Delaware Diversified Floating Rate Fund

Objective

Delaware Diversified Floating Rate Fund seeks total return.

Strategy

The Fund generally invests at least 80% of net assets in a diversified portfolio of floating rate securities.

Fund information
Inception date02/26/2010
Dividends paid (if any)Monthly
Capital gains paid (if any)December
Fund identifiers
NASDAQDDFLX
CUSIP245908637

Institutional Class shares are only available to certain investors. See the prospectus for more information. 

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 (08/31/2014)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)1.64%2.79%3.36%n/an/a2.81%02/26/2010
BofA Merrill Lynch USD 3-Month LIBOR Constant Maturity Index0.16%0.24%0.35%n/an/an/a
Average annual total return as of quarter-end (06/30/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)0.68%1.49%3.09%2.63%n/an/a2.89%02/26/2010
BofA Merrill Lynch USD 3-Month LIBOR Constant Maturity Index0.06%0.12%0.25%0.34%n/an/an/a

Returns for less than one year are not annualized.

Expense ratio
Gross0.76%
Net0.76%
Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20140.81%0.68%-0.23%n/an/a
20130.85%-0.43%0.51%1.07%2.00%
20122.18%0.59%2.00%0.78%5.66%
20111.29%0.33%-2.36%1.23%0.44%
2010n/a-0.92%1.74%1.21%n/a

Institutional Class shares are only available to certain investors. See the prospectus for more information. 

Portfolio characteristics - as of 08/31/2014
Share assets$281.0 million
Number of holdings507
Effective maturity (weighted average) (view definition)4.89 years
Effective duration (weighted average) (view definition).33 years
Annualized standard deviation, 3 years (view definition)1.36
SEC 30-day yield with waiver (view definition)1.98%
SEC 30-day yield without waiver (view definition)1.98%
Portfolio turnover (last fiscal year)112%
Portfolio composition as of 08/31/2014Total may not equal 100% due to rounding.
US Investment grade corporate bonds38.9%
Bank loans29.0%
Int'l Investment grade corporate bonds13.5%
Structured Products5.9%
High yield corporate bonds4.9%
Noncorporate securities4.2%
Cash and cash equivalents2.5%
Municipal Bonds1.0%
Government securities0.1%
Top 10 holdings as of 08/31/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Apple Inc. 0.537 5/6/20191.2%
Hewlett-Packard Co. 1.174 1/14/20191.0%
Oracle Corp. 0.741 10/8/20190.9%
Nuveen Investments Inc. 6.500 2/28/20190.9%
Merck & Co. Inc. 0.591 5/18/20180.9%
International Business Machines Corp. 0.605 2/12/20190.9%
Clear Channel Communications Inc. 3.650 1/29/20160.9%
National City Bank/Cleveland OH 0.601 6/7/20170.8%
Metropolitan Life Global Funding I 0.764 7/15/20160.8%
US Bancorp/MN 0.724 11/15/20180.8%
Total % Portfolio in Top 10 holdings9.1%

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

Top sectors as of 08/31/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Investment grade credits54.2%
High yield credits31.6%
Asset-backed securities5.3%
Emerging markets4.8%
Municipal bonds1.0%
MBS and CMOs0.6%
U.S. Treasury securities0.1%
Distribution history - annual distributions (Institutional Class)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20140.0000.148
20130.0000.201
20120.0000.242
20110.0000.195
20100.0000.179
20090.0000.000
20080.0000.000
20070.0000.000
20060.0000.000
20050.0000.000
20040.0000.000

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.

Institutional Class shares are only available to certain investors. See the prospectus for more information. 

Paul Grillo

Paul Grillo, CFA

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

Start date on the Fund: February 2010

Years of industry experience: 33

(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: February 2010

Years of industry experience: 38

(View bio)


J. David Hillmeyer

J. David Hillmeyer, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: February 2010

Years of industry experience: 21

(View bio)


Adam Brown

Adam H. Brown, CFA

Vice President, Portfolio Manager

Start date on the Fund: November 2011

Years of industry experience: 16

(View bio)


Institutional Class shares are only available to certain investors. See the prospectus for more information. 

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 pricenone
Maximum contingent deferred sales charge (load) as a percentage of original purchase price or redemption price, whichever is lowernone
Annual fund operating expenses
Management fees0.50%
Distribution and service (12b-1) feesnone
Other expenses0.26%
Total annual fund operating expenses0.76%
Fee waivers and expense reimbursementsnone
Total annual fund operating expenses after fee waivers and expense reimbursements0.76%

Institutional Class shares are only available to certain investors. See the prospectus for more information. 

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, 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) in order to prevent annual fund operating expenses from exceeding, in an aggregate amount, 0.80% 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 Diversified Floating Rate Fund Quarterly commentary June 30, 2014 Class A (DDFAX)

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 Diversified Floating Rate Fund (Class A shares at net asset value) generated a positive total return and outperformed its benchmark, the BofA Merrill Lynch U.S. Dollar 3-month LIBOR Constant Maturity Index.

The Fund’s significant exposure to investment grade corporate bonds was an important contributor to total return during the period. Industrials represented the largest sector component of the outperformance. However, both the financial and utility sectors also generated higher absolute returns within the asset class.

Lower on the quality spectrum, bank loans realized some price appreciation after experiencing mixed performance over the first four months of the year. Although the asset class performed well within the portfolio, the Fund’s exposure to loans underperformed the broader loan market because the average quality of the Fund’s investments was higher than that of the market.

Meanwhile, emerging markets continued to recover from the sharp selling that occurred back in the summer of 2013 and was among the best-performing asset classes within the Fund in the second quarter. Our holdings in emerging markets were diversified across regions, with an emphasis on Latin America.

The Fund’s exposure to structured product generated a positive return, yet underperformed the broader portfolio. The sector, however, continued to be a potential source of liquidity while providing diversification benefits.

Elsewhere, the Fund used interest rate swaps in an attempt to hedge risk associated with fixed-rate assets. In general, the hedges helped to offset the price appreciation of fixed-coupon bonds as Treasury rates moved lower.

Entering the third quarter of 2014, we are not anticipating a significant shift in portfolio positioning. Still, we are keeping a watchful eye on several potential risk factors, including growth trends in major economies, geopolitical risk in Eastern Europe and the Middle East, and the impact of monetary policy shifts by the large central banks in the developed world. Additionally, the relatively high absolute dollar prices of many callable asset classes will lead us to maintain a significant exposure to investment grade bonds that lack this feature.

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 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.

Diversification may not protect against market risk.

[12910]

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 800 362-7500. 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.

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.

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.

The Funds 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.

Because the Fund may invest in bank loans and other direct indebtedness, it is subject to the risk that the fund will not receive payment of principal, interest, and other amounts due in connection with these investments, which primarily depend on the financial condition of the borrower and the lending institution.

The Funds are distributed by Delaware Distributors L.P., an affiliate of Delaware Management Holdings, Inc., and Macquarie Group Limited.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 10/01/2014)

Institutional ClassPriceNet changeYTD
NAV$8.57no chg1.26%
Max offer price$8.57n/an/a

Total net assets (as of 08/31/2014)

$530.0 million all share classes

Lipper ranking (as of 08/31/2014)

YTD ranking1 / 118
1 year1 / 110
3 years1 / 78
5 yearsn/a
10 yearsn/a
Lipper classificationUltra Sht Obligation Fds

(View Lipper disclosure)

Benchmark, peer group

BofA Merrill Lynch U.S. Dollar 3-Month LIBOR Constant Maturity Index (view)

Lipper Ultra Short Obligation Funds Average (view)

Additional information