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

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 (07/31/2014)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)1.05%1.49%0.47%2.31%3.61%5.21%11/24/1985
Max offer price-1.71%-1.27%-0.48%1.73%3.32%5.11%
Barclays 1-3 Year U.S. Government/Credit Index0.49%0.85%0.88%1.62%2.91%n/a
Average annual total return as of quarter-end (06/30/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)0.62%1.27%1.84%0.86%2.83%3.67%5.23%11/24/1985
Max offer price-2.12%-1.50%-0.93%-0.06%2.26%3.38%5.13%
Barclays 1-3 Year U.S. Government/Credit Index0.33%0.56%1.14%1.00%1.73%2.96%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%n/an/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 07/31/2014
Share assets$609.9 million
Number of holdings570
Effective maturity (weighted average) (view definition)3.70 years
Effective duration (weighted average) (view definition)2.38 years
Annualized standard deviation, 3 years (view definition)1.60
SEC 30-day yield with waiver (view definition)0.89%
SEC 30-day yield without waiver (view definition)0.80%
Portfolio turnover (last fiscal year)236%
Portfolio composition as of 07/31/2014Total may not equal 100% due to rounding.
Credits52.1%
Asset-backed securities38.4%
Mortgage-backed securities6.2%
U.S. government securities2.6%
Commercial mortgage-backed securities0.6%
Top 10 holdings as of 07/31/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
GEDFT 2012-2 A1.9%
GCCT 2012-3A A1.4%
AMXCA 2013-1 A1.3%
GEDFT 2013-1 A1.2%
CHAIT 2013-A3 A31.2%
BCARD 2012-1A A11.1%
COMET 2007-A1 A11.1%
DCENT 2012-A4 A41.1%
John Deere Capital Corp. 1.700 1/15/20201.1%
CHAIT 2012-A2 A20.9%
Total % Portfolio in Top 10 holdings12.3%

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

Top sectors as of 07/31/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Investment grade credits45.9%
Asset-backed securities38.4%
MBS and CMOs6.2%
High yield credits3.5%
Emerging markets2.4%
Commercial mortgage-backed securities0.6%
Municipal bonds0.3%
U.S. Treasury securities0.1%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20140.0000.080
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 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

(View bio)


Roger Early

Roger Early, CPA, CFA, CFP

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

Start date on the Fund: May 2007

(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

(View bio)


Thomas Chow

Thomas H. Chow, CFA

Senior Vice President, Chief Investment Officer — Corporate Credit

Start date on the Fund: October 2013

(View bio)


Adam Brown

Adam H. Brown, CFA

Vice President, Portfolio Manager

Start date on the Fund: October 2013

(View bio)


Christopher Testa

Christopher M. Testa, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: June 2014

(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.

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Delaware Limited-Term Diversified Income Fund Quarterly commentary June 30, 2014 Class A (DTRIX)

Overview

After a surprisingly weak first quarter, U.S. economic indicators were generally solid during the second quarter of 2014. Data for employment, manufacturing, auto sales, and housing all showed strength although consumption statistics came in at a softer pace. Overall, the U.S. economy has modest momentum entering the third quarter. However, core prices moved meaningfully higher while headline inflation was even stronger, due primarily to energy prices.

The Barclays U.S. Aggregate Index recorded another strong return in the second quarter as corporate bonds — especially lower-quality and longer-duration sectors — led the way. Given the shift in the Treasury yield curve, short-to-intermediate sectors produced more-moderate returns, although mortgage-backed securities (MBS) were relatively strong. Meanwhile, BBB-rated corporates, high yield corporate bonds, and emerging market bonds produced strong excess returns.

Yields were lower on longer maturities during the second quarter of 2014, with 10- to 30-year Treasury bonds showing the biggest drop in rates during the period (-0.20%). Responding to a slight improvement in economic momentum, short-term yields during the quarter were slightly higher. The 2-year/10-year Treasury curve flattened by 0.23 percentage points, to 2.07%. Ten-year Treasury inflation-protected securities (TIPS) yields followed nominals as break-even inflation rates rose from 2.14% to 2.28% and real yields fell from 0.58% to 0.25%.

Within the Fund

For the second quarter of 2014, Delaware Limited-Term Diversified Income Fund (Class A shares at net asset value) generated a positive total return that outperformed its benchmark, the Barclays 1–3 Year U.S. Government/Credit Index.

  • The Fund’s underweight positions in Treasury securities had a positive impact on relative returns as Treasury bonds lagged other benchmark sectors.
  • The high yield bond market was among the strongest sources of performance during the quarter, though Fund investments in bank loans showed moderately positive results.
  • The Fund’s positions in emerging market debt contributed to relative performance for the quarter. U.S. dollar–based issues were the primary source of the outperformance.
  • Non-dollar developed markets, while representing only a small allocation, produced solid returns as interest rate exposures benefited performance. Currency hedging had a modest positive effect as well.

Outlook

Federal Reserve forecasts suggest that short-term rates should stay near zero until at least the second quarter of 2015 and move higher at a slower-than-normal pace after that. This factor, along with still moderate inflation, should help keep 10-year Treasury yields below 3.5% during 2014. Stronger-than-expected economic growth could cause a test of this upper band, while any reasons for a return to a flight-to-quality or liquidity sentiment could create a rally that tests yield levels below 2.5% or even 2.0%. So far, the market reaction to the actual tapering in asset purchases of $10 billion per month has been rather modest. We believe that TIPS are still at full value given the potential for a continuing softness in inflation.

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

Per Standard & Poor’s credit rating agency, bonds rated below AAA, including A, 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.

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

[12907]

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 08/20/2014)

Class APriceNet changeYTD
NAV$8.58-0.011.37%
Max offer price$8.82n/an/a

Total net assets (as of 07/31/2014)

$1.3 billion all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 07/31/2014)

Load waivedWith loadNo. of funds
Overall33421
3 Yrs21421
5 Yrs32362
10 Yrs44255
Morningstar categoryShort-Term Bond

(View Morningstar disclosure)

Lipper ranking (as of 07/31/2014)

YTD ranking134 / 169
1 year123 / 161
3 years113 / 118
5 years87 / 102
10 years46 / 85
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