets applicable to common shareholders excluding interest expense for the years ended March 31, 2014, 2013 and 2012 were 0.96%, 0.96% and 0.99%, respectively. There was no interest expense for the years ended March 31, 2011 and 2010.
5  The ratio of expenses to average net assets applicable to common shareholders has been restated for the years ended March 31, 2013 and 2012 to include interest expense of 0.60% and 0.03%, respectively.
6  The ratio of net investment income to average net assets applicable to common shareholders has been restated for the years ended March 31, 2013 and 2012 to include interest expense of 0.60% and 0.03%, respectively.
7  The ratio of net investment income excluding interest expense to average net assets for the years ended March 31, 2014, 2013 and 2012 were 5.79%, 5.46% and 3.99%, respectively. There was no interest expense for the years ended March 31, 2011 and 2010.
8  In March 2012, the Fund issued a new series of 300 variable rate preferred shares, with a liquidation preference of $100,000 per share.
9  Excluding any accumulated but unpaid dividends.

See accompanying notes, which are an integral part of the financial statements.

 

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Table of Contents

Notes to financial statements

Delaware Investments® Closed-End Municipal Bond Funds

March 31, 2014

 

Delaware Investments Colorado Municipal Income Fund, Inc. (Colorado Municipal Fund) and Delaware Investments Minnesota Municipal Income Fund II, Inc. (Minnesota Municipal Fund II) are organized as Minnesota corporations and Delaware Investments National Municipal Income Fund (National Municipal Fund) is organized as a Massachusetts business trust (each referred to as a Fund and collectively as the Funds). Colorado Municipal Fund, Minnesota Municipal Fund II and National Municipal Fund are considered diversified closed-end management investment companies under the Investment Company Act of 1940, as amended. The Funds’ shares trade on the New York Stock Exchange MKT, the successor to the American Stock Exchange.

The investment objective of each of the Colorado Municipal Fund and Minnesota Municipal Fund II is to provide current income exempt from federal income tax and from state personal income tax, if any, consistent with the preservation of capital. The investment objective of the National Municipal Fund is to provide current income exempt from federal income tax, consistent with the preservation of capital. Each of Colorado Municipal Fund and Minnesota Municipal Fund II 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 at the time of investment. The National Municipal Fund seeks to achieve its investment objective by investing at least 80% of its net assets in securities the income from which is exempt from federal income tax.

1. Significant Accounting Policies

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

Security Valuation — Debt securities are valued based upon valuations provided by an independent pricing service or broker and reviewed by management. To the extent current market prices are not available, the pricing service may take into account developments related to the specific security, as well as transactions in comparable securities. Valuations for fixed income securities utilize matrix systems, which reflect such factors as security prices, yields, maturities, and ratings, and are supplemented by dealer and exchange quotations. Generally, 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 (each a Board, or collectively, the Boards). 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 or suspension of trading in a security.

Federal Income Taxes — No provision for federal income taxes has been made as each Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Funds evaluate tax positions taken or expected to be taken in the course of preparing each 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 are recorded as a tax benefit or expense in the current year. Management has analyzed each Fund’s tax positions taken for all open federal income tax years (March 31, 2011–March 31, 2014), and has concluded that no provision for federal income tax is required in each Fund’s financial statements.

Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the fair value of investments, the reported amounts of assets and liabilities and disclosure of contingent 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 and the differences could be material.

Other — Expenses directly attributable to each Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments Family of Funds are generally allocated among 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 on debt securities are amortized to interest income over the lives of the respective securities using the effective interest method. Each Fund declares and pays dividends from net investment income monthly and distributions from net realized gain on investments, if any, annually. Each Fund may distribute more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.

Each Fund may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. There were no earnings credits for the year ended March 31, 2014.

 

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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 based on each Fund’s adjusted average daily net assets.

Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to each Fund. For these services, the Funds pay DSC fees based on the aggregate daily net assets of the Delaware Investments Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all funds in the Delaware Investments Family of Funds on a relative net asset value basis. For the year ended March 31, 2014, each Fund was charged for these services as follows:

 

Colorado
Municipal
Fund

  

Minnesota
Municipal
Fund II

  

National
Municipal
Fund

$4,796    $11,567    $4,453

As provided in the investment management agreement, each Fund bears a portion of the cost of certain resources shared with DMC, including the cost of internal personnel of DMC and/or its affiliates that provide legal, tax, and regulatory reporting services to the Fund. For the year ended March 31, 2014, each Fund was charged for internal legal, tax and regulatory reporting services provided by DMC and/or its affiliates’ employees as follows:

 

Colorado
Municipal
Fund

  

Minnesota
Municipal
Fund II

  

National
Municipal
Fund

$10,432    $29,251    $10,930

Directors’/Trustees’ fees include expenses accrued by each Fund for each Director’s/Trustee’s retainer and meeting fees. Certain officers of DMC and DSC are officers and/or Directors/Trustees of the Trust. These officers and Directors/Trustees are paid no compensation by the Funds.

3. Investments

For the year ended March 31, 2014, each Fund made purchases and sales of investment securities other than short-term investments as follows:

 

     Colorado
Municipal
Fund
     Minnesota
Municipal
Fund II
     National
Municipal
Fund
 

Purchases

   $ 25,951,101       $ 41,604,647       $ 37,052,440   

Sales

     25,550,962         40,513,073         37,362,513   

At March 31, 2014, the cost of investments and unrealized appreciation (depreciation) for federal income tax purposes for each Fund were as follows:

 

     Colorado
Municipal
Fund
    Minnesota
Municipal
Fund II
    National
Municipal
Fund
 

Cost of Investments

   $ 94,344,637      $ 229,676,043      $ 88,333,726   
  

 

 

   

 

 

   

 

 

 

Aggregate unrealized appreciation

   $ 4,287,252      $ 9,273,281      $ 4,003,535   

Aggregate unrealized depreciation

     (486,675     (2,182,807     (463,375
  

 

 

   

 

 

   

 

 

 

Net unrealized appreciation

   $ 3,800,577      $ 7,090,474      $ 3,540,160   
  

 

 

   

 

 

   

 

 

 

 

            (continues)    31


Table of Contents

Notes to financial statements

Delaware Investments® Closed-End Municipal Bond Funds

 

3. Investments (continued)

U.S. GAAP defines fair value as the price that each Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. A three-level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. Each Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three-level hierarchy of inputs is summarized below.

 

Level 1  – inputs are quoted prices in active markets for identical investments (e.g., equity securities, open-end investment companies, futures contracts, exchange-traded options contracts)

 

Level 2  – other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs) (e.g., debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, fair valued securities)

 

Level 3  – inputs are significant unobservable inputs (including each Fund’s own assumptions used to determine the fair value of investments) (e.g., broker-quoted securities, fair valued securities)

Level 3 investments are valued using significant unobservable inputs. Each Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.

The following tables summarize the valuation of each Fund’s investments by fair value hierarchy levels as of March 31, 2014:

 

     Colorado
Municipal Fund
 
     Level 2  

Municipal Bonds

   $ 98,145,214   
  

 

 

 
     Minnesota
Municipal
Fund II
 
     Level 2  

Municipal Bonds

   $ 236,766,517   
  

 

 

 
     National
Municipal Fund
 
     Level 2  

Municipal Bonds

   $ 91,373,887   

Short-Term Investments

     500,000   
  

 

 

 

Total

   $ 91,873,887   
  

 

 

 

During the year ended March 31, 2014, there were no transfers between Level 1 investments, Level 2 investments or Level 3 investments that had a material impact to the Funds. The Funds’ policy is to recognize transfers between levels at the beginning of the reporting period.

 

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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. GAAP. Additionally, distributions from 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, 2014 and 2013 was as follows:

Year ended March 31, 2014

 

     Colorado
Municipal
Fund
     Minnesota
Municipal
Fund II
     National
Municipal
Fund
 

Ordinary income

   $ 577       $ 528,328       $ 2,086   

Tax-exempt income

     3,743,695         8,850,700         3,597,169   

Long-term capital gains

     52,339         933,106           
  

 

 

    

 

 

    

 

 

 

Total

   $ 3,796,611       $ 10,312,134       $ 3,599,255   
  

 

 

    

 

 

    

 

 

 

Year ended March 31, 2013

 

     Colorado
Municipal
Fund
     Minnesota
Municipal
Fund II
     National
Municipal
Fund
 

Ordinary income

   $ 11,156       $ 345,149       $ 4,581   

Tax-exempt income

     3,337,599         7,938,433         2,757,769   

Long-term capital gains

     467,717         115,050           
  

 

 

    

 

 

    

 

 

 

Total

   $ 3,816,472       $ 8,398,632       $ 2,762,350   
  

 

 

    

 

 

    

 

 

 

5. Components of Net Assets on a Tax Basis

As of March 31, 2014, the components of net assets on a tax basis were as follows:

 

     Colorado
Municipal
Fund
    Minnesota
Municipal
Fund II
    National
Municipal
Fund
 

Shares of beneficial interest

   $ 66,918,121      $ 157,931,075      $ 60,617,476   

Undistributed tax-exempt income

     854,468        1,435,077        785,029   

Capital loss carryforwards

     (1,792,623     (1,857,866     (2,416,598

Unrealized appreciation (depreciation)

     3,800,577        7,090,474        3,540,160   
  

 

 

   

 

 

   

 

 

 

Net assets

   $ 69,780,543      $ 164,598,760      $ 62,526,067   
  

 

 

   

 

 

   

 

 

 

The differences between book basis and tax basis components of net assets are primarily attributable to tax treatment of market discount on debt instruments and tax deferral of wash sales.

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 market discount on debt instruments and redesignation of dividends paid. Results of operations and net assets were not affected by these reclassifications. For the year ended March 31, 2014, the Funds recorded the following reclassifications.

 

     Colorado
Municipal
Fund
    Minnesota
Municipal
Fund II
    National
Municipal
Fund
 

Undistributed net investment loss

   $ (4,269   $ (1,876   $ (6,477

Accumulated net realized gain

     4,269        1,876        6,477   

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, 2014, if not utilized in future years, will expire as follows:

 

            (continues)    33


Table of Contents

Notes to financial statements

Delaware Investments® Closed-End Municipal Bond Funds

 

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

 

Year of Expiration

   Colorado
Municipal
Fund
     Minnesota
Municipal
Fund II
     National
Municipal
Fund
 

2018

   $       $       $ 407,888   

On Dec. 22, 2010, the Regulated Investment Company Modernization Act of 2010 (Act) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes were generally effective for taxable years beginning after the date of enactment. Under the Act, the Funds are permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under previous regulation.

Losses that will be carried forward under the Act are as follows:

 

     Loss carryforward character  
     Short-term      Long-term  

Colorado Municipal Fund

   $ 259,063       $ 1,533,560   

Minnesota Municipal Fund II

     803,182         1,054,684   

National Municipal Fund

     1,516,439         492,271   

6. Capital Stock

Pursuant to their articles of incorporation, Colorado Municipal Fund and Minnesota Municipal Fund II each have 200 million shares of $0.01 par value common shares authorized. National 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, 2014. Shares issuable under each Fund’s dividend reinvestment plan are purchased by each Fund’s transfer agent, Computershare, Inc., in the open market.

On Nov. 15, 2011, Delaware Investments Colorado Municipal Income Fund, Inc. (VCF) and Delaware Investments Minnesota Municipal Income Fund II, Inc. (VMM), issued $30,000,000 and $75,000,000, respectively, of Series 2016 Variable Rate MuniFund Term Preferred (VMTP) Shares, with $100,000 liquidation value per share in a privately negotiated offering. On March 15, 2012, Delaware Investments National Municipal Income Fund (National Municipal Fund) issued $30,000,000 Series 2017 VMTP Shares, with $100,000 liquidation value per share in a privately negotiated offering. Proceeds from the issuance of VMTP Shares, net of offering expenses, were invested in accordance with each Fund’s investment objective. The VMTP Shares were offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933.

Colorado Municipal Fund and Minnesota Municipal Fund II are obligated to redeem their VMTP Shares on Dec. 1, 2016, unless earlier redeemed or repurchased by the Fund. National Municipal Fund is obligated to redeem its VMTP Shares on April 1, 2017, unless earlier redeemed or repurchased by the Fund. VMTP Shares are subject to optional and mandatory redemption in certain circumstances. The VMTP Shares were redeemable at the option of a Fund, subject to payment of a premium until Dec. 1, 2013 (with respect to Minnesota Municipal Fund II and Colorado Municipal Fund) and April 1, 2014 (with respect to National Municipal Fund), and at par thereafter. A Fund may be obligated to redeem certain of the VMTP Shares if the Fund fails to maintain certain asset coverage and leverage ratio requirements and such failures are not cured by the applicable cure date. The redemption price per share is equal to the sum of the liquidation value per share plus any accumulated but unpaid dividends. Dividends on the VMTP Shares are set weekly, subject to adjustments in certain circumstances. The weighted average dividend rates for the year ended March 31, 2014 were as follows:

 

Colorado
Municipal
Fund

  

Minnesota
Municipal
Fund II

  

National
Municipal
Fund

1.3%    1.4%    1.3%

The Funds use leverage because their managers believe that, over time, leveraging may provide opportunities for additional income and total return for common shareholders. However, the use of leverage also can expose common shareholders to additional volatility. For example, as the prices of securities held by a Fund decline, the negative impact of these valuation changes on common share net asset value and common shareholder total return is magnified by the use of leverage; accordingly, the use of structural leverage may hurt a Fund’s overall performance.

 

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Leverage may also cause the Funds to incur certain costs. In the event that a Fund is unable to meet certain criteria (including, but not limited to, maintaining certain ratings with Fitch Ratings and Moody’s Investors Service, funding dividend payments or funding redemptions), that Fund will pay additional fees with respect to the leverage.

For financial reporting purposes, the VMTP Shares are considered debt of the issuer; therefore, the liquidation value which approximates fair value of the VMTP Shares is recorded as a liability in the statements of assets and liabilities. Dividends accrued and paid on the VMTP Shares are included as a component of interest expense in the statements of operations. The VMTP Shares are treated as equity for legal and tax purposes. Dividends paid to holders of the VMTP Shares are generally classified as tax-exempt income for tax-reporting purposes.

7. Geographic, Credit, and Market Risk

The Funds concentrate their investments in securities issued by municipalities. Because each of the Colorado Municipal Income Fund and the Minnesota Municipal Income Fund invest substantially all of its net assets in municipal obligations of its respective state at the time of investment, events in that state may have a significant impact on the performance and investments of the Colorado Municipal Income Fund and the Minnesota Municipal Fund. These events may include economic or political policy changes, tax base erosion, state constitutional limits on tax increases, budget deficits and other financial difficulties, changes in the credit ratings assigned to the state’s municipal issuers, the effects of natural or human-made disasters, or other economic, legislative or political or social issues. Any downgrade to the credit rating of the securities issued by the U.S. government may result in a downgrade of securities issued by the states or U.S. territories. The National Municipal Fund will be subject to these risks as well but to a lesser extent because it invests at least 80% of its net assets in securities, the income from which is exempt from federal income tax and is not limited to investing substantially all of its assets in municipal obligations of a single state. From time to time and consistent with its investment policies, the National Municipal Income Fund may invest a considerable portion of its assets in certain municipalities. As of March 31, 2014, the National Municipal Income Fund has invested 20.87%, 19.88%, and 14.89% (each as a percentage of fixed income investments) in securities issued by the State of California, the State of New York, and the State of Arizona, respectively. These investments could make the National Municipal Income Fund more sensitive to economic conditions in those states than other more geographically diversified national municipal income funds.

Each Fund may invest a percentage of assets in obligations of governments of U.S. territories, commonwealths and possessions such as Puerto Rico, the U.S. Virgin Islands or Guam. To the extent a Fund invests in such obligations, that Fund may be adversely affected by local political and economic conditions and developments within these U.S. territories, commonwealths and possessions. In the recent past, Puerto Rico has experienced volatile economic conditions. If the situation in Puerto Rico changes, the volatility, credit quality and performance of the Funds could be affected to the extent a Fund holds Puerto Rican securities.

Many municipalities insure repayment for their obligations. Although bond insurance may reduce 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. A real or perceived decline in creditworthiness of a bond insurer can have an adverse impact on the value of insured bonds held in each Fund. At March 31, 2014, the percentages of each Fund’s net assets insured by insurers are listed below and these securities have been identified in the schedules of investments.

 

Colorado
Municipal
Fund

  

Minnesota
Municipal
Fund II

  

National
Municipal
Fund

25.03%    7.11%    2.78%

Each Fund invests a portion of its assets in high yield fixed income securities, which are securities rated BB or lower by Standard & Poor’s (S&P) and/or Ba or lower by Moody’s Investors Service (Moody’s), or similarly rated by another nationally recognized statistical rating organization. Investments in these higher yielding securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment grade securities.

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

 

            (continues)    35


Table of Contents

Notes to financial statements

Delaware Investments® Closed-End Municipal Bond Funds

 

7. Geographic, Credit, and Market Risk (continued)

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, S&P, 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 invests in certain obligations that may have liquidity protection to ensure that the receipt of payments due on the underlying security is timely. Such protection may be provided through guarantees, insurance policies or letters of credit obtained by the issuer or sponsor from third parties, through various means of structuring the transaction or through a combination of such approaches. The Funds will not pay any additional fees for such credit support, although the existence of credit support may increase the price of a security.

Each Fund may invest up to 15% of its net 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, the Boards have 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 securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to each Fund’s 15% limit on investments in illiquid securities. As of March 31, 2014, no securities have been determined to be illiquid under the Funds’ Liquidity Procedures. Rule 144A securities held by the Fund have been identified in the schedules of investments.

8. Contractual Obligations

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

9. Restatement of Previously Issued Financial Statements

After the Funds issued their March 31, 2013 financial statements, Management determined that because the Funds’ VMTP Shares are treated as debt for accounting purposes, payment of the dividends to preferred shareholders should be classified as Interest Expense and a Statement of Cash Flows should be presented in accordance with ASC 230. Accordingly, the three Funds’ financial statements dated March 31, 2013 and March 31, 2012 understated interest expense. Additionally, the Funds’ prior year financial statements did not present a Statement of Cash Flows. The difference in treatment did not have an impact on net increase (decrease) in net assets resulting from operations, beginning and ending net assets, or total return included in the three Funds’ annual shareholder reports dated March 31, 2013 and March 31, 2012. Management has decided to restate the Funds’ impacted financial statements and financial highlights previously issued in connection with this report. Accordingly, the Funds are presenting a Statement of Cash Flows in the year ended March 31, 2013 and are restating the other impacted financial statements for the year ended March 31, 2013, as well as certain Financial Highlights information for the years ended March 31, 2013 and March 31, 2012. The following sets forth the line items affected by the restatements discussed above.

 

36


Table of Contents

 

 

     Colorado Municipal Fund  
     Previously Reported     As Restated      Previously Reported     As Restated  
     2013        2013         2012        2012   

Statement of operations:

         

Interest expense

   $      $ 411,526       $      $ 149,762   

Total operating expenses

     669,116        1,080,642         504,316        654,078   

Net investment income

     3,957,947        3,546,421         3,233,923        3,084,161   

Dividends and distributions to preferred shareholders

     (411,526             (149,762       

Net increase in net assets resulting from operations

     5,551,721        5,551,721         10,729,534        10,729,534   
     Previously Reported     As Restated      Previously Reported     As Restated  
     2013        2013         2012        2012   

Statement of changes in net assets:

    

Net investment income

   $ 3,957,947      $ 3,546,421       $ 3,233,923      $ 3,084,161   

Dividends and distributions to preferred shareholders

     (411,526             (149,762       

Net increase in net assets resulting from operations

     5,551,721        5,551,721         10,729,534        10,729,534   

 

     2013   

Statement of cash flows

  

Net Cash Provided by (Used for) Operating Activities:

  

Net increase in net assets resulting from operations

   $ 5,551,721   

Adjustments to reconcile net increase (decrease) in net assets from operations to cash provided by (used for) operating activities:

  

Amortization of premium and accretion of discount on investments

     263,560   

Amortization of offering costs for preferred shareholders

     35,284   

Purchase of investment securities

     (8,066,552

Proceeds from disposition of investment securities

     7,836,556   

Purchase from short-term investment securities, net

     (200,000

Net realized gain on investments

     (89,011

Net change in net unrealized appreciation (depreciation) of investments

     (1,916,263

Decrease in receivable for securities sold

     578,544   

Increase in interest receivable

     (14,600

Decrease in distributions payable

     (278,134

Decrease in interest payable

     (883

Increase in investment management fees payable

     704   

Increase in Trustees’ fees and expenses payable

     15   

Increase in other affiliates payable

     559   

Decrease in other accrued expenses

     (15,584
  

 

 

 

Total adjustments

     (1,865,805
  

 

 

 

Net cash provided by operating activities

     3,685,916   
  

 

 

 

Cash Flows Used for Financing Activities:

  

Cash dividends and distributions paid to common shareholders

     (3,816,472
  

 

 

 

Net cash used for financing activities

     (3,816,472
  

 

 

 

Net decrease in cash

     (130,556

Cash at beginning of period

     159,204   
  

 

 

 

Cash at end of period

   $ 28,648   
  

 

 

 

Cash paid for interest on leverage

   $ 412,409   
  

 

 

 

 

            (continues)    37


Table of Contents

Notes to financial statements

Delaware Investments® Closed-End Municipal Bond Funds

 

9. Restatement of Previously Issued Financial Statements (continued)

 

     Colorado Municipal Fund  
     Previously Reported     As Restated     Previously Reported     As Restated  
     2013        2013        2012        2012   

Financial highlights:

        

Net investment income

   $ 0.818      $ 0.733 1    $ 0.669      $ 0.638 1 

Dividends and distributions to preferred stock from net investment income

     (0.085            (0.031       

Ratio of expenses to average net assets

     0.89     1.44     0.73     0.95

Ratio of net investment income to average net assets applicable to common shares

     5.27     4.72     4.68     4.46

Ratio of net investment income to average net assets applicable to common shares net of dividends to preferred shares

     4.72            4.46       

 

1  Net investment income includes amounts classified as interest expense rather than dividends paid to preferred shareholders from net investment income of $0.079 and $0.031 per share and from realized capital gains of $0.006 and $0.000 per share for the years ended March 31, 2013 and 2012, respectively.

 

     Minnesota Municipal Fund II  
     Previously Reported     As Restated      Previously Reported      As Restated  
     2013        2013         2012         2012   

Statement of operations:

          

Interest expense

   $      $ 1,025,435       $       $ 374,404   

Total operating expenses

     1,445,860        2,471,295         1,167,873         1,542,277   

Net investment income

     9,247,679        8,222,244         7,747,076         7,372,672   

Dividends and distributions to preferred shareholders

     (1,025,435             (374,404        

Net increase in net assets resulting from operations

     12,193,289        12,193,289         20,852,380         20,852,380   
     Previously Reported     As Restated      Previously Reported      As Restated  
     2013        2013         2012         2012   

Statement of changes in net assets:

          

Net investment income

   $ 9,247,679      $ 8,222,244       $ 7,747,076       $ 7,372,672   

Dividends and distributions to preferred shareholders

     (1,025,435             (374,404        

Net increase in net assets resulting from operations

     12,193,289        12,193,289         20,852,380         20,852,380   

 

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     Minnesota Municipal Fund II  
     2013   

Statement of cash flows

  

Net Cash Provided by (Used for) Operating Activities:

  

Net increase in net assets resulting from operations

   $ 12,193,289   

Adjustments to reconcile net increase (decrease) in net assets from operations to cash provided by (used for) operating activities:

  

Amortization of premium and accretion of discount on investments

     942,409   

Amortization of offering costs for preferred shareholders

     48,664   

Purchase of investment securities

     (59,619,912

Proceeds from disposition of investment securities

     61,059,486   

Net realized gain on investments

     (2,208,657

Net change in net unrealized appreciation (depreciation) of investments

     (1,762,327

Decrease in receivable for securities sold

     3,949,772   

Increase in interest receivable

     (97,349

Decrease in payable for securities purchased

     (4,894,808

Decrease in distributions payable

     (661,536

Decrease in interest payable

     (2,208

Increase in investment management fees payable

     1,511   

Increase in Trustees’ fees and expenses payable

     34   

Increase in other affiliates payable

     977   

Decrease in other accrued expenses

     (15,209
  

 

 

 

Total adjustments

     (3,259,153
  

 

 

 

Net cash provided by operating activities

     8,934,136   
  

 

 

 

Cash Flows Used for Financing Activities:

  

Cash dividends and distributions paid to common shareholders

     (8,398,632
  

 

 

 

Net cash used for financing activities

     (8,398,632
  

 

 

 

Net increase in cash

     535,504   

Cash at beginning of period

     (11,468
  

 

 

 

Cash at end of period

   $ 524,036   
  

 

 

 

Cash paid for interest on leverage

   $ 1,027,643   
  

 

 

 

 

            (continues)    39


Table of Contents

Notes to financial statements

Delaware Investments® Closed-End Municipal Bond Funds

 

9. Restatement of Previously Issued Financial Statements (continued)

 

    Minnesota Municipal Fund II  
    Previously Reported     As Restated     Previously Reported     As Restated  
    2013        2013        2012        2012   

Financial highlights:

       

Net investment income

  $ 0.804      $ 0.715 1    $ 0.673      $ 0.640 1 

Dividends and distributions to preferred stock from net investment income

    (0.089            (0.033       

Ratio of expenses to average net assets

    0.82     1.40     0.70     0.93

Ratio of net investment income to average net assets applicable to common shares

    5.23     4.65     4.67     4.44

Ratio of net investment income to average net assets applicable to common shares net of dividends to preferred shares

    4.65            4.44       

 

1  Net investment income includes amounts classified as interest expense rather than dividends paid to preferred shareholders from net investment income of $0.084 and $0.033 per share and from realized capital gains of $0.005 and $0.000 per share for the years ended March 31, 2013 and 2012, respectively.

 

     National Municipal Fund  
     Previously Reported      As Restated      Previously Reported      As Restated  
     2013         2013         2012         2012   

Statement of operations:

           

Interest expense

   $       $ 406,627       $       $ 18,904   

Total operating expenses

     647,460         1,054,087         581,174         600,078   

Net investment income

     3,678,465         3,271,838         2,343,640         2,324,736   

Dividends and distributions to preferred shareholders

     (406,627              (18,904        

Net increase in net assets resulting from operations

     7,150,947         7,150,947         7,749,545         7,749,545   
     Previously Reported      As Restated      Previously Reported      As Restated  
     2013         2013         2012         2012   

Statement of changes in net assets:

           

Net investment income

   $ 3,678,465       $ 3,271,838       $ 2,343,640       $ 2,324,736   

Dividends and distributions to preferred shareholders

     (406,627              (18,904        

Net increase in net assets resulting from operations

     7,150,947         7,150,947         7,749,545         7,749,545   

 

40


Table of Contents

 

 

     National Municipal Fund  
     2013   

Statement of cash flows

  

Net Cash Provided by (Used for) Operating Activities:

  

Net increase in net assets resulting from operations

   $ 7,150,947   

Adjustments to reconcile net increase (decrease) in net assets from operations to cash provided by (used for) operating activities:

  

Amortization of premium and accretion of discount on investments

     288,710   

Amortization of offering costs for preferred shareholders

     (185,102

Purchase of investment securities

     (57,084,937

Proceeds from disposition of investment securities

     39,709,982   

Proceeds from short-term investment securities, net

     23,200,000   

Net realized gain on investments

     (1,281,194

Net change in net unrealized appreciation (depreciation) of investments

     (2,597,893

Increase in receivable for securities sold

     (5,073

Increase in interest receivable

     (268,017

Decrease in payable for securities purchased

     (6,073,537

Decrease in distributions payable

     (203,781

Increase in interest payable

     14,589   

Increase in investment management fees payable

     6,220   

Increase in Trustees’ fees and expenses payable

     24   

Decrease in other affiliates payable

     (48,140

Decrease in other accrued expenses

     (48,502
  

 

 

 

Total adjustments

     (4,576,651
  

 

 

 

Net cash provided by operating activities

     2,574,296   
  

 

 

 

Cash Flows Used for Financing Activities:

  

Cash dividends and distributions paid to common shareholders

     (2,762,350
  

 

 

 

Net cash used for financing activities

     (2,762,350
  

 

 

 

Net decrease in cash

     (188,054

Cash at beginning of period

     259,654   
  

 

 

 

Cash at end of period

   $ 71,600   
  

 

 

 

Cash paid for interest on leverage

   $ 392,038   

 

            (continues)    41


Table of Contents

Notes to financial statements

Delaware Investments® Closed-End Municipal Bond Funds

 

9. Restatement of Previously Issued Financial Statements (continued)

 

     National Municipal Fund  
     Previously Reported     As Restated     Previously Reported     As Restated  
     2013        2013        2012        2012   

Financial highlights:

        

Net investment income

   $ 0.812      $ 0.722 1    $ 0.535      $ 0.531 1 

Dividends and distributions to preferred stock from net investment income

     (0.090            (0.004       

Ratio of expenses to average net assets

     0.96     1.56     0.99     1.02

Ratio of net investment income to average net assets applicable to common shares

     5.46     4.86     3.99     3.96

Ratio of net investment income to average net assets applicable to common shares net of dividends to preferred shares

     4.86            3.96       

 

1  Net investment income includes amounts classified as interest expense rather than dividends paid to preferred shareholders from net investment income of $0.090 and $0.004 per share for the years ended March 31, 2013 and 2012, respectively.

10. Subsequent Events

Management has determined that no material events or transactions occurred subsequent to March 31, 2014 that would require recognition or disclosure in the Funds’ financial statements.

 

42


Table of Contents

Report of independent
registered public accounting firm

 

To the Board of Directors/Trustees and the Shareholders of

Delaware Investments Colorado Municipal Income Fund, Inc. and,

Delaware Investments Minnesota Municipal Income Fund II, Inc.

Delaware Investments National Municipal Income Fund:

In our opinion, the accompanying individual statements of assets and liabilities, including the individual schedules of investments, and the related individual statements of operations, of changes in net assets and of cash flows, and the individual financial highlights present fairly, in all material respects, the individual financial position of Delaware Investments Colorado Municipal Income Fund, Inc., Delaware Investments Minnesota Municipal Income Fund II, Inc. and Delaware Investments National Municipal Income Fund (hereafter referred to as the “Funds”) at March 31, 2014, the results of each of their operations and each of their cash flows for the year then ended, the changes in each of their net assets for each of the two years in the period ended March 31, 2014, and each of their financial highlights for each of the four years in the period ended March 31, 2014, in conformity with accounting principles generally accepted in the United States of America. These individual financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements 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 are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at March 31, 2014 by correspondence with the custodian, provide a reasonable basis for our opinions. The individual Funds’ financial highlights for the year ended March 31, 2010 were audited by other independent accountants whose report dated May 19, 2010 expressed an unqualified opinion on those statements.

As discussed in note 9, the individual Funds have restated their March 31, 2013 financial statements and the March 31, 2013 and March 31, 2012 financial highlights to correct errors.

PricewaterhouseCoopers LLP

Philadelphia, Pennsylvania

May 28, 2014

 

43


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Other Fund information

(Unaudited)

 

Delaware Investments® Closed-End Municipal Bond Funds

Tax Information (Unaudited)

The information set forth below is for each Fund’s fiscal year as required by federal income tax 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.

All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change. For any and all items requiring designation, it is the intention of each Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.

For the fiscal year ended March 31, 2014, each Fund designates distributions paid during the year as follows:

 

     (A)
Ordinary
Income
Distributions
(Tax Basis)
  (B)
Tax-Exempt
Income
Distributions
(Tax Basis)
  (C)
Long-Term
Capital Gain
Distributions
(Tax Basis)
  Total
Distributions
(Tax Basis)

Colorado Municipal Fund

   0.02%   98.60%   1.38%   100.00%

Minnesota Municipal Fund II

   5.12%   85.83%   9.05%   100.00%

National Municipal Fund

   0.06%   99.94%   0.00%   100.00%

(A) (B) and (C) are based on a percentage of each Fund’s total distributions.

 

44


Table of Contents

 

Fund management

Joseph R. Baxter

Senior Vice President, Head of Municipal Bond Department,

Senior Portfolio Manager

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

Stephen J. Czepiel

Senior Vice President, Senior Portfolio Manager

Stephen J. Czepiel is a member of the firm’s municipal fixed income portfolio management team with primary responsibility for portfolio construction and strategic asset allocation. He is a co-portfolio manager of the firm’s municipal bond funds and client accounts. He joined Delaware Investments in July 2004 as a senior bond trader. Previously, he was vice president at both Mesirow Financial and Loop Capital Markets. He began his career in the securities industry in 1982 as a municipal bond trader at Kidder Peabody and now has more than 20 years of experience in the municipal securities industry. Czepiel earned his bachelor’s degree in finance and economics from Duquesne University.

Denise A. Franchetti, CFA

Vice President, Portfolio Manager, Senior Research Analyst

Denise A. Franchetti is a senior research analyst for the municipal bond department. Currently, she is responsible for following the airport, education, hotel, cogeneration, and cargo sectors for the group. In 2003, she was also named as portfolio manager on the tax-exempt closed-end funds in addition to her research duties. Prior to joining Delaware Investments in 1997 as a municipal bond analyst, she was a fixed income trader at Provident Mutual Life Insurance and an investment analyst at General Accident Insurance. Franchetti received her bachelor’s degree and an MBA from La Salle University. She is a member of the Financial Analysts of Philadelphia.

Gregory A. Gizzi

Senior Vice President, Senior Portfolio Manager

Gregory A. Gizzi is a member of the firm’s municipal fixed income portfolio management team. He is also a co-portfolio manager of the firm’s municipal bond funds and several client accounts. Before joining Delaware Investments in January 2008 as head of municipal bond trading, he spent six years as a vice president at Lehman Brothers for the firm’s tax-exempt institutional sales effort. Prior to that, he spent two years trading corporate bonds for UBS before joining Lehman Brothers in a sales capacity. Gizzi has more than 20 years of trading experience in the municipal securities industry, beginning at Kidder Peabody in 1984, where he started as a municipal bond trader and worked his way up to institutional block trading desk manager. He later worked in the same capacity at Dillon Read. Gizzi earned his bachelor’s degree in economics from Harvard University.

Board Consideration of Delaware Investments Colorado Municipal Income Fund, Inc.;

Delaware Investments National Municipal Income Fund; and Delaware Investments Minnesota Municipal Income Fund II, Inc.

At a meeting held on August 20-22, 2013 (the “Annual Meeting”), the Board of Directors (the “Board”), including a majority of disinterested or independent Directors, approved the renewal of the Investment Advisory Agreements for Delaware Investments Colorado Municipal Income Fund, Inc.; Delaware Investments National Municipal Income Fund; and Delaware Investments Minnesota Municipal Income Fund II, Inc. (each, a “Fund” and together, the “Funds”). In making its decision, the Board considered information furnished at regular quarterly Board meetings, including reports detailing Fund performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory and sub-advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreements with Delaware Management Company (“DMC”) concerning, among other things, the nature, extent and quality of services provided to the Funds, the costs of such services to the Funds, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, reports were provided to the Directors in May 2013 and included reports provided by Lipper, Inc., an independent statistical compilation organization (“Lipper”). The Lipper reports compared each Fund’s investment performance and expenses with those of other comparable mutual funds. The Independent Directors reviewed and discussed the Lipper reports with independent legal counsel to the Independent Directors. The Board requested and received information regarding DMC’s

 

            (continues)    45


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Other Fund information

(Unaudited)

 

 

Delaware Investments® Closed-End Municipal Bond Funds

Board Consideration of Delaware Investments Colorado Municipal Income Fund, Inc.;

Delaware Investments National Municipal Income Fund; and Delaware Investments Minnesota Municipal Income Fund II, Inc. (continued)

policy with respect to advisory fee levels and its breakpoint philosophy; the structure of portfolio manager compensation; the investment manager’s profitability; comparative client fee information; and any constraints or limitations on the availability of securities for certain investment styles, which had in the past year inhibited, or which were likely in the future to inhibit, DMC’s ability to invest fully in accordance with Fund policies.

In considering information relating to the approval of each Fund’s advisory agreement, the Independent Directors received assistance and advice from and met separately with independent legal counsel to the Independent Directors. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.

Nature, Extent and Quality of Service. The Board considered the services provided by Delaware Investments to each Fund and its shareholders. In reviewing the nature, extent and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of each Fund, compliance of portfolio managers with the investment policies, strategies and restrictions for each Fund, compliance by DMC (“Management”) personnel with the Code of Ethics adopted throughout the Delaware Investments Family of Funds complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Funds’ investment advisor and the emphasis placed on research in the investment process. The Board recognized DMC’s recent receipt of several industry distinctions. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to fund matters. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.

Investment Performance. The Board placed significant emphasis on the investment performance of each Fund in view of the importance of investment performance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Board meetings throughout the year, the Board gave particular weight to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for each Fund showed the investment performance of its shares in comparison to a group of similar funds as selected by Lipper (the “Performance Universe”). A fund with the highest performance ranked first, and a fund with the lowest ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25%, the second quartile; the next 25%, the third quartile; and the lowest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for each Fund was shown for the past one-, three-, five- and ten-year periods, to the extent applicable, ended March 31, 2014. The Board’s objective is that each Fund’s performance for the periods considered be at or above the median of its Performance Universe. The following paragraphs summarize the performance results for each Fund and the Board’s view of such performance.

Delaware Investments Colorado Municipal Income Fund, Inc. – The Performance Universe for the Fund consisted of the Fund and all leveraged closed-end other state municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund’s total return for the one-year period was in the second quartile of its Performance Universe. The report further showed that the Fund’s total return for the three-year period was in the third quartile of its Performance Universe and the Fund’s total return for the five-and ten-year periods was in the fourth quartile of its Performance Universe. The Fund’s performance results were not in line with the Board’s objective. In evaluating the Fund’s performance, the Board considered the improved one-year performance result and numerous investment and performance reports delivered by Management personnel to the Board’s Investments Committee. The Board was satisfied that Management was taking action to improve Fund performance and meet the Board’s performance objective.

Delaware Investments Minnesota Municipal Income Fund II, Inc. – The Performance Universe for the Fund consisted of the Fund and all leveraged closed-end other state municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund’s total return for the one-year period was in the third quartile of its Performance Universe. The report further showed that the Fund’s total return for the three-, five- and ten-year periods was in the fourth quartile of its Performance Universe. The Fund’s performance results were not in line with the Board’s objective. In evaluating the Fund’s performance, the Board considered the numerous investment and performance reports delivered by Management personnel to the Board’s Investments Committee. The Board was satisfied that Management was taking action to improve Fund performance and to meet the Board’s performance objective.

Delaware Investments National Municipal Income Fund – The Performance Universe for the Fund consisted of the Fund and all leveraged closed-end general and insured municipal debt funds as selected by Lipper. The Lipper report comparison showed that the Fund’s total return for the one-year period was in the second quartile of its Performance Universe. The report further showed that the Fund’s total return for the

 

46


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three-, five- and ten-year periods was in the fourth quartile of its Performance Universe. The Fund’s performance results were not in line with the Board’s objective. In evaluating the Fund’s performance, the Board considered the improved one-year performance result and numerous investment and performance reports delivered by Management personnel to the Board’s Investments Committee. The Board was satisfied that Management was taking action to improve Fund performance and meet the Board’s performance objective.

Comparative Expenses. The Board considered expense comparison data for the Delaware Investments Family of Funds. Management provided the Board with information on pricing levels and fee structures for each Fund as of its most recently completed fiscal year. The Board also focused on the comparative analysis of effective management fees and total expense ratios of each Fund versus effective management fees and expense ratios of a group of similar closed-end funds as selected by Lipper (the “Expense Group”). In reviewing comparative costs, each Fund’s contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) within the Expense Group, taking into account any applicable breakpoints and fee waivers. Each Fund’s total expenses were also compared with those of its Expense Group. The Board considered fees paid to Delaware Investments for non-management services. The Board’s objective is to limit each Fund’s total expense ratio to be competitive with that of the Expense Group. The following paragraphs summarize the expense results for the Funds and the Board’s view of such expenses.

Delaware Investments Colorado Municipal Income Fund, Inc. – The expense comparisons for the Fund showed that its actual management fee and total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was extremely satisfied with the management fee and total expenses of the Fund in comparison to those of its Expense Group.

Delaware Investments Minnesota Municipal Income Fund II, Inc. – The expense comparisons for the Fund showed that its actual management fee and total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was extremely satisfied with the management fee and total expenses of the Fund in comparison to those of its Expense Group.

Delaware Investments National Municipal Income Fund – The expense comparisons for the Fund showed that its actual management fee was in the quartile with the lowest expenses of its Expense Group and its total expenses were in the quartile with the highest expenses of its Expense Group. The Board gave favorable consideration to the Fund’s management fee, but noted that the Fund’s total expenses were not in line with the Board’s objective. In evaluating total expenses, the Board considered the limited number of funds in the Expense Group. The Board was satisfied with Management’s efforts to improve the Fund’s total expense ratio and to bring it in line with the Board’s objective.

Management Profitability. The Board considered the level of profits, if any, realized by Delaware Investments in connection with the operation of the Funds. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflects recent operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent industry-wide Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the management fees were reasonable in light of the services rendered and the profitability of Delaware Investments.

Economies of Scale. As closed-end funds, the Funds do not issue shares on a continuous basis. Each Fund’s assets increase only to the extent that the values of the underlying securities in the Fund increase. Accordingly, the Board determined that the Funds were not likely to experience significant economies of scale due to asset growth and, therefore, a fee schedule with breakpoints to pass the benefit of economies of scale on to shareholders was not likely to provide the intended effect.

 

            (continues)    47


Table of Contents

Board of trustees / directors and officers addendum

Delaware Investments® Family of Funds

 

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

 

Name,
Address,
and Birth Date
   Position(s)
Held with
Fund(s)
   Length of Time
Served
   Principal
Occupation(s)
During
Past 5 Years
  Number of
Portfolios in Fund
Complex1  Overseen
by Trustee
or Officer
   Other
Directorships
Held by
Trustee
or Officer

INTERESTED TRUSTEES

             
Patrick P. Coyne1
2005 Market Street
Philadelphia, PA 19103
April 1963
   Chairman, President,
Chief Executive Officer,
and Trustee
   Chairman and Trustee
since August 16, 2006
    
    
President and
Chief Executive Officer
since August 1, 2006
   Patrick P. Coyne has served in
various executive capacities
at different times at
Delaware Investments.2
  70    Board of Governors
Member
Investment Company
Institute (ICI)
    
Director and Audit
Committee Member
Kaydon Corp.
(2007–2013)
                               
INDEPENDENT TRUSTEES                             
Thomas L. Bennett
2005 Market Street
Philadelphia, PA 19103
October 1947
   Trustee    Since March 2005    Private Investor
(March 2004–Present)
  70    Director
Bryn Mawr Bank Corp.
(BMTC)
(2007–2011)
                               
Joseph W. Chow
2005 Market Street
Philadelphia, PA 19103
January 1953
   Trustee    Since January 2013    Executive Vice President
(Emerging Economies Strategies,
Risk and Corporate Administration)
State Street Corporation
(July 2004–March 2011)
  70    Director and Audit
Committee
Member – Hercules
Technology Growth
Capital, Inc.
                               
John A. Fry
2005 Market Street
Philadelphia, PA 19103
May 1960
   Trustee    Since January 2001    President
Drexel University
(August 2010–Present)
    
President
Franklin & Marshall College
(July 2002–July 2010)
  70    Director–Hershey Trust
    
Director and Audit
Committee Member
Community Health
Systems
                               
Lucinda S. Landreth
2005 Market Street
Philadelphia, PA 19103
June 1947
   Trustee    Since March 2005    Private Investor
(2004–Present)
  70    None
                               

 

48


Table of Contents

 

 

 

Name,
Address,
and Birth Date
   Position(s)
Held with
Fund(s)
   Length of Time
Served
   Principal
Occupation(s)
During
Past 5 Years
   Number of
Portfolios in Fund
Complex1  Overseen
by Trustee
or Officer
   Other
Directorships
Held by
Trustee
or Officer
INDEPENDENT TRUSTEES (continued)                  

Frances A. Sevilla-Sacasa
2005 Market Street
Philadelphia, PA 19103
January 1956

   Trustee    Since September 2011    Chief Executive Officer –
Banco Itaú
International
(April 2012–Present)
    
Executive Advisor to Dean
(August 2011–March 2012)
and Interim Dean
(January 2011–July 2011) –
University of Miami School of
Business Administration
   70    Trust Manager and
Audit Committee
Member – Camden
Property Trust
                                

Thomas K. Whitford
2005 Market Street
Philadelphia, PA 19103
March 1956

   Trustee    Since January 2013    Vice Chairman
(2010–April 2013)
Chief Administrative
Officer (2008–2010)
and Executive Vice
President and Chief
Administrative Officer
(2007–2009)
PNC Financial
Services Group
   70    Director–HSBC
Finance Corporation
and HSBC North
America Holdings Inc.
                                

Janet L. Yeomans
2005 Market Street
Philadelphia, PA 19103
July 1948

   Trustee    Since April 1999    Vice President and Treasurer
(January 2006–July 2012)
Vice President – Mergers & Acquisitions
(January 2003–January 2006), and
Vice President and Treasurer
(July 1995–January 2003)
3M Corporation
   70    Director, Audit
Committee Chair,
Investment Committee
Member, and
Governance
Committee Member
Okabena Company
    
Chair – 3M
Investment Management
Company
(2005–2012)
                                

J. Richard Zecher
2005 Market Street
Philadelphia, PA 19103
July 1940

   Trustee    Since March 2005    Founder
Investor Analytics
(Risk Management)
(May 1999–Present)
    
Founder
P/E Investments
(Hedge Fund)
(September 1996–Present)
   70    Director and
Compensation
Committee Member
Investor Analytics
    
Director – P/E Investments
                                

 

            (continues)    49


Table of Contents

Board of trustees / directors and officers addendum

Delaware Investments® Family of Funds

 

Name,
Address,
and Birth Date
   Position(s)
Held with
Fund(s)
   Length of Time
Served
   Principal
Occupation(s)
During
Past 5 Years
   Number of
Portfolios in Fund
Complex1  Overseen
by Trustee
or Officer
   Other
Directorships
Held by
Trustee
or Officer
OFFICERS                              
David F. Connor
2005 Market Street
Philadelphia, PA 19103
December 1963
   Senior Vice President,
Deputy General
Counsel, and Secretary
   Senior Vice President,
Deputy General Counsel
since May 2013;
Vice President, Deputy
General Counsel
September 2000–
May 2013; Secretary
since
October 2005
   David F. Connor has served as
Deputy General Counsel of
Delaware Investments
since 2000.
   70    None3
                                
Daniel V. Geatens
2005 Market Street
Philadelphia, PA 19103
October 1972
   Vice President
and Treasurer
   Treasurer since October
2007
   Daniel V. Geatens has served
in various capacities at
different times at
Delaware Investments.
   70    None3
                                
David P. O’Connor
2005 Market Street
Philadelphia, PA 19103
February 1966
   Executive Vice President,
General Counsel
and Chief Legal Officer
   Executive Vice President
since February 2012;
Senior Vice President
October 2005–
February 2012;
General Counsel and
Chief Legal Officer
since October 2005
   David P. O’Connor has served
in various executive and legal
capacities at different times
at Delaware Investments.
   70    None3
                                
Richard Salus
2005 Market Street
Philadelphia, PA 19103
October 1963
   Senior Vice President
and Chief Financial
Officer
   Chief Financial Officer
since November 2006
   Richard Salus has served in
various executive capacities
at different times at
Delaware Investments.
   70    None3
                                

 

1  Patrick P. Coyne is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor.

 

2  Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s(s’) investment advisor, principal underwriter, and its transfer agent.

 

3  David F. Connor, Daniel V. Geatens, David P. O’Connor, and Richard Salus serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant.

 

50


Table of Contents

About the organization

 

 

This annual report is for the information of Delaware Investments® Closed-End Municipal Bond Funds shareholders. Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that the Funds may, from time to time, purchase shares of their common stock on the open market at market prices.

 

Board of directors/trustees

Patrick P. Coyne

Chairman, President, and

Chief Executive Officer

Delaware Investments Family of Funds

Philadelphia, PA

Thomas L. Bennett

Private Investor

Rosemont, PA

Joseph W. Chow

Former Executive Vice President

State Street Corporation Brookline, MA

John A. Fry

President

Drexel University

Philadelphia, PA

Lucinda S. Landreth

Former Chief Investment Officer

Assurant, Inc.

Philadelphia, PA

Frances A. Sevilla-Sacasa

Chief Executive Officer

Banco Itaú International

Miami, FL

Thomas K. Whitford

Former Vice Chairman

PNC Financial Services Group

Pittsburgh, PA

Janet L. Yeomans

Former Vice President and Treasurer

3M Corporation

St. Paul, MN

J. Richard Zecher

Founder

Investor Analytics

Scottsdale, AZ

Affiliated officers

David F. Connor

Senior Vice President, Deputy General

Counsel, and Secretary

Delaware Investments Family of Funds

Philadelphia, PA

Daniel V. Geatens

Vice President and Treasurer

Delaware Investments Family of Funds

Philadelphia, PA

David P. O’Connor

Executive Vice President, General Counsel

and Chief Legal Officer

Delaware Investments Family of Funds

Philadelphia, PA

Richard Salus

Senior Vice President and

Chief Financial Officer

Delaware Investments Family of Funds

Philadelphia, PA

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

PricewaterhouseCoopers LLP

2001 Market Street

Philadelphia, PA 19103

Registrar and stock transfer agent

Computershare, Inc.

480 Washington Blvd.

Jersey City, NJ 07310

866 437-0252

For securities dealers and financial institutions representatives

800 362-7500

Website

delawareinvestments.com

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

Number of recordholders as of

March 31, 2014

 

Colorado Municipal Income Fund

  80

Minnesota Municipal Income Fund II

  419

National Municipal Income Fund

  98

Your reinvestment options

Each of the Funds offers an automatic dividend reinvestment program. If you would like to reinvest dividends, and shares are registered in your name, contact Computershare, Inc. at 866 437-0252. You will be asked to put your request in writing. If you have shares registered in “street” name, contact the broker/dealer holding the shares or your financial advisor. If you choose to receive your dividends in cash, you may now elect to receive them by ACH transfer. Contact Computershare at the number above for more information.

Each Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. Each Fund’s Forms 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 are available without charge (i) upon request, by calling 866 437-0252; and (ii) on the SEC’s website at sec.gov. In addition, a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities and each Fund’s Schedule of Investments are available without charge on the Funds’ website at delawareinvestments.com. Each Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; 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 the Funds’ website at delawareinvestments.com; and (ii) on the SEC’s website at sec.gov.

 

 

51



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 the Delaware Investments Internet Web site 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 Web site within five business days of such amendment or waiver and will remain on the Web site for at least 12 months.

Item 3. Audit Committee Financial Expert

     The registrant’s Board of Trustees/Directors has determined that certain members of the registrant’s Audit Committee are audit committee financial experts, 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:

       Joseph W. Chow
       Lucinda S. Landreth1
       
Frances A. Sevilla-Sacasa
       Janet L. Yeomans

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 $29,535 for the fiscal year ended March 31, 2014.

       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 $19,030 for the fiscal year ended March 31, 2013.

____________________
1 The instructions to Form N-CSR require disclosure on the relevant experience of persons who qualify as audit committee financial experts based on “other relevant experience.” The Board of Trustees/Directors has determined that Ms. Landreth qualifies as an audit committee financial expert by virtue of her experience as a financial analyst, her Chartered Financial Analyst (CFA) designation and her service as an audit committee chairperson for a non-profit organization.



       (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 $0 for the fiscal year ended March 31, 2014.

     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 $618,000 for the registrant’s fiscal year ended March 31, 2014. 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: year end audit procedures, group reporting and subsidiary statutory audits.

     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 $0 for the fiscal year ended March 31, 2013.

     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 $565,000 for the registrant’s fiscal year ended March 31, 2013. 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: year end audit procedures, reporting up and subsidiary statutory audits.

     (c) Tax fees.

     The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $4,000 for the fiscal year ended March 31, 2014. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations.

     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, 2014. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.

     The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $2,750 for the fiscal year ended March 31, 2013. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: review of income tax returns and review of annual excise distribution calculations.

     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, 2013. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.



     (d) All other fees.

     The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended March 31, 2014.

     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, 2014. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.

     The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended March 31, 2013.

     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, 2013. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.

     (e) The registrant’s Audit Committee has 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 $40,000 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 $8,090,937 and $10,584,953 for the registrant’s fiscal years ended March 31, 2014 and March 31, 2013, 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 Joseph W. Chow, Lucinda S. Landreth, Frances A. Sevilla-Sacasa and Janet L. Yeomans.

Item 6. Investments

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



     (b) Divestment of securities in accordance with Section 13(c) of the Investment Company Act of 1940.

     Not applicable.

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

     The registrant has formally delegated to its investment adviser(s) (the “Adviser”) the responsibility for making 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”), which is a subsidiary of MSCI Inc., 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 www.delawareinvestments.com; and (ii) on the Commission’s website at www.sec.gov.

     The Procedures contain a general guideline stating 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 at companies with more than one class of common stock to increase the number of authorized shares of the class that has 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 that the Adviser receives on behalf of the registrant are voted by ISS in accordance with the Procedures. Because almost all of the 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 that 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

     The information in the annual report under “Other Fund information – Fund management” is incorporated by reference into this Item 8.

     Other Accounts Managed
     
The following chart lists certain information about types of other accounts for which each portfolio manager is primarily responsible as of March 31, 2014, unless otherwise noted. Any accounts managed in a personal capacity appear under “Other Accounts” along with the other accounts managed on a professional basis. The personal account information is current as of June 30, 2013.

                        No. of Accounts with         Total Assets in Accounts
No. of Total Assets Performance- with Performance-
Accounts Managed Based Fees Based Fees
Joseph R. Baxter                
Registered Investment 17 $4.6 billion 0 $0
Companies
Other Pooled 0 $0 0 $0
Investment Vehicles  
Other Accounts 50 $2.9 billion 0 $0
Stephen J. Czepiel                
Registered Investment 17   $4.6 billion   0 $0
Companies    
Other Pooled   0 $0 0 $0
Investment Vehicles  
Other Accounts 38 $2.9 billion 0 $0
Denise A. Franchetti                
Registered Investment 3 $431.9 million 0 $0
Companies
Other Pooled 0 $0 0 $0
Investment Vehicles
Other Accounts 2 Under $1 million 0 $0
Gregory A. Gizzi                
Registered Investment 17 $4.6 billion 0 $0
Companies
Other Pooled 1 $61.1 million 0 $0
Investment Vehicles
Other Accounts 55 $3.0 billion 0 $0

DESCRIPTION OF MATERIAL CONFLICTS OF INTEREST
     Individual portfolio managers may perform investment management services for other funds or accounts similar to those provided to the Funds and the investment action for such other fund or account and the Funds may differ. For example, an 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 fund or account may adversely affect the value of securities held by another fund, account or Fund. Additionally, the management of multiple other funds or accounts and the Funds may give rise to potential conflicts of interest, as a portfolio manager must allocate time and effort to multiple funds or accounts and the 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 funds or accounts for which the investment would be suitable may not be able to participate. The Manager has adopted procedures designed to allocate investments fairly across multiple funds or accounts.



     A portfolio manager’s management of personal accounts also may present certain conflicts of interest. While Delaware’s code of ethics is designed to address these potential conflicts, there is no guarantee that it will do so.

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 - An objective component is added to the bonus for each manager that is reflective of account performance relative to an appropriate peer group or database. The following paragraph describes the structure of the non-guaranteed 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 pool is allotted based on subjective factors (50%) and objective factors (50%). The amount of the pool for bonus payments is determined by 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. For investment companies, each manager is compensated according to the Fund’s Lipper or Morningstar peer group percentile ranking on a one, three-, and five-year basis, with longer-term performance more heavily weighted. For managed separate accounts the portfolio managers are compensated according to the composite percentile ranking against the eVestment Alliance, and Callan Associates databases (or similar sources of relative performance data) on a one-, three-, and five-year basis, with longer term performance more heavily weighted. There is no objective award for a fund that falls below the 50th percentile, but incentives reach maximum potential at the top 25th-30th percentile. There is a sliding scale for investment companies that are ranked above the 50th percentile. The remaining portion of the bonus is discretionary as determined by Delaware Investments and takes into account subjective factors.

     For new and recently transitioned portfolio managers, the compensation may be weighted more heavily towards a portfolio manager’s actual contribution and ability to influence performance, rather than longer-term performance. Management intends to move the compensation structure towards longer-term performance for these portfolio managers over time.

     Portfolio managers participate in retention programs, including the Delaware Investments Incentive Unit Plan, the Delaware Investments Notional Investment Plan, and the Macquarie Group Employee Retained Equity Plan, for alignment of interest purposes.

     Delaware Investments Incentive Unit Plan - Portfolio managers may be awarded incentive unit awards (“Awards”) relating to the underlying shares of common stock of Delaware Management Holdings, Inc. issuable pursuant to the terms of the Delaware Investments Incentive Unit Plan (the “Plan”) adopted on November 30, 2010.

     The Plan was adopted in order to: assist the Manager in attracting, retaining, and rewarding key employees of the company; enable such employees to acquire or increase an equity interest in the company in order to align the interest of such employees and the Manager; and provide such employees with incentives to expend their maximum efforts. Subject to the terms of the Plan and applicable award agreements, Awards typically vest in 25% increments on a four-year schedule, and shares of common stock underlying the Awards are issued after vesting. The fair market value of the shares of Delaware Management Holdings, Inc., is normally determined as of each March 31, June 30, September 30 and December 31 by an independent appraiser. Generally, a stockholder may put shares back to the company during the put period communicated in connection with the applicable valuation.



     Delaware Investments Notional Investment Plan – A portion of a portfolio manager’s retained profit share may be notionally exposed to the return of a portfolio of Delaware Investments Family of Funds-managed funds pursuant to the terms of the Delaware Investments Notional Investment Plan. The retained amount will vest in three equal tranches in each of the first, second and third years following the date upon which the investment is made.

     Macquarie Group Employee Retained Equity Plan – A portion of a portfolio manager’s retained profit share may be invested in the Macquarie Group Employee Retained Equity Plan (“MEREP”), which is used to deliver remuneration in the form of Macquarie Group Limited (“Macquarie”) equity. The main type of award currently being offered under the MEREP is units comprising a beneficial interest in a Macquarie share held in a trust for the employee, subject to the vesting and forfeiture provisions of the MEREP. Subject to vesting conditions, vesting and release of the shares occurs in equal tranches two, three, and four years after the date of investment.

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

Ownership of Securities
As of April 30, 2014, the portfolio managers did not own any shares of the Fund.

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

     Not applicable.

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

     Not applicable

Item 11. Controls and Procedures

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

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

Item 12. Exhibits

(a) (1) Code of Ethics
               

Not applicable.

       
(2)

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

       
(3)

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

       

Not applicable.

       
(b)

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




SIGNATURES

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

Name of Registrant: DELAWARE INVESTMENTS® MINNESOTA MUNICIPAL INCOME FUND II, INC.
 

/s/ PATRICK P. COYNE
By: Patrick P. Coyne
Title:  Chief Executive Officer
Date: June 5, 2014

     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.

/s/ PATRICK P. COYNE
By: Patrick P. Coyne
Title: Chief Executive Officer
Date: June 5, 2014
 
 
 
/s/ RICHARD SALUS
By: Richard Salus
Title:  Chief Financial Officer
Date: June 5, 2014