Delaware Tax-Free USA Intermediate Fund

1Q 2016 wrap-up: Municipal bonds

Senior Portfolio Manager Greg Gizzi discusses how drivers within the municipal asset class affected the marketplace during the first quarter of 2016. [Runtime: 2:15]

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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 (08/31/2016)

as of quarter-end (06/30/2016)

YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)3.78%5.79%4.87%3.81%4.01%4.96%01/07/1993
Max offer price0.96%2.89%3.91%3.22%3.72%4.83%
Bloomberg Barclays 3-15 Year Blend Municipal Bond Index3.87%5.97%5.37%4.08%4.79%n/a
1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)2.08%6.29%4.23%4.22%4.23%4.98%01/07/1993
Max offer price-0.76%3.37%3.26%3.64%3.94%4.86%
Bloomberg Barclays 3-15 Year Blend Municipal Bond Index2.07%6.67%4.89%4.59%5.03%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, 2015 through Dec. 29, 2016. Please see the fee table in the Fund’s prospectus for more information. The Fund's Class A shares also are subject to a blended 12b-1 fee of 0.10% on all shares acquired prior to June 1, 1992 and 0.25% on all shares acquired on or after June 1, 1992.

Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
Portfolio characteristics - as of 08/31/2016Barclays 3-15 Year Blend Municipal Bond Index
Number of holdings21035,798
Portfolio turnover (last fiscal year)19%n/a
Modified duration (view definition)4.91 years4.81 years
Effective maturity (weighted average) (view definition)5.80 years8.80 years
Yield to maturity (view definition)2.71%2.28%
Average market price (view definition)$117.77n/a
Average coupon (view definition)5.18%4.78%
Yield to worst (view definition)1.53%1.47%
Alternative minimum tax5.60%3.52%
SEC 30-day yield with waiver (view definition)0.90%
SEC 30-day yield without waiver (view definition)0.77%
Annualized standard deviation, 3 years (view definition)2.17n/a
Portfolio composition as of 08/31/2016Total may not equal 100% due to rounding.
Municipal bonds98.7%
Cash and cash equivalents1.3%

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

Top 10 fixed income holdings as of 08/31/2016
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%
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 11/1/20271.2%
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 6/1/20201.1%
Dallas Independent School District 5.000 2/15/20361.1%
Virginia Commonwealth Transportation Board 5.000 3/15/20241.1%
New York State Urban Development Corp. 5.000 3/15/20221.1%
Total % Portfolio in Top 10 holdings12.0%

Fixed income sectors as of 08/31/2016

List excludes cash and cash equivalents.

Special tax14.2%10.2%
State general obligations13.5%18.5%
IDR/PCR (corporate)8.8%2.3%
Local general obligations8.6%14.5%
Water & sewer6.5%7.6%
Credit quality as of 08/31/2016
Not rated6.6%0.0%

Total may not equal 100% due to rounding. The Fund’s investment manager, Delaware Management Company (DMC), a series of Delaware Management Business Trust, receives “Credit Quality” ratings for the underlying securities held by the Fund from three “nationally recognized statistical rating organizations” (NRSROs): Standard & Poor’s (S&P), Moody’s Investors Service, and Fitch, Inc. The credit quality breakdown is calculated by DMC based on the NRSRO ratings. If two or more NRSROs have assigned a rating to a security the higher rating (lower value) is used. If only one NRSRO rates a security, that rating is used. Securities that are unrated by any of the three NRSROs are included in the “not rated” category when applicable. Unrated securities do not necessarily indicate low quality. More information about securities ratings is contained in the Fund’s Statement of Additional Information.

Top 10 states as of 08/31/2016
State% of portfolio
New York16.1%
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: 34

(View bio)

Greg Gizzi

Greg Gizzi 

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: December 2012

Years of industry experience: 32

(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 intermediary, 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."

The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

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 expenses0.18%
Total annual fund operating expenses0.92%
Fee waivers and expense reimbursements(0.17%)
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, 2015 through Dec. 29, 2016. 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, 2015 through Dec. 29, 2016. 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 June 30, 2016


Municipal bond yields declined sharply across the yield curve in the second quarter due to strong technical factors, slowing economic growth, and the United Kingdom’s June 23 vote to exit the European Union (known as Brexit). The yield curve also flattened significantly as yields on longer-dated maturities dropped more than their shorter-term counterparts. As measured by the Barclays Municipal Bond Index, the municipal bond market returned 2.61% for the second quarter of 2016, 4.33% for the first half of 2016, and 7.65% for the trailing 12-month trailing period.

Investors were caught back-footed by the Brexit vote, and responded by selling stocks and buying bonds, especially U.S. Treasury securities. The municipal market also benefited from the flight to safety, with tax-exempt yields plunging by 7 to 21 basis points over several days following the vote. (A basis point equals one hundredth of a percentage point.) Though U.S. equity prices recovered most of their losses before the quarter ended, bond yields finished the period near their post-Brexit lows.

Prior to the Brexit vote, bond yields mostly reflected shifting expectations for Federal Reserve policy. Though interest rates rose modestly in April, decelerating economic and job growth in May and June caused the Fed to leave monetary policy unchanged at its mid-June Federal Open Market Committee (FOMC) meeting. The FOMC also lowered its forecast for future rate hikes. While the median rate projection for 2016 remained at 0.875%, the average projection fell from 1.02% to 0.83%, and the average forecasts for 2017 and 2018 fell by 0.43% and 0.48%, respectively.

Supported by solid demand, the Barclays Municipal Bond Index posted positive returns in each month of the quarter. Mutual fund flows into the sector, as measured by Lipper, reached $33 billion over the first half of 2016 compared to $34.5 billion for all of 2014 and 2015. Compared to the same period in 2015, supply fell by 3.6%. Those favorable technical factors underwrote significant outperformance by AAA-rated municipal bonds versus U.S. Treasurys, particularly in the 30-year segment of the yield curve.

In the current low rate environment, lower-rated bonds — which produce more income and tend to be located on the long end of the yield curve — have outperformed higher-rated bonds. BBB-rated bond spreads tightened 10 basis points versus AAA-rated bonds, according to Thomson Reuters, and the BBB portion of the Barclays Municipal Bond Index returned 3.21% for the quarter versus 2.20% for the AAA subsector. Meanwhile, the Barclays High-Yield Municipal Bond Index returned 5.10% over the period. (Excluding Puerto Rico bonds, the return was 4.29%.) Notably, Puerto Rico securities returned 7.82% as investors anticipated relief legislation that passed in late June. However, we continue to believe the prospects for Puerto Rico generating the economic growth needed to address the root of its problems remain extremely challenged. Accordingly, we do not own Puerto Rico debt at this time, nor do we plan to invest in the immediate future.

Within the Fund

For the second quarter of 2016, Delaware Tax-Free USA Intermediate Fund (Institutional Class shares and Class A shares at net asset value) slightly outperformed its benchmark, the Barclays 3–15 Year Blend Municipal Bond Index.

The primary contributor to performance for the quarter was the Fund's 7.77% out-of-benchmark exposure to long bonds (17-plus years) as these bonds outperformed the benchmark index’s overall return. The Barclays Municipal Bond Index’s 17-plus year bonds returned 2.43% versus the overall index return of 2.07%. Additionally, the Fund’s 8.78% out-of-benchmark position in below-investment-grade bonds contributed for the quarter, returning 3.58%.

The 10-year (8–12 years) portion of the yield curve was a detractor for the quarter. The Fund was weighted in line with the benchmark in this maturity segment but underperformed due to a shorter duration composed of more-seasoned bonds.


As Brexit-related volatility recedes, market participants are likely to focus more on domestic economic issues, and specifically on the health of the labor market. In our view, the Fed will not raise interest rates at its July meeting due to geopolitical concerns and indications of faltering global economic growth. A rate hike at the September FOMC meeting appears similarly unlikely, in our view, due to its proximity to the November elections.

We do not plan major changes to portfolios and believe that our overweight allocation to lower-investment-grade and below-investment-grade securities may continue to aid returns through additional income. Historically, market technical factors have weakened during the fall, however, and we would view any such weakness as a buying opportunity. As always, we will remain selective and look for improving credits that are additive to the overall portfolio profile.

The Barclays 3–15 Year Blend Municipal Bond Index measures the total return performance of investment grade, U.S. tax-exempt bonds with maturities from 2 to 17 years.

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 of the three.


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.

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

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

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 09/28/2016)

Class APriceNet change
NAV$12.31no chg
Max offer price$12.66n/a

Total net assets (as of 08/31/2016)

$716.7 million all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 08/31/2016)
Load waivedWith loadNo. of funds
3 Yrs32308
5 Yrs33268
10 Yrs33177
Morningstar categoryMuni National Interm

(View Morningstar disclosure)

Morningstar ranking (as of 08/31/2016)

YTD ranking155 / 342
1 year147 / 339
3 years188 / 308
5 years146 / 268
10 years103 / 177
Morningstar categoryMuni National Interm

(View Morningstar disclosure)

Lipper ranking (as of 08/31/2016)

YTD ranking89 / 215
1 year88 / 211
3 years101 / 195
5 years68 / 164
10 years56 / 108
Lipper classificationIntmdt Muni Debt Funds

(View Lipper disclosure)

Benchmark, peer group

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

Morningstar Muni National Intermediate Category (view definition)

Lipper Intermediate Municipal Debt Funds Average (view definition)

Additional information