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Delaware Diversified Income Fund


Delaware Diversified Income Fund seeks maximum long-term total return, consistent with reasonable risk.


The Fund invests in four sectors — U.S. investment grade sector, U.S. high yield sector, international developed markets sector, and emerging markets sector.

Fund information
Inception date12/29/1997
Dividends paid (if any)Monthly
Capital gains paid (if any)December
Fund identifiers
Investment minimums
Initial investment$1,000
Subsequent Investments$100
Systematic withdrawal balance$5,000
Account features
Payroll DeductionYes

On Sept. 25, 2014, Class B shares of the Fund converted to Class A shares.

The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.

Total returns may reflect waivers and/or expense reimbursements by the manager and/or distributor for some or all of the periods shown. Performance would have been lower without such waivers and reimbursements.

Average annual total return as of month-end (12/31/2014)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)5.11%5.11%3.48%4.90%5.79%7.34%12/29/1997
Max offer price0.37%0.37%1.91%3.94%5.31%7.05%
Barclays U.S. Aggregate Index5.97%5.97%2.66%4.45%4.71%n/a
Average annual total return as of quarter-end (12/31/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)0.57%5.11%5.11%3.48%4.90%5.79%7.34%12/29/1997
Max offer price-4.00%0.37%0.37%1.91%3.94%5.31%7.05%
Barclays U.S. Aggregate Index1.79%5.97%5.97%2.66%4.45%4.71%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
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
Portfolio characteristics - as of 12/31/2014
Number of holdings1,498
Effective maturity (weighted average) (view definition)8.23 years
Effective duration (weighted average) (view definition)5.79 years
Annualized standard deviation, 3 years (view definition)3.48
SEC 30-day yield with waiver (view definition)2.88%
SEC 30-day yield without waiver (view definition)2.88%
Portfolio turnover (last fiscal year)189%
Portfolio composition as of 12/31/2014Total may not equal 100% due to rounding.
High grade securities69.8%
High yield securities20.3%
Emerging markets8.2%
International developed1.7%
Top 10 holdings as of 12/31/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
United States Treasury Note/Bond 3.125 8/15/20442.8%
FNCL AX53161.3%
FNCL AB65890.9%
Dow Chemical Co. 8.550 5/15/20190.7%
Pride International Inc. 6.875 8/15/20200.6%
Total % Portfolio in Top 10 holdings11.9%

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

Top sectors as of 12/31/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Investment grade credits38.1%
MBS and CMOs20.5%
High yield credits19.2%
Emerging markets8.2%
Commercial mortgage-backed securities5.4%
U.S. Treasury securities3.0%
Asset-backed securities2.1%
International developed1.7%
Municipal bonds0.4%
Agency bonds0.1%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment

1If a Fund makes a distribution from any source other than net income, it is required to provide shareholders with a notice disclosing the source of such distribution (each a "Notice"). The amounts and sources of distributions reported above and in each Notice are only estimates and are not provided for tax reporting purposes. Each Fund will send each shareholder a Form 1099 DIV for the calendar year that will provide definitive information on how to report the Fund's distributions for federal income tax purposes. The information in the table above will not be updated to reflect any subsequent recharacterization of dividends and distributions. Click here to see recent Notices pertaining to the Fund (if any).

2Information on return of capital distributions (if any) is only provided from June 1, 2014 onward.

3Includes both short- and long-term capital gains.

Roger Early

Roger A. Early, CPA, CFA

Managing Director, Co-Head of Fixed Income Investments, Senior Vice President, Co-Chief Investment Officer — Total Return Fixed Income Strategy

Start date on the Fund: May 2007

Years of industry experience: 38

(View bio)

Paul Grillo

Paul Grillo, CFA

Senior Vice President, Co-Chief Investment Officer — Total Return Fixed Income Strategy

Start date on the Fund: February 2001

Years of industry experience: 33

(View bio)

Wen-Dar Chen

Wen-Dar Chen, Ph.D.

Vice President, Portfolio Manager — International Debt

Start date on the Fund: May 2007

Years of industry experience: 28

(View bio)

J. David Hillmeyer

J. David Hillmeyer, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: February 2011

Years of industry experience: 22

(View bio)

Steven Landis

Steven A. Landis 

Vice President, Senior Portfolio Manager — Emerging Markets Debt

Start date on the Fund: September 2013

Years of industry experience: 34

(View bio)

Christopher Testa

Christopher M. Testa, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: June 2014

Years of industry experience: 28

(View bio)

You may qualify for sales-charge discounts if you and your family invest, or agree to invest in the future, at least $100,000 in Delaware Investments® Funds. More information about these and other discounts is available from your financial advisor, in the Fund's prospectus under the section entitled "About your account," and in the Fund's statement of additional information 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 fees0.44%
Distribution and service (12b-1) fees0.25%
Other expenses0.21%
Total annual fund operating expenses0.90%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements0.90%

View printable commentary E-mail this page

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Delaware Diversified Income Fund Quarterly commentary December 31, 2014

Market overview

During the fourth quarter of 2014, the fixed income markets experienced significant bouts of volatility and liquidity pressures, which were clearly evident in rate levels, risk asset spreads, and the shape of the yield curve. Many factors drove the markets, including U.S. dollar strength, commodity/oil price declines, and signs of Russian credit stress. Arguably, the most fundamental factor driving markets during the quarter was the developing dispersion between global central bank policies. While the U.S. Federal Reserve has been moving steadily toward a more restrictive, higher rate policy, central banks in Japan and the euro zone have been increasingly accommodative. After years of consistent central bank policies globally, divergence of policies has introduced substantial currency volatility and this has added volatility into all parts of the financial markets.

Since early October, the fall in oil prices has pressured a specific and meaningful part of the corporate bond market, and this pressure has spread to other parts of the corporate market. Credit spreads are close to highs for the year and fears of some defaults in high yield oil and commodity companies have increased. Emerging market debt has also been weak as many regions have a significant dependence on oil revenues. The dollar is still strong across almost all markets and adds pressure on some emerging market economies with dollar-denominated debt. U.S. economic indicators showed generally strong results throughout the fourth quarter of 2014. While core inflation was slightly higher during the quarter, headline prices were lower as falling energy prices provided an important dampening impact.

During the quarter, yields on 10-year Treasurys fell from 2.49% to 2.17%, and yields on 2-year Treasurys rose from 0.57% to 0.67%. Rates fell broadly during the first weeks of the quarter but then shifted to a more volatile pattern. The 3-month T-bill / 10-year T-note curve flattened 34 basis points to 2.13% by the end of the quarter. (A basis point equals one one-hundredth of a percentage point.) The 1-month London interbank offered rate (Libor) moved slightly higher, ending the quarter at 0.17%. (Data: Bloomberg.)

The Barclays U.S. Aggregate Index recorded a strong return in the fourth quarter as higher-quality bonds and longer-duration sectors led the way. Given the shift in the Treasury yield curve, short-to-intermediate-focused sectors produced lower nominal returns, although mortgage-backed securities (MBS) and commercial mortgage-backed securities (CMBS) were relatively strong. U.S. Treasury inflation-protected securities (TIPS), high yield corporate bonds, global governments, and emerging market bonds produced negative returns.

Within the Fund

Delaware Diversified Income Fund (Class A and Institutional Class shares at net asset value) underperformed its benchmark, the Barclays U.S. Aggregate Index, for the fourth quarter of 2014.

  • The Fund’s underweight positions in Treasury securities had no impact on relative returns, as Treasury bonds performed in line with the overall benchmark. However, our focus on intermediate maturities contributed modestly to relative outperformance.
  • Government-backed MBS led the benchmark during the quarter. The Fund’s underweight in MBS modestly hurt relative performance while our security-specific positioning generally had a positive effect.
  • Asset-backed securities (ABS) underperformed the benchmark as we maintained our emphasis on short-maturity and floating-rate issues. CMBS provided a slightly negative impact on relative performance based on the Fund’s overweight and lagging security selection.
  • The Fund’s continued overweight in investment grade corporate bonds hurt relative performance during the quarter, as corporate bonds experienced wider credit spreads. Security selection generally had a neutral effect, but down-in-quality lagged.
  • The high yield bond market was among the weakest sources of performance during the quarter. Investments in bank loans showed more moderate, albeit still negative, results.
  • Fund positions in emerging market debt had a negative impact on performance for the quarter. U.S. dollar–based issues experienced wider spreads and issuer-specific downturns.
  • Non-dollar developed markets, while representing only a small allocation, produced negative returns during the quarter as quality concerns hurt performance.


Economic growth in the United States looked stronger as the new year began. The outcome on the fundamental, economic front will be the key determinant to the outlook for market yields, spreads, and the Fed. A sustained return to real gross domestic product (GDP) growth of 3–4% over the next several years would likely create a true “sea change” for the Fed and rates.

However, the return to this rate of growth has been the undelivered promise for each of the last four or five years. Even the Fed’s annual forecasts have generally been optimistic on growth only to turn far more pessimistic as the forecasted period approaches. Today, the Fed’s intermediate-term forecast for GDP growth is centered at 2.5%. In the long term, this may turn out to be relatively optimistic, given that demographics have become far less supportive of growth across most developed global economies. The demographic headwind alone could mean that 2–3% GDP growth would be a “best case” scenario over the intermediate term.

Factoring in the boost that growing indebtedness has given to developed world growth in recent decades, the likely headwind from a current debt overhang could, potentially, push expected GDP growth below 2% over the next one to two decades. This (much like the 3–4% example above) could have a major impact on intermediate-term returns in fixed income. Inflation, real rate levels, risk premiums, and again, Fed policy trends could all be changed by a low-growth environment.

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

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

Mortgage-backed securities are fixed income securities