Delaware Extended Duration Bond Fund

Objective

Delaware Extended Duration Bond Fund seeks to provide investors with total return.

Strategy

The Fund will primarily invest in long duration investment-grade corporate bonds. The Fund may also invest in unrated bonds if we believe their credit quality is comparable to those that have investment grade ratings.

Fund information
Inception date09/15/1998
Dividends paid (if any)Monthly
Capital gains paid (if any)December
Fund identifiers
NASDAQDEEAX
CUSIP245908835
Investment minimums
Initial investment$1,000
Subsequent Investments$100
Systematic withdrawal balance$5,000
Account features
CheckwritingNo
Payroll DeductionYes
IRAsYes

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 (03/31/2015)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)3.22%12.37%9.73%11.38%9.30%8.88%09/15/1998
Max offer price-1.40%7.29%8.03%10.34%8.80%8.58%
Barclays Long U.S. Corporate Index3.29%12.59%8.12%9.93%7.42%n/a
Average annual total return as of quarter-end (03/31/2015)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)3.22%3.22%12.37%9.73%11.38%9.30%8.88%09/15/1998
Max offer price-1.40%-1.40%7.29%8.03%10.34%8.80%8.58%
Barclays Long U.S. Corporate Index3.29%3.29%12.59%8.12%9.93%7.42%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
Gross1.00%
Net0.96%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursement from Nov. 28, 2014 through Nov. 30, 2015. Please see the fee table in the Fund's prospectus for more information.

Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20153.22%n/an/an/an/a
20146.47%5.51%0.02%3.16%15.90%
2013-0.17%-5.52%-0.54%2.34%-4.00%
20121.19%6.61%5.50%2.29%16.40%
20110.99%2.64%7.97%4.10%16.50%
20103.88%4.96%7.74%-2.69%14.31%
2009-6.44%14.88%14.70%1.37%24.96%
2008-0.15%-1.61%-8.61%8.17%-2.85%
20071.02%-2.13%1.80%2.36%3.02%
2006-2.72%-2.02%7.81%2.51%5.33%
2005-0.89%5.97%-2.74%0.68%2.85%
Portfolio characteristics - as of 03/31/2015
Number of holdings200
Effective maturity (weighted average) (view definition)22.96 years
Effective duration (weighted average) (view definition)14.14 years
Annualized standard deviation, 3 years (view definition)7.61
SEC 30-day yield with waiver (view definition)3.48%
SEC 30-day yield without waiver (view definition)3.44%
Portfolio turnover (last fiscal year)216%
Portfolio composition as of 03/31/2015Total may not equal 100% due to rounding.
Credits95.8%
U.S. government securities2.8%
Municipal bonds1.4%
Top 10 holdings as of 03/31/2015
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Medtronic Inc. 4.625 3/15/20451.3%
Dominion Gas Holdings LLC 4.600 12/15/20441.2%
ERAC USA Finance LLC 4.500 2/15/20451.2%
SES GLOBAL Americas Holdings GP 5.300 3/25/20441.2%
Microsoft Corp. 4.000 2/12/20551.2%
Gilead Sciences Inc. 4.500 2/1/20451.2%
TIAA Asset Management Finance Co. LLC 4.125 11/1/20241.1%
WPP Finance 2010 5.625 11/15/20431.1%
Apple Inc. 3.450 2/9/20451.1%
Berkshire Hathaway Energy Co. 4.500 2/1/20451.1%
Total % Portfolio in Top 10 holdings11.7%

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

Top sectors as of 03/31/2015
List excludes cash and cash equivalents.
Sector% of portfolio
Financial institutions19.9%
Utility14.5%
Consumer noncyclical12.8%
Energy12.8%
Communications9.6%
Noncorporate7.2%
Consumer cyclical5.7%
Basic industry5.0%
Technology4.6%
Capital goods1.8%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20150.0000.084
20140.2950.285
20130.0000.290
20120.4360.303
20110.2660.328
20100.3170.350
20090.0000.354
20080.0000.304
20070.0000.315
20060.0000.318
20050.0520.304

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.

J. David Hillmeyer

J. David Hillmeyer, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: November 2014

Years of industry experience: 22

(View bio)


Roger Early

Roger A. Early, CPA, CFA

Managing Director, 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)


Craig Dembeck

Craig C. Dembek, CFA

Senior Vice President, Co-Head of Credit Research, Senior Research Analyst

Start date on the Fund: December 2012

Years of industry experience: 20

(View bio)


Kashif Ishaq

Kashif Ishaq 

Senior Vice President, Head of Investment Grade Corporate Bond Trading

Start date on the Fund: November 2013

Years of industry experience: 12

(View bio)


Paul Matlack

Paul A. Matlack, CFA

Senior Vice President, Senior Portfolio Manager, Fixed Income Strategist

Start date on the Fund: December 2012

Years of industry experience: 29

(View bio)


John McCarthy

John P. McCarthy, CFA

Senior Vice President, Co-Head of Credit Research, Senior Research Analyst

Start date on the Fund: December 2012

Years of industry experience: 28

(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)


Mike Wildstein

Michael G. Wildstein, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: November 2014

Years of industry experience: 13

(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 (SAI) 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 fees0.54%
Distribution and service (12b-1) fees0.25%
Other expenses0.21%
Total annual fund operating expenses1.00%
Fee waivers and expense reimbursements(0.04%)
Total annual fund operating expenses after fee waivers and expense reimbursements0.96%

1The Fund's investment manager, Delaware Management Company (Manager), has contractually agreed to waive all or a portion of its investment advisory fees and/or pay/reimburse expenses (excluding any 12b-1 fees, acquired fund fees and expenses, taxes, interest, short sale and dividend interest expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations) in order to prevent total annual fund operating expenses from exceeding 0.71% of the Fund's average daily net assets from Nov. 28, 2014 through Nov. 30, 2015. These waivers and reimbursements may only be terminated by agreement of the Manager and the Fund.

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Delaware Extended Duration Bond Fund Quarterly commentary March 31, 2015

Overview

In our fourth quarter commentary, we called for “more, not less, volatility” in 2015. And during the first quarter of 2015, the markets delivered that volatility — right out of the gate. Interest rates dropped significantly during January, before retracing and consolidating the yield change during February and March. Intermediate and long maturities led the rate decline, while corporate credit returns benefited from a combination of fixed-rate bond duration and an attractively priced yield advantage.

During the quarter, the U.S. Federal Reserve removed its previous reference to “patience” with regard to the timing of a first rate increase. Based on both its words and its “dots,” the Fed seems headed toward a rate increase regime that starts in the second half of 2015 and progresses very gradually thereafter. The Federal Open Market Committee (FOMC) made it clear, however, that its dropping the pledge to be “patient” does not guarantee a near-term move in rates. Rather, it will continue to monitor economic conditions using a data-dependent process. Of course, even that scenario would almost certainly diverge from monetary policy overseas.

As global central banks implement quantitative easing–like policies and create massive liquidity, financial assets could continue to benefit. Portfolio managers must strike a strategic balance that acknowledges the wide dispersion of potential outcomes resulting from weak economic growth and almost nonexistent inflation, but also with strong underlying support for financial asset prices.

Economic indicators in the United States showed mixed results throughout the first quarter of 2015, suggesting that domestic economic growth moderated. Data for employment and manufacturing were solid, but consumer demand and housing showed weakness. Fourth quarter gross domestic product (GDP) growth came in unrevised at 2.2%, according to the U.S. Commerce Department. Though core inflation was slightly higher during the first quarter, headline prices were lower as falling energy prices provided an important dampening effect.

Within the Fund

For the first quarter of 2015, Delaware Extended Duration Bond Fund slightly underperformed its benchmark, the Barclays Long U.S. Corporate Index.

During the quarter the market was again plagued by volatility as interest rates fluctuated and credit risk premiums shifted. Despite the fluid rates environment, the slope (or spread) between the 10-year Treasury and 30-year Treasury remained in a relatively tight range and finished the quarter about 3 basis points steeper. (One basis point equals a hundredth of a percentage point.) Given the relatively benign change in the shape of the Treasury curve, and the move lower in absolute yields, the Fund’s shorter-maturity bonds lagged the index.

The following points highlight the larger contributors to and detractors from performance.

Contributors

  • Investment grade exposure in the utility sector was beneficial to the Fund’s total return. The outperformance was primarily due to security selection, despite a small overweight to the sector.
  • Interest rate futures, which we used to manage curve risk as a result of the Fund’s underweight to longer-dated assets, were additive to performance.
  • Additionally, the Fund benefited from strong security selection in basic industry and an overweight in real estate investment trusts (REITs), which performed well. a result of the Fund’s underweight to longer-dated assets, were additive to performance.

Detractors

  • High yield bonds and bank loans represented about 9% of the Fund’s portfolio, and while still generating a positive return for the period, both asset classes lagged the benchmark return.
  • An underweight to investment grade industrials (which represent nearly 70% of the index) detracted from Fund performance relative to the benchmark, despite the fact that strong security selection generated a return in excess of that of the benchmark sector.
  • Shorter-dated instruments in the financials sector had a negative effect on relative performance despite outperformance in the banking industry.
  • The Fund’s underweight in energy issuers, combined with weak security selection, detracted from relative performance, as the sector rebounded slightly from a weak fourth quarter.

Outlook

Among the most important — and unresolved — economic questions facing investors is whether deflation will be a bigger risk than inflation over the next several years. That’s because despite massive money-printing efforts in recent years by key central banks, little progress has been made toward hitting inflation targets. We believe something fundamental is at work here, and critically, it could not come at a worse time.

The global debt overhang is challenging enough, but servicing debts during a period of deflation places substantially more pressure on the debtor. Sourcing the needed free cash becomes, by definition, much more difficult. If the debts are owed in other currencies, even governments may not be able to print their way out of the problem. Default risks would rise and could be the most fundamental source of performance challenges in risk assets. Plenty of optimistic and pessimistic market scenarios exist for the near term, but we will strive to maintain our balanced, research-driven, risk-managed approach, which we believe can help us maneuver around the challenges to come.

The Barclays U.S. Aggregate Index is a broad composite that tracks the investment grade domestic bond market.

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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.

Diversification may not protect against market risk.

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.

All third-party marks cited are the property of their respective owners.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 04/24/2015)

Class APriceNet changeYTD
NAV$6.750.013.19%
Max offer price$7.07n/an/a

Total net assets (as of 03/31/2015)

$718.7 million all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 03/31/2015)

Load waivedWith loadNo. of funds
Overall55153
3 Yrs55153
5 Yrs55127
10 Yrs5586
Morningstar categoryCorporate Bond

(View Morningstar disclosure)

Lipper ranking (as of 03/31/2015)

YTD ranking13 / 210
1 year23 / 205
3 years5 / 171
5 years4 / 145
10 years2 / 95
Lipper classificationCorp Debt BBB Rated Fds

(View Lipper disclosure)

Benchmark, peer group

Barclays Long U.S. Corporate Index (view definition)

Lipper Corporate Debt Funds BBB-Rated Average (view definition)

Additional information