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
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 (08/31/2017)

as of quarter-end (06/30/2017)

YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)1.97%1.34%1.58%0.75%3.13%4.86%11/24/1985
Max offer price-0.83%-1.42%0.65%0.20%2.84%4.77%
Bloomberg Barclays 1-3 Year US Government/Credit Index1.18%0.90%1.07%0.96%2.18%n/a
1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)0.88%1.37%1.50%0.78%3.22%4.87%11/24/1985
Max offer price-1.89%-1.40%0.58%0.23%2.94%4.78%
Bloomberg Barclays 1-3 Year US Government/Credit Index0.31%0.35%0.95%0.95%2.30%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 May 1, 2017 through May 1, 2018. Please see the fee table in the Fund's prospectus for more information.

Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20170.58%0.88%n/an/an/a
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%-0.97%0.18%0.65%2.21%
20071.53%-0.03%2.16%2.57%6.36%
Portfolio characteristics - as of 08/31/2017Bloomberg Barclays 1-3 Year US Government/Credit Index
Number of holdings7641,438
Number of credit issuers216
Portfolio turnover (last fiscal year)124%n/a
Effective duration (weighted average) (view definition)1.78 years1.94 years
Effective maturity (weighted average) (view definition)5.31 years1.99 years
Yield to maturity (view definition)2.55%1.50%
Average market price (view definition)$99.94$101.10
Average coupon (view definition)3.41%2.05%
Yield to worst (view definition)2.46%1.50%
SEC 30-day yield with waiver (view definition)2.33%
SEC 30-day yield without waiver (view definition)2.14%
Annualized standard deviation, 3 years (view definition)1.27n/a
Portfolio composition as of 08/31/2017Total may not equal 100% due to rounding.
Credits46.4%
Asset-backed securities31.1%
Mortgage-backed securities19.9%
U.S. government securities/Short term2.3%
Commercial mortgage-backed securities0.3%
Top 10 fixed income holdings as of 08/31/2017
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
FNCL 4.5 10/163.8%
United States Treasury Note Bond 1.875 7/31/20223.2%
DCENT 2017-A1 A11.5%
FN AL99031.2%
CHAIT 2013-A9 A1.2%
GEDFT 2014-2 A1.1%
DCENT 2014-A1 A11.1%
CCCIT 2013-A7 A71.1%
COMET 2016-A1 A11.0%
AMOT 2015-2 A11.0%
Total % Portfolio in Top 10 holdings16.2%

Fixed income sectors as of 08/31/2017

List excludes cash and cash equivalents.

SectorFundBenchmark
Investment grade credits34.4%31.8%
Asset-backed securities31.1%0.0%
MBS and CMOs19.9%0.0%
High yield credits8.8%0.0%
U.S. Treasury securities4.2%62.7%
Emerging markets2.8%0.0%
Municipal bonds0.4%0.0%
Commercial mortgage-backed securities0.3%0.0%
Credit quality as of 08/31/2017
RatingFundBenchmark
AAA53.8%72.3%
AA3.7%6.9%
A13.8%10.7%
BBB18.2%10.1%
BB5.8%0.0%
B4.5%0.0%
CCC0.3%0.0%

Total may not equal 100% due to rounding. The Fund’s investment manager, Delaware Management Company (DMC), a series of Macquarie Investment 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 (S&P), Moody’s Investors Service, and Fitch, 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
20170.0000.1530.000
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, Global Co-Head of Fixed Income — Macquarie Investment Management

Start date on the Fund: May 2007

Years of industry experience: 41

(View bio)


Paul Grillo

Paul Grillo, CFA

Senior Vice President, Chief Investment Officer of Total Return Strategies

Start date on the Fund: February 1999

Years of industry experience: 36

(View bio)


Adam Brown

Adam H. Brown, CFA

Senior Vice President, Senior Portfolio Manager, Co-Head of High Yield — Macquarie Investment Management, Americas

Start date on the Fund: October 2013

Years of industry experience: 19

(View bio)


John McCarthy

John P. McCarthy, CFA

Senior Vice President, Senior Portfolio Manager, Co-Head of High Yield — Macquarie Investment Management, Americas

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

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 Funds by Macquarie. 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 fees0.49%
Distribution and service (12b-1) fees0.25%
Other expenses0.18%
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 May 1, 2017 through May 1, 2018. 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 May 1, 2017 through May 1, 2018. 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, 2017

Overview

Divergence was the watchword for the second quarter of 2017. A well-telegraphed June federal funds rate increase by the Federal Open Market Committee (FOMC) pushed money market rates higher, but 2-year yields barely moved while 10-year yields declined. The US dollar fell back to its pre-election levels, oil prices returned to the lower $40s range, and optimism around the Trump administration’s agenda waned, but risk assets rallied.

The Bloomberg Barclays US Aggregate Index recorded a positive return for the second quarter of 2017, with lower-quality, BBB-rated bonds outperforming the higher-rated investment grade credit tiers within that index on a total return basis. Although most broad-market fixed income indices produced positive returns, high yield corporate bonds, emerging market debt, and global Treasurys ex-US were the strongest performers for the quarter.

US economic indicators turned softer during the second quarter of 2017. The Citigroup Economic Surprise Index, for example, moved significantly lower, ending at its lowest level since the first half of 2015. Nonfarm payroll growth, which averaged about 200,000 a month since 2011, averaged just 149,000 a month in the second quarter. Meanwhile, core personal consumption expenditures or PCE (the US Federal Reserve’s preferred inflation gauge) fell to 1.4% year over year and the Consumer Price Index (Core CPI) moved consistently lower over the quarter as well. The Institute for Supply Management’s total Manufacturing and Non-Manufacturing New Orders Index also declined, unable to sustain the rebound from the previous two quarters. Sentiment indicators were slightly lower, but remained elevated throughout the quarter. The National Federation of Independent Business (NFIB) Small Business Optimism Index revealed that small business owners continue to feel comfortable with the economy.

Given the divergent data, it is important to understand the forces behind recent economic performance and the outlook for the ongoing expansion. After several years of similar results, it might seem logical to assume that gross domestic product (GDP) growth will strengthen over the remainder of 2017 after a seasonally weak first quarter. However, the pattern of weaker growth in the first quarter of 2017 (1.4% annualized versus 2.1% in the fourth quarter of 2016) doesn’t align with recent years. In past years, slower first quarter growth was based on weakness in government, inventory, and trade trends. But in 2017, softer first quarter growth was driven by weak consumer spending. In fact, capital expenditures, which could return to trend over the rest of the year, was a particularly strong factor in first quarter 2017 GDP. Muted consumer earnings growth (especially relative to even a small amount of inflation) and an expected setback in automobile production later this summer suggest to us that a strong GDP rebound is less likely in 2017. Additional support for this view comes from the recent moderation in optimism around the Trump reflation trade and the realization that China, which provided significant policy accommodation in the first half of 2016, is much more restrictive today.

Within the Fund

The Fund’s outperformance was driven primarily by its positioning in high grade corporate credit. Corporate bonds outperformed Treasurys, so the Fund’s overweight to the sector was additive to performance. Our security selection in the sector was also beneficial, with the Fund’s corporate positions returning 1.35% versus 0.54% for the sector within its benchmark, the Bloomberg Barclays 1–3 Year US Government/Credit Index. The Fund’s out-of-benchmark holdings in below-investment-grade credit, emerging market debt, and municipal bonds also aided returns, as these securities were all strong performers. Conversely, bank loan and noncorporate exposure were detractors as these securities underperformed the benchmark.

Outlook

Beyond recent economic trends, we must seriously consider the outlook for the length of the current economic expansion and the possibility that this phase of the business cycle could end sooner than the markets expect. The Trump reflation trade (or the “hope” trade) is built on the view that fiscal stimulus could significantly extend the life of the expansion. We suggest that other signals may be warning of a nearer-term end. Historically, the most reliable indicator of an economic downturn has been an inverted yield curve. Though the curve in US fixed income markets is not yet inverted, 2-year Treasury notes now trade at 1.3%-plus while the Fed’s target range for the federal funds rate is 1.00% to 1.25%. In our view, the fact that 2-year Treasury notes are not factoring in any future Fed tightening is a signal in itself. Additionally, the recent restrictive policy in China has resulted in a curve inversion in that country, which is significant given China’s importance in driving global economic trends in recent years.

Other factors worth considering are centered on typical late-cycle trends. These include a tight labor market combined with a slowdown in hiring; pressure on company profitability caused by rising unit labor costs (in the current case, the result of modestly higher wages coupled with falling productivity); increasing late-cycle excesses, such as stress in subprime auto loans; and a strong rise in confidence similar to what took place after the US election. (Note that cycles usually end with overconfidence, not fear.) Finally, keep in mind that a forecast from the Fed is often unreliable. For example, consider the FOMC minutes from mid-2008 when inflation was the central bank’s biggest concern. We must make investment decisions while keeping in mind that the range of outcomes is not limited to the Fed’s view, or the consensus view.

[226816]

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 US 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 09/25/2017)

Class APriceNet change
NAV$8.50no chg
Max offer price$8.74n/a

Total net assets (as of 08/31/2017)

$769.1 million all share classes

Overall Morningstar RatingTM

 
Class A shares (as of 08/31/2017)
Class ANo. of funds
Overall3463
3 Yrs4463
5 Yrs2376
10 Yrs4258
Morningstar categoryShort-Term Bond

(View Morningstar disclosure)

Morningstar ranking (as of 08/31/2017)

YTD ranking168 / 516
1 year252 / 513
3 years129 / 463
5 years283 / 376
10 years51 / 258
Morningstar categoryShort-Term Bond

(View Morningstar disclosure)

Lipper ranking (as of 08/31/2017)

YTD ranking107 / 178
1 year77 / 176
3 years70 / 159
5 years109 / 128
10 years45 / 82
Lipper classificationSht-Intmt Inv Grade Debt

(View Lipper disclosure)

Benchmark, peer group

Bloomberg Barclays 1–3 Year US Government/Credit Index (view definition)

Morningstar Short-Term Bond Category (view definition)

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

Additional information