Delaware Tax-Free USA Intermediate Fund

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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 (02/28/2015)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)0.61%4.79%2.73%3.91%4.00%5.04%01/07/1993
Max offer price-2.19%1.91%1.78%3.34%3.71%4.91%
Barclays 3-15 Year Blend Municipal Bond Index0.67%4.90%3.19%4.46%4.65%n/a
Average annual total return as of quarter-end (12/31/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)1.11%6.86%6.86%3.25%4.12%4.00%5.05%01/07/1993
Max offer price-1.64%3.94%3.94%2.30%3.54%3.71%4.92%
Barclays 3-15 Year Blend Municipal Bond Index0.99%6.96%6.96%3.56%4.66%4.58%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.

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 02/28/2015
Number of holdings216
Effective maturity (weighted average) (view definition)5.60 years
Modified duration (view definition)4.63 years
Annualized standard deviation, 3 years (view definition)3.41
SEC 30-day yield with waiver (view definition)1.13%
SEC 30-day yield without waiver (view definition)0.96%
Portfolio turnover (last fiscal year)34%
Portfolio composition as of 02/28/2015Total may not equal 100% due to rounding.
Municipal bonds99.0%
Cash and cash equivalents1.0%

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

Top 10 holdings as of 02/28/2015
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
County of Fairfax VA 5.000 4/1/20201.5%
Golden State Tobacco Securitization Corp. 4.500 6/1/20271.4%
State of Minnesota 5.000 10/1/20221.3%
Arizona Health Facilities Authority 5.000 12/1/20301.3%
New York Local Government Assistance Corp. 5.000 4/1/20171.2%
State of California 5.250 9/1/20281.2%
City of San Francisco CA Public Utilities Commission Water Revenue 5.000 11/1/20271.2%
City of Phoenix Civic Improvement Corp. 5.000 7/1/20261.1%
Port Authority of New York & New Jersey 6.500 12/1/20281.1%
New Jersey Transportation Trust Fund Authority 5.500 6/15/20311.1%
Total % Portfolio in Top 10 holdings12.4%
Top sectors as of 02/28/2015
List excludes cash, accruals on bonds, and cash equivalents.
Sector% of portfolio
State general obligations17.5%
Special tax15.8%
Local general obligations4.8%
Water & sewer4.8%
Top 10 states as of 02/28/2015
State% of portfolio
New York17.6%
New Jersey4.6%
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.

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: 30

(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: 30

(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 December 31, 2014


The municipal bond yield curve flattened by 35 basis points during the fourth quarter of 2014 as yields rose on short-maturity bonds while declining on longer-dated issues. The yield rose on bonds with maturities of 6 years and less, with 3- to 5-year bonds rising 15–18 basis points. Yields declined from the 7-year portion of the curve on out, with yields on 15- to 30-year bonds declining by 22–26 basis points. (A basis point equals one one-hundredth of a percentage point.)

Municipal bonds underperformed the U.S. Treasury market across the yield curve during the period. U.S. Treasurys performed well, aided by lower commodity prices and a strong U.S. dollar. Demand remained strong for municipal bond funds, but was met by a much-welcomed heavy supply of new issues. For the quarter, the market as measured by the Barclays Municipal Bond Index returned 1.37% and the Barclays High-Yield Municipal Bond Index returned 1.21%. For all of 2014, the two indices returned 9.05% and 13.84%, respectively. The municipal market was the strongest performing domestic bond market during 2014.

We believe the primary drivers of rising short-term rates were an improving U.S. economy and the market’s anticipation (and eventual realization) of the Federal Open Market Committee (FOMC) changing the wording of its policy statement to remove the “considerable time” language when referring to the end of the Federal Reserve’s zero-interest-rate federal funds policy. Meanwhile, we believe long-term rates were driven lower by multiple factors, including: continued economic struggles in the euro zone and Japan, each of which are experiencing recessionary and deflationary fears; extremely low yields in those countries; continued slowing of China’s economy; and a lower-than-targeted inflation rate in the United States. Another significant factor in this “curve trade” has been the collapse in the price of oil, which dropped from approximately $100 a barrel on June 30, 2014, to $53 a barrel at year end. The lower price of energy is reducing inflationary expectations and providing support to the U.S. economy. (Source: Bloomberg.)

Themes in the municipal market for the fourth quarter of 2014 were mostly the same as those in place for the entire year. Longer maturities outperformed shorter maturities, with the Barclays municipal indices with maturities of 15 years and longer outperforming the overall market. Also, the A and BBB rating tranches outperformed for the fourth quarter and the full year. The strongest-performing investment grade group for both periods was the hospital sector.

New-issue supply was up 28% during the fourth quarter, pushing total 2014 issuance to $334.4 billion, slightly shy of 2013’s total volume of $334.0 billion. A combination of low interest rates and tight ratios versus U.S. Treasurys at the beginning of the quarter led to an increase in refunding volume. However, this was met by solid demand, as measured by mutual fund flows. Municipal bond mutual funds received inflows of $8.4 billion during the quarter, bringing the year-to-date total to $21.4 billion. (Source: Bloomberg.)

Within the Fund

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

The primary drivers of performance for the period were the Fund’s out-of-benchmark positions in below-investment-grade debt and its overweight exposure in BBB-rated securities, as lower-rated securities outperformed higher-rated credit tiers for the period. Additionally, the Fund’s overweight positions in bonds within the 8- to 10-year maturity range positively influenced performance.


As the new year begins, domestic markets again are preparing for interest rate hikes. (Remember back a year ago when markets also had expected interest rates to rise following the FOMC’s December 2013 announcement of the taper of quantitative easing, but a negative gross domestic product (GDP) print in the first quarter of 2014 actually led to lower rates for the remainder of the year.) Now that the U.S. economy has demonstrated solid growth as 2014 ended, many believe it is not a matter of “if” but “when” and by “how much” benchmark rates will rise. As noted earlier, however, many global economies continue to struggle and the European Central Bank appears poised to provide more monetary accommodation in the euro zone. This should help keep foreign rates low, and foreign rates are one of many inputs to the level of U.S. rates. This dynamic also has resulted in a strong dollar relative to other currencies; a rising dollar, of course, could be a headwind to the U.S. economy, though lower gas prices would function as an offsetting tailwind.

As we manage the Fund, we will assume that the FOMC eventually will raise rates in the U.S.; in our view, the timing seems right to finally remove this unusual accommodation that has been in place since the Great Recession. It should be noted, however, that when the FOMC replaced the “considerable time” language, it inserted the word “patient.” As policy makers have stated many times, changes to the fed funds rate will be “data dependent,” meaning that if the domestic economy slows, it will adjust accordingly. We are inclined to take the FOMC at its word.

Therefore, we believe there can be more volatility in the municipal market in 2015, and while rates may be slightly higher at year end, there could be many ebbs and flows as the year unfolds. Accordingly, we anticipate that income — as opposed to principal appreciation — should be the primary driver of return during 2015, and that our portfolios could benefit from our preference for higher yielding securities. Also, we believe market gyrations could cause volatility in municipal bond mutual fund flows, thus putting a premium on portfolio liquidity. To that end, we have historically offset our higher yielding securities with high grade securities in short maturities. If these internal outflows do not occur, these same securities may enable us to capitalize on market dislocations.

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 is composed of U.S. dollar–denominated, noninvestment grade, tax-exempt bonds for which the middle rating among Moody’s Investors Service, Inc., Fitch, Inc., and Standard & Poor’s is Ba1/BB+/BB+ or below.

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

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.

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.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 04/01/2015)

Class APriceNet changeYTD
Max offer price$12.59n/an/a

Total net assets (as of 02/28/2015)

$769.5 million all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 02/28/2015)

Load waivedWith loadNo. of funds
3 Yrs32269
5 Yrs32233
10 Yrs33166
Morningstar categoryMuni National Interm

(View Morningstar disclosure)

Lipper ranking (as of 02/28/2015)

YTD ranking109 / 226
1 year73 / 219
3 years76 / 183
5 years77 / 156
10 years39 / 103
Lipper classificationIntmdt Muni Debt Funds

(View Lipper disclosure)

Benchmark, peer group

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

Lipper Intermediate Municipal Debt Funds Average (view)

Additional information