Delaware Tax-Free USA Intermediate Fund

Objective

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.

Strategy

The Fund primarily invests in debt obligations issued by various US 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
NASDAQDMUSX
CUSIP245909304
Investment minimums
Initial investment$1,000
Subsequent Investments$100
Systematic withdrawal balance$5,000
Account features
Payroll DeductionYes
IRAsNo

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 (06/30/2017)

as of quarter-end (06/30/2017)

YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)3.41%-0.85%2.43%2.38%3.73%4.74%01/07/1993
Max offer price0.59%-3.57%1.49%1.80%3.44%4.62%
Bloomberg Barclays 3-15 Year Blend Municipal Bond Index3.49%-0.23%2.91%2.90%4.56%n/a
1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)1.78%-0.85%2.43%2.38%3.73%4.74%01/07/1993
Max offer price-0.99%-3.57%1.49%1.80%3.44%4.62%
Bloomberg Barclays 3-15 Year Blend Municipal Bond Index1.81%-0.23%2.91%2.90%4.56%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
Gross0.92%
Net0.75%

Net expense ratio reflects contractual waivers of certain fees and/or expense reimbursements from Dec. 29, 2016 through Dec. 29, 2017. Please see the fee table in the Fund’s prospectus for more information.

Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20171.61%1.78%n/an/an/a
20161.45%2.08%-0.21%-3.93%-0.72%
20150.77%-1.00%1.28%1.34%2.39%
20142.33%2.14%1.12%1.11%6.86%
20130.43%-2.96%-0.11%0.05%-2.59%
20121.06%1.82%2.30%0.46%5.76%
20110.11%3.09%2.76%2.54%8.75%
20101.08%1.93%3.43%-4.05%2.24%
20093.18%1.78%6.88%-0.77%11.38%
2008-0.04%0.22%-1.72%0.53%-1.02%
20070.72%-0.69%1.08%0.62%1.74%
Portfolio characteristics - as of 06/30/2017Bloomberg Barclays 3-15 Year Blend Municipal Bond Index
Number of holdings19036,414
Portfolio turnover (last fiscal year)35%n/a
Modified duration (view definition)4.85 years4.85 years
Effective maturity (weighted average) (view definition)5.94 years8.75 years
Yield to maturity (view definition)3.28%2.68%
Average market price (view definition)$114.10n/a
Average coupon (view definition)5.28%4.75%
Yield to worst (view definition)2.00%2.05%
Alternative minimum tax4.16%3.32%
SEC 30-day yield with waiver (view definition)1.45%
SEC 30-day yield without waiver (view definition)1.27%
Annualized standard deviation, 3 years (view definition)3.13n/a
Portfolio composition as of 06/30/2017Total may not equal 100% due to rounding.
Municipal bonds99.7%
Cash and cash equivalents0.3%

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

Top 10 fixed income holdings as of 06/30/2017
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 10/1/20221.7%
State of California 5.250 9/1/20281.6%
City of San Francisco CA Public Utilities Commission Water Revenue 5.000 11/1/20271.5%
Port Authority of New York & New Jersey 6.500 12/1/20281.5%
City of Phoenix Civic Improvement Corp. 5.000 7/1/20261.5%
Railsplitter Tobacco Settlement Authority 5.250 6/1/20201.4%
Dallas Independent School District 5.000 2/15/20361.4%
Virginia Commonwealth Transportation Board 5.000 3/15/20241.4%
Railsplitter Tobacco Settlement Authority 6.250 6/1/20241.4%
New York State Urban Development Corp. 5.000 3/15/20221.3%
Total % Portfolio in Top 10 holdings14.7%

Fixed income sectors as of 06/30/2017

List excludes cash and cash equivalents.

SectorFundBenchmark
Transportation15.6%14.5%
Special tax14.1%10.2%
State general obligations13.4%18.7%
IDR/PCR (corporate)11.8%2.4%
Hospital10.3%5.6%
Local general obligations7.5%14.9%
Pre-refunded7.1%5.8%
Education6.9%6.5%
Water & sewer5.8%8.1%
Leasing4.5%7.1%
Electric2.8%5.4%
Credit quality as of 06/30/2017
RatingFundBenchmark
AAA15.5%16.0%
AA32.6%55.1%
A27.3%23.1%
BBB14.4%5.7%
BB3.1%0.0%
B1.2%0.0%
CCC0.1%0.0%
Not rated5.8%0.0%

Total may not equal 100% due to rounding. The Fund’s investment manager, Delaware Management Company (DMC), a series of Macquarie Investment 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 Financial Services LLC (S&P), Moody’s Investors Service, and Fitch Ratings, 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 06/30/2017
State% of portfolio
New York17.1%
California15.1%
Texas11.9%
Arizona7.7%
Pennsylvania6.4%
Illinois5.9%
New Jersey5.4%
Minnesota3.6%
Louisiana2.7%
Massachusetts2.6%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20170.0000.209
20160.0040.337
20150.0000.356
20140.0000.339
20130.0000.342
20120.0000.359
20110.0000.367
20100.0000.415
20090.0000.403
20080.0000.379
20070.0000.406

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 — Macquarie Investment Management, Americas

Start date on the Fund: January 2003

Years of industry experience: 32

(View bio)


Steve Czepiel

Steve Czepiel  

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: July 2007

Years of industry experience: 35

(View bio)


Greg Gizzi

Greg Gizzi 

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: December 2012

Years of industry experience: 33

(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 Funds by Macquarie. 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, 2016 through Dec. 29, 2017. 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, 2016 through Dec. 29, 2017. 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 March 31, 2017

Overview

The municipal bond market rebounded in the first quarter of 2017, with the Bloomberg Barclays Municipal Bond Index returning 1.58%. The recovery, which followed a fourth quarter in which bond yields increased significantly and credit spreads widened, was influenced by technical factors, including low supply and stabilized demand. Investors also came to believe that President Trump’s plans for fiscal stimulus and infrastructure spending — both of which drove the fourth quarter bond selloff — would be challenging to implement. Those challenges became especially apparent when the administration’s proposal to repeal and replace the Affordable Care Act (ACA) was unsuccessful. Additionally, interest rates and yield curves were affected by the Federal Open Market Committee’s (FOMC) decision to raise the federal funds rate by a quarter percentage point in March to a range of 0.75%-1.00%.

Municipal bond rates fell considerably on the short end of the curve (1-11 years) while rising modestly in the 13-30 year range, causing the yield curve to steepen. The municipal curve steepening was in sharp contrast to the US Treasury market, where short-end rates rose and long-end rates fell, resulting in curve flattening. Decreases in short- and long-end municipal yields, along with credit spread tightening (as measured by Municipal Market Data BBB-rated bond spreads), generated positive returns for the municipal market for the quarter.

Municipal supply decreased by 12.1% compared to a year earlier, with the bulk of the decline (34.9%, year over year) coming in February as investors waited for details on President Trump’s fiscal plans. In addition, the higher rates from the fourth quarter of 2016 resulted in refunding issuance falling 48.7% during the quarter. Demand, as measured by mutual fund flows, also was down marginally over the period. After nine consecutive weeks of outflows that began around the time of the November election, the municipal market experienced inflows in January. However, flow data were mixed for the remainder of the quarter, which ended with outflows of $505 million. We believe the marginal demand for municipal bonds during the early months of 2017 is attributable to uncertainty regarding tax policy, the strong performance of equity markets, and the Federal Reserve’s March rate hike.

Within the Fund

The Fund’s exposure to below-investment-grade bonds contributed to performance, returning 5.29% versus the 1.65% return of the Fund’s benchmark, the Bloomberg Barclays 3–15 Year Blend Municipal Bond Index, and the 4.06% return of the Bloomberg Barclays High-Yield Municipal Bond Index. The Fund’s exposure to long-term bonds (22-plus years) also contributed to performance, returning 16.24% versus the benchmark index’s long-bond segment return of 1.65% for the quarter.

The Fund’s exposure to AAA- and BBB-rated bonds detracted from performance, returning 1.52% and 1.83%, respectively, compared to 1.17% for the benchmark index’s AAA-rated bonds and 2.23% for the benchmark index’s BBB-rated bonds. This underperformance was attributable to the Fund’s AAA and BBB credit tiers having shorter duration than the credit tiers in the benchmark index.

Outlook

As the first quarter ended, investors appeared more focused on fiscal policy than monetary policy. The market is still pricing in two more rate hikes in 2017, but current implied probabilities are only 13% for an increase at the May FOMC meeting and 57% at the June meeting, then continuing higher as the year progresses. Meanwhile, the fiscal calendar requires more immediate attention, such as passing a fiscal 2018 budget resolution and a continuing resolution that would fund the government over the remainder of the current fiscal year. Such legislation would necessarily include raising the debt ceiling.

We believe market participants will watch these developments closely, as well as progress on tax-reform proposals, especially in light of the recent failure to repeal the ACA. In our view, political risks are moderate to high and the fixed income market remains range bound. In this environment, we will continue to focus on income generation through our bottom-up (bond-by-bond) security selection process.

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

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

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

[19201]

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 bond that is held by a portfolio will be prepaid prior to maturity, at the time when interest rates are lower than what the bond was paying. A portfolio may then have 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 07/21/2017)

Class APriceNet change
NAV$12.020.02
Max offer price$12.36n/a

Total net assets (as of 06/30/2017)

$564.8 million all share classes

Overall Morningstar RatingTM

 
Class A shares (as of 06/30/2017)
Class ANo. of funds
Overall3263
3 Yrs3263
5 Yrs3227
10 Yrs3154
Morningstar categoryMuni National Interm

(View Morningstar disclosure)

Morningstar ranking (as of 06/30/2017)

YTD ranking87 / 303
1 year157 / 292
3 years156 / 263
5 years142 / 227
10 years88 / 154
Morningstar categoryMuni National Interm

(View Morningstar disclosure)

Lipper ranking (as of 06/30/2017)

YTD ranking54 / 215
1 year113 / 209
3 years91 / 195
5 years85 / 167
10 years59 / 114
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