Delaware Limited-Term Diversified Income Fund

Objective

Delaware Limited-Term Diversified Income Fund seeks maximum total return, consistent with reasonable risk.

Strategy

The Fund invests primarily in investment-grade fixed income securities, and maintains an average effective duration from one to three years. The Fund is generally diversified across multiple types of fixed income securities.

Fund information
Inception date11/24/1985
Dividends paid (if any)Monthly
Capital gains paid (if any)December
Fund identifiers
NASDAQDTRIX
CUSIP245912308
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 (11/30/2014)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)1.74%1.88%0.84%1.70%3.57%5.17%11/24/1985
Max offer price-1.04%-0.90%-0.09%1.14%3.28%5.07%
Barclays 1-3 Year U.S. Government/Credit Index1.03%0.90%1.01%1.35%2.91%n/a
Average annual total return as of quarter-end (09/30/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-0.28%0.99%1.62%0.33%1.89%3.49%5.18%11/24/1985
Max offer price-2.99%n/a-1.16%-0.62%1.33%3.20%5.08%
Barclays 1-3 Year U.S. Government/Credit Index0.04%0.60%0.77%0.92%1.45%2.85%n/a

Returns for less than one year are not annualized.

Class A shares have a maximum up-front sales charge of 2.75% 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
Gross0.92%
Net0.82%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursement from April 30, 2014 through April 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
20140.65%0.62%-0.28%n/an/a
2013-0.15%-2.22%-0.06%0.62%-1.81%
20121.20%1.30%0.57%-0.59%2.49%
20110.11%1.98%1.32%-0.64%2.78%
20101.95%0.10%1.81%-0.19%3.70%
20091.81%4.76%4.38%1.40%12.89%
20082.36%-0.96%0.18%0.65%2.21%
20071.53%-0.03%2.16%2.57%6.36%
20060.04%0.47%2.42%0.80%3.76%
2005-0.01%1.47%-0.11%0.40%1.76%
20041.75%-1.33%1.48%0.42%2.31%
Portfolio characteristics - as of 11/30/2014
Share assets$479.8 million
Number of holdings579
Effective maturity (weighted average) (view definition)3.67 years
Effective duration (weighted average) (view definition)2.94 years
Annualized standard deviation, 3 years (view definition)1.61
SEC 30-day yield with waiver (view definition)1.06%
SEC 30-day yield without waiver (view definition)0.96%
Portfolio turnover (last fiscal year)236%
Portfolio composition as of 11/30/2014Total may not equal 100% due to rounding.
Credits53.2%
Asset-backed securities37.9%
Mortgage-backed securities5.8%
U.S. government securities2.3%
Commercial mortgage-backed securities0.9%
Top 10 holdings as of 11/30/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
GEDFT 2012-2 A2.1%
GCCT 2012-3A A1.5%
GEDFT 2013-1 A1.3%
CHAIT 2013-A3 A31.2%
BCARD 2012-1A A11.2%
COMET 2007-A1 A11.2%
DCENT 2012-A4 A41.1%
CHAIT 2012-A2 A21.0%
CF 2014-1A A1.0%
FNCI AE05520.9%
Total % Portfolio in Top 10 holdings12.5%

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

Top sectors as of 11/30/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Investment grade credits46.9%
Asset-backed securities37.8%
MBS and CMOs5.8%
High yield credits3.4%
Emerging markets2.6%
Commercial mortgage-backed securities0.9%
Municipal bonds0.3%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20140.0000.128
20130.0000.140
20120.0150.175
20110.1250.221
20100.0410.246
20090.0000.336
20080.0000.348
20070.0000.377
20060.0000.363
20050.0000.357
20040.0000.334

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.

Paul Grillo

Paul Grillo, CFA

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

Start date on the Fund: February 1999

Years of industry experience: 33

(View bio)


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)


Brian McDonnell

Brian C. McDonnell, CFA

Senior Vice President, Senior Portfolio Manager, Senior Structured Products Analyst, Trader

Start date on the Fund: April 2012

Years of industry experience: 25

(View bio)


Adam Brown

Adam H. Brown, CFA

Vice President, Portfolio Manager

Start date on the Fund: October 2013

Years of industry experience: 16

(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 (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 price2.75%
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 expenses0.20%
Total annual fund operating expenses0.92%
Fee waivers and expense reimbursements(0.10%)
Total annual fund operating expenses after fee waivers and expense reimbursements0.82%

1The Fund's distributor, Delaware Distributors, L.P. (Distributor), has contracted to limit the Fund's Class A shares' 12b-1 fees to no more than 0.15% of average daily net assets from April 30, 2014 through April 30, 2015. This waiver may be terminated only by agreement of the Distributor and the Fund.

View printable commentary E-mail this page

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Delaware Limited-Term Diversified Income Fund Quarterly commentary September 30, 2014

Overview

The third quarter of 2014 reflected multiple shifts in bond market attitudes as well as the points of focus on economic growth, U.S. Federal Reserve policy, and geopolitical fronts. By mid-July, geopolitical risks had heated up and high-quality bonds benefited as many investors went in search of safety. Beyond the safety factor, the bond market seemed to be pulled in both directions by signs of improving U.S. growth being offset by pockets of weakening global growth.

Economic data for U.S. employment, consumer demand, and housing varied from month to month. Manufacturing was also choppy but auto sales were consistently strong. Overall, the U.S. economy has decent momentum entering the fourth quarter.

During the third quarter of 2014, yields on 10-year Treasurys fell from 2.53% to 2.49%, and yields on 2-year Treasurys rose from 0.46% to 0.57%. Rates fell during the first half of the quarter but then retraced much of this decline. The 3-month T-bill / 10-year T-note curve flattened 4 basis points to 2.47% 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) held steady, ending the quarter at 0.15%. (Data: Bloomberg.)

The Barclays U.S. Aggregate Index recorded a virtually flat return in the third 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 negative returns, although mortgage-backed securities (MBS) were relatively strong. BBB-rated corporates, high yield corporate bonds, and emerging market bonds produced negative returns.

Within the Fund

For the third quarter of 2014, Delaware Limited-Term Diversified Income Fund (Class A and Institutional Class shares at net asset value) underperformed its benchmark, the Barclays 1–3 Year U.S. Government/Credit Index.

  • The Fund’s underweight positions in Treasury securities had negative effects on relative returns as Treasury bonds led other benchmark sectors.
  • The Fund’s underweight in government-backed MBS modestly hurt relative performance while our security-specific positioning generally had a positive effect. Asset-backed securities (ABS) outperformed the benchmark as we maintained our emphasis on short-maturity and floating-rate issues. Commercial mortgage-backed securities (CMBS) had a slightly positive impact on relative performance based on our security selection advantage.
  • 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 impact, but down-in-quality securities lagged.
  • The high yield bond market was among the weakest sources of performance during the quarter. Overall, Fund exposure to the sector had a negative effect on relative performance. Investments in bank loans showed more moderately negative results.
  • Fund holdings in emerging market debt securities had a negative impact on performance for the quarter. U.S. dollar–based issues experienced wide spreads.
  • The Fund’s allocation to non-dollar developed credit markets, while representing only a small percentage of the portfolio, nonetheless produced negative results during the third quarter, primarily due to interest rate exposure.

Outlook

Whether evaluating current bond prices or the range of forecasts for 2015, a Fed tightening in the second or third quarter of 2015 appears to be viewed as a “high probability.” Many market analysts express concern that the Fed is already behind the curve. However, we believe that current conditions may actually support the opposite conclusion. Given the Fed’s history of refraining from tightening policy when the Consumer Price Index is soft, oil is falling, and the U.S. dollar is rising, a 2015 tightening could end up being ahead of the curve (and a policy mistake). Sluggish global growth — which results mostly from weak consumption — seems to support this view, as does the recent sharp decline in Treasury inflation-protected securities’ (TIPS’) break-even rates (that is, inflation premiums).

On balance, weak global growth should keep real rates at very low levels, and deflationary pockets in key world markets should keep nominal rates low as well. Market forecasts for significantly higher rates and a steeper yield curve seem to be misplaced, and, if anything, forecasts should be acknowledging the potential for a return to 10-year Treasury rates in the low 2% range.

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.

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

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.

[13383]

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.

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.

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.

Diversification may not protect against market risk.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 12/19/2014)

Class APriceNet changeYTD
NAV$8.51no chg1.12%
Max offer price$8.75n/an/a

Total net assets (as of 11/30/2014)

$1.2 billion all share classes

Lipper ranking (as of 11/30/2014)

YTD ranking112 / 173
1 year75 / 169
3 years111 / 122
5 years95 / 106
10 years46 / 87
Lipper classificationSht-Intmt Inv Grade Debt

(View Lipper disclosure)

Benchmark, peer group

Barclays 1-3 Year U.S. Government/Credit Index (view)

Lipper Short-Intermediate Investment Grade Debt Funds Average (view)

Additional information