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As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
1/03/07 Delaware Group Tax Free Fund 485BPOS 1/03/07 7:70 Pietrzykowski Kris..R/FA
Delaware Group Tax Free Fund
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
File No. 002-86606
File No. 811-03850
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
Pre-Effective Amendment No. / /
---------
Post-Effective Amendment No. 34 /X/
---------
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 34
---------
DELAWARE GROUP TAX-FREE FUND
--------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
2005 Market Street, Philadelphia, Pennsylvania 19103-7094
--------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (800) 523-1918
David F. Connor, Esq., 2005 Market Street, Philadelphia, PA 19103-7094
--------------------------------------------------------------------------------
(Name and Address of Agent for Service)
Approximate Date of Public Offering: January 3, 2007
It is proposed that this filing will become effective:
/X / immediately upon filing pursuant to paragraph (b)
-----------
/ / on (date) pursuant to paragraph (b)
-----------
/ / 60 days after filing pursuant to paragraph (a) (1)
-----------
/ / on (date) pursuant to paragraph (a)(1)
-----------
/ / 75 days after filing pursuant to paragraph (a) (2)
-----------
/ / on (date) pursuant to paragraph (a)(2) of Rule 485.
-----------
If appropriate:
/ / This post-effective amendment designates a new effective date for
a previously filed post-effective amendment.
--- C O N T E N T S ---
This Post-Effective Amendment No. 34 to Registration File No. 002-86606 includes
the following:
1. Facing Page
2. Contents Page
3. Part A - Prospectus (1)
4. Part B - Statement of Additional Information (1)
5. Part C - Other Information (1)
6. Signatures
7. Exhibits
(1) This Registration Statement contains one Prospectus and one Statement
of Additional Information for two registrants (each of which offers
its shares in one or more series). A separate Registration Statement,
which incorporates by reference the common Prospectus and common
Statement of Additional Information and includes its own Part C, is
being filed for the other registrant.
The Prospectus and Statement of Additional Information contained in
this Post-Effective Amendment relate to the Class A, B and C shares of
the Registrant's two series, Delaware Tax-Free USA Fund and Delaware
Tax-Free USA Intermediate Fund, and also to the Delaware National
High-Yield Municipal Bond Fund series of Voyageur Mutual Funds. The
Part C contained in this Post-Effective Amendment relates only to the
Registrant's two series. A separate Registration Statement which
incorporates by reference the Prospectus and Statement of Additional
Information as it relates to the Delaware National High-Yield
Municipal Bond Fund and includes its own Part C is being filed for
Voyageur Mutual Funds.
Delaware
Investments(R)
A member of Lincoln Financial Group
FIXED INCOME
Prospectus
DECEMBER 29, 2006
DELAWARE TAX-FREE USA FUND
CLASS A o CLASS B o CLASS C
DELAWARE TAX-FREE USA INTERMEDIATE FUND
CLASS A o CLASS B o CLASS C
DELAWARE NATIONAL HIGH-YIELD MUNICIPAL BOND FUND
CLASS A o CLASS B o CLASS C
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the accuracy of this prospectus, and any
representation to the contrary is a criminal offense.
TABLE OF CONTENTS
Fund profile page 2
Delaware Tax-Free USA Fund 2
Delaware Tax-Free USA Intermediate Fund 4
Delaware National High-Yield Municipal Bond Fund 6
How we manage the Funds page 10
Our investment strategies 10
The securities we typically invest in 11
The risks of investing in the Funds 17
Disclosure of portfolio holdings 19
Who manages the Funds page 20
Investment manager 20
Investment management fees 20
Portfolio managers 20
Manager of managers structure 20
Who's who? 21
About your account page 22
Investing in the Funds 22
Choosing a share class 22
Dealer compensation 25
Payments to intermediaries 25
How to reduce your sales charge 26
How to buy shares 29
Fair valuation 30
Document delivery 30
How to redeem shares 31
Account minimums 32
Special services 32
Frequent trading of Fund shares 34
Dividends, distributions and taxes 36
Financial highlights page 38
Glossary page 44
Additional information page 47
1
Profile: Delaware Tax-Free USA Fund
What is the Fund's goal?
Delaware Tax-Free USA 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.
Although the Fund will strive to meet its goal, there is no assurance that it
will.
What are the Fund's main investment strategies?
Under normal circumstances, the Fund will invest at least 80% of its net assets
in securities the income from which is exempt from federal income taxes,
including the federal alternative minimum tax. This is a fundamental investment
policy that may not be changed without prior shareholder approval.
The Fund will invest primarily in municipal debt obligations that are issued by
state and local governments to raise funds for various public purposes such as
hospitals, schools and general capital expenses. The Fund will invest its assets
in securities with maturities of various lengths, depending on market
conditions, but will have a dollar-weighted average effective maturity of
between five and 30 years. We will attempt to adjust the average maturity of the
bonds in the portfolio to provide a high level of tax-exempt income consistent
with preservation of capital. The Fund's income level will vary depending on
current interest rates and the specific securities in the portfolio. The Fund
may concentrate its investments in certain types of bonds or in a certain
segment of the municipal bond market when the supply of bonds in other sectors
does not suit our investment needs.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. Over time, the value of your investment in
the Fund will increase and decrease according to changes in the value of the
securities in the Fund's portfolio. This Fund will be affected primarily by
changes in interest rates. For example, when interest rates rise, the value of
bonds in the portfolio will likely decline. The Fund may also be affected by the
ability of individual municipalities to pay interest and repay principal on the
bonds they issue. The Fund is non-diversified as defined under the Investment
Company Act of 1940, as amended (1940 Act), which means that it may invest a
greater percentage of its assets in a single issuer than a diversified fund, and
may be subject to greater volatility or risk of loss than if it were
diversified. The Fund is permitted to invest up to 20% of its net assets in
securities the income from which is subject to the federal alternative minimum
tax. Income from these securities would be taxable for investors subject to that
tax.
For a more complete discussion of risk, please see "The risks of investing in
the Funds" on page 17.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other
government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial advisor to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors seeking monthly income, free from federal income taxes.
o Investors with long-term financial goals.
Who should not invest in the Fund
o Investors with very short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
especially over the short term.
2
How has Delaware Tax-Free USA Fund performed?
This bar chart and table can help you evaluate the risks of investing in the
Fund. We show how annual returns for the Fund's Class A shares have varied over
the past ten calendar years, as well as the average annual returns of the Class
A, B and C shares for one-year, five-year and ten-year periods. The Fund's past
performance (before and after taxes) does not necessarily indicate how it will
perform in the future. The returns reflect expense caps in effect during the
periods. The returns would be lower without the expense caps. Please see the
footnotes on page 9 for additional information about the expense caps.
Year-by-year total return (Class A)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
----- ------- ------ ------- ------- ------- ------- -------- ------- ------
0.84% 8.31% 4.85% -5.18% 10.89% 4.37% 8.72% 6.69% 5.22% 3.80%
As of September 30, 2006, the Fund's Class A shares had a calendar year-to-date
return of 3.93%. During the periods illustrated in this bar chart, Class A's
highest quarterly return was 4.55% for the quarter ended September 30, 2002 and
its lowest quarterly return was -3.30% for the quarter ended June 30, 1999.
The maximum Class A sales charge of 4.50%, which is normally deducted when you
purchase shares, is not reflected in the total returns in the previous paragraph
or in the bar chart. If this fee were included, the returns would be less than
those shown. The average annual returns in the table below do include the sales
charge.
Average annual returns for periods ending 12/31/05
-------------------------------------------------------------------------------
Delaware Tax-Free USA Fund 1 year 5 years 10 years**
-------------------------------------------------------------------------------
Class A return before taxes (0.91%) 4.78% 4.28%
-------------------------------------------------------------------------------
Class A return after taxes on distributions (0.91%) 4.78% 4.21%
-------------------------------------------------------------------------------
Class A return after taxes on distributions
and sale of Fund shares 0.86% 4.78% 4.31%
-------------------------------------------------------------------------------
Class B return before taxes* (0.98%) 4.68% 4.09%
-------------------------------------------------------------------------------
Class C return before taxes* 2.01% 4.93% 3.94%
-------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index 3.51% 5.59% 5.71%
(reflects no deduction for fees,
expenses or taxes)
The Fund's returns are compared to the performance of the Lehman Brothers
Municipal Bond Index. The Index measures the total return performance of
long-term, investment-grade tax-exempt bonds with maturities greater than two
years. You should remember that, unlike the Fund, the Index is unmanaged and
does not reflect the costs of operating a mutual fund, such as the costs of
buying, selling and holding securities. Maximum sales charges are included in
the Fund returns shown above.
After-tax performance is presented only for Class A shares of the Fund. The
after-tax returns for other Fund classes may vary. Actual after-tax returns
depend on the investor's individual tax situation and may differ from the
returns shown. After-tax returns are not relevant for shares held in
tax-deferred investment vehicles such as employer-sponsored 401(k) plans and
individual retirement accounts (IRAs). The after-tax returns shown are
calculated using the highest individual federal marginal income tax rates in
effect during the periods presented and do not reflect the impact of state and
local taxes. The after-tax rate used is based on the current tax
characterization of the elements of the Fund's returns (e.g., qualified vs.
non-qualified dividends). Past performance, both before and after taxes, is not
a guarantee of future results.
* Total returns assume redemption of shares at end of period. Ten-year
returns for Class B shares reflect conversion to Class A shares after
8 years. If shares were not redeemed, the returns before taxes for
Class B would be 3.00%, 4.93% and 4.09% for the one-year, five-year
and ten-year periods, respectively, and the returns before taxes for
Class C would be 3.00%, 4.93% and 3.94% for the one-year, five-year
and ten-year periods, respectively.
** The Lehman Brothers Municipal Bond Index returns shown are for ten
years because the Fund's Class A, Class B and Class C shares commenced
operations more than 10 calendar years ago. The Index reports returns
on a monthly basis as of the last day of the month.
3
Profile: Delaware Tax-Free USA Intermediate Fund
What is the Fund's goal?
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. Although the Fund will strive to meet its goal, there
is no assurance that it will.
What are the Fund's main investment strategies?
Under normal circumstances, the Fund will invest at least 80% of its net assets
in securities the income from which is exempt from federal income taxes,
including the federal alternative minimum tax. This is a fundamental investment
policy that may not be changed without prior shareholder approval.
The Fund will invest primarily in municipal debt obligations that are issued by
state and local governments to raise funds for various public purposes such as
hospitals, schools and general capital expenses. The Fund will invest its assets
in securities with maturities of various lengths, depending on market
conditions, but will have a dollar-weighted average effective maturity of
between three and 10 years. We will attempt to adjust the average maturity of
the bonds in the portfolio to provide a high level of tax-exempt income
consistent with preservation of capital. The Fund's income level will vary
depending on current interest rates and the specific securities in the
portfolio. The Fund may concentrate its investments in certain types of bonds or
in a certain segmentn of the municipal bond market when the supply of bonds in
other sectors does not suit our investment needs.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. Over time, the value of your investment in
the Fund will increase and decrease according to changes in the value of the
securities in the Fund's portfolio. This Fund will be affected primarily by
changes in interest rates. For example, when interest rates rise, the value of
bonds in the portfolio will likely decline. The Fund may also be affected by the
ability of individual municipalities to pay interest and repay principal on the
bonds they issue. The Fund is non-diversified as defined under the 1940 Act,
which means that it may invest a greater percentage of its assets in a single
issuer than a diversified fund, and may be subject to greater volatility or risk
of loss than if it were diversified. Under normal circumstances, the Fund may
invest up to 20% of its net assets in securities the income from which is
subject to the federal alternative minimum tax. Income from these securities
would be taxable for investors subject to that tax.
For a more complete discussion of risk, please see "The risks of investing in
the Funds" on page 17.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the FDIC or any other government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial advisor to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors seeking monthly income, free from federal income taxes.
o Investors with long-term financial goals.
o Investors willing to give up some income potential in exchange for the
reduced risk of principal fluctuation that comes with an intermediate
maturity investment.
Who should not invest in the Fund
o Investors with very short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
especially over the short term.
4
How has Delaware Tax-Free USA Intermediate Fund performed?
This bar chart and table can help you evaluate the risks of investing in the
Fund. We show how annual returns for the Fund's Class A shares have varied over
the past ten calendar years, as well as the average annual returns of the Class
A, B and C shares for one-year, five-year and ten-year periods. The Fund's past
performance (before and after taxes) does not necessarily indicate how it will
perform in the future. The returns reflect expense caps in effect during the
periods. The returns would be lower without the expense caps. Please see the
footnotes on page 9 for additional information about the expense caps.
Year-by-year total return (Class A)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
----- ------- -------- ------- ------- ------- -------- ------- ------- ------
4.61% 6.50% 5.83% -1.41% 9.44% 5.12% 9.10% 6.10% 4.93% 3.45%
As of September 30, 2006, the Fund's Class A shares had a calendar year-to-date
return of 3.26%. During the periods illustrated in this bar chart, Class A's
highest quarterly return was 4.69% for the quarter ended September 30, 2002 and
its lowest quarterly return was -2.15% for the quarter ended June 30, 2004.
The maximum Class A sales charge of 2.75%, which is normally deducted when you
purchase shares, is not reflected in the total returns in the previous paragraph
or in the bar chart. If this fee were included, the returns would be less than
those shown. The average annual returns in the table below do include the sales
charge.
Average annual returns for periods ending 12/31/05
--------------------------------------------------------------------------------
Delaware Tax-Free USA Intermediate Fund 1 year 5 years 10 years**
--------------------------------------------------------------------------------
Class A return before taxes 0.65% 5.13% 5.03%
--------------------------------------------------------------------------------
Class A return after taxes on distributions 0.65% 5.13% 5.03%
--------------------------------------------------------------------------------
Class A return after taxes on distributions
and sale of Fund shares 1.66% 4.98% 4.94%
--------------------------------------------------------------------------------
Class B return before taxes* 0.50% 4.81% 4.88%
--------------------------------------------------------------------------------
Class C return before taxes* 1.58% 4.83% 4.44%
--------------------------------------------------------------------------------
Lehman Brothers Municipal Bond 3-15 Year Index
(reflects no deduction for fees, expenses, or
taxes) 2.25% 5.18% 5.42%
--------------------------------------------------------------------------------
Merrill Lynch 3-7 Year Municipal Bond Index
(reflects no deduction for fees, expenses,
or taxes) 1.25% 4.86% 4.97%
The Fund's returns are compared to the performance of the Lehman Brothers
Municipal Bond 3-15 Year Index and the Merrill Lynch 3-7 Year Municipal Bond
Index. You should remember that, unlike the Fund, the Indices are unmanaged and
do not reflect the costs of operating a mutual fund, such as the costs of
buying, selling and holding securities. Maximum sales charges are included in
the Fund returns shown above.
After-tax performance is presented only for Class A shares of the Fund. The
after-tax returns for other Fund classes may vary. Actual after-tax returns
depend on the investor's individual tax situation and may differ from the
returns shown. After-tax returns are not relevant for shares held in
tax-deferred investment vehicles such as employer-sponsored 401(k) plans and
IRAs. The after-tax returns shown are calculated using the highest individual
federal marginal income tax rates in effect during the periods presented and do
not reflect the impact of state and local taxes. The after-tax rate used is
based on the current tax characterization of the elements of the Fund's returns
(e.g., qualified vs. non-qualified dividends). Past performance, both before and
after taxes, is not a guarantee of future results.
* Total returns assume redemption of shares at end of period. Ten-year
returns for Class B shares reflect conversion to Class A shares after
5 years. If shares were not redeemed, the returns before taxes for
Class B would be 2.49%, 4.81% and 4.88% for the one-year, five-year
and ten-year periods, respectively, and the returns before taxes for
Class C would be 2.58%, 4.83% and 4.44% for the one-year, five-year
and ten-year periods, respectively.
** The Merrill Lynch 3-7 Year Municipal Bond Index and Lehman Brothers
Municipal Bond 3-15 Year Index returns shown are for ten years because
the Fund's Class A, Class B and Class C shares commenced operations
more than 10 calendar years ago. The Lehman Brothers Municipal Bond
3-15 Year Index is replacing the Merrill Lynch 3-7 Year Index as the
Fund's benchmark. As a result of the changes in the Fund's investment
strategy, the investment manager (Manager) believes the Lehman
Brothers Municipal Bond 3-15 Year Index is a more accurate benchmark
of the Fund's investments. The Merrill Lynch 3-7 year Municipal Bond
Index may be excluded from this comparison in the future. The Indices
report returns on a monthly basis as of the last day of the month.
5
Profile: Delaware National High-Yield Municipal Bond Fund
What is the Fund's goal?
Delaware National High-Yield Municipal Bond Fund seeks a high level of current
income exempt from federal income tax primarily through investment in medium-
and lower-grade municipal obligations. Although the Fund will strive to meet its
goal, there is no assurance that it will.
What are the Fund's main investment strategies?
Under normal circumstances, the Fund will invest at least 80% of its net assets
in municipal securities the income from which is exempt from federal income
taxes. This is a fundamental investment policy that may not be changed without
prior shareholder approval.
Municipal debt obligations are issued by state and local governments to raise
funds for various public purposes such as hospitals, schools and general capital
expenses. The Fund will invest its assets in securities with maturities of
various lengths, depending on market conditions, but will typically have a
dollar-weighted average effective maturity between five and 30 years. We will
attempt to adjust the average maturity of the bonds in the portfolio to provide
a high level of tax-exempt income consistent with preservation of capital. The
Fund's income will vary depending on current interest rates and the specific
securities in the portfolio. The Fund may concentrate its investments in certain
types of bonds or in a certain segment of the municipal bond market when the
supply of bonds in other sectors does not suit our investment needs.
Under normal circumstances, Delaware National High-Yield Municipal Bond Fund
will invest primarily in lower rated municipal securities, which typically offer
higher income potential and involve greater risk than higher quality securities.
What are the main risks of investing in the Fund?
Investing in any mutual fund involves risk, including the risk that you may lose
part or all of the money you invest. Over time, the value of your investment in
the Fund will increase and decrease according to changes in the value of the
securities in the Fund's portfolio. This Fund will be affected primarily by
changes in interest rates. For example, when interest rates rise, the value of
bonds in the portfolio will likely decline.
The Fund may also be affected by the ability of individual municipalities to pay
interest and repay principal on the bonds they issue. This risk is significant
for the Fund because the issuers of the bonds in the portfolio are generally
considered to be in a less secure financial situation and may be affected more
by adverse economic conditions. The Fund may be subject to greater volatility
during periods of adverse economic conditions and it may experience a greater
incidence of credit problems. The Fund is non-diversified as defined under the
1940 Act, which means that it may invest a greater percentage of its assets in a
single issuer than a diversified fund, and may be subject to greater volatility
or risk of loss than if it were diversified. Under normal circumstances, the
Fund may to invest up to 100% of its net assets in securities the income from
which is subject to the federal alternative minimum tax. Income from these
securities would be taxable for investors subject to that tax.
For a more complete discussion of risk, please see "The risks of investing in
the Funds" on page 17.
An investment in the Fund is not a deposit of any bank and is not insured or
guaranteed by the FDIC or any other government agency.
You should keep in mind that an investment in the Fund is not a complete
investment program; it should be considered just one part of your total
financial plan. Be sure to discuss this Fund with your financial advisor to
determine whether it is an appropriate choice for you.
Who should invest in the Fund
o Investors seeking monthly income, free from federal income taxes.
o Investors with long-term financial goals.
o Investors willing to accept the possibility of significant fluctuations in
share price, particularly in the short term.
Who should not invest in the Fund
o Investors with very short-term financial goals.
o Investors who are unwilling to accept share prices that may fluctuate,
especially in the short term.
6
How has Delaware National High-Yield Municipal Bond Fund performed?
This bar chart and table can help you evaluate the risks of investing in the
Fund. We show how annual returns for the Fund's Class A shares have varied over
the past ten calendar years, as well as the average annual returns of the Class
A, B and C shares for one-year, five-year and ten-year or lifetime periods, as
applicable. The Fund's past performance (before and after taxes) does not
necessarily indicate how it will perform in the future. The returns reflect
expense caps in effect during the periods. The returns would be lower without
the caps. Please see the footnotes on page 9 for additional information about
the expense caps.
Year-by-year total return (Class A)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
------ ------- ------- ------- -------- ------- -------- ------- -------- ------
6.53% 10.32% 6.68% -3.57 6.98% 5.36% 4.69% 6.57% 7.36% 5.92%
As of September 30, 2006, the Fund's Class A shares had a calendar year-to-date
return of 4.46%. During the periods illustrated in this bar chart, Class A's
highest quarterly return was 3.00% for the quarter ended September 30, 2000 and
its lowest quarterly return was -2.83% for the quarter ended December 31, 1999.
The maximum Class A sales charge of 4.50%, which is normally deducted when you
purchase shares, is not reflected in the total returns in the previous paragraph
or in the bar chart. If this fee were included, the returns would be less than
those shown. The average annual returns in the table below do include the sales
charge.
Average annual returns for periods ending 12/31/05
--------------------------------------------------------------------------------
Delaware National High-Yield Municipal 1 year 5 years 10 years or
Bond Fund lifetime**
--------------------------------------------------------------------------------
Class A return before taxes 1.14% 5.00% 5.14%
--------------------------------------------------------------------------------
Class A return after taxes on distributions 1.14% 5.00% 5.10%
--------------------------------------------------------------------------------
Class A return after taxes on distributions
and sale of Fund shares 2.39% 5.02% 5.15%
--------------------------------------------------------------------------------
Class B return before taxes* 1.12% 4.90% 4.87%
--------------------------------------------------------------------------------
Class C return before taxes* 4.11% 5.14% 4.67%
--------------------------------------------------------------------------------
Lehman Brothers Municipal Bond Index
(reflects no deduction for fees, expenses,
or taxes) 3.51% 5.59% 5.71%
--------------------------------------------------------------------------------
The Fund's returns are compared to the performance of the Lehman Brothers
Municipal Bond Index. The Index measures the total return performance of
long-term, investment-grade tax-exempt bonds with maturities greater than two
years. You should remember that, unlike the Fund, the Index is unmanaged and
does not reflect the costs of operating a mutual fund, such as the costs of
buying, selling and holding securities. Maximum sales charges are included in
the Fund returns shown above.
After-tax performance is presented only for Class A shares of the Fund. The
after-tax returns for other Fund classes may vary. Actual after-tax returns
depend on the investor's individual tax situation and may differ from the
returns shown. After-tax returns are not relevant for shares held in
tax-deferred investment vehicles such as employer-sponsored 401(k) plans and
IRAs. The after-tax returns shown are calculated using the highest individual
federal marginal income tax rates in effect during the periods presented and do
not reflect the impact of state and local taxes. The after-tax rate used is
based on the current tax characterization of the elements of the Fund's returns
(e.g., qualified vs. non-qualified dividends). Past performance, both before and
after taxes, is not a guarantee of future results.
* Total returns assume redemption of shares at end of period. Lifetime
returns for Class B shares reflect conversion to Class A shares after
8 years. If shares were not redeemed, the returns before taxes for
Class B would be 5.12%, 5.15% and 4.87% for the one-year, five-year
and lifetime periods, respectively, and the returns before taxes for
Class C would be 5.11%, 5.14% and 4.67% for the one-year, five-year
and lifetime periods, respectively.
** Lifetime returns are shown if the Class existed for less than 10
years. The Lehman Brothers Municipal Bond Index return shown is for 10
years because the Fund's Class A shares commenced operations more than
10 years ago. The inception dates for Class B and Class C shares of
the Fund were December 18, 1996 and May 26, 1997, respectively. The
Index returns for Class B's and Class C's lifetime periods are 5.86%
and 5.89%, respectively. The Index reports returns on a monthly basis
as of the last day of the month. As a result, the Index returns for
Class B and Class C lifetimes reflect the returns from December 31,
1996 and May 31, 1997, respectively, through December 31, 2005.
7
Profiles:(continued)
What are the Funds' fees and expenses?
Sales charges are fees DELAWARE TAX-FREE USA FUND AND DELAWARE NATIONAL HIGH-YIELD
paid directly from your MUNICIPAL BOND FUND
investments when you buy CLASS A B C
or sell shares of the Funds. ----------------------------- ----------- ---------- ----------
Maximum sales charge
(load) imposed on
purchases as a percentage
of offering price 4.50% none none
----------------------------- ----------- ---------- ----------
Maximum contingent
deferred sales charge
(load) as a percentage of
original purchase price
or redemption price,
whichever is lower none(1) 4.00%(2) 1.00%(3)
----------------------------- ----------- ---------- ----------
Maximum sales charge
(load) imposed on
reinvested dividends none none none
----------------------------- ----------- ---------- ----------
Redemption fees none none none
DELAWARE TAX-FREE USA INTERMEDIATE FUND
CLASS A B C
----------------------------- ----------- ---------- ----------
Maximum sales charge
(load) imposed on
purchases as a percentage
of offering price 2.75% none none
----------------------------- ----------- ---------- ----------
Maximum contingent
deferred sales charge
(load) as a percentage of
original purchase price
or redemption price,
whichever is lower none(1) 4.00%(2) 1.00%(3)
----------------------------- ----------- ---------- ----------
Maximum sales charge
(load) imposed on
reinvested dividends none none none
----------------------------- ----------- ---------- ----------
Redemption fees none none none
Annual fund operating DELAWARE TAX-FREE USA FUND
expenses are deducted from CLASS A B C
the Funds' assets. ----------------------------- ----------- ---------- ----------
Management fees(6) 0.55% 0.55% 0.55%
----------------------------- ----------- ---------- ----------
Distribution and service
(12b-1) fees 0.27%(4,5) 1.00% 1.00%
----------------------------- ----------- ---------- ----------
Other expenses 0.18% 0.18% 0.18%
----------------------------- ----------- ---------- ----------
Total operating expenses 1.00% 1.73% 1.73%
----------------------------- ----------- ---------- ----------
Fee waivers and payments (0.15%) (0.11%) (0.11%)
----------------------------- ----------- ---------- ----------
Net expenses 0.85% 1.62% 1.62%
----------------------------- ----------- ---------- ----------
DELAWARE TAX-FREE USA INTERMEDIATE FUND
CLASS A B C
----------------------------- ----------- ---------- ----------
Management fees(6) 0.50% 0.50% 0.50%
----------------------------- ----------- ---------- -----------
Distribution and service
(12b-1) fees 0.30%(5) 1.00% 1.00%
---------------------------------------------------------------
Other expenses 0.27% 0.27% 0.27%
---------------------------------------------------------------
Total operating expenses 1.07% 1.77% 1.77%
---------------------------------------------------------------
Fee waivers and payments (0.32%) (0.17%) (0.17%)
------------------------------------- -------------------------
Net expenses 0.75% 1.60% 1.60%
---------------------------------------------------------------
DELAWARE NATIONAL HIGH-YIELD MUNICIPAL BOND FUND
CLASS A B C
---------------------------------------------------------------
Management fees(6) 0.55% 0.55% 0.55%
--------------------------------------- -----------------------
Distribution and service
(12b-1) fees 0.25 1.00% 1.00%
----------------------------- ----------- ---------- ----------
Other expenses 0.22% 0.22% 0.22%
----------------------------- ----------- ---------- ----------
Total operating expenses 1.02% 1.77% 1.77%
----------------------------- ----------- ---------- ----------
Fee waivers and payments (0.12%) (0.12%) (0.12%)
----------------------------- ----------- ---------- ----------
Net expenses 0.90% 1.65% 1.65%
----------------------------- ----------- ---------- ----------
8
This example is intended DELAWARE TAX-FREE USA FUND
to help you compare the
cost of investing in the CLASS (8) A B B (if C C (if
Funds to the cost of redeemed) redeemed)
investing in other mutual ------------------------------------------------------------------
funds with similar investment 1 year $533 $165 $565 $165 $265
objectives. We show the 3 years $740 $534 $759 $534 $534
cumulative amount of Fund 5 years $964 $928 $1,078 $928 $928
expenses on a hypothetical 10 years $1,607 $1,838 $1,838 $2,032 $2,032
investment of $10,000 with ------------------------------------------------------------------
an annual 5% return over the
time shown.(7) This is an
example only, and does not DELAWARE TAX-FREE USA INTERMEDIATE FUND
represent future expenses,
which may be greater or CLASS (8) A B B (if C C (if
less than those shown here. redeemed) redeemed)
------------------------------------------------------------------
1 year $349 $163 $363 $163 $263
3 years $575 $541 $641 $541 $541
5 years $819 $943 $943 $943 $943
10 years $1,517 $1,885 $1,885 $2,070 $2,070
------------------------------------------------------------------
DELAWARE NATIONAL HIGH-YIELD MUNICIPAL BOND FUND
CLASS (8) A B B (if C C (if
redeemed) redeemed)
------------------------------------------------------------------
1 year $538 $168 $568 $168 $268
3 years $749 $546 $771 $546 $546
5 years $977 $948 $1,098 $948 $948
10 years $1,631 $1,876 $1,876 $2,074 $2,074
------------------------------------------------------------------
(1) A purchase of Class A shares of $1 million or more may be made at net asset
value. However, if you buy the shares through a financial advisor who is
paid a commission, a contingent deferred sales charge will apply to
redemptions made within two years of purchase. Additional Class A purchase
options that involve a contingent deferred sales charge may be permitted
from time to time and will be disclosed in the Prospectus if they are
available.
(2) For Delaware Tax-Free USA Fund and Delaware National High-Yield Municipal
Bond Fund, if you redeem Class B shares during the first year after you buy
them, you will pay a contingent deferred sales charge of 4.00%, which
declines to 3.00% during the second year, 2.25% during the third year,
1.50% during the fourth and fifth years, 1.00% during the sixth year and 0%
thereafter. For Delaware Tax-Free USA Intermediate Fund, if you redeem
Class B shares during the first year after you buy them, you will pay a
contingent deferred sales charge of 2.00%, which declines to 1.00% during
the second and third years and 0% thereafter.
(3) Class C shares redeemed within one year of purchase are subject to a 1.00%
contingent deferred sales charge.
(4) The Board of Trustees has adopted a formula for calculating 12b-1 plan fees
for the Delaware Tax-Free USA Fund's Class A shares that went into effect
on June 1, 1992. The total 12b-1 fees to be paid by Class A shareholders of
the Fund will be the sum of 0.10% of the average daily net assets
representing shares that were acquired prior to June 1, 1992 and 0.30% of
the average daily net assets representing the shares that were acquired on
or after June 1, 1992. All Class A shareholders will bear 12b-1 fees at the
same rate, the blended rate based upon the allocation of the 0.10% and
0.30% rates described above.
(5) The Funds' distributor has contracted to waive the Class A 12b-1 fees
through December 31, 2007 to 0.25% and 0.15% of average daily net assets of
the Delaware Tax-Free USA Fund and the Delaware Tax-Free USA Intermediate
Fund, respectively. This contractual waiver is applied to the shares of the
Delaware Tax-Free USA Fund that were acquired on or after June 1, 1992 in
calculating the applicable 12b-1 fee rate.
(6) The Manager has contracted to waive all or a portion of its investment
advisory fees and/or reimburse expenses through December 31, 2007 in order
to prevent total annual fund operating expenses (excluding any 12b-1 plan
expenses, taxes, interest, brokerage fees, certain insurance costs and
non-routine expenses or costs, including but not limited to, those relating
to reorganizations, litigation, certain Trustee retirement plan expenses,
conducting shareholder meetings and liquidations [collectively,
"non-routine expenses"]) from exceeding, in an aggregate amount, 0.62%,
0.60% and 0.65% of average daily net assets of the Delaware Tax-Free USA
Fund, Delaware Tax-Free USA Intermediate Fund and the Delaware National
High-Yield Municipal Bond Fund, respectively. For purposes of these waivers
and reimbursements, non-routine expenses may also include such additional
costs and expenses as may be agreed upon from time to time by the Funds'
Boards and the Manager.
(7) The Funds' actual rate of return may be greater or less than the
hypothetical 5% return we use here. This example reflects the net operating
expenses with expense waivers for the one-year contractual period and the
total operating expenses without expense waivers for years two through 10.
(8) For Delaware Tax-Free USA Fund and Delaware National High-Yield Municipal
Bond Fund, Class B shares automatically convert to Class A shares at the
end of the eighth year. Information for the ninth and tenth years reflects
expenses of the Class A shares. For Delaware Tax-Free USA Intermediate
Fund, Class B shares automatically convert to class A shares at the end of
the fifth year. Information for years six through ten reflects expenses of
the Class A shares.
9
How we manage the Funds
Our investment strategies
We analyze economic and market conditions, seeking to identify the securities or
market sectors that we think are the best investments for a particular Fund. The
following is a general description of the investment strategies used to manage
the Funds and a list of securities the Funds may invest in.
We take a disciplined approach to investing, combining investment strategies and
risk management techniques that can help shareholders meet their goals.
We will generally invest in debt obligations issued by state and local
governments and their political subdivisions, agencies, authorities and
instrumentalities that are exempt from federal income tax. We may also invest in
debt obligations issued by or for the District of Columbia, and its political
subdivisions, agencies, authorities and instrumentalities or territories and
possessions of the United States that are exempt from federal income tax.
We will generally invest in securities for income rather than seeking capital
appreciation through active trading. However, we may sell securities for a
variety of reasons such as to reinvest the proceeds in higher yielding
securities, to eliminate investments not consistent with the preservation of
capital or to honor redemption requests. As a result, we may realize losses or
capital gains which could be taxable to shareholders.
Delaware Tax-Free USA Fund and Delaware National High-Yield Municipal Bond Fund
will generally have a dollar-weighted average effective maturity of between five
and 30 years. Delaware Tax-Free USA Intermediate Fund will generally have a
dollar-weighted average effective maturity between three and 10 years. This is a
more conservative strategy than funds with longer average maturities, which
should result in the Fund experiencing less price volatility when interest rates
rise or fall.
The investment objective of each Fund described in this Prospectus is
fundamental. This means the Boards of Trustees may not change the objective
without obtaining shareholder approval. If the objective were changed, we would
notify the shareholders before the change in the objective became effective.
10
The securities we typically invest in
Fixed income securities offer the potential for greater income payments than
stocks, and also may provide capital appreciation. Municipal bond securities
typically pay income free of federal income taxes and may be free of state
income taxes in the state where they are issued.
-------------------------- -----------------------------------------------------
Securities How we use them
-------------------------- ---------------- ---------------- -------------------
Delaware
Delaware Tax-Free USA Delaware National
Tax-Free USA Intermediate High-Yield
Fund Fund Municipal Bond Fund
-------------------------- --------------------------------- -------------------
Tax-exempt obligations: Under normal conditions, we may Under normal
Commonly known as invest 80% of each Fund's conditions, we
municipal bonds. These assets in tax-exempt debt will invest
are debt obligations obligations rated in the top primarily in
issued by or for a state four quality grades by Standard medium- and
or territory, its & Poor's (S&P) or another lower-grade
agencies or nationally recognized tax-exempt
instrumentalities, statistical rating organization obligations rated
municipalities or other (NRSRO), or in unrated between BBB and B-.
political tax-exempt obligations if, in
sub-divisions. The the Manager's opinion, they are We will not make
interest on these debt equivalent in quality to the initial
obligations can top four quality grades. These investments in
generally be excluded bonds may include general securities rated
from federal income tax obligation bonds and revenue below B-, although
as well, as personal bonds. it may continue to
income tax in the state hold such
where the bond is securities if
issued. Determination of their rating has
a bond's tax-exempt been reduced below
status is based on the that grade.
opinion of the bond
issuer's legal counsel. We may invest all
or a portion of
the Delaware
National
High-Yield
Municipal Bond
Fund's assets in
higher grade
securities if the
Manager determines
that abnormal
market conditions
make investing in
lower rated
securities
inconsistent with
shareholders' best
interest.
--------------------------- -------------------------------- -------------------
General obligation bonds: We may invest without limit in We may invest in
Municipal bonds on which general obligation bonds in general
the payment of principal the top four quality grades or obligations and
and interest is secured bonds that are unrated, but will typically
by the issuer's pledge of which the Manager determines invest in lower
its full faith, credit to be of equal quality. quality bonds
and taxing power. rated between BBB
and B- by S&P or
another NRSRO.
--------------------------- -------------------------------- -------------------
Revenue bonds: Municipal We may invest without limit in The Fund may
bonds on which principal revenue bonds in the top four invest in revenue
and interest payments are quality grades or bonds that bonds and will
made from revenues are unrated, but which the typically invest
derived from a particular Manager determines to be of in lower quality
facility, from the equal quality. bonds rated
proceeds of a special between BBB and B-
excise tax or from by S&P or another
revenue generated by an NRSRO.
operating project.
Principal and interest
are not secured by the
general taxing power.
Tax-exempt industrial
development bonds, in
most cases, are a type of
revenue bond that is not
backed by the credit of
the issuing municipality
and may therefore involve
more risk.
--------------------------- -------------------------------- -------------------
11
How we manage the Funds (continued)
-------------------------- -----------------------------------------------------
Securities How we use them
-------------------------- ---------------- ---------------- -------------------
Delaware
Delaware Tax-Free USA Delaware National
Tax-Free USA Intermediate High-Yield
Fund Fund Municipal Bond Fund
-------------------------- --------------------------------- -------------------
Insured municipal bonds: We may invest without limit in insured bonds. We do
Municipal issuers may not evaluate the creditworthiness of the private
obtain insurance for insurer. Instead, we focus first on the
their obligations. In the creditworthiness of the actual bond issuer and its
event of a default, the ability to pay interest and principal.
insurer is required to
make payments of interest It is possible that a substantial portion of each
and principal when due to Fund's portfolio may consist of municipal bonds
the bondholders. that are insured by a single insurance company.
However, there is no
assurance that the Insurance is available on uninsured bonds and each
insurance company will Fund may purchase such insurance directly. We will
meet its obligations. generally do so only if we believe that purchasing
Insured obligations are and insuring a bond provides an investment
typically rated in the opportunity at least comparable to owning other
top quality grades by an available insured securities.
NRSRO.
The purpose of insurance is to protect against
credit risk. It does not insure against market risk
or guarantee the value of the securities in the
portfolio or the value of shares of any of the
Funds.
Insured bonds will typically not be a significant
portion of the investments of the Funds.
--------------------------- --------------------------------- ------------------
Private activity or We may invest up to 20% of each We may invest
private placement bonds: Fund's assets in bonds whose without limit in
Municipal bond issues income is subject to the these bonds.
whose proceeds are used federal alternative minimum
to finance certain tax. This means that a portion
non-government of each Fund's distributions
activities, including could be subject to the federal
some types of industrial alternative minimum tax that
revenue bonds such as applies to certain taxpayers.
privately owned sports
and convention
facilities. The Tax
Reform Act of 1986
subjects interest income
from these bonds to the
federal alternative
minimum tax and makes the
tax-exempt status of
certain bonds dependent
on the issuer's
compliance with specific
requirements after the
bonds are issued.
--------------------------- ----------------------------------------------------
Zero coupon bonds: Debt We may invest in zero coupon bonds. The market
obligations which do not prices of these bonds are generally more volatile
entitle the holder to any than the market prices of securities that pay
periodic payments of interest periodically and are likely to react to
interest prior to changes in interest rates to a greater degree than
maturity or a specified interest-paying bonds having similar maturities and
date when the securities credit quality. They may have certain tax
begin paying current consequences which, under certain conditions, could
interest. Therefore, they be adverse to the Funds.
are issued and traded at
a price lower than their
face amounts or par value.
--------------------------- ----------------------------------------------------
12
---------------------------- ---------------------------------------------------
Securities How we use them
---------------------------- ---------------- ---------------- -----------------
Delaware
Delaware Tax-Free USA Delaware National
Tax-Free USA Intermediate High-Yield
Fund Fund Municipal Bond Fund
---------------------------- --------------------------------- -----------------
Inverse floaters: Inverse We may invest in inverse We may invest up
floaters are instruments floaters. We may invest up to to 25% of
with floating or variable 25% of each Fund's respective Delaware National
interest rates that move net assets in inverse floaters High-Yield
in the opposite direction when the underlying bond is Municipal Bond
of short-term interest tax-exempt. Otherwise, each Fund's net assets
rates. Consequently, the Fund's investments in taxable in inverse
market values of inverse investments and securities floaters.
floaters will generally be rated below investment grade,
more volatile than other including inverse floaters on
tax-exempt investments. taxable bonds, are limited to
These securities may be 20% of each Fund's net assets.
considered to be
derivative securities.
---------------------------- ---------------------------------------------------
Variable rate and floating We may purchase "floating rate" and "variable
rate obligations: Pay rate" obligations without limit.
interest at rates that are
not fixed, but instead
vary with changes in
specified market rates or
indices on pre-designated
dates.
---------------------------- ---------------------------------------------------
Advance refunded bonds: We may invest without limit in advance refunded
In an advance refunding, bonds. These bonds are generally considered to be
the issuer uses the of very high quality because of the escrow account,
proceeds of a new bond which typically holds U.S. Treasuries.
issue to purchase high
grade interest bearing
debt securities. These
securities are then
deposited into an
irrevocable escrow
account held by a trustee
bank to secure all future
principal and interest
payments on pre-existing
bonds, which are then
considered to be "advance
refunded bonds." Escrow
secured bonds often
receive the highest
rating from S&P and
Moody's.
---------------------------- ---------------------------------------------------
Short-term tax-free We may invest without limit in high-quality
instruments: Include short-term tax-free instruments.
instruments such as
tax-exempt commercial
paper and general
obligation, revenue and
project notes, as well as
variable floating rate
demand obligations.
--------------------------- ----------------------------------------------------
13
How we manage the Funds (continued)
---------------------------- ---------------------------------------------------
Securities How we use them
---------------------------- ---------------- ---------------- -----------------
Delaware
Delaware Tax-Free USA Delaware National
Tax-Free USA Intermediate High-Yield
Fund Fund Municipal Bond Fund
---------------------------- --------------------------------- -----------------
High yield, high risk We may invest up to 20% of each We will invest
municipal bonds: Fund's net assets in high yield, primarily in
Municipal debt high risk fixed-income lower rated,
obligations rated lower securities. high-yield
than investment grade by securities.
an NRSRO or, if unrated,
of comparable quality.
These securities are
often referred to as
"junk bonds" and are
considered to be of poor
standing and
predominately speculative.
--------------------------- ----------------------------------------------------
Options: Options We may invest in futures, options and closing
represent a right to buy transactions related thereto. These activities
or sell a security at an will not be entered into for speculative purposes,
agreed upon price at a but rather for hedging purposes and to facilitate
future date. The the ability to quickly deploy into the market a
purchaser of an option Fund's cash, short-term debt securities and other
may or may not choose to money market instruments at times when each Fund's
go through with the assets are not fully invested. We may only enter
transaction. into these transactions for hedging purposes if it
is consistent with a Fund's respective investment
Certain options may be objective and policies.
considered to be
derivative securities. We may invest up to an aggregate of 20% of a Fund's
net assets in futures, options and swaps as long as
each Fund's investment in these securities when
aggregated with other taxable instruments and
securities rated below investment grade (other than
the Delaware National High-Yield Municipal Bond
Fund) does not exceed 20% of each Fund's total net
assets.
Use of these strategies can increase the operating
costs of the Funds and can lead to loss of
principal.
---------------------------- ---------------------------------------------------
Futures contracts: Futures We may invest in futures, options and closing
contacts are agreements transactions related thereto. These activities
for the purchase or sale will not be entered into for speculative
of securities (or index of purposes, but rather for hedging purposes and
securities) at a specified to facilitate the ability to quickly deploy
price, on a specified into the market a Fund's cash, short-term debt
date. Unlike an option, a securities and other money market instruments
futures contract must be at times when each Fund's assets are not fully
executed unless it is sold invested. We may only enter into these
before the settlement transactions for hedging purposes if it is
date. consistent with a Fund's respective investment
objective and policies.
Certain futures and
options on futures may be We may invest up to an aggregate of 20% of each
considered to be Fund's net assets in futures, options and swaps
derivative securities. as long as each Fund's investment in these
securities when aggregated with other taxable
instruments and securities rated below
investment grade (other than Delaware National
High-Yield Municipal Bond Fund) does not exceed
20% of each Fund's total net assets.
At times when we anticipate adverse conditions,
we may want to protect gains on securities
without actually selling them. We might use
futures or options on futures to neutralize the
effect of any price declines, without selling a
bond or bonds.
Use of these strategies can increase the
operating costs of the Funds and can lead to
loss of principal.
---------------------------- -------------------------------------------------
14
---------------------------- ---------------------------------------------------
Securities How we use them
---------------------------- ---------------- ---------------- -----------------
Delaware
Delaware Tax-Free USA Delaware National
Tax-Free USA Intermediate High-Yield
Fund Fund Municipal Bond Fund
---------------------------- --------------------------------- -----------------
Restricted securities: We may invest without limitation in
Privately-placed privately-placed securities including those
securities whose resale is that are eligible for resale only among certain
restricted under institutional buyers without registration,
securities law. which are commonly known as "Rule 144A
Securities."
---------------------------- ---------==---------------------- -----------------
Illiquid securities: We may invest up to 10% of We may invest
Securities that do not each Fund's net assets in up to 15% of
have a ready market, and illiquid securities. Delaware
cannot be easily sold National
within seven days at High-Yield
approximately the price Municipal Bond
that a fund has valued Fund's net
them. assets in
illiquid
securities.
---------------------------- --------------------==----------- -----------------
Repurchase agreements: Typically, we use repurchase agreements as a
Agreements between a buyer short-term investment for our cash position. We
of securities, such as a may use repurchase agreements which are at
fund, and a seller of least 102% collateralized by securities in
securities, in which the which a Fund is permitted to invest directly.
seller agrees to buy the We will only enter into repurchase agreements
securities back within a in which the collateral is comprised of U.S.
specified time at the same government securities.
price the buyer paid for
them, plus an amount equal We may not enter into repurchase agreements
to an agreed upon interest that represent more than 10% of Delaware
rate. Repurchase National High-Yield Municipal Bond Fund's total
agreements are often assets except when investing for defensive
viewed as equivalent to purposes during periods of adverse market
cash. conditions.
---------------------------- ------------------------------- -----------------
Reverse repurchase This is not a principal We may enter
agreements: The same as strategy for the Funds. into reverse
repurchase agreements repurchase
except that a fund would agreements for
act as the seller and amounts
agree to buy back the aggregating up
securities at the same to 10% of
price the buyer paid for Delaware
them, plus an agreed upon National
interest rate. High-Yield
Municipal Bond
Fund's total
assets. This
may be
preferable to a
regular sale
because it
avoids certain
market risk and
transaction
costs. However,
it is a form of
leveraging
which may
exaggerate any
increases or
decreases in
the Fund's net
asset value.
Because use of
this technique
is limited, we
believe it may
facilitate the
Fund's ability
to provide
current income
without
adversely
affecting our
ability to
preserve
capital.
---------------------------- ------------------------------- -----------------
15
How we manage the Funds (continued)
-------------------------- -----------------------------------------------------
Securities How we use them
-------------------------- ---------------- ---------------- -------------------
Delaware
Delaware Tax-Free USA Delaware National
Tax-Free USA Intermediate High-Yield
Fund Fund Municipal Bond Fund
---------------------------- --------------------------------- -----------------
Interest rate swaps and We may use interest rate swaps to adjust each
index swap agreements: In Fund's sensitivity to interest rates by
an interest rate swap, a changing its duration. We may also use
fund receives payment from interest rate swaps to hedge against changes in
another party based on a interest rates. We may use index swaps to gain
floating interest rate in exposure to markets that each Fund invests in
return for making payments and may also use index swaps as a substitute
based on a fixed interest for futures, options or forward contracts if
rate. An interest rate such contracts are not directly available to
swap can also work in each Fund on favorable terms.
reverse, with a fund
receiving payments based We may invest up to an aggregate of 20% of each
on a fixed interest rate Fund's net assets in futures, options and swaps
and making payments based as long as each Fund's investment in these
on a floating interest securities when aggregated with other taxable
rate. In an index swap, a instruments and securities rated below
fund receives gains or investment grade (other than the Delaware
incurs losses based on the National High-Yield Municipal Bond Fund) does
total return of an index, not exceed 20% of each Fund's total assets.
in exchange for making
fixed or floating interest Use of these strategies can increase the
rate payments to another operating costs of the Funds and can lead to
party. loss of principal.
---------------------------- -------------------------------------------------
Please see the Statement of Additional Information (SAI) for additional
descriptions of these securities.
Borrowing money
Each Fund may borrow money from banks as a temporary measure for extraordinary
or emergency purposes or to facilitate redemptions but normally does not do so.
Each Fund may borrow up to 10% of the value of its total assets (20% for
Delaware National High-Yield Municipal Bond Fund). A Fund will be required to
pay interest to the lending banks on the amount borrowed. As a result, borrowing
money could result in a Fund being unable to meet its investment objective. The
Funds will not borrow money in excess of one-third of the value of their assets.
Purchasing securities on a when-issued or delayed delivery basis
Each Fund may buy securities on a when-issued or delayed-delivery basis; that
is, paying for securities before delivery or taking delivery at a later date.
The Funds will designate cash or securities in amounts sufficient to cover
obligations and will value the designated assets daily.
Lending securities
Delaware Tax-Free USA Intermediate Fund may lend up to 25% of its assets to
qualified brokers/dealers and institutional investors for their use in
securities transactions. Borrowers of the Fund's securities must provide
collateral to the Fund and adjust the amount of collateral each day to reflect
changes in the value of loaned securities. These transactions, if any, may
generate additional income for the Fund.
Concentration
Where we feel there is a limited supply of appropriate investments, each Fund
may concentrate its investments (invest more than 25% of total assets) in
municipal obligations relating to similar types of projects or with other
similar economic, business or political characteristics (such as bonds of
housing finance agencies or health care facilities). In addition, each Fund may
invest more than 25% of its assets in industrial development bonds or, in the
case of Delaware Tax-Free USA Fund and Delaware Tax-Free USA Intermediate Fund,
pollution control bonds, which may be backed only by the assets and revenues of
a nongovernmental issuer. Each Fund will not, however, invest more than 25% of
its total assets in bonds issued for companies in the same industry.
Temporary defensive measures
In response to unfavorable market conditions, each Fund may invest in taxable
instruments for temporary defensive purposes. These could include securities
such as obligations of the U.S. government, its agencies and instrumentalities,
commercial paper, cash, certificates of deposit of domestic banks, other cash
equivalents and other debt instruments. These investments may not be consistent
with each Fund's investment objective. To the extent that a Fund holds these
investments, it may be unable to achieve its investment objective.
Portfolio turnover
It is possible that each Fund's annual portfolio turnover may be greater than
100%. A turnover rate of 100% would occur if, for example, a Fund bought and
sold all of the securities in its portfolio once in the course of a year or
frequently traded a single security. A high rate of portfolio turnover in any
year may result in increased transaction costs for investors and may affect each
Fund's performance.
16
The risks of investing in the Funds
Investing in any mutual fund involves risk, including the risk that you may
receive little or no return on your investment, and the risk that you may lose
part or all of the money you invest. Before you invest in a Fund, you should
carefully evaluate the risks. Because of the nature of the Funds, you should
consider your investment to be a long-term investment that typically provides
the best results when held for a number of years. The table below describes the
principal risks you assume when investing in these funds. Please see the SAI for
further discussion of these risks and other risks not discussed here.
------------------------- ------------------------------------------------------
Risks How we strive to manage them
------------------------- ---------------- ----------------- -------------------
Delaware
Delaware Tax-Free USA Delaware National
Tax-Free USA Intermediate High-Yield
Fund Fund Municipal Bond Fund
------------------------- ---------------------------------- -------------------
Interest rate risk: The We do not try to increase return In an attempt to
risk that securities, by predicting and aggressively reduce interest
particularly bonds with capitalizing on interest rate rate risk, we will
longer maturities, will moves. adjust the Fund's
decrease in value if average maturity
interest rates rise. In an attempt to reduce interest based on our view
rate risk, we will adjust a of interest
Fund's average maturity based on rates. In
our view of interest rates. In anticipation of an
anticipation of an interest rate interest rate
decline, we may extend average decline, we may
maturity and when we anticipate extend average
an increase we may shorten maturity and when
average maturity. we anticipate an
increase we may
shorten average
maturity.
------------------------- ------------------------------------------------------
Market risk: The risk We maintain a long-term investment approach and focus
that all or a majority on bonds we believe will provide a steady income
of the securities in a stream regardless of interim market fluctuations. We
certain market--like the do not try to predict overall market movements and
stock or bond generally do not trade for short-term purposes.
market--will decline in
value because of
economic conditions,
future expectations or
investor confidence.
------------------------- ------------------------------------------------------
Industry and security We spread each Fund's assets across different types
risk: Industry risk is of municipal bonds and among bonds representing
the risk that the value different industries and regions throughout the
of securities in a country in order to minimize the impact that a poorly
particular industry performing security would have on a Fund. We also
will decline because of follow a rigorous selection process before choosing
changing expectations securities for the portfolio.
for the performance of
that industry. As discussed under "Concentration" on page 16, where
we feel there is a limited supply of appropriate
Security risk is the investments, we may concentrate each Fund's
risk that the value of investments in just a few industries. This will
an individual security expose a Fund to greater industry and security risk.
will decline because of
changing expectations
for the performance of
that individual company
issuing the stock or
bond.
------------------------- ------------------------------------------------------
17
How we manage the Funds (continued)
------------------------- ------------------------------------------------------
Risks How we strive to manage them
------------------------- ---------------- ----------------- -------------------
Credit risk: We conduct careful credit The Fund is subject
The possibility that a analysis of individual bonds; to significant credit
bond's issuer (or an we focus on high-quality risk due to its
entity that insures the bonds and limit our holdings investment in lower
bond) will be unable to of bonds rated below quality,
make timely payments of investment grade; and we hold high-yielding bonds.
interest and principal. a number of different bonds This risk is
in the portfolio. All of this described more fully
In the case of is designed to help reduce below. We strive to
municipal bonds, credit risk. manage this risk by
issuers may be affected maintaining a number
by poor economic of different bonds
conditions in their from different
states. issuers so that if
one issuer
experiences
difficulties, it will
have a lesser effect
on the entire
portfolio.
------------------------- ------------------------------- -----------------------
Call risk: The risk We take into consideration the likelihood of
that a bond issuer will prepayment when we select bonds and, in certain
prepay the bond during environments, we may look for bonds that have
periods of low interest protection against early prepayment.
rates, forcing
investors to reinvest
their money at interest
rates that might be
lower than rates on the
called bond.
------------------------- -------------------------------------------------------
Liquidity risk: The We limit each Fund's exposure to illiquid securities
possibility that to no more than 15% of a Fund's net assets.
securities cannot be
readily sold, within
seven days, at
approximately the price
that a fund values them.
------------------------- ------------------------------- -----------------------
High-yield, high risk We limit the amount of the This is a significant
municipal bonds: portfolio which may be risk for the Delaware
Investing in so-called invested in lower quality, National High-Yield
"junk" bonds entails higher yielding bonds. Municipal Bond Fund.
the risk of principal In striving to manage
loss, which may be this risk, we hold a
greater than the risk number of different
involved in investment bonds representing a
grade bonds. High-yield variety of industries
bonds are sometimes and municipal
issued by projects, seeking to
municipalities with minimize the effect
less financial strength that any one bond may
and therefore less have on the portfolio.
ability to make
projected debt payments
on the bonds.
A protracted economic
downturn could
adversely affect the
value of outstanding
high-yield bonds and
the ability of
high-yield issuers to
repay principal and
interest.
------------------------- ------------------------------- -----------------------
18
------------------------- -------------------------------------------------------
Risks How we strive to manage them
------------------------- ---------------- ----------------- --------------------
Delaware
Delaware Tax-Free USA Delaware National
Tax-Free USA Intermediate High-Yield
Fund Fund Municipal Bond Fund
---------------------------- ----------------------------------------------------
Non-diversified funds have Each Fund is a non-diversified fund and is subject
the flexibility to invest to this risk. Nevertheless, we typically hold
as much as 50% of their securities from a variety of different issuers,
assets in as few as two representing different sectors and different types
issuers provided no single of municipal projects. We also perform extensive
issuer accounts for more credit analysis on all securities. We are
than 25% of the particularly diligent in reviewing the credit
portfolio. The remaining status of bonds that represent a larger percentage
50% of the portfolio must of portfolio assets.
be diversified so that no
more than 5% of a fund's
assets is invested in the
securities of a single
issuer. Because a
non-diversified fund may
invest its assets in fewer
issuers, the value of fund
shares may increase or
decrease more rapidly than
if a fund was fully
diversified. If a fund
were to invest a large
portion of its assets in a
single issuer, the fund
could be significantly
affected if that issuer
was unable to satisfy its
financial obligations.
---------------------------- ----------------------------------------------------
Derivatives risk: We will use derivatives for defensive purposes,
Derivatives risk is the such as to protect gains or hedge against
possibility that a fund potential losses in the portfolio without actually
may experience a selling a security, to neutralize the impact of
significant loss if its interest rate changes, to improve diversification
employs a derivatives or to earn additional income. We will generally
strategy (including a not use derivatives for reasons inconsistent with
strategy involving inverse our investment objective.
floaters, futures,
options, and swaps such as
interest rate swaps and
index swaps) related to a
security or a market index
and that security or index
moves in the opposite
direction from what the
portfolio manager had
anticipated. A
significant risk of
derivative transactions is
the creditworthiness of
the counter-party, since
the transaction depends on
the willingness and
ability of the
counterparty to fulfill
its contractual
obligations. Derivatives
also involve additional
expenses, which could
reduce any benefit or
increase any loss to a
fund from using the
strategy.
---------------------------- ----------------------------------------------------
Disclosure of portfolio holdings
A description of each Fund's policies and procedures with respect to the
disclosure of a Fund's portfolio securities is available in the Funds' SAI.
19
Who manages the Funds
Investment manager
The Funds are managed by Delaware Management Company (Manager), a series of
Delaware Management Business Trust, which is an indirect subsidiary of Delaware
Management Holdings, Inc. The Manager makes investment decisions for the Funds,
manages the Funds' business affairs and provides daily administrative services.
For these services to the Funds, the Manager was paid aggregate fees, net of
waivers, for the last fiscal year as follows:
Investment management fees
Delaware Tax-Free Delaware Tax-Free USA Delaware National High-Yield
USA Fund Intermediate Fund Municipal Bond Fund
--------------------- ------------------ ------------------------- ------------------------------
As a percentage of 0.45% 0.33% 0.43%
average daily net
assets
A discussion regarding the basis for the Boards of Trustees' approval of the
investment advisory contract is available in each Fund's annual report to
shareholders for the period ended August 31, 2006.
Portfolio managers
Joseph R. Baxter and Robert F. Collins have primary responsibility for making
day-to-day investment decisions for each Fund. Mr. Baxter became co-manager of
the Funds in January 2003. Mr. Collins assumed responsibility for the Funds on
June 25, 2004.
Joseph R. Baxter
Senior Vice President, Head of Municipal Bond Department, Senior Portfolio
Manager Mr. Baxter joined Delaware Investments in 1999. He heads the firm's
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, he
held investment positions with First Union, most recently as a municipal
portfolio manager with the Evergreen Funds. Mr. Baxter received a bachelor's
degree in finance and marketing from LaSalle University.
Robert F. Collins, CFA
Senior Vice President, Senior Portfolio Manager Mr. Collins joined Delaware
Investments in 2004 and is a co-portfolio manager of several of the firm's
municipal bond funds and client accounts. Prior to joining Delaware Investments,
he spent five years as a co-manager of the municipal portfolio management group
within PNC Advisors, where he oversaw the tax-exempt investments of high net
worth and institutional accounts. Before that, he headed the municipal fixed
income team at Wilmington Trust, where he managed funds and high net worth
accounts. Mr. Collins earned a bachelor's degree in economics from Ursinus
College, and he is also a former president of the Financial Analysts of
Wilmington, Delaware.
The Funds' SAI provides additional information about each portfolio manager's
compensation, other accounts managed by each portfolio manager and each
portfolio manager's ownership of Fund shares.
Manager of managers structure
The Funds and the Manager have received an exemptive order from the Securities
and Exchange Commission (SEC) to operate under a manager of managers structure
that permits the Manager, with the approval of the Boards of Trustees, to
appoint and replace sub-advisors, enter into sub-advisory agreements, and
materially amend and terminate sub-advisory agreements on behalf of the Funds
without shareholder approval (the Manager of Managers Structure). The Manager of
Managers Structure was approved by shareholders at a meeting held on March 23,
2005 (or as adjourned). Under the Manager of Manager Structure, the Manager has
ultimate responsibility, subject to oversight by the Funds' Boards, for
overseeing the Funds' sub-advisors and recommending to the Boards their hiring,
termination or replacement. The SEC order does not apply to any sub-advisor that
is affiliated with the Funds or the Manager. While the Manager does not
currently expect to use the Manager of Managers Structure with respect to the
Funds, the Manager may, in the future, recommend to the Funds' Boards the
establishment of the Manager of Managers Structure by recommending the hiring of
one or more sub-advisors to manage all or a portion of the Funds' portfolio.
The Manager of Managers Structure enables the Funds to operate with greater
efficiency and without incurring the expense and delays associated with
obtaining shareholder approvals for matters relating to sub-advisors or
sub-advisory agreements. The Manager of Managers Structure does not permit an
increase in the overall management and advisory fees payable by the Funds
without shareholder approval. Shareholders will be notified of any changes made
to sub-advisors or sub-advisory agreements within 90 days of the change.
20
Who's who?
This diagram shows the various organizations involved with managing,
administering, and servicing the Delaware Investments(R) Funds.
[GRAPHIC OMITTED: DIAGRAM SHOWING THE VARIOUS ORGANIZATIONS INVOLVED WITH
MANAGING, ADMINISTERING AND SERVICING THE DELAWARE INVESTMENTS(R) FUNDS]
Board of Trustees
Custodian
Investment Manager JPMorgan Chase Bank
Delaware Management Company 4 Chase Metrotech Center
2005 Market Street The Fund Brooklyn, NY 11245
Philadelphia, PA 19103-7094
Service agent
Distributor Delaware Service Company, Inc.
Delaware Distributors, L.P. 2005 Market Street
2005 Market Street Philadelphia, PA 19103-7094
Philadelphia, PA 19103-7094
Financial intermediary wholesaler
Portfolio managers Lincoln Financial Distributors,
(see page 20 for details) Inc.
2001 Market Street
Philadelphia, PA 19103-7055
Financial advisors
Shareholders
Board of Trustees
A mutual fund is governed by a board of trustees which has oversight
responsibility for the management of the fund's business affairs. Trustees
establish procedures and oversee and review the performance of the investment
manager, the distributor and others that perform services for the fund.
Generally, at least 40% of the board of trustees must be independent of the
fund's investment manager and distributor. However, the Funds rely on certain
exemptive rules adopted by the SEC that require their Boards of Trustees to be
comprised of a majority of such independent Trustees. These independent
Trustees, in particular, are advocates for shareholder interests.
Investment manager
An investment manager is a company responsible for selecting portfolio
investments consistent with the objective and policies stated in the mutual
fund's prospectus. The investment manager places portfolio orders with
broker/dealers and is responsible for obtaining the best overall execution of
those orders. A written contract between a mutual fund and its investment
manager specifies the services the manager performs. Most management contracts
provide for the manager to receive an annual fee based on a percentage of the
fund's average daily net assets. The manager is subject to numerous legal
restrictions, especially regarding transactions between itself and the funds it
advises.
Portfolio managers
Portfolio managers are employed by the investment manager to make investment
decisions for individual portfolios on a day-to-day basis.
Custodian
Mutual funds are legally required to protect their portfolio securities and most
funds place them with a qualified bank custodian who segregates fund securities
from other bank assets.
Distributor
Most mutual funds continuously offer new shares to the public through
distributors who are regulated as broker/dealers and are subject to National
Association of Securities Dealers (NASD) rules governing mutual fund sales
practices.
Financial intermediary wholesaler
Pursuant to a contractual arrangement with Delaware Distributors, L.P., Lincoln
Financial Distributors, Inc. (LFD) is primarily responsible for promoting the
sale of Fund shares through broker/dealers, financial advisors and other
financial intermediaries.
Service agent
Mutual fund companies employ service agents (sometimes called transfer agents)
to maintain records of shareholder accounts, calculate and disburse dividends
and capital gains and prepare and mail shareholder statements and tax
information, among other functions. Many service agents also provide customer
service to shareholders.
Financial advisors
Financial advisors provide advice to their clients -- analyzing their financial
objectives and recommending appropriate funds or other investments. Financial
advisors are associated with securities broker/dealers who have entered into
selling and/or service arrangements with the Distributor. Selling broker/dealers
and financial advisors are compensated for their services, generally through
sales commissions, 12b-1 fees and/or service fees deducted from the fund's
assets.
Shareholders
Like shareholders of other companies, mutual fund shareholders have specific
voting rights. Material changes in the terms of a fund's management contract
must be approved by a shareholder vote, and funds seeking to change fundamental
investment policies must also seek shareholder approval.
21
About your account
Investing in the Funds
You can choose from a number of share classes for each Fund. Because each share
class has a different combination of sales charges, fees, and other features,
you should consult your financial advisor to determine which class best suits
your investment goals and time frame.
Choosing a share class
Class A
o Class A shares of Delaware Tax-Free USA Fund and Delaware National
High-Yield Municipal Bond Fund have an up-front sales charge of up to
4.50% that you pay when you buy the shares. Class A shares of Delaware
Tax-Free USA Intermediate Fund have an up-front sales charge of up to
2.75%.
o If you invest $100,000 or more, your front-end sales charge will be
reduced.
o You may qualify for other reductions in sales charges and under
certain circumstances the sales charge may be waived, as described in
"How to reduce your sales charge" on page 26.
o Class A shares are also subject to an annual 12b-1 fee no greater than
0.30% (0.25% for Delaware National High-Yield Municipal Bond Fund) of
average daily net assets, which is lower than the 12b-1 fee for Class
B and Class C shares. See "Dealer Compensation" on page 25 for further
information.
o Class A shares generally are not subject to a contingent deferred
sales charge except in the limited circumstances described in the
table below.
Class A sales charges
The table below details your sales charges on purchases of Class A shares. The
offering price for Class A shares includes the front-end sales charge. The sales
charge as a percentage of the net amount invested is the maximum percentage of
the amount invested rounded to the nearest hundredth. The actual sales charge as
a percentage of the net amount invested will vary depending on the amount
invested, rounding and the then-current net asset value (NAV).
Delaware Tax-Free USA Fund
and Delaware National High- Delaware Tax-Free USA
Yield Municipal Bond Fund Intermediate Fund
--------------------------------------------------------- ----------------------------------
Sales charge Sales charge Sales charge Sales charge
as % of as % of net as % of as % of net
Amount of purchase offering price amount invested offering price amount invested
--------------------------------------------------------- ----------------------------------
Up to $99,999 4.50% 4.71% 2.75% 2.83%
--------------------------------------------------------- ----------------------------------
$100,000 - $249,999 3.50% 3.63% 2.00% 2.04%
--------------------------------------------------------- ----------------------------------
$250,000 - $499,999 2.50% 2.56% 1.00% 1.01%
--------------------------------------------------------- ----------------------------------
$500,000 - $999,999 2.00% 2.04% 1.00% 1.01%
--------------------------------------------------------- ----------------------------------
Amount over $1 million None None None None
--------------------------------------------------------- ----------------------------------
As shown above, there is no front-end sales charge when you purchase $1 million
or more of Class A shares. However, if your financial advisor is paid a
commission on your purchase, you will have to pay a limited contingent deferred
sales charge (Limited CDSC), unless a specific waiver of the charge applies, of
1.00% if you redeem Delaware Tax-Free USA Fund and Delaware National High-Yield
Municipal Bond Fund within the first year and 0.50% if you redeem shares within
the second year; and of 0.75% if you redeem shares of Delaware Tax-Free USA
Intermediate Fund within the first year. See "Dealer compensation" on page 25
for a description of the amount of dealer compensation that is paid.
22
Class B
o Class B shares have no up-front sales charge, so the full amount of
your purchase is invested in a Fund. However, you will pay a
contingent deferred sales charge if you redeem your shares within six
years after you buy them (three years for Delaware Tax-Free USA
Intermediate Fund).
o If you redeem Class B shares of Delaware Tax-Free USA Fund and
Delaware National High-Yield Municipal Bond Fund during the first year
after you buy them, the shares will be subject to a contingent
deferred sales charge of 4.00%. The con