Delaware Corporate Bond Fund

Objective

Delaware Corporate Bond Fund seeks to provide investors with total return.

Strategy

The Fund primarily invests in corporate bonds, with a focus on bonds that have investment grade credit ratings. The Fund seeks total return through a combination of income and capital appreciation.

Fund information
Inception date09/15/1998
Dividends paid*Monthly
Capital gains paid*December

*If any.

Fund identifiers
NASDAQDGCAX
CUSIP245908785
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)3.64%2.18%7.62%13.17%6.79%7.26%09/15/1998
Max offer pricen/a-2.38%5.96%12.12%6.30%6.95%
Barclays U.S. Corporate Investment Grade Index2.94%1.47%6.08%9.69%5.29%n/a
Average annual total return as of quarter-end (03/31/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)3.64%3.64%2.18%7.62%13.17%6.79%7.26%09/15/1998
Max offer price-0.95%-0.95%-2.38%5.96%12.12%6.30%6.95%
Barclays U.S. Corporate Investment Grade Index2.94%2.94%1.47%6.08%9.69%5.29%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.

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

Expense ratio
Gross0.93%
Net0.93%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20143.64%n/an/an/an/a
20130.82%-3.51%0.47%1.71%-0.60%
20123.78%2.96%4.84%2.29%14.59%
20111.63%2.14%0.73%2.62%7.31%
20104.07%1.43%6.38%-0.71%11.49%
2009-1.98%14.62%11.46%2.89%28.84%
2008-0.02%-1.72%-6.83%0.00%-8.44%
20071.56%-0.70%1.01%1.21%3.10%
2006-0.49%-0.45%4.99%2.49%6.60%
2005-0.85%3.50%-1.20%0.45%1.85%
20043.53%-3.60%4.72%2.45%7.07%
Portfolio characteristics - as of 03/31/2014
Share assets$512.4 million
Number of holdings245
Effective maturity (weighted average) (view definition)10.57 years
Effective duration (weighted average) (view definition)6.77 years
Annualized standard deviation, 3 years (view definition)4.90
SEC 30-day yield with waiver (view definition)3.20%
SEC 30-day yield without waiver (view definition)3.19%
Portfolio turnover (last fiscal year)230%
Portfolio composition as of 03/31/2014Total may not equal 100% due to rounding.
Credits95.9%
U.S. government securities1.8%
Municipal bonds1.2%
Asset-backed securities1.1%
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
Verizon Communications Inc. 5.150 9/15/20231.7%
Pennsylvania Electric Co. 5.200 4/1/20201.5%
Electricite de France 5.250 12/29/20491.0%
El Paso Pipeline Partners Operating Co. LLC 6.500 4/1/20201.0%
QVC Inc. 4.375 3/15/20231.0%
Georgia-Pacific LLC 8.000 1/15/20240.9%
CF Industries Inc. 6.875 5/1/20180.9%
Wisconsin Energy Corp. 6.250 5/15/20670.9%
Sunoco Logistics Partners Operations LP 3.450 1/15/20230.9%
Ameren Illinois Co. 9.750 11/15/20180.9%
Total % Portfolio in Top 10 holdings10.7%

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
Financial institutions25.3%
Utility17.4%
Communications13.0%
Consumer cyclical9.5%
Noncorporate6.4%
Basic Industry6.1%
Energy5.6%
Consumer noncyclical4.5%
Technology4.0%
Capital goods2.3%
Distribution history - annual distributions (Class A)
Distributions ($ per share)
YearCapital gainsDividends
20140.0000.081
20130.0960.256
20120.1890.265
20110.1360.302
20100.2710.325
20090.0000.325
20080.0000.284
20070.0000.311
20060.0000.306
20050.0210.294
20040.0680.299
Thomas Chow

Thomas H. Chow, CFA

Chief Investment Officer — Corporate Credit

Start date on the Fund: May 2007

(View bio)


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 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)


Image not available

Kashif Ishaq 

Head of Investment Grade Corporate Bond Trading

Start date on the Fund: November 2013

(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 fees0.47%
Distribution and service (12b-1) fees0.25%
Other expenses0.21%
Total annual fund operating expenses0.93%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements0.93%

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 0.69% 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 Fund.

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Delaware Corporate Bond Fund Quarterly commentary March 31, 2014 Class A (DGCAX)

Overview

Despite ongoing uncertainty from emerging market volatility, geopolitical concerns (Russia/Ukraine), and constantly evolving Federal Reserve policy expectations, investment grade corporate bonds, as represented by the Barclays U.S. Corporate Investment Grade Index, returned 2.94% for the quarter. Returns were led by the media-cable, packaging, and media-noncable sectors, while financials and construction machinery underperformed.

Spreads on the Barclays U.S. Corporate Investment Grade Index tightened by 8 basis points during the quarter, to end at 106 basis points over Treasurys (a basis point equals one one-hundredth of a percentage point). We continued to view BBB-rated bonds as having the best relative value, although the gap between BBB and A-rated industrials has continued to narrow. As of the end of the quarter it stood at 50 basis points, the lowest level since the end of 2007 (source: Barclays, Bloomberg).

Market technicals remained strong amid robust demand for high-quality credit. Investment grade bonds have been a relative safe haven from global volatility, particularly during recent turmoil in emerging markets. Despite significant supply, new-issue concessions have been minimal, demonstrating the depth of demand for investment grade credit.

Interest rates, merger and acquisition (M&A) activity, share buybacks, and financial supply all are wildcards that could influence ultimate supply levels in coming months.

Within the Fund

For the first quarter of 2014, Delaware Corporate Bond Fund (Class A shares at net asset value) generated a positive total return and outperformed its benchmark, the Barclays U.S. Corporate Investment Grade Index.

The Fund’s holdings in high yield and emerging market bonds — both of which generated strong returns — were mainly responsible for its outperformance. The Fund also benefited from an overweight to BBB-rated securities, a sector which outperformed the overall index.

A flatter Treasury curve detracted from performance, given the Fund’s overweight to the 10-year and underweight to the 30-year portion of the yield curve. Over the quarter, rates on 10-year bonds declined by 31 basis points while 30-year rates declined by 41 basis points.

Outlook

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.

The M&A–event risk theme for 2014 is very much alive in credit markets. Months of rumor and speculation regarding Charter Communications’ acquisition of Time Warner Cable were finally trumped by Comcast’s $45 billion all-stock offer. Another theme that could play out in 2014 is consolidation within the pharmaceutical sector, as midsized players look for scale and generic players look for smaller acquisitions to fold into their existing divisions. Finally, while the leveraged buyout wave that many investors expected last year never materialized, private equity does have significant “dry powder” on the sidelines that may eventually lead to deals.

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.

[12421]

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.

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.

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

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.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 04/24/2014)

Class APriceNet changeYTD
NAV$6.03no chg4.77%
Max offer price$6.31n/an/a

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

$1.2 billion all share classes

Overall Morningstar RatingTM

Load waived

With load

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

Load waivedWith loadNo. of funds
Overall44127
3 Yrs43127
5 Yrs4497
10 Yrs4470
Morningstar categoryCorporate Bond

(View Morningstar disclosure)

Lipper ranking (as of 03/31/2014)

YTD ranking31 / 200
1 year58 / 191
3 years19 / 157
5 years13 / 135
10 years12 / 89
Lipper classificationCorp Debt BBB Rated Fds

(View Lipper disclosure)

Literature

Prospectuses and reports

Benchmark, peer group

Barclays U.S. Corporate Investment Grade Index (view)

Lipper Corporate Debt Funds BBB-Rated Average (view)

Additional information