Delaware Core Plus Bond Fund

Objective

Delaware Core Plus Bond Fund seeks maximum long-term total return, consistent with reasonable risk.

Strategy

The Fund invests at least 50% of its net assets in domestic (U.S.) investment grade debt securities. The Fund may also invest up to 30% of its net assets in high yield securities and up to 30% of its net assets in foreign securities.

Fund information
Inception date08/16/1985
Dividends paid (if any)Monthly
Capital gains paid (if any)December
Fund identifiers
NASDAQDEGGX
CUSIP246094205
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 (01/31/2015)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)2.22%6.52%3.70%5.12%5.33%6.28%08/16/1985
Max offer price-2.36%1.68%2.13%4.15%4.85%6.11%
Barclays U.S. Aggregate Index2.10%6.61%3.07%4.57%4.86%n/a
Average annual total return as of quarter-end (12/31/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)1.05%5.63%5.63%3.27%5.01%5.19%6.22%08/16/1985
Max offer price-3.50%0.90%0.90%1.70%4.06%4.72%6.05%
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.

Expense ratio
Gross1.18%
Net0.90%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursements from Nov. 28, 2014 through Nov. 30, 2015. Additionally, the Fund's Class A shares are subject to a blended 12b-1 fee of 0.10% on all shares acquired prior to June 1, 1992 and 0.25% on all shares acquired on or after June 1, 1992. All Class A shares currently bear 12b-1 fees at the same rate, the blended rate based on the formula described above. This method of calculating Class A 12b-1 fees may be discontinued at the sole discretion of the Fund's Board of Trustees.

Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20142.39%2.37%-0.28%1.05%5.63%
20130.25%-3.17%0.43%1.01%-1.53%
20120.43%2.49%2.35%0.51%5.89%
20110.95%2.31%2.30%1.74%7.49%
20102.87%2.36%3.46%-0.96%7.88%
20090.32%7.93%8.30%2.14%19.75%
20081.53%-0.97%-3.49%1.35%-1.65%
20071.13%-0.73%2.30%2.29%5.06%
2006-1.26%-0.33%4.05%0.60%3.01%
20050.28%2.93%-1.34%0.10%1.94%
Portfolio characteristics - as of 01/31/2015
Number of holdings706
Effective maturity (weighted average) (view definition)8.36 years
Effective duration (weighted average) (view definition)5.70 years
Annualized standard deviation, 3 years (view definition)3.29
SEC 30-day yield with waiver (view definition)1.98%
SEC 30-day yield without waiver (view definition)1.62%
Portfolio turnover (last fiscal year)273%
Portfolio composition as of 01/31/2015Total may not equal 100% due to rounding.
Credits51.8%
Mortgage-backed securities32.5%
U.S. government securities11.7%
Asset-backed securities3.7%
Municipal bonds0.4%
Top 10 holdings as of 01/31/2015
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
FNCL MAR TBA6.1%
United States Treasury Note/Bond 3.000 11/15/20443.9%
United States Treasury Note/Bond 1.625 12/31/20193.3%
United States Treasury Note/Bond 2.250 11/15/20243.0%
FNCL MAR TBA2.5%
FNR 2011-80 CB1.8%
FNCI MAR TBA1.5%
FNCL AX53161.2%
FNCL MAR TBA1.1%
FNCL MAR TBA0.9%
Total % Portfolio in Top 10 holdings25.3%

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

Top sectors as of 01/31/2015
List excludes cash and cash equivalents.
Sector% of portfolio
Investment grade credits36.1%
MBS and CMOs27.2%
High yield credits10.8%
U.S. treasury securities10.3%
Commercial mortgage-backed securities5.2%
Emerging markets4.7%
Asset-backed securities3.7%
Municipal bonds0.4%
International developed0.3%
Agency bonds0.1%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
Return of
capital
20150.0000.0390.000
20140.0000.2650.004
20130.0000.2560.000
20120.0190.2550.000
20110.0000.2940.000
20100.0000.3370.000
20090.0000.3860.000
20080.0000.3790.000
20070.0000.3540.000
20060.0000.3190.000
20050.0000.3400.000

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 (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, 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 1997

Years of industry experience: 33

(View bio)


J. David Hillmeyer

J. David Hillmeyer, CFA

Vice President, Senior Portfolio Manager

Start date on the Fund: November 2011

Years of industry experience: 22

(View bio)


Paul Matlack

Paul 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)


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)


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)


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 fees0.55%
Distribution and service (12b-1) fees0.25%
Other expenses0.38%
Total annual fund operating expenses1.18%
Fee waivers and expense reimbursements(0.28%)
Total annual fund operating expenses after fee waivers and expense reimbursements0.90%

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 0.65% 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. Additionally, the Fund's Class A shares are subject to a blended 12b-1 fee of 0.10% on all shares acquired prior to June 1, 1992 and 0.25% on all shares acquired on or after June 1, 1992. All Class A shares currently bear 12b1-fees at the same rate, the blended rate based on the forumula described above. This method of calculating Class A 12b-1 fees may be discontinued at the sole discretion of the Fund's Board of Trustees.

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Delaware Core Plus Bond Fund Quarterly commentary December 31, 2014

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. 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 Core Plus Bond Fund (Class A shares at net asset value and Institutional Class shares) 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 Barclays U.S. Aggregate Index 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.

Outlook

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.

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.

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.

[13845]

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 877 693-3546. 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.

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.

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.

The Fund may experience portfolio turnover in excess of 100%, which could result in higher transaction costs and tax liability.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 03/02/2015)

Class APriceNet changeYTD
NAV$8.59-0.021.29%
Max offer price$8.99n/an/a

Total net assets (as of 01/31/2015)

$122.4 million all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 01/31/2015)

Load waivedWith loadNo. of funds
Overall43913
3 Yrs32913
5 Yrs32808
10 Yrs43588
Morningstar categoryIntermediate-Term Bond

(View Morningstar disclosure)

Lipper ranking (as of 01/31/2015)

YTD ranking58 / 191
1 year60 / 187
3 years116 / 167
5 years82 / 143
10 years38 / 73
Lipper classificationCore Plus Bond Funds

(View Lipper disclosure)

Benchmark, peer group

Barclays U.S. Aggregate Index (view)

Lipper Core Plus Bond Funds Average (view)

Additional information