Delaware Investments Delaware Investments Delaware Investments

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)November or 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 (01/31/2017)

as of quarter-end (12/31/2016)

YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)0.18%1.87%1.37%0.78%3.23%4.90%11/24/1985
Max offer price-2.57%-0.93%0.44%0.22%2.95%4.80%
Bloomberg Barclays 1-3 Year U.S. Government/Credit Index0.19%0.95%0.90%0.89%2.44%n/a
1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-0.65%2.42%1.43%0.99%3.23%4.90%11/24/1985
Max offer price-3.35%-0.42%0.50%0.42%2.94%4.81%
Bloomberg Barclays 1-3 Year U.S. Government/Credit Index-0.39%1.28%0.90%0.92%2.45%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%
Net0.74%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursement from April 29, 2016 through May 1, 2017. Please see the fee table in the Fund's prospectus for more information.

Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20161.46%1.05%0.55%-0.65%2.42%
20151.24%-0.52%0.22%-0.30%0.62%
20140.65%0.62%-0.28%0.29%1.28%
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%
Portfolio characteristics - as of 01/31/2017Bloomberg Barclays 1-3 Year U.S. Government/Credit Index
Number of holdings7391,716
Number of credit issuers248
Portfolio turnover (last fiscal year)94%n/a
Effective duration (weighted average) (view definition)2.04 years1.92 years
Effective maturity (weighted average) (view definition)4.02 years1.98 years
Yield to maturity (view definition)2.55%1.44%
Average market price (view definition)$100.01$101.10
Average coupon (view definition)3.10%2.03%
Yield to worst (view definition)2.52%1.43%
SEC 30-day yield with waiver (view definition)1.86%
SEC 30-day yield without waiver (view definition)1.68%
Annualized standard deviation, 3 years (view definition)1.30n/a
Portfolio composition as of 01/31/2017Total may not equal 100% due to rounding.
Credits53.3%
Asset-backed securities31.7%
Mortgage-backed securities16.6%
Commercial mortgage-backed securities0.5%
U.S. government securities-2.0%
Top 10 fixed income holdings as of 01/31/2017
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
FNCL 4.5 3/173.1%
FHR 4457 KZ1.2%
CHAIT 2015-A6 A61.2%
BACCT 2007-A4 A41.1%
GEDFT 2012-2 A1.1%
CHAIT 2013-A9 A1.0%
GEDFT 2014-2 A0.9%
DCENT 2014-A1 A10.9%
CCCIT 2013-A7 A70.9%
PFSFC 2014-AA A0.9%
Total % Portfolio in Top 10 holdings12.3%

Fixed income sectors as of 01/31/2017

List excludes cash and cash equivalents.

SectorFundBenchmark
Investment grade credits41.9%34.1%
Asset-backed securities31.7%0.0%
MBS and CMOs16.6%0.0%
High yield credits8.7%0.0%
Emerging markets2.3%0.0%
Commercial mortgage-backed securities0.5%0.0%
Municipal bonds0.5%0.0%
U.S. Treasury securities0.2%58.8%
Credit quality as of 01/31/2017
RatingFundBenchmark
AAA46.1%69.9%
AA6.5%8.1%
A16.8%10.7%
BBB20.7%11.3%
BB5.0%0.0%
B4.8%0.0%
CCC0.2%0.0%

Total may not equal 100% due to rounding. The Fund’s investment manager, Delaware Management Company (DMC), a series of Delaware Management Business Trust, receives “Credit Quality” ratings for the underlying securities held by the Fund from three “nationally recognized statistical rating organizations” (NRSROs): Standard & Poor’s Financial Services LLC (S&P), Moody’s Investors Service, and Fitch Ratings, Inc. The credit quality breakdown is calculated by DMC based on the NRSRO ratings. If two or more NRSROs have assigned a rating to a security the higher rating (lower value) is used. If only one NRSRO rates a security, that rating is used. For securities rated by an NRSRO other than S&P, that rating is converted to the equivalent S&P credit rating. Securities that are unrated by any of the three NRSROs are included in the “not rated” category when applicable. Unrated securities do not necessarily indicate low quality. More information about securities ratings is contained in the Fund’s Statement of Additional Information.

Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
Return of
capital
20170.0000.0150.000
20160.0000.1410.011
20150.0000.1300.013
20140.0000.1360.004
20130.0000.0000.140
20120.0150.1750.000
20110.1250.2210.000
20100.0410.2460.000
20090.0000.3360.000
20080.0000.3480.000
20070.0000.3770.000

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.

Risk managed solutions

Roger Early, Head of Fixed Income Investments, discusses why the team’s assets under management, structure, and mindset are strengths that help distinguish it from others. [Runtime: 2:14]

Watch the video

Read video transcript

Roger Early

Roger A. Early, CPA, CFA

Executive Director, Head of Fixed Income Investments, Executive Vice President, Co-Chief Investment Officer — Total Return Fixed Income Strategy

Start date on the Fund: May 2007

Years of industry experience: 40

(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 1999

Years of industry experience: 35

(View bio)


Adam Brown

Adam H. Brown, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: October 2013

Years of industry experience: 18

(View bio)


John McCarthy

John P. McCarthy, CFA

Senior Vice President, Senior Portfolio Manager, Co-Head of Credit Research

Start date on the Fund: July 2016

Years of industry experience: 30

(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: 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 intermediary, 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 table below 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 fees0.48%
Distribution and service (12b-1) fees0.25%
Other expenses0.19%
Total annual fund operating expenses0.92%
Fee waivers and expense reimbursements(0.18%)
Total annual fund operating expenses after fee waivers and expense reimbursements0.74%

1 The 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 0.59% of the Fund’s average daily net assets from Oct. 5, 2016 through Oct. 5, 2017. These waivers and reimbursements may only be terminated by agreement of the Manager and the Fund. Additionally, the 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 29, 2016 through May 1, 2017. 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 December 31, 2016

Overview

The Bloomberg Barclays U.S. Aggregate Index recorded a negative return for the fourth quarter, with higher-quality AAA-rated bonds outperforming lower-rated investment grade credit tiers within that index on a total return basis. However, based on excess return, BBB-rated credit significantly outperformed. Although most broad-market fixed income indices produced negative returns, high yield corporate bonds were positive performers for the period.

U.S. economic indicators were generally stronger, with the Citigroup Economic Surprise Index rising to end 2016 in positive territory. Jobless claims as reported by the Bureau of Labor Statistics, which have averaged about 263,000 a month for the past year, remained low while nonfarm payrolls, which have averaged about 200,000 a month since 2011, fell to about 176,000 during the quarter. On the inflation front, core personal consumption expenditures (or PCE, the Federal Reserve’s preferred inflation gauge) declined slightly to 1.6% year-over-year. Meanwhile, personal income and spending remained subdued, with both metrics falling during the quarter (source: Bureau of Economic Analysis). Until personal and wage-and-salary income growth accelerates, consumer inflation is likely to remain muted. Notably, the National Federation of Independent Business (NFIB) Small Business Optimism Index rose following the U.S. election.

The global economy stands at an important crossroads. As financial markets trade on unrealized expectations for faster growth, it is appropriate to question whether reality will eventually intervene. Would even the most optimistic scenario for the implementation of tax and infrastructure (that is, fiscal) policy measures make enough of an impact to offset the sizable and longstanding headwinds to global growth that are centered on aging populations, lower productivity, a massive debt overhang, and a general lack of global demand? Anything more than a slightly marginal increase in U.S. and global gross domestic product (GDP) seems unrealistic to us.

Equally important, how do investors factor in the high level of uncertainty arising from implementation-related challenges for the Trump administration? These challenges include the incoming president’s penchant for unpredictability; the extent to which he and the Congress are able to cooperate; the president-elect’s prioritization of growth-restricting global trade–related actions versus his growth-supportive fiscal plan; and the potential for any growth programs to be driven by a surge in government debt. Given current structural obstacles, it seems unlikely to us that a debt-financed plan can be a long-term positive for economic growth unless the debt-financed actions add substantively to U.S. and global productivity. History reminds us that uncertainty is generally bad for financial assets, so a measure of caution along with the current serving of hope seems appropriate, in our view.

Within the Fund

Delaware Limited-Term Diversified Income Fund (Institutional Class shares and Class A shares at net asset value) outperformed its benchmark, the Bloomberg Barclays 1–3 Year U.S. Government/Credit Index, for the third quarter of 2016.

The Fund’s overweight allocation to investment grade corporate bonds, combined with strong security selection in the investment grade sector, were the primary drivers of performance for the period. Out-of-benchmark allocations in mortgage-backed securities (MBS), commercial mortgage-backed securities (CMBS), high yield bonds, and emerging market debt also contributed to relative performance, as these sectors outperformed the return of the benchmark. Conversely, the Fund’s small allocation to municipal bonds detracted from relative performance.

Within the Fund

Delaware Limited-Term Diversified Income Fund (Institutional Class shares and Class A shares at net asset value) underperformed its benchmark, the Bloomberg Barclays 1–3 Year U.S. Government/Credit Index, for the fourth quarter of 2016.

The Fund’s overweight allocation to investment grade corporate bonds benefited performance for the period; however, this positive was offset by adverse security selection, specifically within the banking sector. While the underweight to Treasurys was a positive for the period, yield curve positioning acted as a detractor. Out-of-benchmark exposure in municipal bonds and mortgage-backed securities also negatively influenced performance. Conversely, exposure in below-investment-grade credit and bank loans contributed to relative performance during the quarter.

Outlook

As we assess the investment outlook and develop strategy, we are focused on many of the same issues as in 2016. The effectiveness of monetary policies in the developed world appears to be declining and fiscal policy is moving to the forefront. We take a favorable view of corporate tax reform, which could lead to a more sustainable rise in economic growth rates; however, a completed bill may arrive too late to have a material impact on growth in 2017. Our credit team has detected signs that corporate fundamentals are stabilizing at a time when business outlooks are improving along with consumer confidence. Continued gains in global services and manufacturing data adds support to this thesis. We will be watching closely for a continuation of these trends.

However, we are hesitant to extrapolate the good news too far into 2017. The renewed strength in the U.S. dollar presents headwinds that are not specific to the United States but that could lead to a tightening of global financial conditions. Dollar strength will weigh on U.S. exports, which may result in weaker corporate profits. Continued strength of the dollar could also drive an increase in Chinese capital outflows during a time when China is walking an economic “high wire” in trying to balance the need for short-term growth against a worrisome long-term debt problem. Furthermore, emerging economies that have relied heavily on funding in U.S. dollars over the past several years could experience challenges.

As in late 2015, markets are currently anticipating multiple rate hikes by the Fed in the upcoming year. The Fed’s “dots” forecast of three such moves in 2017 appears to be affecting market expectations as well. A new era of Fed hikes could begin this year, but as we noted last quarter, nothing can be taken for granted in a world burdened by debt and subpar growth trends. The global search for yield will likely continue, but it may not be enough to support risk premiums for credit that are inside long-term averages. Avoiding idiosyncratic risks should provide the backdrop for our active, fundamental research-based approach to help navigate these challenging times.

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

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.

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

The NFIB Small Business Optimism Index is a survey asking small business owners a battery of questions related to their expectations for the future and their plans to hire, build inventory, borrow, and expand.

The Citigroup Economic Surprise Index is a rolling measure of beats and misses of indicators relative to consensus expectations.

[18540]

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.

High yielding, non-investment-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.

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 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 derivatives 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.

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 02/17/2017)

Class APriceNet change
NAV$8.48no chg
Max offer price$8.72n/a

Total net assets (as of 01/31/2017)

$921.4 million all share classes

Overall Morningstar RatingTM

 
Class A shares (as of 01/31/2017)
Class ANo. of funds
Overall3453
3 Yrs3453
5 Yrs2361
10 Yrs4261
Morningstar categoryShort-Term Bond

(View Morningstar disclosure)

Morningstar ranking (as of 01/31/2017)

YTD ranking399 / 536
1 year233 / 526
3 years130 / 453
5 years276 / 361
10 years54 / 261
Morningstar categoryShort-Term Bond

(View Morningstar disclosure)

Lipper ranking (as of 01/31/2017)

YTD ranking177 / 196
1 year101 / 193
3 years84 / 162
5 years98 / 113
10 years48 / 87
Lipper classificationSht-Intmt Inv Grade Debt

(View Lipper disclosure)

Benchmark, peer group

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

Morningstar Short-Term Bond Category (view definition)

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

Additional information