Delaware Tax-Free USA Intermediate Fund

Barron’s profile of Delaware National High-Yield Municipal Bond Fund

When Steve Czepiel talks about traffic on the Pennsylvania Turnpike or retirement communities in Florida, odds are he isn’t referring to his daily commute or his golden years...

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Delaware Tax-Free USA Intermediate Fund seeks as high a level of current interest income exempt from federal income tax as is available from municipal obligations and as is consistent with prudent investment management and preservation of capital.


The Fund primarily invests in debt obligations issued by various U.S. state and local governments that provide income exempt from federal income taxes. By focusing on municipal bonds of intermediate maturity, the Fund seeks to balance relatively high tax-free income and capital preservation.

Fund information
Inception date01/07/1993
Dividends paid (if any)Monthly
Capital gains paid (if any)December
Fund identifiers
Investment minimums
Initial investment$1,000
Subsequent Investments$100
Systematic withdrawal balance$5,000
Account features
Payroll DeductionYes

On Sept. 25, 2014, Class B shares of the Fund converted to Class A shares.

The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.

Total returns may reflect waivers and/or expense reimbursements by the manager and/or distributor for some or all of the periods shown. Performance would have been lower without such waivers and reimbursements.

Average annual total return as of month-end (10/31/2015)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)1.47%2.02%1.91%3.17%3.93%4.93%01/07/1993
Max offer price-1.36%-0.82%0.97%2.59%3.64%4.80%
Barclays 3-15 Year Blend Municipal Bond Index2.22%2.64%2.69%3.91%4.70%n/a
Average annual total return as of quarter-end (09/30/2015)
Last quarter1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)1.28%2.16%1.85%3.02%3.82%4.93%01/07/1993
Max offer price-1.51%-0.62%0.91%2.45%3.53%4.80%
Barclays 3-15 Year Blend Municipal Bond Index1.63%2.80%2.61%3.77%4.60%n/a

Returns for less than one year are not annualized.

Class A shares have a maximum up-front sales charge of 2.75% and are subject to an annual distribution fee.

Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.

Expense ratio

Net expense ratio reflects contractual waivers of certain fees and/or expense reimbursements from Dec. 29, 2014 through Dec. 29, 2015. Please see the fee table in the Fund’s prospectus for more information.

Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
Portfolio characteristics - as of 10/31/2015
Number of holdings205
Effective maturity (weighted average) (view definition)5.50 years
Modified duration (view definition)4.50 years
Annualized standard deviation, 3 years (view definition)3.21
SEC 30-day yield with waiver (view definition)1.47%
SEC 30-day yield without waiver (view definition)1.30%
Portfolio turnover (last fiscal year)19%
Portfolio composition as of 10/31/2015Total may not equal 100% due to rounding.
Municipal bonds96.8%
Cash and cash equivalents3.2%

Cash and cash equivalents include accruals on bonds and long-term receivables.

Top 10 holdings as of 10/31/2015
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
State of Minnesota 5.000 10/1/20221.4%
Golden State Tobacco Securitization Corp. 5.000 6/1/20351.4%
State of California 5.250 9/1/20281.3%
Golden State Tobacco Securitization Corp. 4.500 6/1/20271.3%
City of San Francisco CA Public Utilities Commission Water Revenue 5.000 11/1/20271.3%
City of Phoenix Civic Improvement Corp. 5.000 7/1/20261.2%
Port Authority of New York & New Jersey 6.500 12/1/20281.2%
Railsplitter Tobacco Settlement Authority 5.250 6/1/20201.2%
New Jersey Transportation Trust Fund Authority 5.500 6/15/20311.1%
Virginia Commonwealth Transportation Board 5.000 3/15/20241.1%
Total % Portfolio in Top 10 holdings12.5%
Top sectors as of 10/31/2015
List excludes cash, accruals on bonds, and cash equivalents.
Sector% of portfolio
IDR/PCR (corporate)14.0%
Special tax13.3%
State general obligations12.6%
Local general obligations7.1%
Water & sewer3.6%
Top 10 states as of 10/31/2015
State% of portfolio
New York16.1%
New Jersey5.0%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment

1If a Fund makes a distribution from any source other than net income, it is required to provide shareholders with a notice disclosing the source of such distribution (each a "Notice"). The amounts and sources of distributions reported above and in each Notice are only estimates and are not provided for tax reporting purposes. Each Fund will send each shareholder a Form 1099 DIV for the calendar year that will provide definitive information on how to report the Fund's distributions for federal income tax purposes. The information in the table above will not be updated to reflect any subsequent recharacterization of dividends and distributions. Click here to see recent Notices pertaining to the Fund (if any).

2Information on return of capital distributions (if any) is only provided from June 1, 2014 onward.

3Includes both short- and long-term capital gains.

Client-focused consistency

Get a firsthand look at the Delaware Investments municipal bond group and see what drives its passion for performance.

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Joe Baxter

Joe Baxter  

Senior Vice President, Head of Municipal Bond Department, Senior Portfolio Manager

Start date on the Fund: January 2003

Years of industry experience: 31

(View bio)

Steve Czepiel

Steve Czepiel  

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: July 2007

Years of industry experience: 33

(View bio)

Greg Gizzi

Greg Gizzi 

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: December 2012

Years of industry experience: 31

(View bio)

You may qualify for sales-charge discounts if you and your family invest, or agree to invest in the future, at least $100,000 in Delaware Investments® Funds. More information about these and other discounts is available from your financial advisor, in the Fund's prospectus under the section entitled "About your account," and in the Fund's statement of additional information (SAI) under the section entitled "Purchasing Shares."

Shareholder fees
Maximum sales charge (load) imposed on purchases as a percentage of offering price2.75%
Maximum contingent deferred sales charge (load) as a percentage of original purchase price or redemption price, whichever is lowernone
Annual fund operating expenses
Management fees0.49%
Distribution and service (12b-1) fees0.25%
Other expenses0.19%
Total annual fund operating expenses0.93%
Fee waivers and expense reimbursements(0.18%)
Total annual fund operating expenses after fee waivers and expense reimbursements0.75%

1The Fund's investment manager, Delaware Management Company (Manager), has contractually agreed to waive all or a portion of its investment advisory fees and/or pay/reimburse expenses (excluding any 12b-1 fees, acquired fund fees and expenses, taxes, interest, inverse floater program expenses, short sale and dividend interest expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations) in order to prevent total annual fund operating expenses from exceeding 0.60% of the Fund's average daily net assets from Dec. 29, 2014 through Dec. 29, 2015. In addition, the Fund's distributor, Delaware Distributors, L.P. (Distributor), has contracted to limit the Class A shares' 12b-1 fees to no more than 0.15% of average daily net assets from Dec. 29, 2014 through Dec. 29, 2015. These waivers and reimbursements may only be terminated by agreement of the Manager or Distributor, as applicable, and the Fund.

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Delaware Tax-Free USA Intermediate Fund Quarterly commentary September 30, 2015


Treasury bond prices rose and yields declined significantly during the third quarter of 2015, while global and domestic equity prices fell even more sharply. Financial markets were focused on global growth concerns — primarily in China — and on U.S. Federal Reserve policy that kept the federal funds rate at zero bound. The municipal bond market followed the Treasury market “risk off” trade, with tax-exempt rates falling across the yield curve. Municipal bond yields fell by between 8 and 28 basis points on 1- to 30-year maturities. (A basis point equals one hundredth of a percentage point.) The largest declines were in the “belly” and long end of the curve, while declines in short maturities were more modest. Yields on AAA-rated municipal bonds with maturities of 5, 10, and 30 years finished the quarter at 1.28%, 2.03%, and 3.04%, respectively.

Although the U.S. economy grew by 3.9% and the unemployment rate declined to 5.1% during the second quarter, investors nonetheless focused on decelerating economic conditions in China and other emerging markets. Combined with continued slow growth in Europe and a sharp decline in commodity prices — particularly in energy — a risk-averse mindset took hold that aided Treasury securities. Meanwhile, the U.S. dollar rose due to expectations that monetary policy in the United States and most other nations was set to diverge. The strong dollar and lower energy prices helped keep U.S. inflation lower than the Fed had expected, and thus gave policy makers more time to digest incoming data and defer raising benchmark interest rates. Municipal bonds joined in the fixed income rally, with the Barclays Municipal Bond Index returning +1.65% and the Barclays High-Yield Municipal Bond Index returning +1.99% for the quarter.

The municipal sector also benefited from internal market factors. At first glance, technical conditions such as negative fund flows and a slight increase in supply would not seem to be supportive of bond prices. However, many of the new issues that came to market during the quarter were current refundings of previously issued debt. A current refunding results in the outstanding bond being called, and proceeds are often reinvested in the market.

Credit spreads tightened during September on some higher-beta (riskier) names such as the City of Chicago and the Commonwealth of Puerto Rico. The mayor of Chicago proposed raising property taxes to address unfunded pension liabilities. If passed, the plan would represent progress on the financial and political front. However, the legislation requires approval from the State of Illinois, where its fate remains uncertain. While significant problems still exist, prices on Puerto Rico’s general obligation (GO) bonds and Puerto Rico Electric Power Authority (PREPA) bonds traded stronger during the quarter as proposals and discussions advanced. However, concerns surrounding these credits are far from resolved, and we remain negative on their outlook. Elsewhere, Master Settlement Agreement (MSA) tobacco bonds rallied — and their spreads tightened — on the basis of positive year-to-date and year-over-year shipments data, numbers which have not been positive since 2006. On a negative note, certain industrial development revenue bonds (corporate backed) experienced spread widening in sympathy with some widening in the corporate bond market. We intend to monitor this situation.

Within the Fund

Delaware Tax-Free USA Intermediate Fund (Institutional Class shares and Class A shares at net asset value) underperformed its benchmark, the Barclays 3–15 Year Blend Municipal Bond Index, for the third quarter of 2015.

The primary detractors from performance for the quarter were the Fund’s BBB-rated positions and its out-of-benchmark positions in below-investment-grade securities, as both credit tiers underperformed the benchmark return. Conversely, overweight positions in the long end of the yield curve (not included in the benchmark) contributed to relative performance and slightly offset our underperforming positions in the belly of the curve.


Though the Federal Open Market Committee (FOMC) passed on raising the federal funds rate in mid-September, a majority of Fed governors still have projected one rate hike before year end. (These projections are known as the “dots.”) However, Fed funds futures markets have priced in less than a 50% chance of a rate hike by December 2015. We are taking a view beyond the current quarter but do expect to the Fed to eventually raise rates. We believe that higher short-term rates should result in a flattening of the yield curve and a tightening of credit spreads.

The Barclays Municipal Bond Index measures the total return performance of the long-term, investment grade tax-exempt bond market.

The Barclays High-Yield Municipal Bond Index measures the total return performance of the long-term, non-investment-grade tax-exempt bond market.

Bond ratings are determined by a nationally recognized statistical rating organization.

Per Standard & Poor’s credit rating agency, bonds rated below AAA are more susceptible to the adverse effects of changes in circumstances and economic conditions than those in higher-rated categories, but the obligor’s capacity to meet its financial commitment on the obligation is still strong. Bonds rated BBB exhibit adequate protection parameters, although adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments. Bonds rated BB, B, and CCC are regarded as having significant speculative characteristics with BB indicating the least degree of speculation.


The views expressed represent the Manager's assessment of the Fund and market environment as of the date indicated, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Information is as of the date indicated and subject to change.

Document must be used in its entirety.

Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and its summary prospectus, which may be obtained by clicking the prospectus link located in the right-hand sidebar or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.

Investing involves risk, including the possible loss of principal.

Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.

The Fund may also be subject to prepayment risk, the risk that the principal of a fixed income security that is held by the Fund may be prepaid prior to maturity, potentially forcing the Fund to reinvest that money at a lower interest rate.

Substantially all dividend income derived from tax-free funds is exempt from federal income tax. Some income may be subject to the federal alternative minimum tax (AMT) that applies to certain investors. Capital gains, if any, are taxable.

High yielding, noninvestment grade bonds (junk bonds) involve higher risk than investment grade bonds.

Duration number will change as market conditions change. Therefore, duration should not be solely relied upon to indicate a municipal bond fund’s potential volatility.

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

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 11/27/2015)

Class APriceNet changeYTD
NAV$12.09no chg1.63%
Max offer price$12.43n/an/a

Total net assets (as of 10/31/2015)

$710.2 million all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 10/31/2015)
Load waivedWith loadNo. of funds
3 Yrs32283
5 Yrs32235
10 Yrs33167
Morningstar categoryMuni National Interm

(View Morningstar disclosure)

Lipper ranking (as of 10/31/2015)

YTD ranking114 / 220
1 year90 / 217
3 years99 / 192
5 years89 / 159
10 years47 / 106
Lipper classificationIntmdt Muni Debt Funds

(View Lipper disclosure)

Benchmark, peer group

Barclays 3–15 Year Blend Municipal Bond Index (view definition)

Lipper Intermediate Municipal Debt Funds Average (view definition)

Additional information