Delaware Core Plus Bond Fund

Objective

Delaware Core Plus Bond Fund seeks maximum long-term total return, consistent with reasonable risk.

Strategy

The Fund invests at least 50% of its net assets in domestic (U.S.) investment grade debt securities. The Fund may also invest up to 30% of its net assets in high yield securities and up to 30% of its net assets in foreign securities.

Fund information
Inception date08/16/1985
Dividends paid*Monthly
Capital gains paid*December

*If any.

Fund identifiers
NASDAQDEGGX
CUSIP246094205
Investment minimums
Initial investment$1,000
Subsequent Investments$100
Systematic withdrawal balance$5,000
Account features
CheckwritingNo
Payroll DeductionYes
IRAsYes

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 (03/31/2014)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)2.39%0.57%4.37%8.13%4.98%6.27%08/16/1985
Max offer pricen/a-3.97%2.76%7.15%4.50%6.10%
Barclays U.S. Aggregate Index1.84%-0.10%3.75%4.80%4.46%n/a
Average annual total return as of quarter-end (03/31/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)2.39%2.39%0.57%4.37%8.13%4.98%6.27%08/16/1985
Max offer price-2.19%-2.19%-3.97%2.76%7.15%4.50%6.10%
Barclays U.S. Aggregate Index1.84%1.84%-0.10%3.75%4.80%4.46%n/a

Returns for less than one year are not annualized.

Class A shares have a maximum up-front sales charge of 4.50% and are subject to an annual distribution fee.

Expense ratio
Gross1.12%
Net0.90%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursements from Nov. 27, 2013 through Nov. 28, 2014. Additionally, the Fund's Class A shares are subject to a blended 12b-1 fee of 0.10% on all shares acquired prior to June 1, 1992 and 0.25% on all shares acquired on or after June 1, 1992. This method of calculating Class A 12b-1 fees may be discontinued at the sole discretion of the Board.    

Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20142.39%n/an/an/an/a
20130.25%-3.17%0.43%1.01%-1.53%
20120.43%2.49%2.35%0.51%5.89%
20110.95%2.31%2.30%1.74%7.49%
20102.87%2.36%3.46%-0.96%7.88%
20090.32%7.93%8.30%2.14%19.75%
20081.53%-0.97%-3.49%1.35%-1.65%
20071.13%-0.73%2.30%2.29%5.06%
2006-1.26%-0.33%4.05%0.60%3.01%
20050.28%2.93%-1.34%0.10%1.94%
20042.72%-2.45%2.85%0.74%3.82%
Portfolio characteristics - as of 03/31/2014
Share assets$67.4 million
Number of holdings627
Effective maturity (weighted average) (view definition)8.48 years
Effective duration (weighted average) (view definition)5.28 years
Annualized standard deviation, 3 years (view definition)3.28
SEC 30-day yield with waiver (view definition)2.41%
SEC 30-day yield without waiver (view definition)2.13%
Portfolio turnover (last fiscal year)340%
Portfolio composition as of 03/31/2014Total may not equal 100% due to rounding.
Credits65.1%
Mortgage-backed securities26.3%
U.S. government securities5.2%
Asset-backed securities2.6%
Municipal bonds0.8%
Top 10 holdings as of 03/31/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
FNCI APR TBA2.6%
FNCI APR TBA2.1%
United States Treasury Note/Bond 3.750 11/15/20432.0%
FNR 2011-80 CB1.8%
FNCL MAY TBA1.7%
United States Treasury Note/Bond 3.625 2/15/20441.6%
FNCI APR TBA1.5%
FNCL APR TBA1.2%
FNCL AB65890.9%
FNCL MAY TBA0.8%
Total % Portfolio in Top 10 holdings16.2%

Holdings are as of the date indicated and subject to change.

Top sectors as of 03/31/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Investment grade credits37.6%
MBS and CMOs23.9%
High yield credits22.9%
Emerging markets4.6%
U.S. treasury securities4.0%
Asset-backed securities2.6%
Commercial mortgage-backed securities2.4%
Municipal bonds0.8%
Distribution history - annual distributions (Class A)
Distributions ($ per share)
YearCapital gainsDividends
20140.0000.069
20130.0000.256
20120.0190.255
20110.0000.294
20100.0000.337
20090.0000.386
20080.0000.379
20070.0000.354
20060.0000.319
20050.0000.340
20040.0000.341
Roger Early

Roger Early, CPA, CFA, CFP

Co-Chief Investment Officer — Total Return Fixed Income Strategy

Start date on the Fund: May 2007

(View bio)


Paul Grillo

Paul Grillo, CFA

Co-Chief Investment Officer — Total Return Fixed Income Strategy

Start date on the Fund: February 1997

(View bio)


Thomas Chow

Thomas H. Chow, CFA

Chief Investment Officer — Corporate Credit

Start date on the Fund: May 2007

(View bio)


David Hillmeyer

David Hillmeyer, CFA

Senior Portfolio Manager

Start date on the Fund: November 2011

(View bio)


Paul Matlack

Paul Matlack, CFA

Senior Portfolio Manager, Fixed Income Strategist

Start date on the Fund: December 2012

(View bio)


Craig Dembeck

Craig C. Dembek, CFA

Co-Head of Credit Research, Senior Research Analyst

Start date on the Fund: December 2012

(View bio)


John McCarthy

John P. McCarthy, CFA

Co-Head of Credit Research, Senior Research Analyst

Start date on the Fund: December 2012

(View bio)


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

The following table 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 price4.50%
Maximum contingent deferred sales charge (load) as a percentage of original purchase price or redemption price, whichever is lowernone
Annual fund operating expenses
Management fees0.55%
Distribution and service (12b-1) fees0.25%
Other expenses0.32%
Total annual fund operating expenses1.12%
Fee waivers and expense reimbursements(0.22%)
Total annual fund operating expenses after fee waivers and expense reimbursements0.90%

1The Class A shares' distribution and service (12b-1) fees have been restated to reflect a permanent reduction in their fees to 0.25%.  

2The Fund's investment manager, Delaware Management Company (Manager), is contractually waiving its investment advisory fees and/or paying 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) to the extent necessary to prevent total annual fund operating expenses from exceeding 0.65% of the Fund's average daily net assets from Nov. 27, 2013 through Nov. 28, 2014. These waivers and reimbursements may only be terminated by agreement of the Manager and the Distributor, as applicable, and the Fund. Additionally, the Fund's Class A shares are subject to a blended 12b-1 fee of 0.10% on all shares acquired prior to June 1, 1992 and 0.25% on all shares acquired on or after June 1, 1992. This method of calculating Class A 12b-1 fees may be discontinued at the sole discretion of the Board.

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Delaware Core Plus Bond Fund Quarterly commentary March 31, 2014 Class A (DEGGX)

Overview

The first quarter of 2014 presented several hurdles to the U.S. economy and to business, consumer, and investor confidence. Ukraine tensions, China economic challenges, the Federal Reserve’s apparent consensus for a mid-2015 (or earlier) shift to a regime of policy tightening, and lingering fears of euro-zone deflation all created challenges for financial markets.

However, the likelihood that higher short-term rates could be in store in the not-too-distant future must be founded on economic data. Based on this, we believe it’s likely that an increase in U.S. benchmark interest rates will not come before the second quarter of 2015.

After two months of weak economic statistics — at least partly caused by severe winter weather across most parts of the country — U.S. economic indicators were generally solid in March.

During the quarter, the 10-year Treasury yield fell from 3.03% to 2.72%, and the 2-year Treasury yield rose from 0.38% to 0.42%.

The Barclays U.S. Aggregate Index recorded a strong return for the quarter as corporate bonds and longer-duration sectors led the way. Meanwhile, BBB-rated corporates, high yield corporate bonds, and emerging market bonds produced strong excess returns.

Within the Fund

Delaware Core Plus Bond Fund (Class A shares at net asset value) generated a positive total return for the first quarter of 2014, outperforming its benchmark, the Barclays U.S. Aggregate Index.

  • The Fund’s underweight positions in Treasury securities had positive effects on relative returns as Treasury bonds lagged other benchmark sectors. The Fund’s focus on intermediate maturities also contributed to relative performance.
  • The Fund’s underweight in government mortgage-backed securities (MBS) helped relative performance while the Fund’s security-specific positioning generally had a neutral impact. Asset-backed securities (ABS) underperformed the benchmark as we maintained the Fund’s emphasis on short-maturity and floating-rate issues. Commercial mortgage-backed securities (CMBS) provided generally in-line relative performance based on our solid security selection.
  • The Fund’s continued overweight in investment grade corporate bonds boosted relative performance during the quarter, as corporate bonds experienced tighter credit spreads. Security selection also had a positive effect across all credit sectors.
  • The high yield bond market was among the strongest sources of Fund performance during the quarter. Investments in bank loans showed moderately positive results.
  • The Fund’s holdings in emerging market debt had a positive impact on performance for the quarter. Both U.S. dollar–based and local currency–denominated issues outperformed. Corporate issues experienced spread tightening.
  • Non-dollar developed markets produced solid returns during the quarter as interest rate exposures benefited performance. Currency hedging provided a slight offset.

Outlook

While focusing on Fed Chairwoman Janet Yellen’s “six months” estimate and the more aggressive path for short-term interest rates forecasted by the majority of Fed officials, many market participants may have missed the comment suggesting that “the stance of policy that will be appropriate...will involve somewhat lower than would be normal short-term interest rates.”

Even before the Fed's March meeting, the consensus view in the bond market clearly anticipated higher short, intermediate, and long-term rates. Under traditional economic conditions during an early-to-mid-stage expansion, rising short-term rates would translate to higher rates across the yield curve and to only a modestly flatter curve. Typically, it has been during a late-stage expansion that the pinch from ongoing Fed tightening significantly weakens the economic outlook and causes a yield curve flattening or inversion as intermediate- and longer-term rates stop rising with short-term rates.

However, the Fed’s need to maintain “somewhat lower than normal rates” may point to an alternative scenario for the current cycle. In essence, it is possible that extreme levels of global debt (especially less-than-productive government debt), combined with high levels of excess capacity, could create underlying deflationary forces even as the economic expansion matures.

Mortgage-backed securities are fixed income securities that represent pools of mortgages, with investors receiving principal and interest payments as the underlying mortgage loans are paid back. Many are issued and guaranteed against default by the U.S. government or its agencies or instrumentalities, such as Freddie Mac, Fannie Mae, and Ginnie Mae. Others are issued by private financial institutions, with some fully collateralized by certificates issued or guaranteed by the U.S. government or its agencies or instrumentalities.

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

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

[12422]

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

Document must be used in its entirety.

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

Investing involves risk, including the possible loss of principal.

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

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

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

The high yield secondary market is particularly susceptible to liquidity problems when institutional investors, such as mutual funds and certain other financial institutions, temporarily stop buying bonds for regulatory, financial, or other reasons. In addition, a less liquid secondary market makes it more difficult for the Fund to obtain precise valuations of the high yield securities in its portfolio.

The Fund may invest in derivatives, which may involve additional expenses and are subject to risk, including the risk that an underlying security or securities index moves in the opposite direction from what the portfolio manager anticipated. A derivative transaction depends upon the counterparties’ ability to fulfill their contractual obligations.

International investments entail risks not ordinarily associated with U.S. investments including fluctuation in currency values, differences in accounting principles, or economic or political instability in other nations.

Investing in emerging markets can be riskier than investing in established foreign markets due to increased volatility and lower trading volume.

If and when the Fund invests in forward foreign currency contracts or uses other investments to hedge against currency risks, the Fund will be subject to special risks, including counterparty risk.

The Fund may experience portfolio turnover in excess of 100%, which could result in higher transaction costs and tax liability.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 04/16/2014)

Class APriceNet changeYTD
NAV$8.49no chg3.03%
Max offer price$8.89n/an/a

Total net assets (as of 03/31/2014)

$112.6 million all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 03/31/2014)

Load waivedWith loadNo. of funds
Overall43942
3 Yrs32942
5 Yrs43808
10 Yrs43581
Morningstar categoryIntermediate-Term Bond

(View Morningstar disclosure)

Lipper ranking (as of 03/31/2014)

YTD ranking55 / 174
1 year98 / 170
3 years85 / 153
5 years43 / 127
10 years37 / 71
Lipper classificationCore Plus Bond Funds

(View Lipper disclosure)

Literature

Prospectuses and reports

Benchmark, peer group

Barclays U.S. Aggregate Index (view)

Lipper Core Plus Bond Funds Average (view)

Additional information