UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number: | 811-07972 | |
Exact name of registrant as specified in charter: | Delaware Group® Adviser Funds | |
Address of principal executive offices: | 2005 Market Street | |
Philadelphia, PA 19103 | ||
Name and address of agent for service: | David F. Connor, Esq. | |
2005 Market Street | ||
Philadelphia, PA 19103 | ||
Registrant’s telephone number, including area code: | (800) 523-1918 | |
Date of fiscal year end: | October 31 | |
Date of reporting period: | October 31, 2012 |
Item 1. Reports to Stockholders
![](https://capedge.com/proxy/N-CSR/0001206774-13-000083/del_topimg02.jpg)
Annual report Delaware Diversified Income Fund October 31, 2012 Fixed income mutual fund |
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, if available, its summary prospectus, which may be obtained by visiting delawareinvestments.com or calling 800 523-1918. Investors should read the prospectus and, if available, the summary prospectus carefully before investing. |
You can obtain shareholder reports and prospectuses online instead of in the mail. Visit delawareinvestments.com/edelivery. |
Experience Delaware Investments
Delaware Investments is committed to the pursuit of consistently superior asset management and unparalleled client service. We believe in our investment processes, which seek to deliver consistent results, and in convenient services that help add value for our clients.
If you are interested in learning more about creating an investment plan, contact your financial advisor.
You can learn more about Delaware Investments or obtain a prospectus for Delaware Diversified Income Fund at delawareinvestments.com.
Manage your investments online |
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Delaware Management Holdings, Inc. and its subsidiaries (collectively known by the marketing name of Delaware Investments) are wholly owned subsidiaries of Macquarie Group Limited, a global provider of banking, financial, advisory, investment and funds management services.
Investments in Delaware Diversified Income Fund are not and will not be deposits with or liabilities of Macquarie Bank Limited ABN 46 008 583 542 and its holding companies, including their subsidiaries or related companies (Macquarie Group), and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. No Macquarie Group company guarantees or will guarantee the performance of the Fund, the repayment of capital from the Fund, or any particular rate of return.
Table of contents | |
Portfolio management review | 1 |
Performance summary | 4 |
Disclosure of Fund expenses | 8 |
Security type/sector allocation | 10 |
Statement of net assets | 12 |
Statement of operations | 58 |
Statements of changes in net assets | 60 |
Financial highlights | 62 |
Notes to financial statements | 72 |
Report of independent registered | |
public accounting firm | 90 |
Other Fund information | 91 |
Board of trustees/directors and | |
officers addendum | 96 |
About the organization | 106 |
Unless otherwise noted, views expressed herein are current as of Oct. 31, 2012, and subject to change.
Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. Delaware Investments, a member of Macquarie Group, refers to Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s distributor, Delaware Distributors, L.P. Macquarie Group refers to Macquarie Group Limited and its subsidiaries and affiliates worldwide.
© 2012 Delaware Management Holdings, Inc.
All third-party marks cited are the property of their respective owners.
Portfolio management review | |
Delaware Diversified Income Fund | November 6, 2012 |
Performance preview (for the year ended October 31, 2012) | ||||
Delaware Diversified Income Fund (Class A shares) | 1-year return | +7.82% | ||
Barclays U.S. Aggregate Index (benchmark) | 1-year return | +5.25% |
For complete, annualized performance for Delaware Diversified Income Fund, please see the table on page 4.
The performance of Class A shares excludes the applicable sales charge and reflects the reinvestment of all distributions.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.
Prices across major bond asset classes diverged during the Fund’s fiscal year ended Oct. 31, 2012. This was partly in response to shifting risk appetites. As the fiscal year began, many investors were looking to reduce risk by selling their existing risky positions and moving their money to either cash positions or low/no-risk positions, such as U.S. Treasury bonds. This was primarily due to concerns that the 17-country euro zone might break apart. Those worries caused traditional “safe haven” assets (such as U.S. and German government bonds) to outperform credit-sensitive sectors like corporate debt (investment grade as well as high yield) and emerging markets debt.
For the most part, risk appetite returned late in 2011, after the European Central Bank (ECB) launched a bond-buying program intended to bring down yields on euro zone debt. As the implications of the ECB’s plan became clear, bond prices generally reversed course, with economically sensitive sectors besting their safe-haven peers by a wide margin.
By early spring 2012, however, the rally in risk assets had once again run its course. Indications that economic growth in the United States and China, the world’s two largest economies was decelerating, helped re-establish fears that another global recession could occur. In July, ECB
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1
Portfolio management review
Delaware Diversified Income Fund
president Mario Draghi proclaimed that he would do “whatever it takes” to preserve Europe’s common currency, and the U.S. Federal Reserve initiated a third round of quantitative easing in September with an open-ended time frame.
Despite the swings in risk appetites, market conditions during the Fund’s fiscal year were broadly supportive of almost all fixed income market sectors, as accommodative monetary policy helped exert downward pressure on yields while corporate balance sheets generally remained in solid shape.
Fund performance
For the fiscal year ended Oct. 31, 2012, Delaware Diversified Income Fund returned +7.82% at net asset value and +2.96% at maximum offer price (both figures represent Class A shares with all distributions reinvested). For the same time period, the Barclays U.S. Aggregate Index returned +5.25%. Complete, annualized performance for Delaware Diversified Income Fund is shown in the table on page 4.
In keeping with the Fund’s objective of broad diversification, the bulk of its relative performance was generated by returns from four major sectors: U.S. investment-grade bonds, U.S. high yield debt, emerging market debt, and non-dollar developed market securities. The Fund’s overweight to U.S. investment-grade corporate bonds was a contributor to relative performance for the fiscal year, as was its emphasis on intermediate-term BBB-rated issues. The Fund’s allocation to high yield also aided its relative performance. It is important to note, however, that we generally maintained a focus on what we viewed as higher-quality bonds within the high yield market. At times during the fiscal year, particularly when investors embraced a “risk on” mode, this focus caused the Fund’s high yield holdings to generate milder returns than those of the broader high yield market.
Overseas, the Fund’s holdings in emerging market bonds (U.S. dollar-based as well as local-currency) helped relative performance, especially late in the fiscal year when global risk appetite spiked and many investors reached for both yields and exposure to non-dollar assets. The Fund’s non-dollar, developed market positions boosted total return as well, though gains made by non-dollar developed markets generally lagged those posted by U.S. fixed income markets.
It is important to bear in mind that three bond sectors discussed thus far — high yield, emerging markets, and non-dollar developed markets — are not included in the Fund’s benchmark index, and the Fund’s positive performances in these sectors therefore contributed notably to outperformance versus the index.
Finally, the Fund’s allocation to Treasury securities detracted from relative performance for the fiscal year. Yields on Treasury securities remained at or near historic lows (with a few exceptions) as demand for Treasurys remained well supported throughout the fiscal year. Given this environment, the Fund’s position in Treasurys modified its return on both a relative and absolute basis.
As its new fiscal year approaches, more than 75% of the Fund’s assets are invested in securities rated BBB or higher. The Fund remains positioned with an emphasis on spread- and credit-based sectors. Specifically, the Fund has an overweight allocation to
2
U.S. investment grade bonds, while close to a quarter of its assets are invested in a combination of domestic high yield and emerging market debt. In our view the high yield and emerging market sectors continued to provide a favorable risk-reward profile at the end of the fiscal year. For instance, default rates within the high yield category are well below the historical average, despite the tepid nature of the U.S. economic recovery.
Among smaller allocations, we enter the Fund’s new fiscal year with a modest overweight to commercial mortgage-backed securities and asset-backed securities.
Conversely, we are currently maintaining a significant underweight to U.S. Treasury debt, a sector that continues to offer historically low nominal yields that are sometimes negative when inflation is accounted for. Key to our outlook is the fact that longer-dated Treasury bonds have the potential to suffer significant downside volatility if and when the U.S. economy recovers. In our view, such volatility could become especially intense if Congress fails to adequately address structural imbalances in the country’s major entitlement programs. It is worth noting the degree to which investors have generally focused on European sovereign debt markets and country-specific financials, punishing nations with fiscal houses in disarray. That moment of reckoning could still be some time away for the U.S., but we believe it is nonetheless a dynamic that warrants ongoing scrutiny.
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Performance summary | |
Delaware Diversified Income Fund | October 31, 2012 |
The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Please obtain the performance data current for the most recent month end by calling 800 523-1918 or visiting our website at delawareinvestments.com/performance. Current performance may be lower or higher than the performance data quoted.
Fund performance1,2 | Average annual total returns through Oct. 31, 2012 | |||||||
Lifetime | ||||||||
(if less than | ||||||||
1 year | 5 years | 10 years | 10 years) | |||||
Class A (Est. Dec. 29, 1997) | ||||||||
Excluding sales charge | +7.82% | +8.13% | +8.15% | n/a | ||||
Including sales charge | +2.96% | +7.14% | +7.65% | n/a | ||||
Class B (Est. Oct. 28, 2002) | ||||||||
Excluding sales charge | +7.02% | +7.34% | +7.49% | n/a | ||||
Including sales charge | +3.02% | +7.11% | +7.49% | n/a | ||||
Class C (Est. Oct. 28, 2002) | ||||||||
Excluding sales charge | +7.01% | +7.33% | +7.34% | n/a | ||||
Including sales charge | +6.01% | +7.33% | +7.34% | n/a | ||||
Class R (Est. June 2, 2003) | ||||||||
Excluding sales charge | +7.55% | +7.87% | n/a | +6.96% | ||||
Including sales charge | +7.55% | +7.87% | n/a | +6.96% | ||||
Institutional Class (Est. Oct. 28, 2002) | ||||||||
Excluding sales charge | +8.08% | +8.40% | +8.41% | n/a | ||||
Including sales charge | +8.08% | +8.40% | +8.41% | n/a |
1 Returns reflect the reinvestment of all distributions and are presented both with and without the applicable sales charges described below. Returns do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Expense limitations were in effect for certain classes during some or all of the periods shown in the “Fund performance” chart. The current expenses for each class are listed on the “Fund expense ratios” table on page 6. Performance would have been lower had expense limitations not been in effect.
Class A shares are sold with a maximum front-end sales charge of 4.50%, and have an annual distribution and service fee of 0.30% of average daily net assets. This fee has been contractually limited to 0.25% of average daily net assets from Feb. 28, 2012, through Feb. 28, 2013. Performance for Class A shares, excluding sales charges, assumes that no front-end sales charge applied.
Class B shares may be purchased only through dividend reinvestment and certain permitted exchanges as described in the prospectus. Please see the prospectus for additional
4
information on Class B shares. Class B shares have a contingent deferred sales charge that declines from 4.00% to zero depending on the period of time the shares are held. They are also subject to an annual distribution and service fee of 1.00% of average daily net assets. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Ten-year and lifetime performance figures for Class B shares reflect conversion to Class A shares after approximately eight years.
Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1.00% of average daily net assets.
Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed.
Class R shares are available only for certain retirement plan products. They are sold without a sales charge and have an annual distribution and service fee of 0.60% of average daily net assets, which has been limited contractually to 0.50% from Feb. 28, 2012, through Feb. 28, 2013.
Institutional Class shares are available without sales or asset-based distribution charges only to certain eligible institutional accounts.
The “Fund performance” table and the “Performance of a $10,000 investment” graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
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.
Diversification may not protect against market risk.
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.
5
Performance summary
Delaware Diversified Income Fund
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.
Per Standard & Poor’s credit rating agency, bonds rated AA and A are more susceptible to the adverse effects of changes in circumstances and economic conditions than those in the higher-rated AAA category, 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.
Bond ratings are determined by a nationally recognized statistical rating organization (NRSRO).
2 The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table.
Fund expense ratios | Class A | Class B | Class C | Class R | Institutional Class | ||||
Total annual operating expenses | 0.97% | 1.67% | 1.67% | 1.27% | 0.67% | ||||
(without fee waivers) | |||||||||
Net expenses | 0.92% | 1.67% | 1.67% | 1.17% | 0.67% | ||||
(including fee waivers, if any) | |||||||||
Type of waiver | Contractual | n/a | n/a | Contractual | n/a |
6
Performance of a $10,000 investment1
Average annual total returns from Oct. 31, 2002, through Oct. 31, 2012
For period beginning Oct. 31, 2002, through Oct. 31, 2012 | Starting value | Ending value | ||
Delaware Diversified Income Fund — Class A Shares | $9,550 | $20,879 | ||
Barclays U.S. Aggregate Index | $10,000 | $16,909 |
1 The “Performance of a $10,000 investment” graph assumes $10,000 invested in Class A shares of the Fund on Oct. 31, 2002, and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. The graph does not reflect the deduction of taxes the shareholders would pay on Fund distributions or redemptions of Fund shares. Expense limitations were in effect for some or all of the periods shown. Performance would have been lower had expense limitations not been in effect. Current expenses are listed in the “Fund expense ratios” table on page 6. Please note additional details on pages 4 through 7.
The chart also assumes $10,000 invested in the Barclays U.S. Aggregate Index as of Oct. 31, 2002. The Barclays U.S. Aggregate Index is a broad composite that tracks the investment grade domestic bond market.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index. Past performance is not a guarantee of future results.
Performance of other Fund classes will vary due to different charges and expenses.
Nasdaq symbols | CUSIPs | ||||||
Class A | DPDFX | 246248744 | |||||
Class B | DPBFX | 246248611 | |||||
Class C | DPCFX | 246248595 | |||||
Class R | DPRFX | 246248553 | |||||
Institutional Class | DPFFX | 246248587 |
7
Disclosure of Fund expenses
For the six-month period from May 1, 2012 to October 31, 2012 (Unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period from May 1, 2012 to October 31, 2012.
Actual expenses
The first section of the table shown, “Actual Fund return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The second section of the table shown, “Hypothetical 5% return,” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The Fund’s expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions.
8
Delaware Diversified Income Fund
Expense analysis of an investment of $1,000
Beginning | Ending | Expenses | ||||||||||||||||||
Account Value | Account Value | Annualized | Paid During Period | |||||||||||||||||
5/1/12 | 10/31/12 | Expense Ratio | 5/1/12 to 10/31/12* | |||||||||||||||||
Actual Fund return† | ||||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,037.00 | 0.90 | % | $ | 4.61 | ||||||||||||
Class B | 1,000.00 | 1,034.30 | 1.65 | % | 8.44 | |||||||||||||||
Class C | 1,000.00 | 1,033.10 | 1.65 | % | 8.43 | |||||||||||||||
Class R | 1,000.00 | 1,035.70 | 1.15 | % | 5.88 | |||||||||||||||
Institutional Class | 1,000.00 | 1,038.30 | 0.65 | % | 3.33 | |||||||||||||||
Hypothetical 5% return (5% return before expenses) | ||||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,020.61 | 0.90 | % | $ | 4.57 | ||||||||||||
Class B | 1,000.00 | 1,016.84 | 1.65 | % | 8.36 | |||||||||||||||
Class C | 1,000.00 | 1,016.84 | 1.65 | % | 8.36 | |||||||||||||||
Class R | 1,000.00 | 1,019.36 | 1.15 | % | 5.84 | |||||||||||||||
Institutional Class | 1,000.00 | 1,021.87 | 0.65 | % | 3.30 |
*“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
†Because actual returns reflect only the most recent six month period, the returns shown may differ significantly from fiscal year returns.
9
Security type/sector allocation | |
Delaware Diversified Income Fund | As of October 31, 2012 (Unaudited) |
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may also represent the investment manager’s internal sector classifications, which may result in the sector designations for one fund being different than another fund’s sector designations.
Security type/sector | Percentage of net assets | |
Agency Asset-Backed Securities | 0.01 | % |
Agency Collateralized Mortgage Obligations | 1.49 | % |
Agency Mortgage-Backed Securities | 13.00 | % |
Commercial Mortgage-Backed Securities | 4.18 | % |
Convertible Bonds | 1.64 | % |
Corporate Bonds | 46.97 | % |
Automotive | 0.80 | % |
Banking | 4.86 | % |
Basic Industry | 5.10 | % |
Brokerage | 0.55 | % |
Capital Goods | 0.73 | % |
Communications | 6.29 | % |
Consumer Cyclical | 2.43 | % |
Consumer Non-Cyclical | 4.24 | % |
Electric | 3.11 | % |
Energy | 4.95 | % |
Finance Companies | 2.06 | % |
Healthcare | 0.56 | % |
Insurance | 2.34 | % |
Natural Gas | 2.62 | % |
Real Estate | 2.08 | % |
Services | 1.08 | % |
Technology | 1.93 | % |
Transportation | 0.87 | % |
Utilities | 0.37 | % |
Municipal Bond | 0.00 | % |
Non-Agency Asset-Backed Securities | 1.69 | % |
Non-Agency Collateralized Mortgage Obligations | 0.38 | % |
Regional Bonds | 3.03 | % |
Senior Secured Loans | 5.32 | % |
Sovereign Bonds | 9.43 | % |
10
Security type/sector | Percentage of net assets | |
Supranational Banks | 0.48 | % |
U.S. Treasury Obligations | 5.66 | % |
Common Stock | 0.00 | % |
Convertible Preferred Stock | 0.21 | % |
Preferred Stock | 0.64 | % |
Warrant | 0.00 | % |
Option Purchased | 0.00 | % |
Short-Term Investments | 14.82 | % |
Securities Lending Collateral | 1.82 | % |
Total Value of Securities | 110.77 | % |
Obligation to Return Securities Lending Collateral | (1.89 | %) |
Other Liabilities Net of Receivables and Other Assets | (8.88 | %) |
Total Net Assets | 100.00 | % |
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Statement of net assets | ||
Delaware Diversified Income Fund | October 31, 2012 |
Principal amount° | Value (U.S. $) | ||||||
Agency Asset-Backed Securities – 0.01% | |||||||
• | Fannie Mae Grantor Trust | ||||||
Series 2003-T4 2A5 5.407% 9/26/33 | USD | 905,347 | $ | 918,768 | |||
Fannie Mae Whole Loan | |||||||
Series 2001-W2 AS5 6.473% 10/25/31 | 2,172 | 2,273 | |||||
•Series 2002-W11 AV1 0.551% 11/25/32 | 13,978 | 12,915 | |||||
Total Agency Asset-Backed Securities | |||||||
(cost $883,864) | 933,956 | ||||||
Agency Collateralized Mortgage Obligations – 1.49% | |||||||
Fannie Mae Grantor Trust | |||||||
•Series 1999-T2 A1 7.50% 1/19/39 | 20,908 | 23,644 | |||||
Series 2002-T4 A3 7.50% 12/25/41 | 235,422 | 273,373 | |||||
Series 2002-T19 A1 6.50% 7/25/42 | 147,395 | 173,092 | |||||
Series 2004-T1 1A2 6.50% 1/25/44 | 73,087 | 85,864 | |||||
Fannie Mae Interest Strip | |||||||
Series 265 2 9.00% 3/1/24 | 10,292 | 12,375 | |||||
Fannie Mae REMICS | |||||||
Series 1990-92 C 7.00% 8/25/20 | 1,223 | 1,375 | |||||
Series 1996-46 ZA 7.50% 11/25/26 | 240,587 | 280,400 | |||||
Series 2001-50 BA 7.00% 10/25/41 | 110,627 | 117,706 | |||||
Series 2002-83 GH 5.00% 12/25/17 | 332,647 | 355,104 | |||||
Series 2002-90 A2 6.50% 11/25/42 | 289,202 | 334,523 | |||||
Series 2003-26 AT 5.00% 11/25/32 | 10,757,344 | 11,315,048 | |||||
Series 2003-38 MP 5.50% 5/25/23 | 4,498,838 | 4,949,896 | |||||
Series 2003-106 WE 4.50% 11/25/22 | 8,985,309 | 9,285,724 | |||||
Series 2003-122 AJ 4.50% 2/25/28 | 152,177 | 153,743 | |||||
Series 2005-110 MB 5.50% 9/25/35 | 2,087,657 | 2,292,089 | |||||
Series 2009-94 AC 5.00% 11/25/39 | 5,995,610 | 6,725,935 | |||||
Series 2010-41 PN 4.50% 4/25/40 | 7,623,413 | 8,712,540 | |||||
Series 2010-75 NA 4.00% 9/25/28 | 1,118,972 | 1,158,560 | |||||
Series 2010-96 DC 4.00% 9/25/25 | 14,795,000 | 16,088,733 | |||||
Fannie Mae Whole Loan | |||||||
•Series 2002-W1 2A 6.994% 2/25/42 | 20,904 | 24,479 | |||||
•Series 2002-W6 2A 7.09% 6/25/42 | 41,763 | 49,537 | |||||
•Series 2003-W1 2A 6.985% 12/25/42 | 21,025 | 24,691 | |||||
Series 2003-W10 1A4 4.505% 6/25/43 | 33,667 | 37,356 | |||||
Series 2003-W15 2A7 5.55% 8/25/43 | 16,748 | 18,556 | |||||
Series 2004-W9 2A1 6.50% 2/25/44 | 318,139 | 364,146 | |||||
Series 2004-W11 1A2 6.50% 5/25/44 | 451,190 | 509,922 |
12
Principal amount° | Value (U.S. $) | ||||||
Agency Collateralized Mortgage Obligations (continued) | |||||||
Freddie Mac REMICS | |||||||
Series 1730 Z 7.00% 5/15/24 | USD | 287,940 | $ | 331,368 | |||
Series 2326 ZQ 6.50% 6/15/31 | 780,690 | 893,153 | |||||
Series 2557 WE 5.00% 1/15/18 | 3,857,925 | 4,120,425 | |||||
Series 2598 QD 5.50% 4/15/32 | 406,293 | 416,225 | |||||
Series 2621 QH 5.00% 5/15/33 | 35,000 | 38,759 | |||||
Series 2622 PE 4.50% 5/15/18 | 5,405,110 | 5,720,623 | |||||
Series 2624 QH 5.00% 6/15/33 | 40,000 | 44,204 | |||||
Series 2687 PG 5.50% 3/15/32 | 707,256 | 719,918 | |||||
Series 2717 MH 4.50% 12/15/18 | 103,244 | 109,454 | |||||
Series 2762 LG 5.00% 9/15/32 | 6,470,616 | 6,669,872 | |||||
Series 2809 DC 4.50% 6/15/19 | 2,270,475 | 2,401,506 | |||||
Series 3123 HT 5.00% 3/15/26 | 50,000 | 56,047 | |||||
Series 3131 MC 5.50% 4/15/33 | 1,830,169 | 1,871,554 | |||||
Series 3150 EQ 5.00% 5/15/26 | 45,000 | 51,100 | |||||
Series 3171 MG 6.00% 8/15/34 | 3,650,730 | 3,765,345 | |||||
Series 3173 PE 6.00% 4/15/35 | 1,040,739 | 1,085,853 | |||||
Series 3416 GK 4.00% 7/15/22 | 171,565 | 176,492 | |||||
Series 3656 PM 5.00% 4/15/40 | 11,118,918 | 12,461,839 | |||||
Series 4065 DE 3.00% 6/15/32 | 1,626,000 | 1,700,707 | |||||
• | Freddie Mac Strip Series 19 F 1.03% 6/1/28 | 7,270 | 6,884 | ||||
w | Freddie Mac Structured Pass Through Securities | ||||||
Series T-42 A5 7.50% 2/25/42 | 117,269 | 142,399 | |||||
Series T-54 2A 6.50% 2/25/43 | 32,275 | 38,304 | |||||
Series T-58 2A 6.50% 9/25/43 | 737,904 | 858,316 | |||||
•Series T-60 1A4C 5.05% 3/25/44 | 8,939 | 9,107 | |||||
•# | FREMF Mortgage Trust | ||||||
Series 2012-K21 B 144A 3.94% 7/25/45 | 5,240,000 | 5,344,800 | |||||
GNMA Series 2010-113 KE 4.50% 9/20/40 | 20,392,264 | 23,358,032 | |||||
NCUA Guaranteed Notes | |||||||
Series 2010-C1 A2 2.90% 10/29/20 | 6,420,000 | 6,842,316 | |||||
• | Vendee Mortgage Trust | ||||||
Series 2000-1 1A 6.641% 1/15/30 | 8,277 | 9,945 | |||||
Total Agency Collateralized Mortgage | |||||||
Obligations (cost $135,782,858) | 142,612,958 | ||||||
Agency Mortgage-Backed Securities – 13.00% | |||||||
Fannie Mae | |||||||
5.50% 1/1/13 | 11,791 | 11,844 | |||||
6.50% 8/1/17 | 124,989 | 138,454 | |||||
7.00% 11/15/16 | 51,186 | 52,632 |
13
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Agency Mortgage-Backed Securities (continued) | |||||||
• | Fannie Mae ARM | ||||||
2.013% 11/1/24 | USD | 3,070 | $ | 3,247 | |||
2.207% 1/1/36 | 129,426 | 136,402 | |||||
2.228% 7/1/33 | 86,780 | 91,177 | |||||
2.278% 12/1/33 | 4,930 | 5,211 | |||||
2.397% 6/1/34 | 136,881 | 146,707 | |||||
2.402% 10/1/33 | 89,998 | 94,054 | |||||
2.578% 11/1/32 | 570 | 606 | |||||
2.632% 8/1/34 | 9,370 | 10,007 | |||||
2.691% 11/1/35 | 161,911 | 173,265 | |||||
2.705% 6/1/37 | 11,320 | 12,098 | |||||
2.777% 6/1/34 | 2,050 | 2,187 | |||||
2.78% 4/1/36 | 599,759 | 642,133 | |||||
2.864% 4/1/37 | 1,418,081 | 1,521,455 | |||||
2.93% 4/1/36 | 354,223 | 378,124 | |||||
3.093% 11/1/35 | 876,435 | 938,206 | |||||
4.681% 3/1/38 | 17,243 | 18,382 | |||||
4.962% 11/1/33 | 509,475 | 551,084 | |||||
4.98% 9/1/38 | 626,018 | 671,705 | |||||
5.017% 5/1/36 | 462,458 | 498,865 | |||||
5.155% 8/1/35 | 134,739 | 145,319 | |||||
5.84% 8/1/37 | 700,138 | 762,073 | |||||
6.015% 6/1/36 | 190,890 | 206,391 | |||||
6.048% 7/1/36 | 126,392 | 136,097 | |||||
6.176% 4/1/36 | 1,419 | 1,522 | |||||
6.282% 8/1/36 | 76,357 | 82,258 | |||||
6.325% 7/1/36 | 5,316 | 5,724 | |||||
Fannie Mae Relocation 15 yr 4.00% 9/1/20 | 457,866 | 480,651 | |||||
Fannie Mae Relocation 30 yr | |||||||
4.00% 3/1/35 | 8,665 | 9,175 | |||||
5.00% 9/1/33 | 220,923 | 238,833 | |||||
5.00% 11/1/33 | 170,336 | 184,145 | |||||
5.00% 1/1/34 | 44,685 | 48,307 | |||||
5.00% 11/1/34 | 200,960 | 217,251 | |||||
5.00% 4/1/35 | 231,946 | 250,749 | |||||
5.00% 10/1/35 | 218,855 | 236,596 | |||||
5.00% 1/1/36 | 405,865 | 438,767 | |||||
Fannie Mae S.F. 10 yr 6.00% 9/1/17 | 12,222 | 12,987 |
14
Principal amount° | Value (U.S. $) | ||||||
Agency Mortgage-Backed Securities (continued) | |||||||
Fannie Mae S.F. 15 yr | |||||||
3.00% 12/1/26 | USD | 211,361 | $ | 223,599 | |||
3.00% 3/1/27 | 8,662,398 | 9,201,888 | |||||
3.00% 8/1/27 | 1,815,079 | 1,917,912 | |||||
3.50% 3/1/21 | 635,266 | 674,299 | |||||
4.00% 11/1/25 | 21,502,423 | 23,345,200 | |||||
5.00% 12/1/17 | 189,075 | 206,165 | |||||
5.00% 9/1/20 | 7,069 | 7,745 | |||||
5.00% 5/1/21 | 726,064 | 791,692 | |||||
5.50% 11/1/18 | 16,698 | 18,082 | |||||
5.50% 5/1/19 | 121,546 | 131,618 | |||||
5.50% 4/1/23 | 174,589 | 190,039 | |||||
5.50% 6/1/23 | 117,891 | 128,323 | |||||
6.00% 12/1/16 | 25,553 | 27,202 | |||||
6.00% 9/1/21 | 4,444,055 | 4,883,964 | |||||
6.00% 8/1/22 | 70,288 | 77,246 | |||||
6.00% 4/1/38 | 13,475,845 | 14,942,705 | |||||
Fannie Mae S.F. 15 yr TBA | |||||||
2.50% 11/1/27 | 83,255,000 | 87,131,562 | |||||
3.00% 11/1/27 | 167,816,000 | 177,019,668 | |||||
Fannie Mae S.F. 20 yr | |||||||
5.50% 12/1/24 | 131,759 | 145,648 | |||||
5.50% 3/1/27 | 268,543 | 295,004 | |||||
5.50% 3/1/28 | 293,991 | 322,776 | |||||
5.50% 8/1/28 | 4,619,335 | 5,071,631 | |||||
5.50% 12/1/29 | 1,223,725 | 1,343,545 | |||||
Fannie Mae S.F. 30 yr | |||||||
3.00% 11/1/42 | 271,185,000 | 284,362,911 | |||||
5.00% 2/1/35 | 2,425,692 | 2,664,783 | |||||
5.00% 6/1/35 | 3,468 | 3,792 | |||||
5.00% 9/1/35 | 1,085,336 | 1,186,887 | |||||
5.00% 10/1/35 | 301,733 | 330,689 | |||||
5.00% 2/1/36 | 1,089,147 | 1,192,798 | |||||
5.00% 1/1/39 | 102,334 | 111,654 | |||||
5.50% 3/1/34 | 212,635 | 234,784 | |||||
5.50% 11/1/35 | 76,966 | 84,887 | |||||
5.50% 12/1/35 | 121,429 | 134,029 | |||||
5.50% 5/1/36 | 83,277 | 91,848 | |||||
5.50% 11/1/36 | 54,613 | 60,233 | |||||
5.50% 2/1/37 | 5,599,877 | 6,148,181 | |||||
5.50% 8/1/37 | 477,774 | 527,541 |
15
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Agency Mortgage-Backed Securities (continued) | |||||||
Fannie Mae S.F. 30 yr (continued) | |||||||
5.50% 12/1/38 | USD | 47,678 | $ | 52,585 | |||
6.00% 10/1/33 | 1,992 | 2,263 | |||||
6.00% 6/1/35 | 6,354 | 7,104 | |||||
6.00% 2/1/36 | 997,982 | 1,108,797 | |||||
6.00% 4/1/36 | 272,313 | 303,817 | |||||
6.00% 8/1/36 | 1,143,988 | 1,271,015 | |||||
6.00% 9/1/36 | 2,520,089 | 2,799,916 | |||||
6.00% 12/1/36 | 279,811 | 310,881 | |||||
6.00% 3/1/37 | 611,202 | 683,366 | |||||
6.00% 8/1/37 | 3,394,624 | 3,771,558 | |||||
6.00% 1/1/38 | 348,362 | 387,044 | |||||
6.00% 2/1/38 | 828,499 | 920,494 | |||||
6.00% 5/1/38 | 9,422,393 | 10,468,642 | |||||
6.00% 7/1/38 | 10,451,041 | 11,611,510 | |||||
6.00% 9/1/38 | 22,471 | 24,917 | |||||
6.00% 12/1/38 | 813,290 | 902,860 | |||||
6.00% 11/1/39 | 2,598,427 | 2,886,952 | |||||
6.00% 1/1/40 | 17,949,747 | 19,942,862 | |||||
6.00% 4/1/40 | 3,685,998 | 4,091,500 | |||||
6.00% 6/1/40 | 52,619,379 | 58,462,161 | |||||
6.00% 7/1/40 | 1,333,653 | 1,481,741 | |||||
6.00% 2/1/41 | 12,933,606 | 14,479,266 | |||||
6.50% 2/1/36 | 2,851,179 | 3,260,731 | |||||
6.50% 3/1/36 | 2,215,099 | 2,532,048 | |||||
6.50% 11/1/36 | 446,391 | 506,877 | |||||
6.50% 9/1/37 | 2,163,206 | 2,436,486 | |||||
7.00% 8/1/32 | 91,768 | 109,524 | |||||
7.00% 9/1/32 | 73,491 | 87,711 | |||||
7.00% 2/1/36 | 24,017 | 28,548 | |||||
7.00% 4/1/37 | 21,435 | 24,747 | |||||
7.00% 12/1/37 | 27,430 | 32,641 | |||||
7.50% 1/1/31 | 1,827 | 2,231 | |||||
7.50% 3/1/32 | 29,055 | 35,535 | |||||
7.50% 4/1/32 | 34,898 | 42,854 | |||||
7.50% 6/1/34 | 61,748 | 75,973 | |||||
7.50% 10/1/34 | 25,546 | 31,181 | |||||
Fannie Mae S.F. 30 yr TBA 3.50% 11/1/42 | 308,585,000 | 328,691,227 | |||||
Freddie Mac 7.00% 2/25/14 | 425 | 426 |
16
Principal amount° | Value (U.S. $) | ||||||
Agency Mortgage-Backed Securities (continued) | |||||||
• | Freddie Mac ARM | ||||||
2.342% 12/1/33 | USD | 329,967 | $ | 344,997 | |||
2.349% 4/1/33 | 2,500 | 2,551 | |||||
2.515% 2/1/37 | 886,182 | 951,966 | |||||
2.556% 12/1/33 | 67,583 | 71,836 | |||||
2.649% 4/1/34 | 34,036 | 36,371 | |||||
2.714% 3/1/36 | 112,535 | 120,943 | |||||
2.739% 8/1/37 | 12,218 | 13,121 | |||||
2.763% 7/1/36 | 493,477 | 527,580 | |||||
2.835% 5/1/35 | 281,517 | 301,339 | |||||
5.814% 10/1/36 | 112,618 | 121,843 | |||||
5.925% 10/1/37 | 7,645 | 8,310 | |||||
6.156% 10/1/37 | 221,788 | 242,649 | |||||
Freddie Mac Relocation 15 yr 3.50% 10/1/18 | 85,975 | 89,216 | |||||
Freddie Mac Relocation 30 yr | |||||||
5.00% 9/1/33 | 364,855 | 392,283 | |||||
6.50% 10/1/30 | 736 | 740 | |||||
Freddie Mac S.F. 15 yr | |||||||
3.00% 4/1/27 | 160,972 | 169,740 | |||||
4.50% 5/1/20 | 1,709,254 | 1,831,368 | |||||
5.00% 6/1/18 | 621,252 | 668,581 | |||||
5.00% 4/1/20 | 799,905 | 867,052 | |||||
5.50% 7/1/14 | 806 | 868 | |||||
Freddie Mac S.F. 30 yr | |||||||
3.50% 9/1/42 | 681,123 | 725,139 | |||||
5.50% 11/1/35 | 127,715 | 139,662 | |||||
5.50% 12/1/37 | 257,156 | 279,844 | |||||
5.50% 5/1/38 | 1,146,375 | 1,246,440 | |||||
5.50% 7/1/38 | 4,570,366 | 4,969,307 | |||||
5.50% 12/1/38 | 2,772,820 | 3,017,455 | |||||
5.50% 5/1/40 | 888,092 | 966,445 | |||||
5.50% 7/1/40 | 56,062,054 | 61,113,307 | |||||
6.00% 2/1/36 | 4,710,835 | 5,192,570 | |||||
6.00% 8/1/38 | 9,472,058 | 10,538,361 | |||||
6.00% 10/1/38 | 13,180,454 | 14,664,224 | |||||
6.00% 5/1/40 | 15,334,552 | 16,878,719 | |||||
6.50% 10/1/32 | 2,529 | 2,917 | |||||
6.50% 8/1/38 | 609,887 | 688,302 | |||||
7.00% 11/1/33 | 302,248 | 356,184 |
17
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Agency Mortgage-Backed Securities (continued) | |||||||
GNMA I S.F. 30 yr | |||||||
7.00% 5/15/28 | USD | 157,384 | $ | 187,750 | |||
7.00% 12/15/34 | 3,243,012 | 3,809,443 | |||||
7.50% 10/15/30 | 1,586 | 1,934 | |||||
7.50% 2/15/32 | 522 | 638 | |||||
9.50% 9/15/17 | 4,076 | 4,670 | |||||
10.00% 7/15/17 | 2,869 | 2,882 | |||||
Total Agency Mortgage-Backed Securities | |||||||
(cost $1,235,324,612) | 1,240,206,758 | ||||||
Commercial Mortgage-Backed Securities – 4.18% | |||||||
# | American Tower Trust | ||||||
Series 2007-1A AFX 144A 5.42% 4/15/37 | 8,015,000 | 8,391,457 | |||||
BAML Commercial Mortgage Securities | |||||||
•Series 2005-6 A4 5.19% 9/10/47 | 10,190,000 | 11,438,937 | |||||
•Series 2006-2 A4 5.727% 5/10/45 | 7,622,000 | 8,784,149 | |||||
Series 2006-4 A4 5.634% 7/10/46 | 15,875,000 | 18,240,073 | |||||
• | Bear Stearns Commercial Mortgage Securities | ||||||
Series 2005-PW10 A4 5.405% 12/11/40 | 7,786,000 | 8,743,919 | |||||
Series 2005-T20 A4A 5.15% 10/12/42 | 3,000,000 | 3,367,239 | |||||
Series 2006-PW12 A4 5.712% 9/11/38 | 7,235,000 | 8,304,413 | |||||
Citigroup Commercial Mortgage Trust | |||||||
Series 2012-GC8 A4 3.024% 9/10/45 | 9,000,000 | 9,429,678 | |||||
w• | Commercial Mortgage Pass Through Certificates | ||||||
Series 2005-C6 A5A 5.116% 6/10/44 | 5,960,000 | 6,606,237 | |||||
• | Credit Suisse Mortgage Capital Certificates | ||||||
Series 2006-C1 AAB 5.41% 2/15/39 | 389,351 | 406,273 | |||||
# | DBUBS Mortgage Trust 144A | ||||||
Series 2011-LC1A A3 5.002% 11/10/46 | 19,039,000 | 22,680,095 | |||||
•Series 2011-LC1A C 5.557% 11/10/46 | 11,590,000 | 13,417,720 | |||||
• | GE Capital Commercial Mortgage | ||||||
Series 2005-C4 A4 5.307% 11/10/45 | 108,000 | 121,536 | |||||
Goldman Sachs Mortgage Securities II | |||||||
•Series 2004-GG2 A6 5.396% 8/10/38 | 10,047,000 | 10,729,312 | |||||
Series 2005-GG4 A4 4.761% 7/10/39 | 13,580,350 | 14,609,279 | |||||
Series 2005-GG4 A4A 4.751% 7/10/39 | 30,959,000 | 33,624,755 | |||||
•Series 2006-GG6 A4 5.553% 4/10/38 | 8,405,000 | 9,510,560 | |||||
#Series 2010-C1 A2 144A 4.592% 8/10/43 | 14,975,000 | 17,502,780 | |||||
•#Series 2010-C1 C 144A 5.635% 8/10/43 | 4,640,000 | 5,421,631 | |||||
•#Series 2011-GC3 C 144A 5.543% 3/10/44 | 8,785,000 | 9,984,188 |
18
Principal amount° | Value (U.S. $) | ||||||
Commercial Mortgage-Backed Securities (continued) | |||||||
• | Greenwich Capital Commercial Funding | ||||||
Series 2005-GG5 A5 5.224% 4/10/37 | USD | 28,415,000 | $ | 31,453,785 | |||
JPMorgan Chase Commercial | |||||||
Mortgage Securities | |||||||
•Series 2005-CB11 A4 5.335% 8/12/37 | 2,280,000 | 2,505,508 | |||||
•Series 2005-LDP3 A4A 4.936% 8/15/42 | 8,280,000 | 9,142,942 | |||||
•Series 2005-LDP4 A4 4.918% 10/15/42 | 13,948,000 | 15,250,715 | |||||
•Series 2005-LDP5 A4 5.20% 12/15/44 | 10,685,000 | 11,976,496 | |||||
Series 2011-C5 A3 4.171% 8/15/46 | 14,000,000 | 16,010,414 | |||||
LB-UBS Commercial Mortgage Trust | |||||||
Series 2004-C1 A4 4.568% 1/15/31 | 5,110,000 | 5,336,966 | |||||
Merrill Lynch Mortgage Trust | |||||||
#Series 2002-MW1 J 144A 5.695% 7/12/34 | 30,000 | 27,864 | |||||
Series 2005-CIP1 A2 4.96% 7/12/38 | 112,352 | 114,692 | |||||
•Series 2005-CKI1 A6 5.261% 11/12/37 | 2,050,000 | 2,289,686 | |||||
Morgan Stanley Capital I | |||||||
Series 2005-HQ6 A4A 4.989% 8/13/42 | 4,695,000 | 5,164,908 | |||||
•Series 2007-T27 A4 5.653% 6/11/42 | 29,472,500 | 35,057,361 | |||||
•# | Morgan Stanley Dean Witter Capital I | ||||||
Series 2001-TOP1 E 144A 7.39% 2/15/33 | 185,000 | 184,126 | |||||
# | OBP Depositor Trust | ||||||
Series 2010-OBP A 144A 4.646% 7/15/45 | 8,545,000 | 10,070,086 | |||||
# | Timberstar Trust 144A | ||||||
Series 2006-1A A 5.668% 10/15/36 | 14,335,000 | 16,179,613 | |||||
Series 2006-1A C 5.884% 10/15/36 | 2,500,000 | 2,725,898 | |||||
WF-RBS Commercial Mortgage Trust | |||||||
Series 2012-C9 A3 2.87% 11/15/45 | 11,120,000 | 11,469,238 | |||||
Series 2012-C9 B 3.84% 11/15/45 | 2,610,000 | 2,702,573 | |||||
Total Commercial Mortgage-Backed Securities | |||||||
(cost $364,491,894) | 398,977,102 | ||||||
Convertible Bonds – 1.64% | |||||||
AAR 1.75% exercise price $28.75, | |||||||
expiration date 1/1/26 | 3,482,000 | 3,490,705 | |||||
* | Advanced Micro Devices 6.00% exercise price | ||||||
$28.08, expiration date 4/30/15 | 4,547,000 | 4,262,813 | |||||
# | Alaska Communications System Group | ||||||
144A 6.25% exercise price $10.28, | |||||||
expiration date 4/27/18 | 3,532,000 | 2,406,175 |
19
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Convertible Bonds (continued) | ||||||||
* | Alcatel-Lucent USA 2.875% exercise price | |||||||
$15.35, expiration date 6/15/25 | USD | 5,280,000 | $ | 5,181,000 | ||||
* | Alere 3.00% exercise price $43.98, | |||||||
expiration date 5/15/16 | 5,664,000 | 5,373,720 | ||||||
Ares Capital 5.75% exercise price | ||||||||
$19.13, expiration date 2/1/16 | 2,269,000 | 2,417,903 | ||||||
ArvinMeritor 4.00% exercise price $26.73, | ||||||||
expiration date 2/15/27 | 6,305,000 | 4,689,344 | ||||||
BGC Partners 4.50% exercise price $9.84, | ||||||||
expiration date 7/13/16 | 2,319,000 | 2,176,961 | ||||||
* | Chesapeake Energy 2.50% exercise price | |||||||
$51.14, expiration date 5/15/37 | 2,065,000 | 1,920,450 | ||||||
*# | Clearwire Communications 144A 8.25% exercise | |||||||
price $7.08, expiration date 11/30/40 | 2,197,000 | 2,157,179 | ||||||
# | Corporate Office Properties 144A 4.25% exercise | |||||||
price $47.96, expiration date 4/12/30 | 4,003,000 | 4,128,094 | ||||||
Dendreon 2.875% exercise price $51.24, | ||||||||
expiration date 1/13/16 | 1,718,000 | 1,112,405 | ||||||
# | Gaylord Entertainment 144A 3.75% exercise | |||||||
price $27.25, expiration date 9/29/14 | 1,460,000 | 2,201,863 | ||||||
ϕ | General Cable 4.50% exercise price $36.75, | |||||||
expiration date 11/15/29 | 3,070,000 | 3,221,581 | ||||||
* | Helix Energy Solutions Group 3.25% exercise | |||||||
price $25.02, expiration date 3/12/32 | 4,093,000 | 4,532,998 | ||||||
ϕ | Hologic 2.00% exercise price $31.17, | |||||||
expiration date 2/27/42 | 1,662,000 | 1,644,341 | ||||||
# | Iconix Brand Group 144A 2.50% exercise | |||||||
price $30.75, expiration date 5/31/16 | 3,193,000 | 3,194,996 | ||||||
# | Illumina 144A 0.25% exercise price $83.55, | |||||||
expiration date 3/11/16 | 3,024,000 | 2,859,570 | ||||||
Intel 3.25% exercise price $22.20, | ||||||||
expiration date 8/1/39 | 3,042,000 | 3,713,141 | ||||||
International Game Technology 3.25% exercise | ||||||||
price $19.97, expiration date 5/1/14 | 2,901,000 | 3,027,919 | ||||||
Jefferies Group 3.875% exercise price $37.35, | ||||||||
expiration date 11/1/29 | 5,882,000 | 5,694,511 | ||||||
L-3 Communications Holdings 3.00% exercise | ||||||||
price $92.17, expiration date 8/1/35 | 4,301,000 | 4,333,258 | ||||||
* | Leap Wireless International 4.50% exercise | |||||||
price $93.21, expiration date 7/15/14 | 5,536,000 | 5,366,460 |
20
Principal amount° | Value (U.S. $) | |||||||
Convertible Bonds (continued) | ||||||||
# | Lexington Realty Trust 144A 6.00% exercise | |||||||
price $6.93, expiration date 1/11/30 | USD | 2,958,000 | $ | 4,253,974 | ||||
Linear Technology 3.00% exercise price | ||||||||
$42.72 expiration date 5/1/27 | 7,575,000 | 7,896,937 | ||||||
Live Nation Entertainment 2.875% exercise | ||||||||
price $27.14, expiration date 7/14/27 | 7,106,000 | 7,061,587 | ||||||
MGM Resorts International 4.25% exercise | ||||||||
price $18.58, expiration date 4/10/15 | 4,418,000 | 4,539,495 | ||||||
Mirant (Escrow) 2.50% exercise price $67.95, | ||||||||
expiration date 6/15/21 | 695,000 | 0 | ||||||
Mylan 3.75% exercise price $13.32, | ||||||||
expiration date 9/10/15 | 2,624,000 | 5,200,440 | ||||||
National Retail Properties 3.95% exercise | ||||||||
price $23.51, expiration date 9/15/26 | 1,793,000 | 2,423,912 | ||||||
* | Nuance Communications 2.75% exercise | |||||||
price $32.30, expiration date 11/1/31 | 1,467,000 | 1,605,984 | ||||||
NuVasive | ||||||||
2.25% exercise price $44.74, | ||||||||
expiration date 3/15/13 | 3,448,000 | 3,448,000 | ||||||
2.75% exercise price $42.13, | ||||||||
expiration date 6/30/17 | 5,331,000 | 4,528,018 | ||||||
# | Owens-Brockway Glass Container 144A 3.00% | |||||||
exercise price $47.47, expiration date 5/28/15 | 7,238,000 | 7,161,095 | ||||||
Pantry 3.00% exercise price $50.09, | ||||||||
expiration date 11/15/12 | 5,105,000 | 5,111,381 | ||||||
* | Peabody Energy 4.75% exercise price $58.19, | |||||||
expiration date 12/15/41 | 948,000 | 863,865 | ||||||
PHH 4.00% exercise price $25.80, | ||||||||
expiration date 9/1/14 | 5,554,000 | 6,112,870 | ||||||
Rovi 2.625% exercise price $47.36, | ||||||||
expiration date 2/10/40 | 2,181,000 | 2,171,458 | ||||||
SanDisk 1.50% exercise price $52.37, | ||||||||
expiration date 8/11/17 | 3,688,000 | 4,114,425 | ||||||
SBA Communications 4.00% exercise | ||||||||
price $30.38, expiration date 7/22/14 | 1,692,000 | 3,793,253 | ||||||
Steel Dynamics 5.125% exercise price $17.55, | ||||||||
expiration date 6/15/14 | 1,836,000 | 1,961,078 | ||||||
VeriSign 3.25% exercise price $34.37, | ||||||||
expiration date 8/15/37 | 2,492,000 | 3,097,868 | ||||||
WellPoint 2.75% exercise price $75.57, | ||||||||
expiration date 10/15/42 | 2,238,000 | 2,334,055 | ||||||
Total Convertible Bonds (cost $149,787,673) | 156,787,082 |
21
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds – 46.97% | ||||||||
Automotive – 0.80% | ||||||||
* | America Axle & Manufacturing | |||||||
7.75% 11/15/19 | USD | 106,000 | $ | 115,143 | ||||
7.875% 3/1/17 | 6,881,000 | 7,147,639 | ||||||
* | ArvinMeritor 8.125% 9/15/15 | 8,616,000 | 8,702,160 | |||||
* | Chrysler Group 8.25% 6/15/21 | 5,356,000 | 5,751,005 | |||||
Ford Motor 7.45% 7/16/31 | 12,734,000 | 16,172,179 | ||||||
Ford Motor Credit | ||||||||
5.00% 5/15/18 | 12,500,000 | 13,819,300 | ||||||
12.00% 5/15/15 | 10,732,000 | 13,307,680 | ||||||
# | Hyundai Capital America 144A 2.125% 10/2/17 | 9,380,000 | 9,438,860 | |||||
* | Tomkins 9.00% 10/1/18 | 1,842,000 | 2,072,250 | |||||
76,526,216 | ||||||||
Banking – 4.86% | ||||||||
Abbey National Treasury Services 4.00% 4/27/16 | 9,305,000 | 9,770,362 | ||||||
AgriBank 9.125% 7/15/19 | 12,423,000 | 16,464,053 | ||||||
Banco do Brasil 3.875% 10/10/22 | 8,745,000 | 8,740,628 | ||||||
*# | Banco Santander Chile 144A 3.875% 9/20/22 | 6,150,000 | 6,363,608 | |||||
* | Bancolombia 5.125% 9/11/22 | 7,607,000 | 7,987,350 | |||||
Bank of America | ||||||||
3.75% 7/12/16 | 16,230,000 | 17,407,600 | ||||||
5.70% 1/24/22 | 10,070,000 | 12,002,715 | ||||||
BB&T 5.25% 11/1/19 | 20,134,000 | 23,202,622 | ||||||
BBVA U.S. Senior 4.664% 10/9/15 | 7,345,000 | 7,422,644 | ||||||
• | Branch Banking & Trust 0.719% 9/13/16 | 5,500,000 | 5,350,439 | |||||
# | Caixa Economica Federal 144A 2.375% 11/6/17 | 11,900,000 | 11,887,386 | |||||
Capital One Capital V 10.25% 8/15/39 | 7,422,000 | 7,681,770 | ||||||
City National 5.25% 9/15/20 | 13,865,000 | 15,307,736 | ||||||
# | CoBank 144A 7.875% 4/16/18 | 10,520,000 | 13,145,382 | |||||
• | Fifth Third Capital Trust IV 6.50% 4/15/37 | 19,171,000 | 19,290,819 | |||||
•# | HBOS Capital Funding 144A 6.071% 6/29/49 | 5,876,000 | 4,862,390 | |||||
# | HSBC Bank 144A 4.75% 1/19/21 | 17,565,000 | 20,351,424 | |||||
HSBC Holdings 4.00% 3/30/22 | 16,900,000 | 18,549,846 | ||||||
JPMorgan Chase | ||||||||
2.00% 8/15/17 | 12,230,000 | 12,375,060 | ||||||
2.92% 9/19/17 | CAD | 14,151,000 | 14,227,492 | |||||
6.00% 10/1/17 | USD | 11,420,000 | 13,520,618 | |||||
KeyBank 6.95% 2/1/28 | 19,095,000 | 23,473,463 | ||||||
KeyCorp 5.10% 3/24/21 | 8,965,000 | 10,628,151 |
22
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Banking (continued) | ||||||||
Morgan Stanley | ||||||||
4.875% 11/1/22 | USD | 6,675,000 | $ | 6,761,228 | ||||
7.60% 8/8/17 | NZD | 7,138,000 | 6,266,696 | |||||
• | National City Bank 0.78% 6/7/17 | USD | 10,600,000 | 10,314,574 | ||||
PNC Bank 6.875% 4/1/18 | 18,049,000 | 22,895,805 | ||||||
•# | PNC Preferred Funding Trust II 144A | |||||||
1.611% 3/31/49 | 13,400,000 | 11,524,000 | ||||||
• | SunTrust Bank 0.721% 8/24/15 | 6,285,000 | 6,082,101 | |||||
SVB Financial Group 5.375% 9/15/20 | 5,500,000 | 6,249,260 | ||||||
U.S. Bancorp 2.95% 7/15/22 | 6,340,000 | 6,554,355 | ||||||
U.S. Bank | ||||||||
4.95% 10/30/14 | 5,005,000 | 5,410,350 | ||||||
6.30% 2/4/14 | 2,361,000 | 2,527,635 | ||||||
• | USB Capital IX 3.50% 10/29/49 | 28,382,000 | 25,512,011 | |||||
• | Wachovia 0.71% 10/15/16 | 7,950,000 | 7,741,090 | |||||
Wachovia Bank 5.60% 3/15/16 | 17,070,000 | 19,095,902 | ||||||
Wells Fargo 3.50% 3/8/22 | 2,800,000 | 2,995,499 | ||||||
Wells Fargo Bank 4.75% 2/9/15 | 10,855,000 | 11,766,505 | ||||||
Zions Bancorporation | ||||||||
4.50% 3/27/17 | 7,355,000 | 7,703,105 | ||||||
7.75% 9/23/14 | 3,805,000 | 4,194,252 | ||||||
463,607,926 | ||||||||
Basic Industry – 5.10% | ||||||||
* | AK Steel 7.625% 5/15/20 | 3,279,000 | 2,852,730 | |||||
Alcoa | ||||||||
5.40% 4/15/21 | 3,645,000 | 3,779,635 | ||||||
*6.75% 7/15/18 | 22,359,000 | 25,842,509 | ||||||
# | Anglo American Capital 144A | |||||||
2.625% 4/3/17 | 12,685,000 | 12,776,877 | ||||||
2.625% 9/27/17 | 15,275,000 | 15,326,095 | ||||||
4.125% 9/27/22 | 2,560,000 | 2,615,060 | ||||||
ArcelorMittal | ||||||||
*6.50% 2/25/22 | 4,955,000 | 4,876,156 | ||||||
10.10% 6/1/19 | 16,275,000 | 19,156,635 | ||||||
Barrick Gold 3.85% 4/1/22 | 17,665,000 | 18,870,760 | ||||||
Barrick North America Finance 4.40% 5/30/21 | 5,264,000 | 5,837,723 | ||||||
Cabot | ||||||||
2.55% 1/15/18 | 11,815,000 | 12,169,308 | ||||||
3.70% 7/15/22 | 6,550,000 | 6,754,078 |
23
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Basic Industry (continued) | ||||||||
Celanese U.S. Holdings 6.625% 10/15/18 | USD | 2,276,000 | $ | 2,492,220 | ||||
*# | Cemex Espana Luxembourg 144A | |||||||
9.25% 5/12/20 | 4,450,000 | 4,672,500 | ||||||
*•# | Cemex SAB 144A 5.362% 9/30/15 | 13,679,000 | 13,371,223 | |||||
Century Aluminum 8.00% 5/15/14 | 5,096,000 | 5,191,550 | ||||||
CF Industries | ||||||||
6.875% 5/1/18 | 19,634,000 | 24,138,588 | ||||||
7.125% 5/1/20 | 6,726,000 | 8,537,830 | ||||||
# | CODELCO 144A 3.00% 7/17/22 | 9,295,000 | 9,407,088 | |||||
Compass Minerals International | ||||||||
8.00% 6/1/19 | 3,601,000 | 3,907,085 | ||||||
Domtar 4.40% 4/1/22 | 7,270,000 | 7,530,084 | ||||||
Dow Chemical 8.55% 5/15/19 | 35,451,000 | 48,138,983 | ||||||
*# | Essar Steel Algoma 144A 9.875% 6/15/15 | 3,850,000 | 3,022,250 | |||||
# | FMG Resources August 2006 144A | |||||||
6.875% 2/1/18 | 106,000 | 102,953 | ||||||
*6.875% 4/1/22 | 1,937,000 | 1,828,044 | ||||||
*7.00% 11/1/15 | 3,967,000 | 4,026,505 | ||||||
Freeport-McMoran Copper & Gold | ||||||||
3.55% 3/1/22 | 8,366,000 | 8,534,709 | ||||||
Georgia-Pacific | ||||||||
8.00% 1/15/24 | 24,421,000 | 34,355,462 | ||||||
#144A 8.25% 5/1/16 | 1,890,000 | 2,023,009 | ||||||
# | HD Supply 144A 11.00% 4/15/20 | 2,915,000 | 3,330,388 | |||||
Headwaters 7.625% 4/1/19 | 6,918,000 | 7,108,245 | ||||||
Hexion U.S. Finance 8.875% 2/1/18 | 8,639,000 | 8,768,585 | ||||||
International Paper | ||||||||
4.75% 2/15/22 | 9,646,000 | 11,004,205 | ||||||
6.00% 11/15/41 | 3,540,000 | 4,349,609 | ||||||
9.375% 5/15/19 | 2,347,000 | 3,234,551 | ||||||
LyondellBasell Industries | ||||||||
5.75% 4/15/24 | 8,525,000 | 9,910,313 | ||||||
6.00% 11/15/21 | 4,560,000 | 5,295,300 | ||||||
# | MacDermid 144A 9.50% 4/15/17 | 4,283,000 | 4,497,150 | |||||
# | Mexichem SAB 144A 4.875% 9/19/22 | 5,975,000 | 6,333,500 | |||||
Mohawk Industries 6.375% 1/15/16 | 2,349,000 | 2,666,115 | ||||||
# | Murray Energy 144A 10.25% 10/15/15 | 4,810,000 | 4,737,850 | |||||
Norcraft Finance 10.50% 12/15/15 | 3,493,000 | 3,519,198 | ||||||
Nortek 8.50% 4/15/21 | 6,595,000 | 7,122,600 |
24
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Basic Industry (continued) | ||||||||
Novelis 8.75% 12/15/20 | USD | 7,055,000 | $ | 7,813,413 | ||||
=@ | Port Townsend 12.431% 8/27/13 | 643,305 | 70,764 | |||||
Rio Tinto Finance USA 2.875% 8/21/22 | 30,530,000 | 30,826,171 | ||||||
# | Ryerson 144A | |||||||
9.00% 10/15/17 | 3,810,000 | 3,900,488 | ||||||
11.25% 10/15/18 | 1,590,000 | 1,548,263 | ||||||
# | Samarco Mineracao 144A 4.125% 11/1/22 | 11,683,000 | 11,698,305 | |||||
Steel Dynamics 6.75% 4/1/15 | 2,595,000 | 2,646,900 | ||||||
# | Taminco Global Chemical 144A 9.75% 3/31/20 | 23,000 | 25,070 | |||||
Teck Resources | ||||||||
3.00% 3/1/19 | 5,330,000 | 5,430,327 | ||||||
3.75% 2/1/23 | 6,810,000 | 6,913,532 | ||||||
Vale Overseas | ||||||||
4.375% 1/11/22 | 15,055,000 | 16,100,570 | ||||||
6.25% 1/23/17 | 500,000 | 582,835 | ||||||
# | Xstrata Finance Canada 144A | |||||||
4.00% 10/25/22 | 2,200,000 | 2,214,210 | ||||||
5.30% 10/25/42 | 2,540,000 | 2,555,578 | ||||||
486,341,684 | ||||||||
Brokerage – 0.55% | ||||||||
• | Bear Stearns | |||||||
3.557% 4/24/14 | AUD | 15,000,000 | 15,455,255 | |||||
4.00% 12/7/12 | AUD | 6,340,000 | 6,578,413 | |||||
Jefferies Group | ||||||||
6.25% 1/15/36 | USD | 6,538,000 | 6,603,380 | |||||
6.45% 6/8/27 | 4,100,000 | 4,317,792 | ||||||
Lazard Group 6.85% 6/15/17 | 16,889,000 | 19,170,400 | ||||||
52,125,240 | ||||||||
Capital Goods – 0.73% | ||||||||
Anixter 10.00% 3/15/14 | 2,164,000 | 2,364,170 | ||||||
* | Berry Plastics 9.75% 1/15/21 | 5,246,000 | 5,980,440 | |||||
Case New Holland 7.75% 9/1/13 | 4,069,000 | 4,292,795 | ||||||
# | Cemex Finance 144A 9.375% 10/12/22 | 4,510,000 | 4,735,500 | |||||
# | Consolidated Container 144A 10.125% 7/15/20 | 3,004,000 | 3,206,770 | |||||
Kratos Defense & Security Solutions 10.00% 6/1/17 | 2,900,000 | 3,146,500 | ||||||
# | Plastipak Holdings 144A 10.625% 8/15/19 | 3,693,000 | 4,228,485 | |||||
Reynolds Group Issuer | ||||||||
9.00% 4/15/19 | 13,490,000 | 13,726,075 | ||||||
9.875% 8/15/19 | 235,000 | 247,338 |
25
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Capital Goods (continued) | ||||||||
# | Sealed Air 144A | |||||||
8.125% 9/15/19 | USD | 6,000 | $ | 6,585 | ||||
8.375% 9/15/21 | 8,000 | 8,840 | ||||||
# | URS 144A 5.00% 4/1/22 | 8,655,000 | 8,969,618 | |||||
# | Votorantim Cimentos 144A 7.25% 4/5/41 | 16,180,000 | 18,445,199 | |||||
69,358,315 | ||||||||
Communications – 6.29% | ||||||||
America Movil | ||||||||
3.125% 7/16/22 | 7,000,000 | 7,235,809 | ||||||
5.00% 3/30/20 | 11,125,000 | 13,143,064 | ||||||
American Tower | ||||||||
4.50% 1/15/18 | 1,735,000 | 1,923,520 | ||||||
4.70% 3/15/22 | 2,595,000 | 2,871,993 | ||||||
5.90% 11/1/21 | 29,665,000 | 35,593,935 | ||||||
Cablevision Systems | ||||||||
8.00% 4/15/20 | 259,000 | 292,023 | ||||||
8.625% 9/15/17 | 335,000 | 392,788 | ||||||
CCO Holdings | ||||||||
5.25% 9/30/22 | 3,925,000 | 3,964,250 | ||||||
7.00% 1/15/19 | 76,000 | 82,080 | ||||||
7.375% 6/1/20 | 2,300,000 | 2,587,500 | ||||||
CenturyLink 5.80% 3/15/22 | 13,225,000 | 13,945,630 | ||||||
Citizens Communications 6.25% 1/15/13 | 1,495,000 | 1,509,950 | ||||||
Clear Channel Communications 9.00% 3/1/21 | 3,152,000 | 2,765,880 | ||||||
Clear Channel Worldwide Holdings 7.625% 3/15/20 | 4,627,000 | 4,424,293 | ||||||
# | Clearwire Communications 144A 12.00% 12/1/15 | 5,676,000 | 6,061,410 | |||||
# | Columbus International 144A 11.50% 11/20/14 | 8,041,000 | 9,086,330 | |||||
Comcast 4.65% 7/15/42 | 2,670,000 | 2,894,579 | ||||||
Cricket Communications | ||||||||
7.75% 5/15/16 | 882,000 | 937,125 | ||||||
*7.75% 10/15/20 | 6,448,000 | 6,681,740 | ||||||
Crown Castle International | ||||||||
#144A 5.25% 1/15/23 | 325,000 | 337,594 | ||||||
9.00% 1/15/15 | 1,893,000 | 2,034,975 | ||||||
# | Crown Castle Towers 144A 4.883% 8/15/20 | 51,600,000 | 59,061,514 | |||||
# | Deutsche Telekom International Finance 144A | |||||||
2.25% 3/6/17 | 15,590,000 | 15,986,313 | ||||||
3.125% 4/11/16 | 10,005,000 | 10,584,960 | ||||||
# | Digicel 144A 8.25% 9/1/17 | 2,277,000 | 2,470,545 |
26
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Communications (continued) | ||||||||
# | Digicel Group 144A | |||||||
8.25% 9/30/20 | USD | 8,440,000 | $ | 9,136,300 | ||||
10.50% 4/15/18 | 229,000 | 255,335 | ||||||
DirecTV Holdings | ||||||||
3.80% 3/15/22 | 23,700,000 | 24,742,160 | ||||||
5.15% 3/15/42 | 4,310,000 | 4,525,655 | ||||||
DISH DBS | ||||||||
5.875% 7/15/22 | 1,529,000 | 1,613,095 | ||||||
7.125% 2/1/16 | 415,000 | 465,838 | ||||||
7.875% 9/1/19 | 6,206,000 | 7,307,565 | ||||||
Entravision Communications 8.75% 8/1/17 | 2,377,000 | 2,582,016 | ||||||
Intelsat Bermuda 11.25% 2/4/17 | 7,576,000 | 7,983,210 | ||||||
Intelsat Bermuda PIK | ||||||||
11.50% 2/4/17 | 1,239,287 | 1,308,997 | ||||||
#144A 11.50% 2/4/17 | 1,975,000 | 2,086,094 | ||||||
Intelsat Jackson Holdings | ||||||||
7.25% 10/15/20 | 3,558,000 | 3,793,718 | ||||||
#144A 7.25% 10/15/20 | 65,000 | 69,225 | ||||||
Interpublic Group 4.00% 3/15/22 | 12,800,000 | 13,451,840 | ||||||
Level 3 Communications 11.875% 2/1/19 | 2,970,000 | 3,393,225 | ||||||
Level 3 Financing 10.00% 2/1/18 | 4,182,000 | 4,683,840 | ||||||
MDC Partners 11.00% 11/1/16 | 312,000 | 341,640 | ||||||
MetroPCS Wireless 6.625% 11/15/20 | 2,908,000 | 3,137,005 | ||||||
# | Nara Cable Funding 144A 8.875% 12/1/18 | 6,560,000 | 6,232,000 | |||||
NBCUniversal Media 4.45% 1/15/43 | 19,935,000 | 20,682,822 | ||||||
Nielsen Finance 11.625% 2/1/14 | 1,527,000 | 1,725,510 | ||||||
NII Capital | ||||||||
7.625% 4/1/21 | 6,077,000 | 4,831,215 | ||||||
8.875% 12/15/19 | 1,557,000 | 1,315,665 | ||||||
# | Oi 144A 5.75% 2/10/22 | 17,413,000 | 18,849,573 | |||||
# | ONO Finance II 144A 10.875% 7/15/19 | 2,094,000 | 1,832,250 | |||||
PAETEC Holding 8.875% 6/30/17 | 3,896,000 | 4,217,420 | ||||||
Qwest 6.75% 12/1/21 | 12,490,000 | 14,964,544 | ||||||
# | Sinclair Television Group 144A 9.25% 11/1/17 | 3,400,000 | 3,782,500 | |||||
# | Sirius XM Radio 144A 8.75% 4/1/15 | 4,500,000 | 5,130,000 | |||||
# | SK Telecom 144A 2.125% 5/1/18 | 4,650,000 | 4,652,041 | |||||
Sprint Capital 8.75% 3/15/32 | 3,465,000 | 4,106,025 |
27
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Communications (continued) | ||||||||
Sprint Nextel | ||||||||
6.00% 12/1/16 | USD | 2,955,000 | $ | 3,191,400 | ||||
8.375% 8/15/17 | 3,285,000 | 3,827,025 | ||||||
9.125% 3/1/17 | 5,201,000 | 6,137,180 | ||||||
Telecom Italia Capital 5.25% 10/1/15 | 6,095,000 | 6,468,319 | ||||||
*# | Telefonica Chile 144A 3.875% 10/12/22 | 12,275,000 | 12,225,225 | |||||
Telefonica Emisiones 6.421% 6/20/16 | 23,950,000 | 26,045,625 | ||||||
Telesat Canada | ||||||||
#144A 6.00% 5/15/17 | 3,660,000 | 3,833,850 | ||||||
12.50% 11/1/17 | 1,932,000 | 2,154,180 | ||||||
Time Warner Cable | ||||||||
5.85% 5/1/17 | 7,452,000 | 8,925,812 | ||||||
8.25% 4/1/19 | 14,091,000 | 19,076,692 | ||||||
# | Univision Communications 144A 6.875% 5/15/19 | 5,325,000 | 5,471,438 | |||||
# | UPC Holding 144A 9.875% 4/15/18 | 2,304,000 | 2,597,760 | |||||
# | UPCB Finance III 144A 6.625% 7/1/20 | 9,469,000 | 10,179,175 | |||||
Videotron Ltee 9.125% 4/15/18 | 2,093,000 | 2,268,289 | ||||||
# | VimpelCommunications 144A 7.748% 2/2/21 | 4,440,000 | 4,895,100 | |||||
# | VimpelCom Holdings 144A | |||||||
•4.362% 6/29/14 | 6,515,000 | 6,560,403 | ||||||
7.504% 3/1/22 | 2,644,000 | 2,862,130 | ||||||
Virgin Media Finance 8.375% 10/15/19 | 3,394,000 | 3,920,070 | ||||||
Virgin Media Secured Finance | ||||||||
5.25% 1/15/21 | 1,010,000 | 1,178,677 | ||||||
6.50% 1/15/18 | 35,143,000 | 38,305,869 | ||||||
# | Vivendi 144A | |||||||
3.45% 1/12/18 | 400,000 | 409,884 | ||||||
6.625% 4/4/18 | 26,463,000 | 30,734,868 | ||||||
# | Wind Acquisition Finance 144A 11.75% 7/15/17 | 4,686,000 | 4,592,280 | |||||
Windstream | ||||||||
7.875% 11/1/17 | 1,816,000 | 2,031,650 | ||||||
8.125% 8/1/13 | 1,945,000 | 2,039,819 | ||||||
600,000,843 | ||||||||
Consumer Cyclical – 2.43% | ||||||||
CKE Restaurants 11.375% 7/15/18 | 4,577,000 | 5,292,156 | ||||||
# | Daimler Finance North America | |||||||
144A 2.25% 7/31/19 | 12,115,000 | 12,144,246 | ||||||
Darden Restaurants 3.35% 11/1/22 | 17,350,000 | 17,406,405 | ||||||
Dave & Buster’s 11.00% 6/1/18 | 1,775,000 | 1,999,094 | ||||||
Delphi 6.125% 5/15/21 | 6,275,000 | 6,965,250 |
28
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Consumer Cyclical (continued) | ||||||||
Dollar General 4.125% 7/15/17 | USD | 2,375,000 | $ | 2,493,750 | ||||
eBay 4.00% 7/15/42 | 25,635,000 | 25,814,957 | ||||||
Express 8.75% 3/1/18 | 84,000 | 91,350 | ||||||
Ford Motor Credit 3.984% 6/15/16 | 6,710,000 | 7,117,854 | ||||||
Hanesbrands 6.375% 12/15/20 | 5,070,000 | 5,557,988 | ||||||
Historic TW 6.875% 6/15/18 | 26,504,000 | 33,895,885 | ||||||
Host Hotels & Resorts | ||||||||
*4.75% 3/1/23 | 10,475,000 | 11,155,875 | ||||||
5.25% 3/15/22 | 5,645,000 | 6,265,950 | ||||||
5.875% 6/15/19 | 3,275,000 | 3,618,875 | ||||||
Ingles Markets 8.875% 5/15/17 | 3,502,000 | 3,786,538 | ||||||
Levi Strauss 7.625% 5/15/20 | 1,380,000 | 1,514,550 | ||||||
Lowe’s 3.12% 4/15/22 | 12,850,000 | 13,597,433 | ||||||
Macy’s Retail Holdings 5.90% 12/1/16 | 11,621,000 | 13,704,041 | ||||||
* | Quiksilver 6.875% 4/15/15 | 5,891,000 | 5,677,451 | |||||
Rite Aid 9.25% 3/15/20 | 1,815,000 | 1,864,913 | ||||||
# | Sealy Mattress 144A 10.875% 4/15/16 | 1,012,000 | 1,104,345 | |||||
Time Warner 4.70% 1/15/21 | 250,000 | 290,899 | ||||||
Tops Markets 10.125% 10/15/15 | 2,389,000 | 2,521,888 | ||||||
Walgreen 3.10% 9/15/22 | 20,165,000 | 20,576,063 | ||||||
Western Union 3.65% 8/22/18 | 7,015,000 | 7,726,258 | ||||||
Wyndham Worldwide | ||||||||
4.25% 3/1/22 | 4,805,000 | 5,021,758 | ||||||
5.625% 3/1/21 | 6,755,000 | 7,549,962 | ||||||
5.75% 2/1/18 | 6,462,000 | 7,237,401 | ||||||
231,993,135 | ||||||||
Consumer Non-Cyclical – 4.24% | ||||||||
Amgen | ||||||||
3.625% 5/15/22 | 10,545,000 | 11,358,051 | ||||||
3.875% 11/15/21 | 5,405,000 | 5,951,278 | ||||||
5.375% 5/15/43 | 5,740,000 | 6,919,375 | ||||||
Boston Scientific 6.00% 1/15/20 | 7,335,000 | 8,717,214 | ||||||
*# | BRF-Brasil Foods 144A 5.875% 6/6/22 | 14,765,000 | 16,647,538 | |||||
CareFusion 6.375% 8/1/19 | 35,940,000 | 42,899,494 | ||||||
Celgene | ||||||||
2.45% 10/15/15 | 4,630,000 | 4,830,488 | ||||||
3.25% 8/15/22 | 2,880,000 | 2,974,873 | ||||||
3.95% 10/15/20 | 11,675,000 | 12,746,111 |
29
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Consumer Non-Cyclical (continued) | ||||||||
Constellation Brands | ||||||||
4.625% 3/1/23 | USD | 2,890,000 | $ | 2,958,638 | ||||
6.00% 5/1/22 | 5,325,000 | 6,070,500 | ||||||
Del Monte 7.625% 2/15/19 | 7,188,000 | 7,421,610 | ||||||
# | Dole Food 144A 8.00% 10/1/16 | 3,055,000 | 3,203,931 | |||||
Energizer Holdings 4.70% 5/24/22 | 19,025,000 | 20,447,158 | ||||||
#Express Scripts Holding 144A 2.65% 2/15/17 | 8,970,000 | 9,372,968 | ||||||
#Heineken 144A | ||||||||
2.75% 4/1/23 | 6,325,000 | 6,404,619 | ||||||
3.40% 4/1/22 | 13,610,000 | 14,570,621 | ||||||
Jarden | ||||||||
6.125% 11/15/22 | 2,145,000 | 2,316,600 | ||||||
7.50% 1/15/20 | 2,320,000 | 2,552,000 | ||||||
# | Korea Expressway 144A 1.875% 10/22/17 | 9,585,000 | 9,501,074 | |||||
# | Kraft Foods Group 144A 5.00% 6/4/42 | 10,230,000 | 11,996,598 | |||||
Laboratory Corporation of America Holdings | ||||||||
2.20% 8/23/17 | 14,275,000 | 14,729,273 | ||||||
3.75% 8/23/22 | 12,315,000 | 13,118,049 | ||||||
NBTY 9.00% 10/1/18 | 7,168,000 | 8,064,000 | ||||||
# | Pernod-Ricard 144A | |||||||
2.95% 1/15/17 | 6,365,000 | 6,719,804 | ||||||
5.50% 1/15/42 | 1,105,000 | 1,339,152 | ||||||
5.75% 4/7/21 | 7,593,000 | 9,211,607 | ||||||
Quest Diagnostics 4.70% 4/1/21 | 14,730,000 | 16,646,785 | ||||||
Reynolds American | ||||||||
3.25% 11/1/22 | 10,690,000 | 10,835,085 | ||||||
4.75% 11/1/42 | 7,470,000 | 7,640,211 | ||||||
# | SABMiller Holdings 144A 3.75% 1/15/22 | 27,275,000 | 30,056,969 | |||||
* | Safeway 4.75% 12/1/21 | 13,650,000 | 14,304,558 | |||||
Scotts Miracle-Gro 6.625% 12/15/20 | 3,518,000 | 3,839,018 | ||||||
Tyson Foods 4.50% 6/15/22 | 11,020,000 | 11,736,300 | ||||||
# | Woolworths 144A | |||||||
3.15% 4/12/16 | 4,045,000 | 4,227,510 | ||||||
4.55% 4/12/21 | 4,335,000 | 4,825,271 | ||||||
Yale University 2.90% 10/15/14 | 4,905,000 | 5,139,743 | ||||||
Zimmer Holdings | ||||||||
3.375% 11/30/21 | 12,500,000 | 13,067,325 | ||||||
4.625% 11/30/19 | 16,726,000 | 19,177,998 | ||||||
404,539,397 |
30
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Electric – 3.11% | ||||||||
Ameren Illinois 9.75% 11/15/18 | USD | 17,440,000 | $ | 24,248,943 | ||||
# | American Transmission Systems 144A | |||||||
5.25% 1/15/22 | 20,345,000 | 23,624,105 | ||||||
# | APT Pipelines 144A 3.875% 10/11/22 | 7,390,000 | 7,380,179 | |||||
CenterPoint Energy 5.95% 2/1/17 | 11,365,000 | 13,286,299 | ||||||
# | Centrais Eletricas Brasileiras 144A 5.75% 10/27/21 | 9,552,000 | 10,746,000 | |||||
CMS Energy | ||||||||
4.25% 9/30/15 | 6,995,000 | 7,475,647 | ||||||
6.25% 2/1/20 | 8,285,000 | 9,925,960 | ||||||
ComEd Financing III 6.35% 3/15/33 | 9,274,000 | 9,644,960 | ||||||
Duquense Light Holdings 5.50% 8/15/15 | 3,168,000 | 3,447,649 | ||||||
• | FPL Group Capital | |||||||
6.35% 10/1/66 | 16,936,000 | 17,967,673 | ||||||
6.65% 6/15/67 | 1,160,000 | 1,256,950 | ||||||
Great Plains Energy 5.292% 6/15/22 | 15,025,000 | 17,257,460 | ||||||
• | Integrys Energy Group 6.11% 12/1/66 | 10,825,000 | 11,376,469 | |||||
Ipalco Enterprises 5.00% 5/1/18 | 5,745,000 | 6,075,527 | ||||||
Jersey Central Power & Light 5.625% 5/1/16 | 3,240,000 | 3,723,638 | ||||||
LG&E & KU Energy | ||||||||
3.75% 11/15/20 | 12,102,000 | 12,560,291 | ||||||
4.375% 10/1/21 | 16,415,000 | 18,152,216 | ||||||
Pennsylvania Electric 5.20% 4/1/20 | 9,953,000 | 11,382,201 | ||||||
*# | Perusahaan Listrik Negara 144A 5.25% 10/24/42 | 2,855,000 | 2,929,801 | |||||
PPL Capital Funding | ||||||||
4.20% 6/15/22 | 3,410,000 | 3,672,270 | ||||||
•6.70% 3/30/67 | 6,100,000 | 6,433,987 | ||||||
Public Service Company of Oklahoma | ||||||||
5.15% 12/1/19 | 14,625,000 | 16,957,293 | ||||||
Puget Energy 6.00% 9/1/21 | 4,685,000 | 5,273,459 | ||||||
• | Puget Sound Energy 6.974% 6/1/67 | 18,119,000 | 19,130,058 | |||||
SCANA 4.125% 2/1/22 | 10,490,000 | 11,036,309 | ||||||
• | Wisconsin Energy 6.25% 5/15/67 | 20,260,000 | 21,750,305 | |||||
296,715,649 | ||||||||
Energy – 4.95% | ||||||||
American Petroleum Tankers Parent | ||||||||
10.25% 5/1/15 | 285,000 | 299,250 | ||||||
AmeriGas Partners | ||||||||
6.50% 5/20/21 | 1,467,000 | 1,562,355 | ||||||
6.75% 5/20/20 | 1,290,000 | 1,393,200 | ||||||
7.00% 5/20/22 | 1,521,000 | 1,659,791 |
31
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Energy (continued) | ||||||||
Antero Resources Finance 9.375% 12/1/17 | USD | 2,575,000 | $ | 2,851,813 | ||||
Chesapeake Energy | ||||||||
6.125% 2/15/21 | 4,000 | 4,070 | ||||||
*6.625% 8/15/20 | 25,000 | 26,375 | ||||||
Comstock Resources 7.75% 4/1/19 | 2,282,000 | 2,327,640 | ||||||
Continental Resources 5.00% 9/15/22 | 3,845,000 | 4,066,088 | ||||||
Copano Energy | ||||||||
7.125% 4/1/21 | 60,000 | 63,450 | ||||||
7.75% 6/1/18 | 3,556,000 | 3,751,580 | ||||||
Crosstex Energy | ||||||||
#144A 7.125% 6/1/22 | 97,000 | 97,970 | ||||||
8.875% 2/15/18 | 188,000 | 202,570 | ||||||
Ecopetrol 7.625% 7/23/19 | 16,072,000 | 20,893,600 | ||||||
# | ENI 144A 4.15% 10/1/20 | 17,210,000 | 17,659,181 | |||||
* | Forest Oil 7.25% 6/15/19 | 3,866,000 | 3,943,320 | |||||
*# | Gazprom Neft 144A 4.375% 9/19/22 | 12,445,000 | 12,538,338 | |||||
# | Helix Energy Solutions Group 144A | |||||||
9.50% 1/15/16 | 3,204,000 | 3,320,145 | ||||||
# | Hercules Offshore 144A 10.50% 10/15/17 | 6,538,000 | 6,930,280 | |||||
# | Hilcorp Energy I 144A | |||||||
7.625% 4/15/21 | 2,640,000 | 2,890,800 | ||||||
8.00% 2/15/20 | 242,000 | 266,200 | ||||||
Holly 9.875% 6/15/17 | 4,262,000 | 4,666,890 | ||||||
# | IPIC GMTN 144A 5.50% 3/1/22 | 7,350,000 | 8,507,625 | |||||
Linn Energy | ||||||||
#144A 6.25% 11/1/19 | 1,435,000 | 1,442,175 | ||||||
6.50% 5/15/19 | 1,210,000 | 1,225,125 | ||||||
8.625% 4/15/20 | 2,780,000 | 3,054,525 | ||||||
* | Lukoil International Finance 6.125% 11/9/20 | 16,320,000 | 18,588,480 | |||||
Newfield Exploration 5.625% 7/1/24 | 2,085,000 | 2,230,950 | ||||||
Pemex Project Funding Master Trust | ||||||||
6.625% 6/15/35 | 4,660,000 | 5,836,650 | ||||||
Petrobras International Finance | ||||||||
3.50% 2/6/17 | 7,264,000 | 7,695,191 | ||||||
3.875% 1/27/16 | 10,405,000 | 11,105,621 | ||||||
5.375% 1/27/21 | 21,000,000 | 23,920,176 | ||||||
Petrohawk Energy 7.25% 8/15/18 | 15,383,000 | 17,557,018 | ||||||
Petroleos de Venezuela 9.00% 11/17/21 | 47,468,000 | 39,517,109 | ||||||
Petroleos Mexicanos 5.50% 6/27/44 | 14,220,000 | 15,535,350 |
32
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Energy (continued) | ||||||||
Petroleum Development 12.00% 2/15/18 | USD | 3,355,000 | $ | 3,669,447 | ||||
Pioneer Drilling 9.875% 3/15/18 | 181,000 | 196,838 | ||||||
Pride International 6.875% 8/15/20 | 38,285,000 | 49,301,431 | ||||||
*# | PTT 144A 3.375% 10/25/22 | 8,845,000 | 8,748,245 | |||||
* | Quicksilver Resources 9.125% 8/15/19 | 3,211,000 | 3,146,780 | |||||
Range Resources | ||||||||
5.00% 8/15/22 | 162,000 | 170,100 | ||||||
5.75% 6/1/21 | 1,840,000 | 1,978,000 | ||||||
8.00% 5/15/19 | 5,208,000 | 5,780,880 | ||||||
# | Ras Laffan Liquefied Natural Gas III 144A | |||||||
5.832% 9/30/16 | 5,597,824 | 6,191,193 | ||||||
# | Samson Investment 144A 9.75% 2/15/20 | 1,659,000 | 1,758,540 | |||||
SandRidge Energy | ||||||||
7.50% 3/15/21 | 1,868,000 | 1,952,060 | ||||||
#144A 8.125% 10/15/22 | 2,993,000 | 3,232,440 | ||||||
8.75% 1/15/20 | 30,000 | 32,550 | ||||||
# | Sinopec Group Overseas Development 2012 | |||||||
144A 2.75% 5/17/17 | 10,055,000 | 10,487,466 | ||||||
# | Suburban Propane Partners 144A 7.375% 8/1/21 | 2,025,000 | 2,176,875 | |||||
Talisman Energy 5.50% 5/15/42 | 21,695,000 | 25,382,239 | ||||||
# | TNK-BP Finance 144A 7.50% 7/18/16 | 8,450,000 | 9,695,108 | |||||
Transocean | ||||||||
3.80% 10/15/22 | 12,385,000 | 12,692,891 | ||||||
5.05% 12/15/16 | 23,760,000 | 26,635,862 | ||||||
Weatherford International | ||||||||
4.50% 4/15/22 | 17,250,000 | 18,399,316 | ||||||
9.625% 3/1/19 | 10,546,000 | 13,988,953 | ||||||
# | Woodside Finance 144A | |||||||
8.125% 3/1/14 | 4,095,000 | 4,462,358 | ||||||
8.75% 3/1/19 | 11,176,000 | 14,976,421 | ||||||
472,686,894 | ||||||||
Finance Companies – 2.06% | ||||||||
# | Algeco Scotsman Global Finance 144A | |||||||
8.50% 10/15/18 | 12,365,000 | 12,797,775 | ||||||
# | CDP Financial 144A | |||||||
4.40% 11/25/19 | 20,171,000 | 23,397,614 | ||||||
5.60% 11/25/39 | 3,130,000 | 4,021,274 | ||||||
E Trade Financial 12.50% 11/30/17 | 7,447,000 | 8,470,963 |
33
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Finance Companies (continued) | ||||||||
General Electric Capital | ||||||||
#144A 3.80% 6/18/19 | USD | 8,320,000 | $ | 8,892,008 | ||||
5.50% 2/1/17 | NZD | 8,950,000 | 7,794,879 | |||||
5.55% 5/4/20 | USD | 11,300,000 | 13,463,283 | |||||
5.625% 5/1/18 | 3,170,000 | 3,769,983 | ||||||
5.875% 1/14/38 | 1,000 | 1,236 | ||||||
6.00% 8/7/19 | 38,621,000 | 47,374,835 | ||||||
•6.25% 12/15/49 | 12,300,000 | 13,465,560 | ||||||
•7.125% 12/15/49 | 8,000,000 | 9,189,368 | ||||||
•# | ILFC E-Capital Trust I 144A 4.52% 12/21/65 | 2,480,000 | 1,773,200 | |||||
•# | ILFC E-Capital Trust II 144A 6.25% 12/21/65 | 3,001,000 | 2,505,835 | |||||
International Lease Finance | ||||||||
5.875% 4/1/19 | 3,856,000 | 4,104,400 | ||||||
6.25% 5/15/19 | 3,232,000 | 3,499,451 | ||||||
6.625% 11/15/13 | 170,000 | 178,500 | ||||||
8.25% 12/15/20 | 3,395,000 | 4,010,344 | ||||||
8.75% 3/15/17 | 6,429,000 | 7,538,967 | ||||||
# | Nuveen Investments 144A 9.50% 10/15/20 | 9,530,000 | 9,649,125 | |||||
# | Temasek Financial I 144A 2.375% 1/23/23 | 11,275,000 | 11,168,688 | |||||
197,067,288 | ||||||||
Healthcare – 0.56% | ||||||||
Accellent 8.375% 2/1/17 | 2,810,000 | 2,887,275 | ||||||
Air Medical Group Holdings 9.25% 11/1/18 | 4,250,000 | 4,600,625 | ||||||
Bio-Rad Laboratories 8.00% 9/15/16 | 2,021,000 | 2,218,048 | ||||||
# | Biomet 144A | |||||||
6.50% 8/1/20 | 3,430,000 | 3,554,338 | ||||||
6.50% 10/1/20 | 1,025,000 | 1,001,938 | ||||||
Community Health Systems 8.00% 11/15/19 | 2,206,000 | 2,390,753 | ||||||
HCA 7.50% 2/15/22 | 6,464,000 | 7,255,840 | ||||||
* | HCA Holdings 7.75% 5/15/21 | 7,174,000 | 7,765,854 | |||||
# | Kinetic Concepts 144A | |||||||
10.50% 11/1/18 | 135,000 | 144,450 | ||||||
12.50% 11/1/19 | 5,283,000 | 5,098,095 | ||||||
# | MultiPlan 144A 9.875% 9/1/18 | 6,726,000 | 7,432,230 | |||||
# | Mylan 144A 6.00% 11/15/18 | 5,615,000 | 6,008,050 | |||||
Radnet Management 10.375% 4/1/18 | 2,660,000 | 2,686,600 | ||||||
53,044,096 |
34
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Insurance – 2.34% | ||||||||
Alleghany 4.95% 6/27/22 | USD | 6,955,000 | $ | 7,773,548 | ||||
American International Group | ||||||||
5.85% 1/16/18 | 1,300,000 | 1,522,372 | ||||||
6.40% 12/15/20 | 4,595,000 | 5,652,342 | ||||||
•8.175% 5/15/58 | 1,778,000 | 2,226,945 | ||||||
8.25% 8/15/18 | 13,905,000 | 18,106,659 | ||||||
• | Chubb 6.375% 3/29/67 | 13,273,000 | 14,467,570 | |||||
# | Highmark 144A | |||||||
4.75% 5/15/21 | 5,710,000 | 5,842,187 | ||||||
6.125% 5/15/41 | 2,145,000 | 2,254,286 | ||||||
*• | ING Groep 5.775% 12/29/49 | 6,320,000 | 6,004,000 | |||||
# | ING US 144A 5.50% 7/15/22 | 10,545,000 | 11,485,561 | |||||
# | Liberty Mutual Group 144A | |||||||
4.95% 5/1/22 | 10,020,000 | 10,963,353 | ||||||
6.50% 5/1/42 | 11,465,000 | 13,111,982 | ||||||
•7.00% 3/15/37 | 3,778,000 | 3,768,555 | ||||||
MetLife | ||||||||
3.048% 12/15/22 | 12,445,000 | 12,648,687 | ||||||
6.40% 12/15/36 | 35,000 | 38,221 | ||||||
6.817% 8/15/18 | 10,550,000 | 13,349,010 | ||||||
# | MetLife Capital Trust X 144A 9.25% 4/8/38 | 11,710,000 | 16,335,450 | |||||
# | Metropolitan Life Global Funding I 144A | |||||||
3.875% 4/11/22 | 2,760,000 | 3,049,993 | ||||||
* | Montpelier Re Holdings 4.70% 10/15/22 | 9,190,000 | 9,438,755 | |||||
Prudential Financial | ||||||||
3.875% 1/14/15 | 4,320,000 | 4,595,819 | ||||||
4.50% 11/15/20 | 3,640,000 | 4,079,046 | ||||||
4.50% 11/16/21 | 3,310,000 | 3,711,040 | ||||||
•5.875% 9/15/42 | 4,295,000 | 4,536,594 | ||||||
6.00% 12/1/17 | 7,845,000 | 9,498,828 | ||||||
=t‡# | Twin Reefs Pass Through Trust 144A | |||||||
0.00% 12/29/49 | 1,900,000 | 0 | ||||||
WellPoint | ||||||||
1.875% 1/15/18 | 455,000 | 461,645 | ||||||
3.30% 1/15/23 | 19,850,000 | 20,576,985 | ||||||
• | XL Group 6.50% 12/29/49 | 5,319,000 | 4,959,968 | |||||
•# | ZFS Finance USA Trust II 144A 6.45% 12/15/65 | 12,255,000 | 13,235,400 | |||||
223,694,801 |
35
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Natural Gas – 2.62% | ||||||||
# | CNOOC Finance 2012 144A 3.875% 5/2/22 | USD | 15,220,000 | $ | 16,372,854 | |||
El Paso Pipeline Partners Operating | ||||||||
6.50% 4/1/20 | 12,790,000 | 15,724,550 | ||||||
• | Enbridge Energy Partners 8.05% 10/1/37 | 18,785,000 | 21,483,916 | |||||
Energy Transfer Partners 9.70% 3/15/19 | 8,635,000 | 11,639,695 | ||||||
Enterprise Products Operating | ||||||||
•7.034% 1/15/68 | 25,380,000 | 29,028,654 | ||||||
•8.375% 8/1/66 | 1,492,000 | 1,702,263 | ||||||
9.75% 1/31/14 | 3,046,000 | 3,378,970 | ||||||
# | GDF Suez 144A 2.875% 10/10/22 | 10,385,000 | 10,450,623 | |||||
Kinder Morgan Energy Partners | ||||||||
3.45% 2/15/23 | 5,601,000 | 5,886,780 | ||||||
6.375% 3/1/41 | 315,000 | 411,510 | ||||||
9.00% 2/1/19 | 16,492,000 | 22,350,701 | ||||||
NiSource Finance 5.80% 2/1/42 | 10,475,000 | 12,583,094 | ||||||
# | Pertamina Persero 144A | |||||||
4.875% 5/3/22 | 9,365,000 | 10,207,850 | ||||||
*6.00% 5/3/42 | 8,840,000 | 10,011,300 | ||||||
Plains All American Pipeline 8.75% 5/1/19 | 14,204,000 | 19,286,589 | ||||||
Sempra Energy 2.875% 10/1/22 | 13,190,000 | 13,550,074 | ||||||
• | TransCanada Pipelines 6.35% 5/15/67 | 27,180,000 | 29,237,255 | |||||
Williams Partners 7.25% 2/1/17 | 13,298,000 | 16,371,061 | ||||||
249,677,739 | ||||||||
Real Estate – 2.08% | ||||||||
Alexandria Real Estate Equities 4.60% 4/1/22 | 13,785,000 | 14,951,817 | ||||||
Boston Properties 3.85% 2/1/23 | 10,885,000 | 11,765,324 | ||||||
Brandywine Operating Partnership 4.95% 4/15/18 | 10,955,000 | 12,026,268 | ||||||
BRE Properties 3.375% 1/15/23 | 10,370,000 | 10,425,936 | ||||||
Developers Diversified Realty | ||||||||
*4.625% 7/15/22 | 3,655,000 | 4,057,346 | ||||||
4.75% 4/15/18 | 7,770,000 | 8,730,380 | ||||||
7.50% 4/1/17 | 5,330,000 | 6,437,499 | ||||||
7.875% 9/1/20 | 9,374,000 | 12,210,076 | ||||||
9.625% 3/15/16 | 3,656,000 | 4,538,738 | ||||||
Digital Realty Trust | ||||||||
5.25% 3/15/21 | 16,343,000 | 18,512,663 | ||||||
5.875% 2/1/20 | 7,425,000 | 8,651,462 | ||||||
Liberty Property 4.125% 6/15/22 | 6,240,000 | 6,645,999 | ||||||
Mack-Cali Realty 4.50% 4/18/22 | 8,860,000 | 9,554,473 |
36
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Real Estate (continued) | ||||||||
National Retail Properties 3.80% 10/15/22 | USD | 2,200,000 | $ | 2,282,859 | ||||
# | Qatari Diar Finance 144A 5.00% 7/21/20 | 7,392,000 | 8,648,640 | |||||
Realty Income | ||||||||
2.00% 1/31/18 | 5,970,000 | 6,028,273 | ||||||
3.25% 10/15/22 | 6,840,000 | 6,862,107 | ||||||
Regency Centers | ||||||||
4.80% 4/15/21 | 9,255,000 | 10,371,375 | ||||||
5.875% 6/15/17 | 2,168,000 | 2,516,526 | ||||||
UDR 4.625% 1/10/22 | 9,500,000 | 10,613,923 | ||||||
•# | USB Realty 144A 1.487% 12/22/49 | 4,700,000 | 3,975,965 | |||||
# | WEA Finance 144A | |||||||
3.375% 10/3/22 | 7,320,000 | 7,433,533 | ||||||
4.625% 5/10/21 | 10,480,000 | 11,554,483 | ||||||
198,795,665 | ||||||||
Services – 1.08% | ||||||||
Ameristar Casinos 7.50% 4/15/21 | 5,515,000 | 5,928,624 | ||||||
# | Equinox Holdings 144A 9.50% 2/1/16 | 1,309,000 | 1,397,358 | |||||
FTI Consulting | ||||||||
6.75% 10/1/20 | 3,665,000 | 3,921,550 | ||||||
7.75% 10/1/16 | 1,035,000 | 1,068,638 | ||||||
Geo Group 6.625% 2/15/21 | 4,087,000 | 4,424,178 | ||||||
# | H&E Equipment Services 144A 7.00% 9/1/22 | 5,130,000 | 5,360,850 | |||||
Harrah’s Operating 11.25% 6/1/17 | 2,161,000 | 2,350,088 | ||||||
Iron Mountain | ||||||||
7.75% 10/1/19 | 1,550,000 | 1,755,375 | ||||||
8.00% 6/15/20 | 2,163,000 | 2,300,891 | ||||||
*8.375% 8/15/21 | 39,000 | 43,290 | ||||||
Kansas City Southern de Mexico | ||||||||
6.125% 6/15/21 | 61,000 | 68,473 | ||||||
8.00% 2/1/18 | 1,638,000 | 1,834,560 | ||||||
* | M/I Homes 8.625% 11/15/18 | 4,535,000 | 4,931,813 | |||||
MGM Resorts International | ||||||||
#144A 6.75% 10/1/20 | 1,000,000 | 995,000 | ||||||
7.75% 3/15/22 | 111,000 | 115,301 | ||||||
10.375% 5/15/14 | 220,000 | 248,325 | ||||||
11.375% 3/1/18 | 11,732,000 | 13,843,759 | ||||||
13.00% 11/15/13 | 3,503,000 | 3,923,360 |
37
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Services (continued) | ||||||||
PHH | ||||||||
*7.375% 9/1/19 | USD | 3,265,000 | $ | 3,509,875 | ||||
9.25% 3/1/16 | 7,771,000 | 9,014,359 | ||||||
Pinnacle Entertainment | ||||||||
*7.75% 4/1/22 | 67,000 | 72,863 | ||||||
8.75% 5/15/20 | 2,608,000 | 2,862,280 | ||||||
Royal Caribbean Cruises 7.00% 6/15/13 | 4,625,000 | 4,786,875 | ||||||
Ryland Group 8.40% 5/15/17 | 4,694,000 | 5,656,270 | ||||||
Standard Pacific 10.75% 9/15/16 | 4,652,000 | 5,791,740 | ||||||
# | United Air Lines 144A 12.00% 11/1/13 | 5,585,000 | 5,752,550 | |||||
# | UR Merger Sub 144A | |||||||
5.75% 7/15/18 | 30,000 | 32,363 | ||||||
7.625% 4/15/22 | 49,000 | 53,839 | ||||||
8.25% 2/1/21 | 145,000 | 160,950 | ||||||
10.25% 11/15/19 | 6,046,000 | 7,013,359 | ||||||
West 7.875% 1/15/19 | 2,169,000 | 2,223,225 | ||||||
Wynn Las Vegas 7.75% 8/15/20 | 1,030,000 | 1,161,325 | ||||||
102,603,306 | ||||||||
Technology – 1.93% | ||||||||
Amkor Technology 7.375% 5/1/18 | 2,415,000 | 2,445,188 | ||||||
Applied Materials 4.30% 6/15/21 | 600,000 | 685,139 | ||||||
Aspect Software 10.625% 5/15/17 | 172,000 | 162,540 | ||||||
Avaya | ||||||||
#144A 7.00% 4/1/19 | 3,081,000 | 2,826,818 | ||||||
*9.75% 11/1/15 | 4,954,000 | 4,433,830 | ||||||
*10.125% 11/1/15 | 1,071,000 | 955,868 | ||||||
CDW 12.535% 10/12/17 | 3,621,000 | 3,897,101 | ||||||
Fidelity National Information Services | ||||||||
7.875% 7/15/20 | 1,408,000 | 1,580,480 | ||||||
First Data | ||||||||
#144A 7.375% 6/15/19 | 31,000 | 32,240 | ||||||
9.875% 9/24/15 | 6,006,000 | 6,163,658 | ||||||
10.55% 9/24/15 | 3,495,000 | 3,599,850 | ||||||
*11.25% 3/31/16 | 3,534,000 | 3,472,155 | ||||||
Fiserv 3.50% 10/1/22 | 5,925,000 | 6,041,468 | ||||||
GXS Worldwide 9.75% 6/15/15 | 10,185,000 | 10,579,669 | ||||||
Infor US 9.375% 4/1/19 | 1,472,000 | 1,633,920 | ||||||
Jabil Circuit 7.75% 7/15/16 | 1,178,000 | 1,366,480 | ||||||
MagnaChip Semiconductor 10.50% 4/15/18 | 233,000 | 263,290 |
38
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Technology (continued) | ||||||||
Motorola Solutions 3.75% 5/15/22 | USD | 21,640,000 | $ | 22,554,592 | ||||
National Semiconductor 6.60% 6/15/17 | 24,882,000 | 30,916,680 | ||||||
Oracle | ||||||||
2.50% 10/15/22 | 19,020,000 | 19,405,764 | ||||||
5.75% 4/15/18 | 1,073,000 | 1,322,549 | ||||||
# | Samsung Electronics America 144A | |||||||
1.75% 4/10/17 | 11,685,000 | 11,825,559 | ||||||
# | Seagate Technology International 144A | |||||||
10.00% 5/1/14 | 10,270,000 | 11,194,300 | ||||||
Symantec 4.20% 9/15/20 | 9,630,000 | 10,252,271 | ||||||
*# | Tencent Holdings 144A 3.375% 3/5/18 | 13,530,000 | 13,835,250 | |||||
Xerox 6.35% 5/15/18 | 11,188,000 | 13,127,496 | ||||||
184,574,155 | ||||||||
Transportation – 0.87% | ||||||||
# | Brambles USA 144A | |||||||
3.95% 4/1/15 | 20,145,000 | 21,060,409 | ||||||
5.35% 4/1/20 | 7,310,000 | 8,205,036 | ||||||
# | ERAC USA Finance 144A 5.25% 10/1/20 | 30,240,000 | 34,741,557 | |||||
# | Penske Truck Leasing 144A | |||||||
3.375% 3/15/18 | 5,105,000 | 5,088,802 | ||||||
3.75% 5/11/17 | 10,150,000 | 10,374,406 | ||||||
4.875% 7/11/22 | 3,785,000 | 3,876,968 | ||||||
83,347,178 | ||||||||
Utilities – 0.37% | ||||||||
AES | ||||||||
7.375% 7/1/21 | 75,000 | 84,188 | ||||||
8.00% 6/1/20 | 2,442,000 | 2,832,720 | ||||||
# | Calpine 144A 7.875% 7/31/20 | 4,205,000 | 4,625,500 | |||||
Elwood Energy 8.159% 7/5/26 | 2,911,211 | 2,994,908 | ||||||
* | GenOn Energy 9.875% 10/15/20 | 4,116,000 | 4,640,790 | |||||
# | Korea Hydro & Nuclear Power 144A | |||||||
3.00% 9/19/22 | 12,905,000 | 12,952,335 | ||||||
* | Mirant Americas Generation 8.50% 10/1/21 | 2,303,000 | 2,521,785 | |||||
NRG Energy | ||||||||
7.625% 1/15/18 | 925,000 | 1,015,188 | ||||||
7.875% 5/15/21 | 3,694,000 | 4,063,400 | ||||||
35,730,814 | ||||||||
Total Corporate Bonds (cost $4,154,463,042) | 4,482,430,341 |
39
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Municipal Bond – 0.00% | ||||||||
Oregon State Taxable Pension 5.892% 6/1/27 | USD | 305,000 | $ | 387,280 | ||||
Total Municipal Bond (cost $305,000) | 387,280 | |||||||
Non-Agency Asset-Backed Securities – 1.69% | ||||||||
• | Ally Master Owner Trust Series 2011-1 A1 | |||||||
1.084% 1/15/16 | 10,500,000 | 10,579,506 | ||||||
Ameriquest Mortgage Securities | ||||||||
Series 2003-8 AF4 5.82% 10/25/33 | 65,676 | 66,638 | ||||||
# | Avis Budget Rental Car Funding AESOP | |||||||
Series 2011-2A A 144A 2.37% 11/20/14 | 5,455,000 | 5,605,689 | ||||||
Capital One Multi-Asset Execution Trust | ||||||||
•Series 2007-A1 A1 0.264% 11/15/19 | 1,500,000 | 1,488,948 | ||||||
Series 2007-A7 A7 5.75% 7/15/20 | 20,500,000 | 25,061,331 | ||||||
CenterPoint Energy Transition Bond | ||||||||
Series 2012-1 A2 2.161% 10/15/21 | 4,200,000 | 4,397,639 | ||||||
Citibank Credit Card Issuance Trust | ||||||||
Series 2007-A3 A3 6.15% 6/15/39 | 3,938,000 | 5,310,440 | ||||||
Citicorp Residential Mortgage Securities | ||||||||
Series 2006-3 A4 5.703% 11/25/36 | 5,065,756 | 5,053,091 | ||||||
Series 2006-3 A5 5.948% 11/25/36 | 5,800,000 | 5,253,704 | ||||||
• | Citifinancial Mortgage Securities | |||||||
Series 2003-2 AF4 4.598% 5/25/33 | 253,832 | 236,870 | ||||||
•# | CNH Wholesale Master Note Trust | |||||||
Series 2011-1A A 144A 1.014% 12/15/15 | 11,750,000 | 11,759,200 | ||||||
Contimortgage Home Equity Trust | ||||||||
Series 1996-4 A8 7.22% 1/15/28 | 6,540 | 6,499 | ||||||
Countrywide Asset-Backed Certificates | ||||||||
Series 2006-13 1AF3 5.944% 1/25/37 | 25,935 | 23,222 | ||||||
Discover Card Master Trust | ||||||||
Series 2007-A1 A1 5.65% 3/16/20 | 1,980,000 | 2,408,375 | ||||||
Series 2012-A1 A1 0.81% 8/15/17 | 10,010,000 | 10,089,590 | ||||||
# | Enterprise Fleet Financing Series 2012-1 A2 | |||||||
144A 1.14% 11/20/17 | 2,000,000 | 2,011,868 | ||||||
GE Capital Credit Card Master Note Trust | ||||||||
Series 2012-2A 2.22% 1/15/22 | 4,945,000 | 5,093,395 | ||||||
Series 2012-6 A 1.36% 8/17/20 | 15,630,000 | 15,778,985 | ||||||
# | Golden Credit Card Trust 144A | |||||||
Series 2012-2A A1 1.77% 1/15/19 | 8,045,000 | 8,275,044 | ||||||
Series 2012-5A A 0.79% 9/15/17 | 10,330,000 | 10,330,000 |
40
Principal amount° | Value (U.S. $) | |||||||
Non-Agency Asset-Backed Securities (continued) | ||||||||
# | Master Credit Card Trust | |||||||
Series 2012-2A A 144A 0.78% 4/21/17 | USD | 7,500,000 | $ | 7,498,500 | ||||
•# | MASTR Specialized Loan Trust | |||||||
Series 2005-2 A2 144A 5.006% 7/25/35 | 431,256 | 438,202 | ||||||
Mid-State Trust Series 11 A1 4.864% 7/15/38 | 385,736 | 397,926 | ||||||
• | RASC Trust | |||||||
Series 2006-EMX1 A2 0.441% 1/25/36 | 2,617,687 | 2,454,223 | ||||||
Series 2006-KS3 AI3 0.381% 4/25/36 | 38,225 | 36,612 | ||||||
# | Sonic Capital Series 2011-1A A2 144A | |||||||
5.438% 5/20/41 | 9,282,963 | 10,359,508 | ||||||
•# | Trafigura Securitisation Finance | |||||||
Series 2012-1A A 144A 2.614% 10/15/15 | 6,960,000 | 7,073,100 | ||||||
World Financial Network Credit Card Master | ||||||||
Trust Series 2012-B A 1.76% 5/17/21 | 4,565,000 | 4,586,341 | ||||||
Total Non-Agency Asset-Backed Securities | ||||||||
(cost $155,795,932) | 161,674,446 | |||||||
Non-Agency Collateralized Mortgage Obligations – 0.38% | ||||||||
American Home Mortgage Investment Trust | ||||||||
Series 2005-2 5A1 5.064% 9/25/35 | 1,182,379 | 1,196,642 | ||||||
Bank of America Alternative Loan Trust | ||||||||
Series 2005-1 2A1 5.50% 2/25/20 | 442,153 | 448,026 | ||||||
Series 2005-3 2A1 5.50% 4/25/20 | 371,652 | 390,051 | ||||||
Series 2005-6 7A1 5.50% 7/25/20 | 1,331,152 | 1,385,689 | ||||||
Bank of America Funding | ||||||||
Series 2006-5 2A10 5.75% 9/25/36 | 68,503 | 68,344 | ||||||
• | Bank of America Mortgage Securities | |||||||
Series 2003-D 1A2 2.997% 5/25/33 | 718 | 642 | ||||||
Series 2003-E 2A2 3.133% 6/25/33 | 143,132 | 144,206 | ||||||
Series 2005-I 2A2 3.095% 10/25/35 | 14,762 | 1,177 | ||||||
• | Chase Mortgage Finance | |||||||
Series 2005-A1 3A1 4.91% 12/25/35 | 988,966 | 905,124 | ||||||
• | Chaseflex Trust | |||||||
Series 2006-1 A4 6.23% 6/25/36 | 6,119,000 | 4,916,744 | ||||||
Citicorp Mortgage Securities | ||||||||
Series 2006-3 1A9 5.75% 6/25/36 | 983,543 | 992,674 | ||||||
Series 2006-4 3A1 5.50% 8/25/21 | 638,682 | 664,999 | ||||||
• | Citigroup Mortgage Loan Trust | |||||||
Series 2004-UST1 A6 5.085% 8/25/34 | 700,694 | 713,288 |
41
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Non-Agency Collateralized Mortgage Obligations (continued) | ||||||||
Countrywide Alternative Loan Trust Series | ||||||||
2005-57CB 4A3 5.50% 12/25/35 | USD | 564,562 | $ | 455,255 | ||||
t• | Countrywide Home Loan Mortgage Pass | |||||||
Through Trust | ||||||||
Series 2003-21 A1 3.106% 5/25/33 | 54,688 | 54,975 | ||||||
Series 2004-HYB2 2A 2.942% 7/20/34 | 185,094 | 157,776 | ||||||
Series 2004-HYB5 3A1 3.109% 4/20/35 | 182,622 | 149,223 | ||||||
Credit Suisse First Boston Mortgage Securities | ||||||||
Series 2004-1 3A1 7.00% 2/25/34 | 86,206 | 91,221 | ||||||
First Horizon Asset Securities | ||||||||
Series 2004-5 2A1 6.25% 8/25/17 | 31,740 | 32,771 | ||||||
•# | GSMPS Mortgage Loan Trust | |||||||
Series 1998-3 A 144A 7.75% 9/19/27 | 74,661 | 79,058 | ||||||
• | GSR Mortgage Loan Trust | |||||||
Series 2004-9 4A1 2.707% 8/25/34 | 149,680 | 147,655 | ||||||
Series 2006-AR1 3A1 4.786% 1/25/36 | 911,231 | 824,029 | ||||||
• | JPMorgan Mortgage Trust | |||||||
Series 2005-A2 5A1 4.281% 4/25/35 | 43,468 | 44,231 | ||||||
Series 2005-A8 1A1 5.258% 11/25/35 | 704,581 | 692,925 | ||||||
Series 2005-A8 2A1 2.888% 11/25/35 | 200,246 | 200,377 | ||||||
Series 2006-A2 3A3 5.523% 4/25/36 | 2,172,533 | 1,950,340 | ||||||
Series 2007-A1 7A4 3.023% 7/25/35 | 166,906 | 87,990 | ||||||
• | MASTR ARM Trust | |||||||
Series 2003-6 1A2 2.70% 12/25/33 | 52,064 | 51,833 | ||||||
Series 2004-10 2A2 3.332% 10/25/34 | 72,315 | 35,188 | ||||||
Series 2005-6 7A1 5.316% 6/25/35 | 1,380,851 | 1,361,493 | ||||||
Series 2005-7 2A2 2.683% 9/25/35 | 8,927 | 437 | ||||||
Series 2006-2 4A1 3.565% 2/25/36 | 317,333 | 299,380 | ||||||
t | Washington Mutual Alternative Mortgage | |||||||
Pass Through Certificates | ||||||||
Series 2005-1 5A2 6.00% 3/25/35 | 448,326 | 178,947 | ||||||
t | Washington Mutual Mortgage Pass | |||||||
Through Certificates | ||||||||
Series 2003-S10 A2 5.00% 10/25/18 | 516,813 | 533,840 | ||||||
Series 2004-CB3 1A 6.00% 10/25/34 | 505,941 | 543,583 | ||||||
Series 2006-AR14 2A1 4.962% 11/25/36 | 6,276,271 | 5,228,817 | ||||||
Wells Fargo Mortgage-Backed Securities Trust | ||||||||
Series 2005-18 1A1 5.50% 1/25/36 | 1,170,291 | 1,147,641 | ||||||
Series 2006-2 3A1 5.75% 3/25/36 | 4,206,856 | 4,204,121 | ||||||
Series 2006-3 A11 5.50% 3/25/36 | 3,089,962 | 3,171,781 |
42
Principal amount° | Value (U.S. $) | |||||||
Non-Agency Collateralized Mortgage Obligations (continued) | ||||||||
Wells Fargo Mortgage-Backed Securities Trust (continued) | ||||||||
•Series 2006-AR5 2A1 2.615% 4/25/36 | USD | 2,741,658 | $ | 2,409,802 | ||||
Series 2007-8 2A6 6.00% 7/25/37 | 296,834 | 285,477 | ||||||
Series 2007-14 1A1 6.00% 10/25/37 | 235,187 | 234,878 | ||||||
Total Non-Agency Collateralized Mortgage | ||||||||
Obligations (cost $32,913,308) | 36,482,650 | |||||||
ΔRegional Bonds – 3.03% | ||||||||
Australia – 1.69% | ||||||||
New South Wales Treasury | ||||||||
6.00% 4/1/19 | AUD | 18,906,000 | 22,555,921 | |||||
6.00% 3/1/22 | AUD | 20,383,000 | 24,739,004 | |||||
Queensland Treasury 6.25% 6/14/19 | AUD | 56,838,000 | 68,616,453 | |||||
Victoria Treasury 6.00% 10/17/22 | AUD | 36,593,000 | 44,961,195 | |||||
160,872,573 | ||||||||
Canada – 1.34% | ||||||||
Province of British Columbia 2.00% 10/23/22 | USD | 18,520,000 | 18,484,997 | |||||
Province of Manitoba Canada 2.10% 9/6/22 | 17,745,000 | 17,806,593 | ||||||
Province of Ontario Canada | ||||||||
3.15% 6/2/22 | CAD | 44,777,000 | 46,397,757 | |||||
4.00% 6/2/21 | CAD | 37,290,000 | 41,430,347 | |||||
Province of Quebec Canada 4.25% 12/1/21 | CAD | 3,235,000 | 3,628,835 | |||||
127,748,529 | ||||||||
Total Regional Bonds (cost $277,675,594) | 288,621,102 | |||||||
«Senior Secured Loans – 5.32% | ||||||||
Allied Security Holdings Tranche 2L | ||||||||
8.50% 1/21/18 | USD | 2,715,000 | 2,726,878 | |||||
Avaya | ||||||||
Tranche B-3 4.814% 10/27/17 | 4,916,146 | 4,403,367 | ||||||
Tranche B1 3.034% 10/24/14 | 8,751,993 | 8,530,743 | ||||||
Avis Budget Car Rental Tranche C 4.25% 8/7/19 | 2,445,000 | 2,467,702 | ||||||
Bausch & Lomb | ||||||||
4.75% 6/27/15 | 1,473,000 | 1,491,413 | ||||||
Tranche B 4.75% 4/17/19 | 8,398,950 | 8,506,961 | ||||||
BJ’S Wholesale Club 1st Lien 6.50% 9/29/18 | 3,010,000 | 3,046,572 | ||||||
BNY ConvergEx Group | ||||||||
8.75% 11/29/17 | 1,695,142 | 1,581,432 | ||||||
8.75% 12/16/17 | 4,039,858 | 3,768,865 |
43
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
«Senior Secured Loans (continued) | ||||||||
Brickman Group Holdings Tranche B1 | ||||||||
5.50% 10/14/16 | USD | 5,016,273 | $ | 5,085,247 | ||||
Brock Holdings III | ||||||||
10.00% 2/15/18 | 7,951,797 | 8,031,315 | ||||||
Tranche B 6.00% 2/15/17 | 2,838,296 | 2,851,608 | ||||||
Burlington Coat Factory 5.75% 5/1/17 | 12,983,883 | 13,111,708 | ||||||
Caesars Entertainment Tranche B6 | ||||||||
5.494% 1/28/18 | 11,444,000 | 10,289,643 | ||||||
Chesapeake Energy 8.50% 12/2/17 | 2,226,801 | 2,233,114 | ||||||
Chrysler Group Tranche B 6.00% 5/24/17 | 11,042,335 | 11,303,044 | ||||||
Clear Channel Communication | ||||||||
Tranche A 3.639% 7/30/14 | 16,812,340 | 16,381,523 | ||||||
Tranche B 3.889% 1/29/16 | 9,739,940 | 8,035,499 | ||||||
CPG International 5.75% 9/4/19 | 2,150,000 | 2,158,063 | ||||||
Cricket Communications Tranche B 3.50% 9/24/19 | 2,150,000 | 2,162,105 | ||||||
David’s Bridal Tranche B 5.25% 9/25/19 | 2,150,000 | 2,149,334 | ||||||
DaVita | ||||||||
Tranche B 4.50% 10/20/16 | 6,745,671 | 6,801,289 | ||||||
Tranche B2 4.00% 8/1/19 | 3,685,000 | 3,694,213 | ||||||
Delos Aircraft 4.75% 3/17/16 | 1,750,000 | 1,776,250 | ||||||
Delta Air Lines Tranche B 5.50% 4/20/17 | 10,483,280 | 10,510,798 | ||||||
Deltek | ||||||||
6.00% 8/26/17 | 2,150,000 | 2,168,823 | ||||||
10.00% 8/28/17 | 360,000 | 366,300 | ||||||
Dynegy Power Tranche 1st Lien 9.25% 8/5/16 | 4,902,860 | 5,126,552 | ||||||
Emdeon Tranche B 5.00% 11/2/18 | 6,148,615 | 6,230,084 | ||||||
Equipower Resources Holdings | ||||||||
1st Lien 6.50% 11/23/18 | 2,059,838 | 2,077,861 | ||||||
2nd Lien 10.00% 5/23/19 | 3,660,000 | 3,743,887 | ||||||
Essar Steel Algoma 8.75% 9/12/14 | 3,735,000 | 3,781,688 | ||||||
First Data 5.00% 3/24/17 | 3,187,445 | 3,143,617 | ||||||
§@ | GenCorp 9.00% 7/22/13 | 6,540,000 | 6,540,000 | |||||
Generac Power Systems Tranche B 6.25% 5/30/18 | 3,970,050 | 4,064,339 | ||||||
GenOn Energy Tranche B 6.00% 12/3/17 | 3,723,488 | 3,763,068 | ||||||
Getty Images Tranche B 4.75% 9/19/19 | 4,000,000 | 4,018,320 | ||||||
Goodman Global Tranche B 5.75% 10/28/16 | 1,527,946 | 1,533,676 | ||||||
Gray Television 4.75% 10/11/19 | 4,300,000 | 4,316,512 | ||||||
HD Supply Tranche B 7.25% 10/12/17 | 3,770,000 | 3,897,841 | ||||||
§@ | Hertz 6.375% 8/26/13 | 3,420,000 | 3,428,550 |
44
Principal amount° | Value (U.S. $) | |||||||
«Senior Secured Loans (continued) | ||||||||
Hologic Tranche B 4.50% 4/29/19 | USD | 6,927,638 | $ | 7,018,563 | ||||
Houghton International Tranche B1 | ||||||||
6.75% 1/11/16 | 3,858,390 | 3,896,974 | ||||||
IASIS Healthcare Tranche B 5.00% 5/3/18 | 8,218,445 | 8,251,853 | ||||||
Immucor 5.75% 8/9/19 | 8,896,079 | 8,999,852 | ||||||
Ineos US Finance 6.50% 5/4/18 | 4,228,172 | 4,293,350 | ||||||
Infor US Tranche B2 4.00% 4/5/18 | 4,468,800 | 4,526,760 | ||||||
Intelsat Jackson Holdings Tranche B1 | ||||||||
4.50% 4/2/18 | 8,353,851 | 8,424,316 | ||||||
Kinetic Concepts Tranche B 7.00% 1/12/18 | 9,771,163 | 9,913,381 | ||||||
Landry’s Tranche B 6.50% 3/22/18 | 9,666,425 | 9,784,259 | ||||||
Level 3 Financing Tranche B 1st Lien | ||||||||
4.75% 8/1/19 | 10,210,000 | 10,288,412 | ||||||
MModal Tranche B 6.75% 7/2/19 | 5,140,000 | 5,110,034 | ||||||
MTL Publishing Tranche B 5.50% 11/14/17 | 3,496,238 | 3,548,681 | ||||||
MultiPlan Tranche B 4.75% 8/26/17 | 6,386,265 | 6,424,838 | ||||||
Nuveen Investments | ||||||||
5.863% 5/13/17 | 5,253,365 | 5,259,118 | ||||||
8.25% 3/1/19 | 9,519,000 | 9,709,380 | ||||||
Extended 1st Lien 5.96% 5/13/17 | 1,565,000 | 1,564,609 | ||||||
Tranche B 7.25% 5/13/17 | 3,760,000 | 3,804,669 | ||||||
NXP 5.25% 2/13/19 | 6,865,500 | 6,959,901 | ||||||
OSI Restaurant Partners Tranche B 1st Lien | ||||||||
3.50% 10/5/19 | 5,920,000 | 5,958,865 | ||||||
Par Pharmaceutical Tranche B 5.00% 8/2/19 | 7,310,000 | 7,301,630 | ||||||
Party City Holdings Tranche B 5.75% 7/10/19 | 7,405,000 | 7,487,381 | ||||||
Peninsula Gaming Tranche B 5.75% 5/16/17 | 7,360,000 | 7,456,637 | ||||||
PF Chang’s China Bistro Tranche B | ||||||||
6.25% 5/15/19 | 2,860,000 | 2,910,050 | ||||||
Pharmaceutical Product Development | ||||||||
6.25% 11/10/18 | 4,108,950 | 4,171,098 | ||||||
PQ | ||||||||
6.74% 7/30/15 | 16,985,000 | 16,900,074 | ||||||
1st Lien 3.25% 7/30/14 | 80,584 | 80,506 | ||||||
Protection One 5.75% 3/31/19 | 4,699,064 | 4,747,535 | ||||||
Remy International Tranche B 6.25% 12/16/16 | 3,342,445 | 3,364,739 | ||||||
Reynolds Group Holdings 1st Lien 4.75% 9/21/18 | 8,694,070 | 8,740,800 | ||||||
RGIS Services 5.50% 5/3/17 | 5,252,278 | 5,278,540 | ||||||
Samson Investment 2nd Lien 6.00% 9/10/18 | 4,380,000 | 4,426,538 | ||||||
Sensus USA 2nd Lien 8.50% 4/13/18 | 6,235,000 | 6,258,381 |
45
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
«Senior Secured Loans (continued) | ||||||||
Seven Seas Cruises Tranche B 6.25% 2/16/19 | USD | 5,080,000 | $ | 5,175,250 | ||||
§@ | Silver II Acquisition 8.00% 9/25/20 | 9,680,000 | 9,680,000 | |||||
Sophia Tranche B 6.25% 6/5/18 | 2,050,387 | 2,079,862 | ||||||
SRAM 8.50% 11/12/18 | 1,600,000 | 1,624,000 | ||||||
Supervalue Tranche B 8.00% 8/1/18 | 3,306,713 | 3,337,465 | ||||||
Swift Transportation Tranche B2 1.25% 12/15/17 | 5,183,791 | 5,234,826 | ||||||
Taminco Global Chemical 5.25% 2/15/19 | 3,699,081 | 3,743,470 | ||||||
Toys R US Delaware | ||||||||
Tranche B 6.00% 9/1/16 | 13,073,458 | 13,073,457 | ||||||
Tranche B2 5.25% 5/25/18 | 1,653,258 | 1,626,988 | ||||||
§@ | TPC Group 8.25% 8/27/13 | 11,320,000 | 11,319,999 | |||||
Truven Health Tranche B 5.75% 5/23/19 | 1,135,000 | 1,137,838 | ||||||
Univision Communications 4.489% 3/31/17 | 2,011,337 | 1,970,799 | ||||||
US TelePacific 5.75% 2/10/17 | 4,304,695 | 4,242,277 | ||||||
Vantage Drilling Tranche B 6.25% 10/17/17 | 5,130,000 | 4,983,436 | ||||||
Warner Chilcott | ||||||||
Tranche B1 4.25% 3/15/18 | 1,589,496 | 1,597,443 | ||||||
Tranche B2 4.25% 3/15/18 | 576,005 | 578,885 | ||||||
Tranche B3 4.25% 3/15/18 | 792,007 | 795,967 | ||||||
West Tranche B6 5.75% 8/1/18 | 8,797,950 | 8,945,052 | ||||||
Wide Open West Finance 1st Lien | ||||||||
6.25% 7/17/18 | 8,713,163 | 8,809,051 | ||||||
Wolverine Healthcare Tranche B 6.75% 6/6/19 | 5,147,100 | 5,159,968 | ||||||
Yankee Candle 5.25% 3/2/19 | 1,786,025 | 1,803,510 | ||||||
Zayo Group Tranche B 1st Lien 5.25% 7/2/19 | 6,136,000 | 6,172,816 | ||||||
Total Senior Secured Loans (cost $497,515,111) | 507,253,887 | |||||||
ΔSovereign Bonds – 9.43% | ||||||||
Brazil – 0.53% | ||||||||
Brazil Government International Bond | ||||||||
5.625% 1/7/41 | 6,624,000 | 8,511,840 | ||||||
8.875% 10/14/19 | 12,580,000 | 18,178,100 | ||||||
Brazil Notas do Tesouro Nacional Serie F | ||||||||
10.00% 1/1/17 | BRL | 45,356,000 | 23,494,951 | |||||
50,184,891 | ||||||||
Colombia – 0.44% | ||||||||
Colombia Government International Bond | ||||||||
4.375% 3/21/23 | COP | 44,514,000,000 | 24,301,152 | |||||
6.125% 1/18/41 | USD | 13,155,000 | 18,022,350 | |||||
42,323,502 |
46
Principal amount° | Value (U.S. $) | |||||||
ΔSovereign Bonds (continued) | ||||||||
Finland – 0.15% | ||||||||
Finland Government Bond 4.00% 7/4/25 | EUR | 9,289,000 | $ | 14,637,862 | ||||
14,637,862 | ||||||||
Indonesia – 0.94% | ||||||||
Indonesia Treasury Bond | ||||||||
7.00% 5/15/22 | IDR | 352,328,000,000 | 40,250,998 | |||||
7.00% 5/15/27 | IDR | 169,000,000,000 | 18,902,900 | |||||
11.00% 11/15/20 | IDR | 111,000,000,000 | 15,452,241 | |||||
# | Republic of Indonesia 144A 5.25% 1/17/42 | USD | 13,143,000 | 15,213,023 | ||||
89,819,162 | ||||||||
Ireland – 0.13% | ||||||||
# | Vnesheconombank Via VEB Finance 144A | |||||||
6.025% 7/5/22 | 11,405,000 | 12,788,427 | ||||||
12,788,427 | ||||||||
Malaysia – 0.06% | ||||||||
Malaysia Government Bond | ||||||||
4.262% 9/15/16 | MYR | 15,658,000 | 5,351,751 | |||||
5,351,751 | ||||||||
Mexico – 1.11% | ||||||||
Mexican Bonos | ||||||||
6.00% 6/18/15 | MXN | 457,155,600 | 35,790,633 | |||||
6.50% 6/10/21 | MXN | 71,091,100 | 5,814,489 | |||||
6.50% 6/9/22 | MXN | 75,281,000 | 6,182,122 | |||||
8.00% 12/17/15 | MXN | 573,024,900 | 47,431,820 | |||||
Mexico Government International Bond | ||||||||
4.75% 3/8/44 | USD | 10,090,000 | 11,225,125 | |||||
106,444,189 | ||||||||
Netherlands – 0.33% | ||||||||
* | Republic of Angola Via Northern Lights III | |||||||
7.00% 8/16/19 | 28,383,000 | 31,859,918 | ||||||
Norway – 1.36% | ||||||||
Norway Government Bond | ||||||||
4.25% 5/19/17 | NOK | 58,455,000 | 11,479,227 | |||||
4.50% 5/22/19 | NOK | 197,713,000 | 40,667,990 | |||||
5.00% 5/15/15 | NOK | 406,913,000 | 77,655,043 | |||||
129,802,260 |
47
Statement of net assets
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
ΔSovereign Bonds (continued) | ||||||||
Panama – 0.29% | ||||||||
Panama Government International Bond | ||||||||
6.70% 1/26/36 | USD | 4,581,000 | $ | 6,543,959 | ||||
7.125% 1/29/26 | 5,600,000 | 8,064,000 | ||||||
7.25% 3/15/15 | 3,504,000 | 4,003,320 | ||||||
8.875% 9/30/27 | 5,330,000 | 8,687,900 | ||||||
27,299,179 | ||||||||
Peru – 0.32% | ||||||||
Peruvian Government International Bond | ||||||||
5.625% 11/18/50 | 4,410,000 | 5,733,000 | ||||||
7.125% 3/30/19 | 18,619,000 | 24,577,080 | ||||||
30,310,080 | ||||||||
Philippines – 0.26% | ||||||||
Philippine Government International Bond | ||||||||
5.00% 1/13/37 | 9,940,000 | 11,865,875 | ||||||
9.50% 10/21/24 | 7,927,000 | 13,000,280 | ||||||
24,866,155 | ||||||||
Poland – 0.49% | ||||||||
Poland Government Bond 5.75% 10/25/21 | PLN | 135,889,000 | 46,488,510 | |||||
46,488,510 | ||||||||
Republic of Korea – 0.13% | ||||||||
Korea Treasury Inflation-Linked Bond | ||||||||
2.75% 6/10/20 | KRW | 11,293,368,527 | 12,124,513 | |||||
12,124,513 | ||||||||
South Africa – 1.27% | ||||||||
# | Eskom Holdings 144A 5.75% 1/26/21 | 13,410,000 | 14,885,100 | |||||
Republic of South Africa | ||||||||
7.25% 1/15/20 | ZAR | 241,022,000 | 29,054,499 | |||||
8.00% 12/21/18 | ZAR | 192,304,000 | 24,280,591 | |||||
10.50% 12/21/26 | ZAR | 369,917,000 | 52,794,578 | |||||
121,014,768 | ||||||||
Sri Lanka – 0.16% | ||||||||
# | Sri Lanka Government International Bond | |||||||
144A 5.875% 7/25/22 | USD | 13,896,000 | 15,285,600 | |||||
15,285,600 |
48
Principal amount° | Value (U.S. $) | |||||||
ΔSovereign Bonds (continued) | ||||||||
Sweden – 0.02% | ||||||||
# | Kommuninvest I Sverige 144A | |||||||
1.00% 10/24/17 | USD | 1,700,000 | $ | 1,702,880 | ||||
1,702,880 | ||||||||
Turkey – 0.14% | ||||||||
Turkey Government Bond 9.00% 3/5/14 | TRY | 23,582,000 | 13,568,825 | |||||
13,568,825 | ||||||||
United Kingdom – 1.15% | ||||||||
United Kingdom Gilt | ||||||||
4.00% 3/7/22 | GBP | 32,207,121 | 62,402,706 | |||||
4.25% 12/7/27 | GBP | 6,612,000 | 13,207,251 | |||||
4.50% 3/7/19 | GBP | 6,906,000 | 13,474,478 | |||||
4.75% 3/7/20 | GBP | 10,194,200 | 20,421,519 | |||||
109,505,954 | ||||||||
Uruguay – 0.15% | ||||||||
Uruguay Government International Bond | ||||||||
8.00% 11/18/22 | USD | 9,967,500 | 14,452,875 | |||||
14,452,875 | ||||||||
Total Sovereign Bonds (cost $865,765,651) | 899,831,301 | |||||||
Supranational Banks – 0.48% | ||||||||
Andina de Fomento 4.375% 6/15/22 | 8,910,000 | 9,733,079 | ||||||
International Bank for Reconstruction & | ||||||||
Development | ||||||||
3.375% 4/30/15 | NOK | 94,610,000 | 17,251,813 | |||||
3.625% 6/22/20 | NOK | 54,680,000 | 10,226,695 | |||||
6.00% 2/15/17 | AUD | 7,700,000 | 8,787,367 | |||||
Total Supranational Banks (cost $42,113,655) | 45,998,954 | |||||||
U.S. Treasury Obligations – 5.66% | ||||||||
U.S. Treasury Bond 3.00% 5/15/42 | USD | 206,354,000 | 213,189,476 | |||||
U.S. Treasury Notes | ||||||||
0.75% 10/31/17 | 4,100,000 | 4,107,688 | ||||||
∞1.625% 8/15/22 | 324,245,000 | 322,522,610 | ||||||
Total U.S. Treasury Obligations | ||||||||
(cost $537,257,875) | 539,819,774 |
49
Statement of net assets
Delaware Diversified Income Fund
Number of shares | Value (U.S. $) | |||||||
Common Stock – 0.00% | ||||||||
=† | Calpine | 1,195,000 | $ | 0 | ||||
=† | Century Communications | 7,875,000 | 0 | |||||
† | Delta Air Lines | 197 | 1,897 | |||||
† | GenOn Energy | 2,075 | 5,333 | |||||
Masco | 30 | 453 | ||||||
=∏† | PT Holdings | 1,970 | 20 | |||||
† | United Continental Holdings | 10 | 192 | |||||
Total Common Stock (cost $1,520,237) | 7,895 | |||||||
Convertible Preferred Stock – 0.21% | ||||||||
* | Apache 6.00% exercise price $109.12, | |||||||
expiration date 8/1/23 | 68,650 | 3,203,209 | ||||||
Aspen Insurance Holdings 5.625% exercise | ||||||||
price $29.28, expiration date 12/31/49 | 62,854 | 3,731,956 | ||||||
Bank of America 7.25% exercise price | ||||||||
$50.00, expiration date 12/31/49 | 1,277 | 1,419,386 | ||||||
# | Chesapeake Energy 144A 5.75% exercise | |||||||
price $27.90, expiration date 12/31/49 | 788 | 749,093 | ||||||
HealthSouth 6.50% exercise price $30.50, | ||||||||
expiration date 12/31/49 | 4,283 | 4,468,774 | ||||||
PPL 9.50% exercise price $28.80, | ||||||||
expiration date 7/1/13 | 75,820 | 4,130,674 | ||||||
SandRidge Energy 8.50% exercise price | ||||||||
$8.01, expiration date 12/31/49 | 20,720 | 2,149,493 | ||||||
Total Convertible Preferred Stock | ||||||||
(cost $20,311,423) | 19,852,585 | |||||||
Preferred Stock – 0.64% | ||||||||
Alabama Power 5.625% | 303,360 | 7,744,781 | ||||||
# | Ally Financial 144A 7.00% | 9,820 | 9,463,411 | |||||
* | BB&T 5.85% | 222,725 | 5,842,077 | |||||
* | JPMorgan Chase 5.50% | 140,000 | 3,514,000 | |||||
• | PNC Financial Services Group | |||||||
6.125% | 225,000 | 6,300,000 | ||||||
8.25% | 12,972,000 | 13,500,012 | ||||||
† | PT Holdings | 394 | 0 | |||||
• | U.S. Bancorp 6.50% | 227,400 | 6,724,218 | |||||
* | Wells Fargo 5.20% | 320,000 | 8,188,800 | |||||
Total Preferred Stock (cost $57,806,169) | 61,277,299 |
50
Number of shares | Value (U.S. $) | |||||||
Warrant – 0.00% | ||||||||
=∏@†PT Holdings | 394 | $ | 4 | |||||
Total Warrant (cost $9,456) | 4 | |||||||
Number of contracts | ||||||||
Option Purchased – 0.00% | ||||||||
Put Option – 0.00% | ||||||||
AUD, strike price $1.00, expires | ||||||||
11/14/12 (BAML) | 48,128,000 | 11,113 | ||||||
Total Option Purchased (cost $474,061) | 11,113 | |||||||
Principal amount° | ||||||||
Short-Term Investments – 14.82% | ||||||||
≠Discount Note – 1.38% | ||||||||
Federal Home Loan Bank 0.095% 11/28/12 | USD | 132,058,005 | 132,051,138 | |||||
132,051,138 | ||||||||
Repurchase Agreements – 10.12% | ||||||||
Bank of America 0.24%, dated 10/31/12, to | ||||||||
be repurchased on 11/1/12, repurchase | ||||||||
price $373,985,339 (collateralized | ||||||||
by U.S. government obligations | ||||||||
0.00%-1.25% 1/10/13-8/31/16; market | ||||||||
value $381,462,502) | 373,982,845 | 373,982,845 | ||||||
BNP Paribas 0.28%, dated 10/31/12, to be | ||||||||
repurchased on 11/1/12, repurchase | ||||||||
price $591,174,753 (collateralized | ||||||||
by U.S. government obligations | ||||||||
0.00-2.00% 1/24/13-4/15/16; market | ||||||||
value $602,993,558) | 591,170,155 | 591,170,155 | ||||||
965,153,000 | ||||||||
≠U.S. Treasury Obligation – 3.32% | ||||||||
U.S. Treasury Bill 0.05% 11/15/12 | 316,796,413 | 316,789,444 | ||||||
316,789,444 | ||||||||
Total Short-Term Investments | ||||||||
(cost $1,413,987,010) | 1,413,993,582 | |||||||
Total Value of Securities Before Securities | ||||||||
Lending Collateral – 108.95% | ||||||||
(cost $9,944,184,425) | 10,397,160,069 |
51
Statement of net assets
Delaware Diversified Income Fund
Number of shares | Value (U.S. $) | |||||||
**Securities Lending Collateral – 1.82% | ||||||||
Investment Companies | ||||||||
Delaware Investments Collateral Fund No. 1 | 173,481,142 | $ | 173,481,142 | |||||
@†Mellon GSL Reinvestment Trust II | 7,211,337 | 0 | ||||||
Total Securities Lending Collateral | ||||||||
(cost $180,692,479) | 173,481,142 | |||||||
Total Value of Securities – 110.77% | ||||||||
(cost $10,124,876,904) | 10,570,641,211 | © | ||||||
**Obligation to Return Securities | ||||||||
Lending Collateral – (1.89%) | (180,692,479 | ) | ||||||
Other Liabilities Net of Receivables | ||||||||
and Other Assets – (8.88%) | (847,332,997 | )« | ||||||
Net Assets Applicable to 1,009,189,225 | ||||||||
Shares Outstanding – 100.00% | $ | 9,542,615,735 | ||||||
Net Asset Value – Delaware Diversified Income Fund | ||||||||
Class A ($4,890,055,716 / 517,214,580 Shares) | $9.45 | |||||||
Net Asset Value – Delaware Diversified Income Fund | ||||||||
Class B ($21,973,722 / 2,327,843 Shares) | $9.44 | |||||||
Net Asset Value – Delaware Diversified Income Fund | ||||||||
Class C ($2,230,984,702 / 235,996,107 Shares) | $9.45 | |||||||
Net Asset Value – Delaware Diversified Income Fund | ||||||||
Class R ($160,695,106 / 17,005,148 Shares) | $9.45 | |||||||
Net Asset Value – Delaware Diversified Income Fund | ||||||||
Institutional Class ($2,238,906,489 / 236,645,547 Shares) | $9.46 | |||||||
Components of Net Assets at October 31, 2012: | ||||||||
Shares of beneficial interest (unlimited authorization – no par) | $ | 9,096,006,556 | ||||||
Distributions in excess of net investment income | (37,607,692 | ) | ||||||
Accumulated net realized gain | 44,699,078 | |||||||
Net unrealized appreciation of investments and derivatives | 439,517,793 | |||||||
Total net assets | $ | 9,542,615,735 |
52
° | Principal amount shown is stated in the currency in which each security is denominated. |
• | Variable rate security. The rate shown is the rate as of October 31, 2012. Interest rates reset periodically. |
t | Pass Through Agreement. Security represents the contractual right to receive a proportionate amount of underlying payments due to the counterparty pursuant to various agreements related to the rescheduling of obligations and the exchange of certain notes. |
# | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At October 31, 2012, the aggregate value of Rule 144A securities was $1,452,738,930, which represented 15.22% of the Fund’s net assets. See Note 11 in ”Notes to financial statements.” |
* | Fully or partially on loan. |
ϕ | Step coupon bond. Coupon increases or decreases periodically based on a predetermined schedule. Stated rate in effect at October 31, 2012. |
@ | Illiquid security. At October 31, 2012, the aggregate value of illiquid securities was $31,039,317, which represented 0.33% of the Fund’s net assets. See Note 11 in “Notes to financial statements.” |
= | Security is being fair valued in accordance with the Fund’s fair valuation policy. At October 31, 2012, the aggregate value of fair valued securities was $70,788, which represented 0.00% of the Fund’s net assets. See Note 1 in “Notes to financial statements.” |
‡ | Non income producing security. Security is currently in default. |
Δ | Securities have been classified by country of origin. |
« | Senior Secured Loans generally pay interest at rates which are periodically redetermined by reference to a base lending rate plus a premium. These base lending rates are generally: (i) the prime rate offered by one or more United States banks, (ii) the lending rate offered by one or more European banks such as the London Inter-Bank Offered Rate (LIBOR), and (iii) the certificate of deposit rate. Senior Secured Loans may be subject to restrictions on resale. Stated rate in effect at October 31, 2012. |
∞ | Fully or partially pledged as collateral for futures contracts. |
† | Non-income producing security. |
53
Statement of net assets
Delaware Diversified Income Fund
∏ | Restricted security. These investments are in securities not registered under the Securities Act of 1933, as amended, and have certain restrictions on resale which may limit their liquidity. At October 31, 2012, the aggregate value of the restricted securities was $24, which represents 0.00% of the Fund’s net assets. |
≠ | The rate shown is the effective yield at time of purchase. |
** | See Note 10 in “Notes to financial statements” for additional information on securities lending collateral. |
© | Includes $174,408,472 of securities loaned. |
« | Includes foreign currency valued at $23,516,851 with a cost of $23,733,815. |
§ | All or a portion of this holding is subject to unfunded loan commitments. See Note 7. |
Net Asset Value and Offering Price Per Share – | ||
Delaware Diversified Income Fund | ||
Net asset value Class A (A) | $ | 9.45 |
Sales charge (4.50% of offering price) (B) | 0.45 | |
Offering price | $ | 9.90 |
(A) | Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. |
(B) | See the current prospectus for purchases of $100,000 or more. |
54
Foreign Currency Exchange Contracts
Unrealized | |||||||||||||||||
Appreciation | |||||||||||||||||
Counterparty | Contracts to Receive (Deliver) | In Exchange For | Settlement Date | (Depreciation) | |||||||||||||
BAML | AUD | (70,013,847 | ) | USD | 72,266,542 | 12/14/12 | $ | (114,246 | ) | ||||||||
BAML | BRL | 16,484,209 | USD | (8,072,185 | ) | 12/14/12 | (8,805 | ) | |||||||||
BAML | CAD | 37,038,357 | USD | (36,997,290 | ) | 12/14/12 | 43,123 | ||||||||||
BAML | COP | 28,120,270,000 | USD | (15,291,066 | ) | 12/14/12 | 33,672 | ||||||||||
BAML | EUR | (68,155,179 | ) | USD | 88,182,579 | 12/14/12 | (172,087 | ) | |||||||||
BAML | JPY | (2,250,423,150 | ) | USD | 28,249,644 | 12/14/12 | 41,415 | ||||||||||
BAML | NOK | (10,825,140 | ) | USD | 1,870,144 | 12/14/12 | (25,005 | ) | |||||||||
BAML | PHP | 586,856,100 | USD | (14,250,998 | ) | 12/14/12 | 21,558 | ||||||||||
BAML | TRY | 41,919,696 | USD | (23,139,598 | ) | 12/14/12 | 105,045 | ||||||||||
BAML | ZAR | (985,643,444 | ) | USD | 112,641,103 | 12/14/12 | (284,434 | ) | |||||||||
CITI | CLP | 8,971,608,000 | USD | (18,586,302 | ) | 12/14/12 | (59,619 | ) | |||||||||
CITI | GBP | (3,732,284 | ) | USD | 5,986,099 | 12/14/12 | (35,842 | ) | |||||||||
CITI | JPY | 1,053,567,228 | USD | (13,237,765 | ) | 12/14/12 | (31,686 | ) | |||||||||
CITI | PLN | (122,334,050 | ) | USD | 37,860,839 | 12/14/12 | (246,211 | ) | |||||||||
CITI | TRY | 41,919,696 | USD | (23,153,977 | ) | 12/14/12 | 90,667 | ||||||||||
GSC | BRL | 93,443,186 | USD | (45,760,620 | ) | 12/14/12 | (52,155 | ) | |||||||||
GSC | GBP | (21,132,205 | ) | USD | 33,897,852 | 12/14/12 | (198,392 | ) | |||||||||
GSC | NOK | (27,458,560 | ) | USD | 4,749,556 | 12/14/12 | (57,593 | ) | |||||||||
HSBC | EUR | (17,912,202 | ) | USD | 23,127,340 | 12/14/12 | (93,590 | ) | |||||||||
HSBC | GBP | (14,487,453 | ) | USD | 23,236,282 | 12/14/12 | (138,836 | ) | |||||||||
HSBC | JPY | 2,594,060,948 | USD | (32,598,534 | ) | 12/14/12 | (82,930 | ) | |||||||||
HSBC | MXN | (351,956,219 | ) | USD | 26,840,661 | 12/14/12 | 90,292 | ||||||||||
HSBC | PHP | 1,085,848,650 | USD | (26,400,404 | ) | 12/14/12 | 7,834 | ||||||||||
HSBC | TRY | 17,215,680 | USD | (9,508,274 | ) | 12/14/12 | 37,892 | ||||||||||
JPMC | BRL | 47,339,250 | USD | (23,183,922 | ) | 12/14/12 | (27,558 | ) | |||||||||
JPMC | EUR | (20,436,022 | ) | USD | 26,380,861 | 12/14/12 | (111,886 | ) | |||||||||
JPMC | GBP | (8,139,115 | ) | USD | 13,056,768 | 12/14/12 | (75,475 | ) | |||||||||
JPMC | NOK | (186,799,152 | ) | USD | 32,322,666 | 12/14/12 | (380,120 | ) | |||||||||
MSC | BRL | 47,130,428 | USD | (23,100,886 | ) | 12/14/12 | (46,669 | ) | |||||||||
MSC | GBP | (7,957,549 | ) | USD | 12,761,768 | 12/14/12 | (77,524 | ) | |||||||||
MSC | JPY | 68,852,272 | USD | (865,167 | ) | 12/14/12 | (2,128 | ) | |||||||||
MSC | NOK | (237,886,217 | ) | USD | 41,165,210 | 12/14/12 | (481,349 | ) | |||||||||
MSC | PHP | 586,630,500 | USD | (14,255,905 | ) | 12/14/12 | 11,164 | ||||||||||
$ | (2,321,478 | ) |
55
Statement of net assets
Delaware Diversified Income Fund
Unrealized | |||||||||||||||||||
Notional Cost | Appreciation | ||||||||||||||||||
Contracts to Buy (Sell) | (Proceeds) | Notional Value | Expiration Date | (Depreciation) | |||||||||||||||
(760) | Euro-O.A.T. | $ | (131,722,699 | ) | $ | (132,565,002 | ) | 12/7/12 | $ | (842,303 | ) | ||||||||
400 | Long Gilt | 76,386,231 | 76,902,487 | 1/1/13 | 516,256 | ||||||||||||||
(98) | U.S. Treasury 10 yr Notes | (12,944,910 | ) | (13,037,062 | ) | 12/20/12 | (92,152 | ) | |||||||||||
(424) | U.S. Treasury Long Bond | (61,755,363 | ) | (63,308,500 | ) | 1/1/13 | (1,553,137 | ) | |||||||||||
$ | (130,036,741 | ) | $ | (1,971,336 | ) |
Swap Contracts
CDS Contracts
Annual | Unrealized | ||||||||||||||||||
Protection | Termination | Appreciation | |||||||||||||||||
Counterparty | Swap Referenced Obligation | Notional Value | Payments | Date | (Depreciation) | ||||||||||||||
Protection Purchased: | |||||||||||||||||||
BAML | CDX.NA.HY.18 | USD | 14,666,850 | 5.00 | % | 6/20/17 | $ | (70,250 | ) | ||||||||||
JPMC | CDX.NA.HY.18 | 17,136,900 | 5.00 | % | 6/20/17 | (92,575 | ) | ||||||||||||
ITRAXX Europe | |||||||||||||||||||
JPMC | Crossover 18.1 5 yr CDS | EUR | 65,035,000 | 5.00 | % | 12/20/17 | (242,514 | ) | |||||||||||
MSC | CDX.NA.HY.18 | USD | 14,369,850 | 5.00 | % | 6/20/17 | (68,828 | ) | |||||||||||
Total | $ | (474,167 | ) |
The use of foreign currency exchange contracts, futures contracts and swap contracts involves elements of market risk and risks in excess of the amounts disclosed in the financial statements. The notional values and foreign currency exchange contracts presented above represent the Fund’s total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Fund’s net assets.
1 See Note 9 in “Notes to financial statements.”
Summary of abbreviations: |
ARM — Adjustable Rate Mortgage AUD — Australian Dollar BAML — Bank of America Merrill Lynch BRL — Brazilian Real CAD — Canadian Dollar CDS — Credit Default Swap CITI — Citigroup Global Markets CLP — Chilean Peso COP — Colombian Peso EUR — European Monetary Unit |
56
GBP — British Pound Sterling GNMA — Government National Mortgage Association GSC — Goldman Sachs Capital GSMPS — Goldman Sachs Reperforming Mortgage Securities HSBC — Hong Kong Shanghai Bank HY — High Yield IDR — Indonesian Rupiah JPMC — JPMorgan Chase Bank JPY — Japanese Yen KRW — South Korean Won MASTR — Mortgage Asset Securitization Transactions, Inc. MSC — Morgan Stanley Capital MXN — Mexican Peso MYR — Malaysian Ringgit NCUA — National Credit Union Administration NOK — Norwegian Kroner NZD — New Zealand Dollar O.A.T. — Obligations Assimilables du Tresor PIK — Pay-in-kind PHP — Philippine Peso PLN — Polish Zloty RASC — Residential Asset Securities Corporation REMIC — Real Estate Mortgage Investment Conduit S.F. — Single Family TBA — To be announced TRY — Turkish Lira USD — United States Dollar yr — Year ZAR — South African Rand |
See accompanying notes, which are an integral part of the financial statements.
57
Statement of operations | |
Delaware Diversified Income Fund | Year Ended October 31, 2012 |
Investment Income: | |||||||
Interest | $ | 367,417,221 | |||||
Dividends | 4,271,940 | ||||||
Securities lending income | 1,295,443 | $ | 372,984,604 | ||||
Expenses: | |||||||
Management fees | 39,454,611 | ||||||
Distribution expenses – Class A | 14,078,099 | ||||||
Distribution expenses – Class B | 264,997 | ||||||
Distribution expenses – Class C | 21,507,090 | ||||||
Distribution expenses – Class R | 926,671 | ||||||
Dividend disbursing and transfer agent fees and expenses | 11,967,291 | ||||||
Accounting and administration expenses | 3,502,859 | ||||||
Reports and statements to shareholders | 1,006,349 | ||||||
Custodian fees | 617,236 | ||||||
Legal fees | 605,159 | ||||||
Trustees’ fees | 417,677 | ||||||
Registration fees | 335,703 | ||||||
Audit and tax | 275,434 | ||||||
Insurance fees | 143,195 | ||||||
Consulting fees | 79,201 | ||||||
Dues and services | 51,031 | ||||||
Pricing fees | 46,300 | ||||||
Trustees’ expenses | 25,834 | 95,304,737 | |||||
Less waived distribution expenses – Class A | (2,346,350 | ) | |||||
Less waived distribution expenses – Class R | (154,445 | ) | |||||
Less expense paid indirectly | (7,298 | ) | |||||
Total operating expenses | 92,796,644 | ||||||
Net Investment Income | 280,187,960 |
58
Net Realized and Unrealized Gain (Loss): | |||||
Net realized gain (loss) on: | |||||
Investments | $ | 252,214,185 | |||
Foreign currencies | (7,998,762 | ) | |||
Foreign currency exchange contracts | (13,400,542 | ) | |||
Futures contracts | 7,117,273 | ||||
Options written | (1,187,058 | ) | |||
Swap contracts | (126,005,122 | ) | |||
Net realized gain | 110,739,974 | ||||
Net change in unrealized appreciation/(depreciation) of: | |||||
Investments | 277,870,260 | ||||
Foreign currencies | (826,360 | ) | |||
Foreign currency exchange contracts | (2,322,708 | ) | |||
Futures contracts | (1,971,336 | ) | |||
Swap contracts | (1,126,109 | ) | |||
Net change in unrealized appreciation (depreciation) | 271,623,747 | ||||
Net Realized and Unrealized Gain | 382,363,721 | ||||
Net Increase in Net Assets Resulting from Operations | $ | 662,551,681 |
See accompanying notes, which are an integral part of the financial statements.
59
Statements of changes in net assets
Delaware Diversified Income Fund
Year Ended | ||||||||
10/31/12 | 10/31/11 | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 280,187,960 | $ | 287,512,900 | ||||
Net realized gain | 110,739,974 | 220,654,817 | ||||||
Net change in unrealized appreciation (depreciation) | 271,623,747 | (245,157,342 | ) | |||||
Net increase in net assets resulting from operations | 662,551,681 | 263,010,375 | ||||||
Dividends and Distributions to | ||||||||
Shareholders from: | ||||||||
Net investment income: | ||||||||
Class A | (174,424,606 | ) | (180,563,454 | ) | ||||
Class B | (790,648 | ) | (1,360,869 | ) | ||||
Class C | (63,819,927 | ) | (70,141,716 | ) | ||||
Class R | (5,355,993 | ) | (6,238,194 | ) | ||||
Institutional Class | (76,401,112 | ) | (62,505,804 | ) | ||||
Net realized gain: | ||||||||
Class A | (111,610,939 | ) | (163,675,776 | ) | ||||
Class B | (732,822 | ) | (1,643,334 | ) | ||||
Class C | (51,559,199 | ) | (78,473,063 | ) | ||||
Class R | (3,715,709 | ) | (6,494,334 | ) | ||||
Institutional Class | (42,449,672 | ) | (48,037,910 | ) | ||||
(530,860,627 | ) | (619,134,454 | ) | |||||
Capital Share Transactions: | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 1,520,100,444 | 1,537,381,945 | ||||||
Class B | 350,897 | 723,660 | ||||||
Class C | 467,468,216 | 403,002,773 | ||||||
Class R | 74,337,347 | 62,052,674 | ||||||
Institutional Class | 1,048,542,437 | 909,998,254 | ||||||
Net asset value of shares issued upon reinvestment of | ||||||||
dividends and distributions: | ||||||||
Class A | 264,504,195 | 310,646,306 | ||||||
Class B | 1,316,405 | 2,533,420 | ||||||
Class C | 101,704,055 | 126,909,318 | ||||||
Class R | 9,025,664 | 12,728,828 | ||||||
Institutional Class | 103,962,231 | 89,617,464 | ||||||
3,591,311,891 | 3,455,594,642 |
60
Year Ended | ||||||||
10/31/12 | 10/31/11 | |||||||
Capital Share Transactions (continued): | ||||||||
Cost of shares repurchased: | ||||||||
Class A | $ | (1,333,075,813 | ) | $ | (1,704,348,999 | ) | ||
Class B | (11,412,519 | ) | (15,569,657 | ) | ||||
Class C | (381,583,967 | ) | (521,216,797 | ) | ||||
Class R | (71,438,247 | ) | (93,034,978 | ) | ||||
Institutional Class | (564,023,225 | ) | (565,155,102 | ) | ||||
(2,361,533,771 | ) | (2,899,325,533 | ) | |||||
Increase in net assets derived from capital | ||||||||
share transactions | 1,229,778,120 | 556,269,109 | ||||||
Net Increase in Net Assets | 1,361,469,174 | 200,145,030 | ||||||
Net Assets: | ||||||||
Beginning of year | 8,181,146,561 | 7,981,001,531 | ||||||
End of year (including distributions in excess of | ||||||||
net investment income of $37,607,692 and | ||||||||
$27,912,886, respectively.) | $ | 9,542,615,735 | $ | 8,181,146,561 |
See accompanying notes, which are an integral part of the financial statements.
61
Financial highlights
Delaware Diversified Income Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived |
Portfolio turnover |
1 The average shares outstanding method has been applied for per share information. |
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return during all of the periods shown reflects waivers by the distributor. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
62
Year Ended | ||||||||||||||||
10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | 10/31/08 | ||||||||||||
$9.330 | $9.770 | $9.270 | $7.740 | $8.930 | ||||||||||||
0.304 | 0.359 | 0.444 | 0.500 | 0.411 | ||||||||||||
0.396 | (0.033 | ) | 0.598 | 1.611 | (1.053 | ) | ||||||||||
0.700 | 0.326 | 1.042 | 2.111 | (0.642 | ) | |||||||||||
(0.346 | ) | (0.399 | ) | (0.474 | ) | (0.581 | ) | (0.467 | ) | |||||||
(0.234 | ) | (0.367 | ) | (0.068 | ) | — | (0.081 | ) | ||||||||
(0.580 | ) | (0.766 | ) | (0.542 | ) | (0.581 | ) | (0.548 | ) | |||||||
$9.450 | $9.330 | $9.770 | $9.270 | $7.740 | ||||||||||||
7.82% | 3.64% | 11.60% | 28.42% | (7.69% | ) | |||||||||||
$4,890,056 | $4,370,224 | $4,423,278 | $3,658,355 | $2,361,034 | ||||||||||||
0.90% | 0.92% | 0.93% | 0.97% | 0.97% | ||||||||||||
0.95% | 0.97% | 0.98% | 1.02% | 1.02% | ||||||||||||
3.26% | 3.84% | 4.68% | 5.96% | 4.75% | ||||||||||||
3.21% | 3.79% | 4.63% | 5.91% | 4.70% | ||||||||||||
238% | 237% | 232% | 213% | 251% |
63
Financial highlights
Delaware Diversified Income Fund Class B
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of net investment income to average net assets |
Portfolio turnover |
1 The average shares outstanding method has been applied for per share information. |
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. |
See accompanying notes, which are an integral part of the financial statements.
64
Year Ended | ||||||||||||||||
10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | 10/31/08 | ||||||||||||
$9.320 | $9.750 | $9.260 | $7.730 | $8.920 | ||||||||||||
0.233 | 0.288 | 0.372 | 0.438 | 0.346 | ||||||||||||
0.397 | (0.022 | ) | 0.589 | 1.610 | (1.053 | ) | ||||||||||
0.630 | 0.266 | 0.961 | 2.048 | (0.707 | ) | |||||||||||
(0.276 | ) | (0.329 | ) | (0.403 | ) | (0.518 | ) | (0.402 | ) | |||||||
(0.234 | ) | (0.367 | ) | (0.068 | ) | — | (0.081 | ) | ||||||||
(0.510 | ) | (0.696 | ) | (0.471 | ) | (0.518 | ) | (0.483 | ) | |||||||
$9.440 | $9.320 | $9.750 | $9.260 | $7.730 | ||||||||||||
7.02% | 2.98% | 10.78% | 27.51% | (8.39% | ) | |||||||||||
$21,974 | $31,451 | $45,741 | $50,608 | $50,501 | ||||||||||||
1.65% | 1.67% | 1.68% | 1.72% | 1.72% | ||||||||||||
2.51% | 3.09% | 3.93% | 5.21% | 4.00% | ||||||||||||
238% | 237% | 232% | 213% | 251% |
65
Financial highlights
Delaware Diversified Income Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of net investment income to average net assets |
Portfolio turnover |
1 The average shares outstanding method has been applied for per share information. |
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. |
See accompanying notes, which are an integral part of the financial statements.
66
Year Ended | ||||||||||||||||
10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | 10/31/08 | ||||||||||||
$9.330 | $9.760 | $9.270 | $7.740 | $8.930 | ||||||||||||
0.234 | 0.289 | 0.373 | 0.437 | 0.346 | ||||||||||||
0.397 | (0.023 | ) | 0.588 | 1.611 | (1.054 | ) | ||||||||||
0.631 | 0.266 | 0.961 | 2.048 | (0.708 | ) | |||||||||||
(0.277 | ) | (0.329 | ) | (0.403 | ) | (0.518 | ) | (0.401 | ) | |||||||
(0.234 | ) | (0.367 | ) | (0.068 | ) | — | (0.081 | ) | ||||||||
(0.511 | ) | (0.696 | ) | (0.471 | ) | (0.518 | ) | (0.482 | ) | |||||||
$9.450 | $9.330 | $9.760 | $9.270 | $7.740 | ||||||||||||
7.01% | 2.98% | 10.65% | 27.47% | (8.39% | ) | |||||||||||
$2,230,985 | $2,012,603 | $2,097,340 | $1,375,429 | $717,511 | ||||||||||||
1.65% | 1.67% | 1.68% | 1.72% | 1.72% | ||||||||||||
2.51% | 3.09% | 3.93% | 5.21% | 4.00% | ||||||||||||
238% | 237% | 232% | 213% | 251% |
67
Financial highlights
Delaware Diversified Income Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived |
Portfolio turnover |
1 The average shares outstanding method has been applied for per share information. |
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return during all of the periods shown reflects waivers by the distributor. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
68
Year Ended | ||||||||||||||||
10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | 10/31/08 | ||||||||||||
$9.330 | $9.760 | $9.270 | $7.730 | $8.930 | ||||||||||||
0.280 | 0.336 | 0.420 | 0.479 | 0.390 | ||||||||||||
0.397 | (0.023 | ) | 0.589 | 1.621 | (1.064 | ) | ||||||||||
0.677 | 0.313 | 1.009 | 2.100 | (0.674 | ) | |||||||||||
(0.323 | ) | (0.376 | ) | (0.451 | ) | (0.560 | ) | (0.445 | ) | |||||||
(0.234 | ) | (0.367 | ) | (0.068 | ) | — | (0.081 | ) | ||||||||
(0.557 | ) | (0.743 | ) | (0.519 | ) | (0.560 | ) | (0.526 | ) | |||||||
$9.450 | $9.330 | $9.760 | $9.270 | $7.730 | ||||||||||||
7.55% | 3.49% | 11.33% | 28.27% | (8.04% | ) | |||||||||||
$160,695 | $146,620 | $172,642 | $137,179 | $96,238 | ||||||||||||
1.15% | 1.17% | 1.18% | 1.22% | 1.22% | ||||||||||||
1.25% | 1.27% | 1.28% | 1.32% | 1.32% | ||||||||||||
3.01% | 3.59% | 4.43% | 5.71% | 4.50% | ||||||||||||
2.91% | 3.49% | 4.33% | 5.61% | 4.40% | ||||||||||||
238% | 237% | 232% | 213% | 251% |
69
Financial highlights
Delaware Diversified Income Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Net realized gain |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of net investment income to average net assets |
Portfolio turnover |
1 The average shares outstanding method has been applied for per share information. |
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. |
See accompanying notes, which are an integral part of the financial statements.
70
Year Ended | ||||||||||||||||
10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | 10/31/08 | ||||||||||||
$9.340 | $9.770 | $9.280 | $7.740 | $8.940 | ||||||||||||
0.327 | 0.383 | 0.470 | 0.521 | 0.433 | ||||||||||||
0.397 | (0.023 | ) | 0.586 | 1.621 | (1.064 | ) | ||||||||||
0.724 | 0.360 | 1.056 | 2.142 | (0.631 | ) | |||||||||||
(0.370 | ) | (0.423 | ) | (0.498 | ) | (0.602 | ) | (0.488 | ) | |||||||
(0.234 | ) | (0.367 | ) | (0.068 | ) | — | (0.081 | ) | ||||||||
(0.604 | ) | (0.790 | ) | (0.566 | ) | (0.602 | ) | (0.569 | ) | |||||||
$9.460 | $9.340 | $9.770 | $9.280 | $7.740 | ||||||||||||
8.08% | 4.01% | 11.76% | 28.87% | (7.57% | ) | |||||||||||
$2,238,906 | $1,620,249 | $1,242,001 | $323,134 | $85,857 | ||||||||||||
0.65% | 0.67% | 0.68% | 0.72% | 0.72% | ||||||||||||
3.51% | 4.09% | 4.93% | 6.21% | 5.00% | ||||||||||||
238% | 237% | 232% | 213% | 251% |
71
Notes to financial statements | |
Delaware Diversified Income Fund | October 31, 2012 |
Delaware Group® Adviser Funds (Trust) is organized as a Delaware statutory trust and offers four series: Delaware Diversified Income Fund, Delaware Global Real Estate Opportunities Fund, Delaware International Bond Fund and Delaware U.S. Growth Fund. These financial statements and related notes pertain to Delaware Diversified Income Fund (Fund). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R and Institutional Class shares. Class A shares are sold with a maximum front-end sales charge of 4.50%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) of 1% if redeemed during the first year and 0.50% during the second year, provided that Delaware Distributors, L.P. (DDLP) paid a financial advisor a commission on the purchase of those shares. Class B shares may be purchased only through dividend reinvestment and certain permitted exchanges. Prior to June 1, 2007, Class B shares were sold with a CDSC that declined from 4% to zero depending upon the period of time the shares were held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Class C shares are sold with a CDSC of 1%, if redeemed during the first 12 months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors.
The investment objective of the Fund is to seek maximum long-term total return, consistent with reasonable risk.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and are consistently followed by the Fund.
Security Valuation — Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and ask prices will be used, which approximates fair value. Securities listed on a foreign exchange are normally valued at the last quoted sales price on the valuation date. U.S. government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value. Debt securities and credit default swap (CDS) contracts are valued based upon valuations provided by an independent pricing service or counterparty and reviewed by management. To the extent current market prices are not available, the pricing service may take into account developments related to the specific security, as well as transactions in comparable securities. Valuations for fixed income securities utilize matrix systems, which reflect such factors as security prices, yields, maturities, and ratings, and are supplemented by dealer and exchange quotations. Swaps prices are derived using, daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments. Investment company securities are valued at net asset value per share, as reported by
72
the underlying investment company. Foreign currency exchange contracts are valued at the mean between the bid and ask price, which approximates fair value. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. Futures contracts and options on futures are valued at the daily quoted settlement prices. Exchange-traded options are valued at the last reported sale price or, if no sales are reported, at the mean between the last reported bid and ask prices, which approximates fair value. Generally, other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund’s Board of Trustees (Board). In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures or suspension of trading in a security. The Fund may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Fund values its securities, generally as of 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Fund may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
Federal Income Taxes — No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken for all open federal income tax years (October 31, 2009 – October 31, 2012), and has concluded that no provision for federal income tax is required in the Fund’s financial statements.
Class Accounting — Investment income and common expenses are allocated to the various classes of the Fund on the basis of “settled shares” of each class in relation to the net assets of the Fund. Realized and unrealized gain (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements — The Fund may purchase certain U.S. government securities subject to the counterparty’s agreement to repurchase them at an agreed upon date and price. The counterparty will be required on a daily basis to maintain the value of the collateral subject to the agreement at not less than the repurchase price (including accrued interest). The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system with the Fund’s custodian or a third-party sub-custodian. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. All open repurchase agreements as of the date of this report were entered into on October 31, 2012.
73
Notes to financial statements
Delaware Diversified Income Fund
1. Significant Accounting Policies (continued)
To Be Announced Trades — The Fund may contract to purchase securities for a fixed price at a transaction date beyond the customary settlement period (e.g, “when issued,” “delayed delivery,” “forward commitment,” or “TBA transactions”) consistent with the Fund’s ability to manage its investment portfolio and meet redemption requests. These transactions involve a commitment by the Fund to purchase securities for a predetermined price or yield with payment and delivery taking place more than three days in the future, or after a period longer than the customary settlement period for that type of security. No interest will be earned by the Fund on such purchases until the securities are delivered; however, the market value may change prior to delivery.
Foreign Currency Transactions — Transactions denominated in foreign currencies are recorded at the prevailing exchange rates on the valuation date in accordance with the Fund’s prospectus. The value of all assets and liabilities denominated in foreign currencies is translated into U.S. dollars at the exchange rate of such currencies against the U.S. dollar daily. Transaction gains or losses resulting from changes in exchange rates during the reporting period or upon settlement of the foreign currency transaction are reported in operations for the current period. The Fund generally isolates that portion of realized gains and losses on investments in debt securities, which is due to changes in foreign exchange rates from that which is due to changes in market prices of debt securities. The Fund reports certain foreign currency related transactions as components of realized gains (losses) for financial reporting purposes, whereas such components are treated as ordinary income (loss) for federal income tax purposes.
Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the fair value of investments, reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the differences could be material.
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Discounts and premiums on debt securities are amortized to interest income over the lives of the respective securities using the effective interest method. Realized gains (losses) on paydowns of asset- and mortgage-backed securities are classified as interest income. Withholding taxes on foreign interest have been recorded in accordance with the
74
Fund’s understanding of the applicable country’s tax rules and rates. The Fund declares dividends daily from net investment income and pays the dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually. The Fund may distribute income dividends and capital gains more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.
The Fund may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. There were no earnings credits for the year ended October 31, 2012.
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which are used to offset transfer agent fees. The expense paid under this arrangement is included in dividend disbursing and transfer agent fees and expenses on the statement of operations with the corresponding expense offset shown as “expense paid indirectly.” For the year ended October 31, 2012, the Fund earned $7,298 under this agreement.
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.55% on the first $500 million of average daily net assets of the Fund, 0.50% on the next $500 million, 0.45% on the next $1.5 billion and 0.425% on average daily net assets in excess $2.5 billion.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Fund. For these services, the Fund pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all Funds in the Delaware Investments® Family of Funds on a relative net asset value basis. For the year ended October 31,2012, the Fund was charged $439,423 for these services.
DSC is also the transfer agent and dividend disbursing agent of the Fund. The Fund pays DSC a monthly asset-based fee for these services. Pursuant to a sub-transfer agency agreement between DSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certain sub-transfer agency services to the Fund. Sub-transfer agency fees are passed on to and paid directly by the Fund.
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and Class C shares and 0.60% of the average daily net assets of the Class R shares. Institutional
75
Notes to financial statements
Delaware Diversified Income Fund
2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued)
Class shares pay no distribution and service expenses. DDLP has contracted to limit the Class A and Class R shares’ 12b-1 fees through February 28, 2013 to 0.25% and 0.50%, respectively, of the classes’ average daily net assets.
At October 31, 2012, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC | $ | 3,544,861 |
Dividend disbursing, transfer agent and fund accounting | ||
oversight fees and other expenses payable to DSC | 220,647 | |
Distribution fees payable to DDLP | 3,013,589 | |
Other expenses payable to DMC and affiliates* | 379,503 |
*DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees’ fees.
As provided in the investment management agreement, the Fund bears the cost of certain legal and tax services, including internal legal and tax services provided to the Fund by DMC and/or its affiliates’ employees. For the year ended October 31, 2012, the Fund was charged $240,317 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
For the year ended October 31, 2012, DDLP earned $582,779 for commissions on sales of the Fund’s Class A shares. For the year ended October 31, 2012, DDLP received gross CDSC commissions of $3,193, $6,389 and $71,230 on redemptions of the Fund’s Class A, Class B and Class C shares, respectively, and these commissions were entirely used to offset up-front commissions previously paid by DDLP to broker/dealers on sales of those shares.
Trustees’ fees include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
3. Investments
For the year ended October 31, 2012, the Fund made purchases of $15,632,818,275 and sales of $14,592,372,774 of investment securities other than U.S. government securities and short-term investments. For the year ended October 31, 2012, the Fund made purchases of $ 5,233,928,365 and sales of $5,429,851,896 of long-term U.S. government securities.
At October 31, 2012, the cost of investments for federal income tax purposes was $10,173,557,825. At October 31, 2012, the net unrealized appreciation was $ 397,083,386, of which $494,570,924 related to unrealized appreciation of investments and $97,487,538 related to unrealized depreciation of investments.
76
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. A three level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three level hierarchy of inputs is summarized below.
Level 1 | – | inputs are quoted prices in active markets for identical investments (e.g., equity securities, open-end investment companies, futures contracts, exchange-traded options contracts) |
Level 2 | – | other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs) (e.g., debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing) |
Level 3 | – | inputs are significant unobservable inputs (including the Fund’s own assumptions used to determine the fair value of investments) (e.g., broker-quoted securities, fair valued securities) |
Level 3 investments are valued using significant unobservable inputs. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.
77
Notes to financial statements
Delaware Diversified Income Fund
3. Investments (continued)
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of October 31, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Agency, Asset- & | ||||||||||||||
Mortgage-Backed | ||||||||||||||
Securities | $ | — | $ | 1,946,799,659 | $ | 34,088,211 | $ | 1,980,887,870 | ||||||
Corporate Debt | 3,203,209 | 5,156,509,922 | 6,610,764 | 5,166,323,895 | ||||||||||
Common Stock | 7,875 | — | 20 | 7,895 | ||||||||||
Foreign Debt | — | 1,234,451,357 | — | 1,234,451,357 | ||||||||||
Municipal Bond | — | 387,280 | — | 387,280 | ||||||||||
U.S. Treasury Obligations | — | 539,819,774 | — | 539,819,774 | ||||||||||
Other | 38,313,876 | 22,963,423 | 4 | 61,277,303 | ||||||||||
Option Purchased | — | 11,113 | — | 11,113 | ||||||||||
Short-Term Investments | — | 1,413,993,582 | — | 1,413,993,582 | ||||||||||
Securities Lending | ||||||||||||||
Collateral | — | 173,481,142 | — | * | 173,481,142 | |||||||||
Total | $ | 41,524,960 | $ | 10,488,417,252 | $ | 40,698,999 | $ | 10,570,641,211 | ||||||
Foreign Currency | ||||||||||||||
Exchange Contracts | $ | — | $ | (2,321,478 | ) | $ | — | $ | (2,321,478 | ) | ||||
Futures Contracts | $ | (1,971,336 | ) | $ | — | $ | — | $ | (1,971,336 | ) | ||||
Swap Contracts | $ | — | $ | (474,167 | ) | $ | — | $ | (474,167 | ) |
*Includes securities lending collateral.
The securities deemed worthless on the statement of net assets have been included as level 3 securities within the fair value hierarchy.
A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments at the beginning, interim or end of the period in relation to net assets.
During the year ended October 31, 2012, there were no transfers between Level 1 investments, Level 2 investments or Level 3 investments that had a material impact to the Fund. The Fund’s policy is to recognize transfers between levels at the beginning of the reporting period.
Management has determined not to provide additional disclosure under ASU No. 2011-04 since the Level 3 investments are not considered material to the Funds’ net assets at the end of the period.
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4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Additionally, distributions from net gains on foreign currency transactions and net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended October 31, 2012 and 2011 was as follows:
Year Ended | |||||
10/31/12 | 10/31/11 | ||||
Ordinary income | $ | 412,360,537 | $ | 524,600,731 | |
Long-term capital gain | 118,500,090 | 94,533,723 | |||
Total | $ | 530,860,627 | $ | 619,134,454 |
5. Components of Net Assets on a Tax Basis
As of October 31, 2012, the components of net assets on a tax basis were as follows:
Shares of beneficial interest | $ | 9,096,006,556 | |
Undistributed ordinary income | 52,682,739 | ||
Undistributed long-term capital gain | 37,024,805 | ||
Distributions payable | (7,817,626 | ) | |
Other temporary differences | (30,212,223 | ) | |
Unrealized appreciation | 394,931,484 | ||
Net assets | $ | 9,542,615,735 |
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales, mark-to-market of futures contracts, mark-to-market of foreign currency contracts, tax deferral of losses on straddles, tax treatment of CDS contracts, tax treatment of contingent payment on debt instruments, distributions payable and tax treatment of market discount and premium on debt instruments.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of dividends and distributions, gain (loss) on foreign currency transactions, market discount and premium on certain debt instruments CDS contracts, foreign capital gain taxes and tax treatments of paydowns gains (losses) of asset- and mortgage-backed securities. Results of operations and net assets were not affected by these reclassifications. For the year ended October 31, 2012, the Fund recorded the following reclassifications:
Undistributed net investment income | $ | 30,909,520 | |
Accumulated net realized gain | (30,909,520 | ) |
79
Notes to financial statements
Delaware Diversified Income Fund
6. Capital Shares
Transactions in capital shares were as follows:
Year Ended | |||||
10/31/12 | 10/31/11 | ||||
Shares sold: | |||||
Class A | 163,424,367 | 164,470,549 | |||
Class B | 37,636 | 77,815 | |||
Class C | 50,237,269 | 43,028,869 | |||
Class R | 7,995,088 | 6,641,685 | |||
Institutional Class | 112,519,790 | 97,271,380 | |||
Shares issued upon reinvestment of dividends and distributions: | |||||
Class A | 28,668,206 | 33,577,359 | |||
Class B | 143,303 | 274,551 | |||
Class C | 11,038,873 | 13,733,750 | |||
Class R | 979,616 | 1,376,689 | |||
Institutional Class | 11,255,199 | 9,663,781 | |||
386,299,347 | 370,116,428 | ||||
Shares redeemed: | |||||
Class A | (143,178,609 | ) | (182,685,744 | ) | |
Class B | (1,228,493 | ) | (1,667,829 | ) | |
Class C | (40,970,892 | ) | (55,864,286 | ) | |
Class R | (7,687,930 | ) | (9,986,150 | ) | |
Institutional Class | (60,631,716 | ) | (60,528,667 | ) | |
(253,697,640 | ) | (310,732,676 | ) | ||
Net increase | 132,601,707 | 59,383,752 |
For the year ended October 31, 2012 and year ended October 31, 2011, 372,298 Class B shares were converted to 372,250 Class A shares valued at $ 3,468,560 and 348,565 Class B shares were converted to 348,042 Class A shares valued at $3,260,407, respectively. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the statements of changes in net assets.
7. Unfunded Commitments
The Fund may invest in floating rate loans. In connection with these investments, the Fund may also enter into unfunded corporate loan commitments (commitments). Commitments may obligate the Fund to furnish temporary financing to a borrower until permanent financing can be arranged. In connection with these commitments, the Fund earns a commitment fee, typically set as a percentage of the commitment amount.
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As of October 31, 2012, the Fund had the following unfunded loan commitments:
Unfunded Loan | ||
Borrower | Commitment | |
Gencorp | $ | 6,540,000 |
Hertz | 3,428,550 | |
Silver II Acquisition | 9,680,000 | |
TPC Group | 11,319,999 |
8. Line of Credit
The Fund, along with certain other funds in the Delaware Investments® Family of Funds (Participants), was a participant in a $100,000,000 revolving line of credit to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, the Participants were charged an annual commitment fee, which was allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants were permitted to borrow up to a maximum of one third of their net assets under the agreement. Each Participant was individually, and not jointly, liable for its particular advances, if any, under the line of credit. The line of credit under the agreement expired on November 15, 2011.
On November 15, 2011, the Fund, along with the other Participants, entered into an amendment to the agreement for a $125,000,000 revolving line of credit. The agreement is to be used as described above and operates in substantially the same manner as the original agreement. The line of credit available under the agreement expired on November 13, 2012.
On November 13, 2012, the Fund, along with the other Participants, entered into an amendment to the agreement for a $125,000,000 revolving line of credit. The agreement is to be used as described above and operates in substantially the same manner as the original agreement. The line of credit available under the agreement expires on November 12, 2013. The Fund had no amounts outstanding as of October 31, 2012 or at any time during the year then ended.
9. Derivatives
U.S. GAAP requires disclosures that enable investors to understand: 1) how and why an entity uses derivatives; 2) how they are accounted for; and 3) how they affect an entity’s results of operations and financial position.
Foreign Currency Exchange Contracts — The Fund enters into foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Fund may enter into these contracts to fix the U.S. dollar value of a security that it has agreed to buy or sell for the period between the date the trade was entered into and the date the security is delivered and paid for. The Fund may also use these contracts to hedge the U.S. dollar value of securities it already owns that are denominated in foreign currencies. The change in value is recorded as an unrealized gain or loss. When the contract is closed, a realized gain or loss is recorded equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
81
Notes to financial statements
Delaware Diversified Income Fund
9. Derivatives (continued)
The use of foreign currency exchange contracts does not eliminate fluctuations in the underlying prices of the securities, but does establish a rate of exchange that can be achieved in the future. Although foreign currency exchange contracts and foreign cross currency exchange contracts limit the risk of loss due to an unfavorable change in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency change favorably. In addition, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. The Fund’s maximum risk of loss from counterparty credit risk is the value of their currency exchanged with the counterparty. The risk is generally mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty.
Futures Contracts — A futures contract is an agreement in which the writer (or seller) of the contract agrees to deliver to the buyer an amount of cash or securities equal to a specific dollar amount times the difference between the value of a specific security or index at the close of the last trading day of the contract and the price at which the agreement is made. The Fund may use futures in the normal course of pursuing its investment objective. The Fund may invest in futures contracts to hedge its existing portfolio securities against fluctuations in fair value caused by changes in prevailing market interest rates. Upon entering into a futures contract, the Fund deposits cash or pledges U.S. government securities to a broker, equal to the minimum “initial margin” requirements of the exchange on which the contract is traded. Subsequent payments are received from the broker or paid to the broker each day, based on the daily fluctuation in the market value of the contract. These receipts or payments are known as “variation margin” and are recorded daily by the Fund as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risks of entering into futures contracts include potential imperfect correlation between the futures contracts and the underlying securities and the possibility of an illiquid secondary market for these instruments. When investing in futures, there is minimal counterparty credit risk to a Fund because futures are exchange-traded and the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees against default.
Options Contracts — During the year ended October 31, 2012, the Fund entered into options contracts in the normal course of pursuing its investment objective. The Fund may buy or write options contracts for any number of reasons, including without limitation: to manage the Fund’s exposure to changes in securities prices and foreign currencies; as an efficient means of adjusting the Fund’s overall exposure to certain markets; to protect the value of portfolio securities; and as a cash management tool. The Fund may buy or write call or put options on securities, futures, swaps “swaptions”, financial indices, and foreign currencies. When the Fund buys an option, a premium is paid and an asset is recorded and adjusted on a daily basis to reflect the current market value of the options purchased. When the Fund writes an option, a premium is received and a liability is recorded and adjusted on a daily basis to reflect the current market value of the options written.
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Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is treated as realized gain or loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Fund has a realized gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option. When writing options, the Fund is subject to minimal counterparty risk because the counterparty is only obligated to pay premiums and does not bear the market risk of an unfavorable market change.
Transactions in options written during the year ended October 31, 2012 for the Fund were as follows:
Number of | |||||||
Contracts | Premiums | ||||||
Options outstanding at October 31, 2011 | — | $ | — | ||||
Options written | 11,353 | 9,450,740 | |||||
Options expired | (3,807 | ) | (3,458,283 | ) | |||
Options terminated in closing purchase transactions | (7,546 | ) | (5,992,457 | ) | |||
Options outstanding at October 31, 2012 | — | $ | — |
Swap Contracts — The Fund may enter into CDS contracts in the normal course of pursuing its investment objective. The Fund may enter into CDS contracts in order to hedge against a credit event, to enhance total return or to gain exposure to certain securities or markets. The Fund will not be permitted to enter into any swap transactions unless, at the time of entering into such transactions, the unsecured long-term debt of the actual counterparty combined with any credit enhancements, is rated at least BBB- by S&P or Baa3 by Moody’s or is determined to be of equivalent quality by the manager.
Credit Default Swaps. A CDS contract is a risk-transfer instrument through which one party (purchaser of protection) transfers to another party (seller of protection) the financial risk of a credit event (as defined in the CDS agreement), as it relates to a particular reference security or basket of securities (such as an index). In exchange for the protection offered by the seller of protection, the purchaser of protection agrees to pay the seller of protection a periodic amount at a stated rate that is applied to the notional amount of the CDS contract. In addition, an upfront payment may be made or received by the Series in connection with an unwinding or assignment of a CDS contract. Upon the occurrence of a credit event, the seller of protection would pay the par (or other agreed-upon) value of the reference security (or basket of securities) to the counterparty. Credit events generally include, among others, bankruptcy, failure to pay, and obligation default.
During the year ended October 31, 2012, the Fund entered into CDS contracts as a purchaser and seller of protection. Periodic payments (receipts) on such contracts are accrued daily and recorded as unrealized losses (gains) on swap contracts. Upon payment (receipt), such amounts
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Notes to financial statements
Delaware Diversified Income Fund
9. Derivatives (continued)
are recorded as realized losses (gains) on swap contracts. Upfront payments made or received in connection with CDS contracts are amortized over the expected life of the CDS contracts as unrealized losses (gains) on swap contracts. The change in value of CDS contracts is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded upon a credit event (as defined in the CDS agreement) or the maturity or termination of the agreement. The Fund has posted $ 3,410,000 in cash as collateral for open swap contracts. The Fund received $440,000 in cash and $801,000 in securities as collateral for open swap contracts.
CDS contracts may involve greater risks than if the Fund had invested in the reference obligation directly. CDS contracts are subject to general market risk, liquidity risk, counterparty risk and credit risk. The Fund’s maximum risk of loss from counterparty credit risk, either as the seller of protection or the buyer of protection, is the fair value of the contract. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty.
Swaps Generally. Because there are generally no organized markets for swap contracts, the value of open swaps may differ from that which would be realized in the event the Fund terminated its position in the agreement. Risks of entering into these contracts include the potential inability of the counterparty to meet the terms of the contracts. This type of risk is generally limited to the amount of favorable movement in the value of the underlying security, instrument or basket of instruments, if any, at the day of default. Risks also arise from potential losses from adverse market movements and such losses could exceed the unrealized amounts shown on the statement of net assets.
Fair values of derivative instruments as of October 31, 2012 were as follows:
Asset Derivatives | Liability Derivatives | ||||||||||
Statement of Net | Statement of Net | ||||||||||
Assets Location | Fair Value | Assets Location | Fair Value | ||||||||
Forward currency exchange contracts (Foreign currency exchange contracts) | Other liabilities net of receivables and other assets | $ | 482,662 | Other liabilities net of receivables and other assets | $ | (2,804,140 | ) | ||||
Interest rate contracts (Futures contracts) | Other liabilities net of receivables and other assets | 516,256 | Other liabilities net of receivables and other assets | (2,487,592 | ) | ||||||
Credit contracts (Swaps contracts) | Other liabilities net of receivables and other assets | — | Other liabilities net of receivables and other assets | (474,167 | ) | ||||||
Total | $ | 998,918 | $ | (5,765,899 | ) |
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The effect of derivative instruments on the statement of operations for the year ended October 31, 2012 was as follows:
Change in | |||||||||||
Unrealized | |||||||||||
Realized Gain | Appreciation | ||||||||||
or Loss on | or Depreciation | ||||||||||
Derivatives | on Derivatives | ||||||||||
Location of Gain or Loss on | Recognized in | Recognized in | |||||||||
Derivatives Recognized in Income | Income | Income | |||||||||
Forward currency exchange contracts (Foreign currency exchange contracts) | Net realized loss on foreign currency exchange contracts and net change in unrealized appreciation (depreciation) of foreign currency exchange contracts | $ | (13,400,542 | ) | $ | (16,914,782 | ) | ||||
Interest rate contracts | Net realized gain on futures contracts and net change in unrealized appreciation (depreciation) of futures contracts | 15,673 | (10,722,464 | ) | |||||||
Equity contracts (Options written) | Net realized gain on options written and net change in unrealized appreciation (depreciation) of options written | 5,914,542 | (462,948 | ) | |||||||
Credit contracts (Swap contracts) | Net realized loss on swap contracts and net change in unrealized appreciation (depreciation) of swap contracts | (126,005,122 | ) | 27,892,503 | |||||||
Total | $ | (133,475,449 | ) | $ | (207,691 | ) |
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Notes to financial statements
Delaware Diversified Income Fund
9. Derivatives (continued)
Derivatives Generally. The table below summarizes the average balance of derivative holdings by the Fund during the year ended October 31, 2012. The average balance of derivatives held is generally similar to the volume of derivative activity for the year ended October 31, 2012.
Long | Short | ||||
Derivative | Derivative | ||||
Volume | Volume | ||||
Foreign currency exchange contracts (average cost) | USD 338,703,239 | USD 868,681,740 | |||
Futures contracts (average notional value) | 259,165,279 | 172,342,739 | |||
Options contracts (average notional value) | 236,736 | 715,814 | |||
Swap contracts (average notional value)* | 535,063,795 | 15,527,708 | |||
EUR 267,177,253 |
*Long represents buying protection and short represents selling protection.
10. Securities Lending
The Fund, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with The Bank of New York Mellon (BNY Mellon). At the time a security is loaned, the borrower must post collateral equal to the required percentage of the market value of the loaned security, including any accrued interest. The required percentage is: (i) 102% with respect to U.S. securities and foreign securities that are denominated and payable in U.S. dollars; and (ii) 105% with respect to foreign securities. With respect to each loan, if on any business day the aggregate market value of securities collateral plus cash collateral held is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral by the end of the following business day which, together with the collateral already held, will be not less than the applicable initial collateral requirements for such security loan. If the aggregate market value of securities collateral and cash collateral held with respect to a security loan exceeds the applicable initial collateral requirement, upon request of the borrower BNY Mellon must return enough collateral to the borrower by the end of the following business day to reduce the value of the remaining collateral to the applicable initial collateral requirement for such security loan. As a result of the foregoing, the value of the collateral held with respect to a loaned security may be temporarily more or less than the value of the security on loan.
Cash collateral received is generally invested in the Delaware Investments Collateral Fund No. 1 (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of funds managed by DMC that participate in BNY Mellon’s securities lending program. The Collective Trust may invest in U.S. government securities and high quality corporate debt, asset-backed and other money market securities and in repurchase agreements collateralized by such securities, provided that the Collective Trust will generally have a dollar-weighted average portfolio maturity of 60 days or less. In October 2008, BNY Mellon transferred certain distressed securities from the previous collateral investment pool into the Mellon GSL Reinvestment Trust II. The Fund can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. In the event of default or bankruptcy by the lending agent, realization
86
and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Fund or, at the discretion of the lending agent, replace the loaned securities. The Fund continues to record dividends or interest, as applicable, on the securities loaned and is subject to changes in value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. With respect to security loans collateralized by non-cash collateral, the Fund receives loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Fund, the security lending agent and the borrower. The Fund records security lending income net of allocations to the security lending agent and the borrower.
The Collective Trust used for the investment of cash collateral received from borrowers of securities seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. The Fund may incur investment losses as a result of investing securities lending collateral in the Collective Trust or another collateral investment pool. This could occur if an investment in a collateral investment pool defaulted or if it were necessary to liquidate assets in the collateral investment pool to meet returns on outstanding security loans at a time when the collateral investment pool’s net asset value per unit was less than $1.00. Under those circumstances, the Fund may not receive an amount from the collateral investment pool that is equal in amount to the collateral the Fund would be required to return to the borrower of the securities and the Fund would be required to make up for this shortfall.
At October 31, 2012, the value of securities on loan was $174,408,472, for which cash collateral was received and invested in accordance with the Lending Agreement. At October 31, 2012, the value of invested collateral was $173,481,142. These investments are presented on the statement of net assets under the caption “Securities Lending Collateral”.
11. Credit and Market Risk
The Fund invests a portion of its assets in high yield fixed income securities, which are securities rated lower than BBB- by Standard & Poor’s and Baa3 by Moody’s Investors Service, or similarly rated by another nationally recognized statistical rating organization. Investments in these high yield securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment-grade securities.
The Fund invests in fixed income securities whose value is derived from an underlying pool of mortgages or consumer loans. The value of these securities is sensitive to changes in economic conditions, including delinquencies and/or defaults, and may be adversely affected by shifts in the market’s perception of the issuers and changes in interest rates. Investors receive principal and interest payments as the underlying mortgages or consumer loans are paid back. Some of these securities are collateralized mortgage obligations (CMOs). CMOs are debt securities issued
87
Notes to financial statements
Delaware Diversified Income Fund
11. Credit and Market Risk (continued)
by U.S. government agencies or by financial institutions and other mortgage lenders, which are collateralized by a pool of mortgages held under an indenture. Prepayment of mortgages may shorten the stated maturity of the obligations and can result in a loss of premium, if any has been paid. Certain of these securities may be stripped (securities which provide only the principal or interest feature of the underlying security). The yield to maturity on an interest-only CMO is extremely sensitive not only to changes in prevailing interest rates, but also to the rate of principal payments (including prepayments) on the related underlying mortgage assets. A rapid rate of principal payments may have a material adverse effect on the Fund’s yield to maturity. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities even if the securities are rated in the highest rating categories.
Some countries in which the Fund may invest require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if there is deterioration in a country’s balance of payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad.
The securities exchanges of certain foreign markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by the Fund may be inhibited. In addition, a significant portion of the aggregate market value of securities listed on the major securities exchanges in emerging markets is held by a smaller number of investors. This may limit the number of shares available for acquisition or disposition by the Fund.
The Fund may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Fund’s Board has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 15% limit on investments in illiquid securities. Rule 144A and illiquid securities have been identified on the statement of net assets.
12. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
88
13. Subsequent Events
Except as disclosed in Note 8, management has determined that no material events or transactions occurred subsequent to October 31, 2012 that would require recognition or disclosure in the Fund’s financial statements.
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Report of independent
registered public accounting firm
To the Board of Trustees of Delaware Group® Adviser Funds
and the Shareholders of Delaware Diversified Income Fund:
In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Delaware Diversified Income Fund (one of the series constituting Delaware Group Adviser Funds, hereafter referred to as the “Fund”) at October 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the two years in the period ended October 31, 2009 were audited by other independent accountants whose report dated December 22, 2009 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 19, 2012
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Other Fund information
(Unaudited)
Delaware Diversified Income Fund
Board Consideration of Delaware Diversified Income Fund Investment Advisory Agreement
At a meeting held on August 21-23, 2012 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware Diversified Income Fund (the “Fund”). In making its decision, the Board considered information furnished at regular quarterly Board meetings, including reports detailing Fund performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory and sub-advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”) included materials provided by DMC and its affiliates (“Delaware Investments”) concerning, among other things, the nature, extent and quality of services provided to the Fund, the costs of such services to the Fund, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, reports were provided in May 2012 and included independent historical and comparative reports provided by Lipper, Inc., an independent statistical compilation organization (“Lipper”). The Lipper reports compared the Fund’s investment performance and expenses with those of other comparable mutual funds. The Independent Trustees reviewed and discussed the Lipper reports with independent legal counsel to the Independent Trustees. The Board requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; the structure of portfolio manager compensation; the investment manager’s profitability; comparative client fee information; and any constraints or limitations on the availability of securities in certain investment styles, which had in the past year inhibited, or which were likely in the future to inhibit, DMC’s ability to invest fully in accordance with Fund policies.
In considering information relating to the approval of the Fund’s advisory agreement, the Independent Trustees received assistance and advice from and met separately with independent legal counsel to the Independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
Nature, Extent And Quality of Service. The Board considered the services provided by Delaware Investments to the Fund and its shareholders. In reviewing the nature, extent and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Fund, compliance of portfolio managers with the investment policies, strategies and restrictions for the Fund, compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware Investments Family of Funds complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Fund’s investment advisor and the emphasis placed on research in the investment process. The Board recognized DMC’s receipt of several industry distinctions. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed
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Other Fund information
(Unaudited)
Delaware Diversified Income Fund
Board Consideration of Delaware Diversified Income Fund Investment Advisory Agreement (continued)
to fund matters. The Board noted that in July 2011 Management implemented measures to reduce overall costs and improve transfer agent and shareholder servicing functions through outsourcing. The Board noted the benefits provided to Fund shareholders through each shareholder’s ability to exchange an investment in one Delaware Investments fund for the same class of shares in another Delaware Investments fund without a sales charge, to reinvest Fund dividends into additional shares of the Fund or into additional shares of other Delaware Investments funds and the privilege to combine holdings in other Delaware Investments funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
Investment Performance. The Board placed significant emphasis on the investment performance of the Fund in view of the importance of investment performance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Investment Committee meetings throughout the year, the Board gave particular weight to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Lipper (the “Performance Universe”). A fund with the best performance ranked first, and a fund with the poorest performance ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25%, the second quartile; the next 25%, the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Fund was shown for the past one-, three-, five- and ten-year periods, as applicable, ended March 31, 2012. The Board’s objective is that the Fund’s performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Fund and the Board’s view of such performance.
The Performance Universe for the Fund consisted of the Fund and all retail and institutional multi-sector income funds as selected by Lipper. The Lipper report comparison showed that the Fund’s total return for the one-year period was in the second quartile of its Performance Universe. The report further showed that the Fund’s total return for the three-year period was in the third quartile and the Fund’s total return for the five- and ten-year periods was in the first quartile. The Board was satisfied with performance.
Comparative Expenses. The Board considered expense comparison data for the Delaware Investments Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Fund as of its most recently completed fiscal year. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Fund versus effective management fees and expense ratios of a group of similar funds as selected by Lipper (the “Expense Group”). In reviewing comparative costs, the Fund’s contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the
92
Fund) and actual management fees (as reported by each fund) within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Fund’s total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Class A shares and comparative total expenses including 12b-1 and non 12b-1 service fees. The Board considered fees paid to Delaware Investments for non-management services. The Board’s objective is to limit the Fund’s total expense ratio to be competitive with that of the Expense Group. The following paragraph summarizes the expense results for the Fund and the Board’s view of such expenses.
The expense comparisons for the Fund showed that its actual management fee and total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was satisfied with the management fee and total expenses of the Fund in comparison to those of its Expense Group as shown in the Lipper report.
Management Profitability. The Board considered the level of profits realized by Delaware Investments in connection with the operation of the Fund. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflect recent operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent industry-wide Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the management fees were reasonable in light of the services rendered and the level of profitability of Delaware Investments.
Economies of Scale. The Trustees considered whether economies of scale are realized by Delaware Investments as the Fund’s assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees reviewed the standardized advisory fee pricing and structure, approved by the Board and shareholders, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case on all assets when the asset levels specified are exceeded. The Board noted that the fee under the Fund’s management contract fell within the standard structure. The Board also noted that the Fund’s assets exceeded the final breakpoint level. The Board believed that, given the extent to which economies of scale might be realized by the advisor and its affiliates, the schedule of fees under the Investment Advisory Agreement provides a sharing of benefits with the Fund and its shareholders.
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Other Fund information
(Unaudited)
Delaware Diversified Income Fund
Tax Information
The information set forth below is for the Fund’s fiscal year as required by federal income tax laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information.
All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change. For any and all items requiring designation, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
For the fiscal year ended October 31, 2012, the Fund designates distributions paid during the year as follows:
(A) Long-Term Capital Gains Distributions (Tax Basis) | 22% |
(B) Ordinary Income Distributions (Tax Basis)* | 78% |
Total Distributions (Tax Basis) | 100% |
(A) and (B) are based on a percentage of the Fund’s total distributions.
*For the fiscal year ended October 31, 2012, certain interest income paid by the Fund, determined to be Qualified Interest Income and Short-Term Capital Gains may be subject to relief from U.S. withholding for foreign shareholders, as provided by the American Jobs Creation Act of 2004 and as extended by Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010. For the fiscal year ended October 31 2012, the Fund has designated a maximum distribution of 93.46% of Qualified Interest Income and 53.72% of Short-Term Capital Gains.
94
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
A mutual fund is governed by a Board of Trustees/Directors (“Trustees”), which has oversight responsibility for the management of a fund’s business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates
Name, Address, | Position(s) | Length of |
and Birth Date | Held with Fund(s) | Time Served |
Interested Trustees | ||
Patrick P. Coyne1 | Chairman, President, | Chairman and Trustee |
2005 Market Street | Chief Executive Officer, | since August 16, 2006 |
Philadelphia, PA 19103 | and Trustee | |
April 1963 | President and | |
Chief Executive Officer | ||
since August 1, 2006 | ||
1 Patrick P. Coyne is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor. |
96
for shareholder interests. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information.
Number of Portfolios in | ||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships |
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer |
Patrick P. Coyne has served in | 71 | Director and Audit |
various executive capacities | Committee Member | |
at different times at | Kaydon Corp. | |
Delaware Investments.2 | ||
Board of Governors Member | ||
Investment Company | ||
Institute (ICI) |
2 Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s(s’) investment advisor, principal underwriter, and its transfer agent. |
97
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of |
and Birth Date | Held with Fund(s) | Time Served |
Independent Trustees | ||
Thomas L. Bennett | Trustee | Since March 2005 |
2005 Market Street | ||
Philadelphia, PA 19103 | ||
October 1947 | ||
John A. Fry | Trustee | Since January 2001 |
2005 Market Street | ||
Philadelphia, PA 19103 | ||
May 1960 | ||
Anthony D. Knerr | Trustee | Since April 1990 |
2005 Market Street | ||
Philadelphia, PA 19103 | ||
December 1938 | ||
Lucinda S. Landreth | Trustee | Since March 2005 |
2005 Market Street | ||
Philadelphia, PA 19103 | ||
June 1947 | ||
98
Number of Portfolios in | ||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships |
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer |
Private Investor | 71 | Director |
(March 2004–Present) | Bryn Mawr Bank Corp. (BMTC) | |
(2007–2011) | ||
President | 71 | Board of Governors Member — |
Drexel University | NASDAQ OMX PHLX LLC | |
(August 2010–Present) | ||
Director and Audit | ||
President | Committee Member | |
Franklin & Marshall College | Community Health Systems | |
(July 2002–July 2010) | ||
Director — Ecore | ||
International | ||
(2009–2010) | ||
Director — Allied | ||
Barton Securities Holdings | ||
(2005–2008) | ||
Managing Director | 71 | None |
Anthony Knerr & Associates | ||
(Strategic Consulting) | ||
(1990–Present) | ||
Private Investor | 71 | None |
(2004–Present) | ||
99
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of |
and Birth Date | Held with Fund(s) | Time Served |
Independent Trustees (continued) | ||
Frances A. Sevilla-Sacasa | Trustee | Since September 2011 |
2005 Market Street | ||
Philadelphia, PA 19103 | ||
January 1956 | ||
100
Number of Portfolios in | ||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships |
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer |
Chief Executive Officer — | 71 | Trust Manager — Camden |
Banco Itaú Europa | Property Trust | |
International | (since August 2011) | |
(since April 2012) | ||
Executive Advisor to Dean | ||
(August 2011–March 2012) | ||
and Interim Dean | ||
(January 2011–July 2011) — | ||
University of Miami School of | ||
Business Administration | ||
President — U.S. Trust, | ||
Bank of America Private | ||
Wealth Management | ||
(Private Banking) | ||
(July 2007–December 2008) | ||
101
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of |
and Birth Date | Held with Fund(s) | Time Served |
Independent Trustees (continued) | ||
Janet L. Yeomans | Trustee | Since April 1999 |
2005 Market Street | ||
Philadelphia, PA 19103 | ||
July 1948 | ||
J. Richard Zecher | Trustee | Since March 2005 |
2005 Market Street | ||
Philadelphia, PA 19103 | ||
July 1940 | ||
102
Number of Portfolios in | ||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships |
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer |
Vice President and Treasurer | 71 | Director, Audit |
(January 2006–July 2012) | Committee Member and | |
Vice President — Mergers & Acquisitions | Investment Committee | |
(January 2003–January 2006), and | Member | |
Vice President and Treasurer | Okabena Company | |
(July 1995–January 2003) | ||
3M Corporation | Chair — 3M | |
Investment Management | ||
Company | ||
(January 2005–July 2012) | ||
Founder | 71 | Director and Compensation |
Investor Analytics | Committee Member | |
(Risk Management) | Investor Analytics | |
(May 1999–Present) | ||
Director | ||
Founder | Oxigene, Inc. | |
P/E Investments | (2003–2008) | |
(Hedge Fund) | ||
(September 1996–Present) |
103
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of |
and Birth Date | Held with Fund(s) | Time Served |
Officers | ||
David F. Connor | Vice President, | Vice President since |
2005 Market Street | Deputy General | September 2000 |
Philadelphia, PA 19103 | Counsel, and Secretary | and Secretary since |
December 1963 | October 2005 | |
Daniel V. Geatens | Vice President | Treasurer |
2005 Market Street | and Treasurer | since October 2007 |
Philadelphia, PA 19103 | ||
October 1972 | ||
David P. O’Connor | Executive Vice President, | Executive Vice President |
2005 Market Street | General Counsel | since February 2012; |
Philadelphia, PA 19103 | and Chief Legal Officer | Senior Vice President |
February 1966 | October 2005– | |
February 2012; | ||
General Counsel and | ||
Chief Legal Officer | ||
since October 2005 | ||
Richard Salus | Senior Vice President | Chief Financial Officer |
2005 Market Street | and Chief Financial Officer | since November 2006 |
Philadelphia, PA 19103 | ||
October 1963 | ||
The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918.
104
Number of Portfolios in | ||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships |
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer |
David F. Connor has served as | 71 | None3 |
Vice President and Deputy | ||
General Counsel of | ||
Delaware Investments | ||
since 2000. | ||
Daniel V. Geatens has served | 71 | None3 |
in various capacities at | ||
different times at | ||
Delaware Investments. | ||
David P. O’Connor has served in | 71 | None3 |
various executive and legal | ||
capacities at different times | ||
at Delaware Investments. | ||
Richard Salus has served in | 71 | None3 |
various executive capacities | ||
at different times at | ||
Delaware Investments. | ||
3 David F. Connor, Daniel V. Geatens, David P. O’Connor, and Richard Salus serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant. |
105
About the organization
Board of trustees | |||
Patrick P. Coyne Thomas L. Bennett | John A. Fry Anthony D. Knerr | Lucinda S. Landreth Frances A. | Janet L. Yeomans J. Richard Zecher |
Affiliated officers | |||
David F. Connor Vice President, Deputy General Counsel, and Secretary Delaware Investments Family of Funds Philadelphia, PA | Daniel V. Geatens Vice President and Treasurer Delaware Investments Family of Funds Philadelphia, PA | David P. O’Connor Executive Vice President, General Counsel, and Chief Legal Officer Delaware Investments Family of Funds Philadelphia, PA | Richard Salus Senior Vice President and Chief Financial Officer Delaware Investments Family of Funds Philadelphia, PA |
This annual report is for the information of Delaware Diversified Income Fund shareholders, but it may be used with prospective investors when preceded or accompanied by the Delaware Investments Fund fact sheet for the most recently completed calendar quarter. These documents are available at delawareinvestments.com. |
Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries. The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; and (ii) on the SEC’s website at sec.gov. In addition, a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities and the Fund’s Schedule of Investments are available without charge on the Fund’s website at delawareinvestments.com. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330. Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund’s website at delawareinvestments.com; and (ii) on the SEC’s website at sec.gov. |
106
![](https://capedge.com/proxy/N-CSR/0001206774-13-000083/del_topimg02.jpg)
Annual report Delaware U.S. Growth Fund October 31, 2012 U.S. growth equity mutual fund |
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, if available, its summary prospectus, which may be obtained by visiting delawareinvestments.com or calling 800 523-1918. Investors should read the prospectus and, if available, the summary prospectus carefully before investing. |
You can obtain shareholder reports and prospectuses online instead of in the mail. Visit delawareinvestments.com/edelivery. |
Experience Delaware Investments
Delaware Investments is committed to the pursuit of consistently superior asset management and unparalleled client service. We believe in our investment processes, which seek to deliver consistent results, and in convenient services that help add value for our clients.
If you are interested in learning more about creating an investment plan, contact your financial advisor.
You can learn more about Delaware Investments or obtain a prospectus for Delaware U.S. Growth Fund at delawareinvestments.com.
Manage your investments online |
|
Delaware Management Holdings, Inc. and its subsidiaries (collectively known by the marketing name of Delaware Investments) are wholly owned subsidiaries of Macquarie Group Limited, a global provider of banking, financial, advisory, investment and funds management services.
Investments in Delaware U.S. Growth Fund are not and will not be deposits with or liabilities of Macquarie Bank Limited ABN 46 008 583 542 and its holding companies, including their subsidiaries or related companies (Macquarie Group), and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. No Macquarie Group company guarantees or will guarantee the performance of the Fund, the repayment of capital from the Fund, or any particular rate of return.
Table of contents | |
Portfolio management review | 1 |
Performance summary | 4 |
Disclosure of Fund expenses | 8 |
Security type/sector allocation | |
and top 10 equity holdings | 10 |
Statement of net assets | 11 |
Statement of operations | 16 |
Statements of changes in net assets | 18 |
Financial highlights | 20 |
Notes to financial statements | 30 |
Report of independent registered | |
public accounting firm | 41 |
Other Fund information | 42 |
Board of trustees/directors and | |
officers addendum | 46 |
About the organization | 56 |
Unless otherwise noted, views expressed herein are current as of Oct. 31, 2012, and subject to change.
Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. Delaware Investments, a member of Macquarie Group, refers to Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s distributor, Delaware Distributors, L.P. Macquarie Group refers to Macquarie Group Limited and its subsidiaries and affiliates worldwide.
© 2012 Delaware Management Holdings, Inc.
All third-party marks cited are the property of their respective owners.
Portfolio management review | |
Delaware U.S. Growth Fund | November 6, 2012 |
Performance preview (for the year ended October 31, 2012) | ||||
Delaware U.S. Growth Fund (Class A shares) | 1-year return | +15.71% | ||
Russell 1000® Growth Index (benchmark) | 1-year return | +13.01% |
For complete, annualized performance for Delaware U.S. Growth Fund, please see the table on page 4.
The performance of Class A shares excludes the applicable sales charge and reflects the reinvestment of all distributions. Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.
Early in the Fund’s fiscal year, the U.S. economy seemed to be poised for significant growth as investors were generally encouraged by positive reports about labor markets, manufacturing, and consumer demand. With those favorable tailwinds, U.S. equity markets rose in the fall and winter of 2011. In Europe, economic conditions slowed, as the euro zone initiated additional austerity measures. Nevertheless, international stocks (both developed and emerging markets) managed to post gains during those months.
In April 2012, the U.S. Federal Reserve reaffirmed it would keep its key interest rate in its current low range. The subsequent spring and early summer months, however, featured renewed volatility, primarily caused by political and economic uncertainty. Worries included speculation about Greece’s potential exit from the euro; additional evidence of deterioration within Spain’s banks; and uncertainty about upcoming political policies and elections in several euro zone countries and the United States. Many investors also fretted about a slowing global growth environment, along with persistently high rates of unemployment in the U.S.
Due to this uncertainty, domestic and international equity markets retreated from April to June. Sentiment improved in June as European leaders signaled a more comprehensive approach to stabilizing banks and sovereign credits. In the summer and early fall of 2012, domestic stock performance received a boost from the latest bond-buying programs by the Fed and the European Central Bank, along with the Chinese government’s impending stimulus. The U.S. economy was able to maintain a moderate growth pace, thanks in part to an improvement in housing and a positive report about manufacturing.
Fund performance
For its fiscal year ended Oct. 31, 2012, Delaware U.S. Growth Fund returned +15.71% for Class A shares at net asset value and +9.07% at maximum offer price (both figures reflect all distributions reinvested). The Fund’s benchmark, the Russell 1000 Growth Index, returned +13.01% for the same period. For complete annualized performance of Delaware U.S. Growth Fund, please see the table on page 4.
1
Portfolio management review
Delaware U.S. Growth Fund
Crown Castle International, which operates and leases wireless towers for firms such as Verizon and AT&T throughout the U.S., was one of the Fund’s top contributors. Although Crown Castle detracted from performance in calendar year 2011, the company’s financial performance was generally not the issue — it has consistently generated solid earnings from enhanced wireless demand each quarter during the past two years. Wireless has been one of the few relatively strong growth areas in the past few fiscal years as consumers transmit more and more data via cellular networks on smartphones and tablets. Perceptions about the company improved during the Fund’s fiscal year when rumored telecommunication industry consolidation among the companies that purchase and lease Crown Castle’s wireless towers did not occur because mergers could have slowed, or even reduced, corporate plans for infrastructure spending.
Similarly, shares of Visa also rallied after concerns about an issue proved to be exaggerated. In Visa’s case, the issue involved talk about credit and debit card transaction fee reductions related to the financial overhaul legislation. We correctly believed banks would be affected far more than credit card companies whose related fees were much smaller. Many investors, anticipating government regulation of debit transactions punished the stock more than what was justified, in our opinion. When the Fed announced final recommendations that were more favorable than initially feared, many investors shifted their focus toward the company’s strong fundamentals. Since these issues were resolved in late 2010, the stock price has increased. Visa also continues to benefit from the growing global trend of consumers shifting from paper to plastic when making purchases, especially in emerging markets, which has helped offset slower growth in developed markets. The company has also appeared quite nimble in controlling expenses despite consumer spending that has been fairly weak, mainly in developed markets.
Apollo Group was the largest detractor from performance during the Fund’s fiscal year. We sold the Fund’s position in this for-profit education company to focus on companies that have, in our opinion, stronger growth opportunities. The company’s shares declined during the fiscal year as greater government scrutiny of the for-profit education industry caused investors to question the viability of the sector’s reliance on federally guaranteed student loans; influencing companies within the industry to significantly alter their business models. In our view, these trends should be beneficial for the industry in the long run, but they may mean that many of these companies may not grow as quickly in the near term while they implement these changes.
Another detractor from performance was Polycom, one of two major suppliers of videoconferencing equipment to large corporate clients. The company, which we believe may have grown too quickly relative to the corporate infrastructure and personnel necessary to support that growth, continues to work through key personnel changes in important roles. These changes are happening within a generally difficult environment in technology spending, and during a specific industry transformation from primarily hardware solutions in videoconferencing to an increasing portion of systems driven by software. Despite the current slower sales
2
environment, we continue to maintain a relatively small position in Polycom due to our belief that videoconferencing is now a vital part of conducting business for many large corporate entities, and that demand for the company’s product should bounce back as the economy improves.
Regardless of the economic outlook, we remain consistent in our long-term investment philosophy: We strive to own what we view as strong secular-growth companies with solid business models and competitive positions, that we believe can grow market share and have the potential to deliver shareholder value in a variety of market environments.
3
Performance summary | |
Delaware U.S. Growth Fund | October 31, 2012 |
The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Please obtain the performance data current for the most recent month end by calling 800 523-1918 or visiting our website at delawareinvestments.com/performance. Current performance may be lower or higher than the performance data quoted.
Fund performance1,2 | Average annual total returns through Oct. 31, 2012 | |||||||
Lifetime | ||||||||
(if less than | ||||||||
1 year | 5 years | 10 years | 10 years) | |||||
Class A (Est. Dec. 3, 1993) | ||||||||
Excluding sales charge | +15.71% | +1.89% | +6.46% | n/a | ||||
Including sales charge | +9.07% | +0.70% | +5.83% | n/a | ||||
Class B (Est. March 29, 1994) | ||||||||
Excluding sales charge | +14.81% | +1.13% | +5.84% | n/a | ||||
Including sales charge | +10.81% | +0.69% | +5.84% | n/a | ||||
Class C (Est. May 23, 1994) | ||||||||
Excluding sales charge | +14.80% | +1.13% | +5.68% | n/a | ||||
Including sales charge | +13.80% | +1.13% | +5.68% | n/a | ||||
Class R (Est. June 2, 2003) | ||||||||
Excluding sales charge | +15.42% | +1.64% | n/a | +5.61% | ||||
Including sales charge | +15.42% | +1.64% | n/a | +5.61% | ||||
Institutional Class (Est. Feb. 3, 1994) | ||||||||
Excluding sales charge | +16.01% | +2.15% | +6.74% | n/a | ||||
Including sales charge | +16.01% | +2.15% | +6.74% | n/a |
1 Returns reflect the reinvestment of all distributions and are presented both with and without the applicable sales charges described below. Returns do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Expense limitations were in effect for certain classes during some or all of the periods shown in the “Fund performance” chart. The current expenses for each class are listed on the “Fund expense ratios” table on page 5. Performance would have been lower had expense limitations not been in effect.
Class A shares are sold with a maximum front-end sales charge of 5.75%, and have an annual distribution and service fee of 0.30% of average daily net assets. This fee has been contractually limited to 0.25% of average daily net assets from Feb. 28, 2012, through Feb. 28, 2013. Performance for Class A shares, excluding sales charges, assumes that no front-end sales charge applied.
Class B shares may be purchased only through dividend reinvestment and certain permitted exchanges as described in the prospectus. Please see the prospectus for additional information on Class B shares. Class B shares
4
have a contingent deferred sales charge that declines from 4.00% to zero depending on the period of time the shares are held. They are also subject to an annual distribution and service fee of 1.00% of average daily net assets. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Ten-year and lifetime performance figures for Class B shares reflect conversion to Class A shares after approximately eight years.
Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1.00% of average daily net assets.
Performance for Class B and C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed.
Class R shares are available only for certain retirement plan products. They are sold without a sales charge and have an annual distribution and service fee of 0.60% of average daily net assets, which has been limited contractually to 0.50% from Feb. 28, 2012, through Feb. 28, 2013.
Institutional Class shares are available without sales or asset-based distribution charges only to certain eligible institutional accounts.
The “Fund performance” table and the “Performance of a $10,000 investment” graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
2 The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table. Delaware Investments has agreed to reimburse certain expenses and/or waive certain fees in order to prevent total fund operating expenses (excluding certain fees and expenses) from exceeding 0.85% of the Fund’s average daily net assets from Feb. 28, 2012, through Feb. 28, 2013. Please see the most recent prospectus and any applicable supplement(s) for additional information on these fee waivers and/or reimbursements.
Fund expense ratios | Class A | Class B | Class C | Class R | Institutional Class | |||||
Total annual operating expenses | 1.21% | 1.91% | 1.91% | 1.51% | 0.91% | |||||
(without fee waivers) | ||||||||||
Net expenses | 1.10% | 1.85% | 1.85% | 1.35% | 0.85% | |||||
(including fee waivers, if any) | ||||||||||
Type of waiver | Contractual | Contractual | Contractual | Contractual | Contractual |
5
Performance summary
Delaware U.S. Growth Fund
Performance of a $10,000 investment1
Average annual total returns from Oct. 31, 2002, through Oct. 31, 2012
For period beginning Oct. 31, 2002, through Oct. 31, 2012 | Starting value | Ending value | ||
Russell 1000 Growth Index | $10,000 | $19,941 | ||
Delaware U.S. Growth Fund — Class A Shares | $9,425 | $17,486 |
1 The “Performance of a $10,000 investment” graph assumes $10,000 invested in Class A shares of the Fund on Oct. 31, 2002, and includes the effect of a 5.75% front-end sales charge and the reinvestment of all distributions. The graph does not reflect the deduction of taxes the shareholders would pay on Fund distributions or redemptions of Fund shares. Expense limitations were in effect for some or all of the periods shown. Performance would have been lower had expense limitations not been in effect. Current expenses are listed in the “Fund expense ratios” table on page 5. Please note additional details on pages 4 through 6.
The chart also assumes $10,000 invested in the Russell 1000 Growth Index as of Oct. 31, 2002. The Russell 1000 Growth Index measures the performance of the large-cap growth segment of the U.S. equity universe. It includes those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index. Past performance is not a guarantee of future results.
Performance of other Fund classes will vary due to different charges and expenses.
Nasdaq symbols | CUSIPs | ||||||
Class A | DUGAX | 245917505 | |||||
Class B | DEUBX | 245917604 | |||||
Class C | DEUCX | 245917703 | |||||
Class R | DEURX | 245917711 | |||||
Institutional Class | DEUIX | 245917802 |
6
Disclosure of Fund expenses
For the six-month period from May 1, 2012 to October 31, 2012 (Unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period from May 1, 2012 to October 31, 2012.
Actual expenses
The first section of the table shown, “Actual Fund return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The second section of the table shown, “Hypothetical 5% return,” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The Fund’s expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions.
8
Delaware U.S. Growth Fund
Expense analysis of an investment of $1,000
Beginning | Ending | Expenses | ||||||||||||||
Account Value | Account Value | Annualized | Paid During Period | |||||||||||||
5/1/12 | 10/31/12 | Expense Ratio | 5/1/12 to 10/31/12* | |||||||||||||
Actual Fund return† | ||||||||||||||||
Class A | $ | 1,000.00 | $ | 993.70 | 1.10% | $ | 5.51 | |||||||||
Class B | 1,000.00 | 990.00 | 1.85% | 9.25 | ||||||||||||
Class C | 1,000.00 | 989.60 | 1.85% | 9.25 | ||||||||||||
Class R | 1,000.00 | 992.40 | 1.35% | 6.76 | ||||||||||||
Institutional Class | 1,000.00 | 995.10 | 0.85% | 4.26 | ||||||||||||
Hypothetical 5% return (5% return before expenses) | ||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,019.61 | 1.10% | $ | 5.58 | |||||||||
Class B | 1,000.00 | 1,015.84 | 1.85% | 9.37 | ||||||||||||
Class C | 1,000.00 | 1,015.84 | 1.85% | 9.37 | ||||||||||||
Class R | 1,000.00 | 1,018.35 | 1.35% | 6.85 | ||||||||||||
Institutional Class | 1,000.00 | 1,020.86 | 0.85% | 4.32 |
*“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/366 (to reflect the one-half year period).
†Because actual returns reflect only the most recent six month period, the returns shown may differ significantly from fiscal year returns.
9
Security type/sector allocation and top 10 equity holdings | |
Delaware U.S. Growth Fund | As of October 31, 2012 (Unaudited) |
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one fund being different than another fund’s sector designations.
Security type/sector | Percentage of net assets | |
²Common Stock | 98.02 | % |
Consumer Discretionary | 11.24 | % |
Consumer Staples | 3.22 | % |
Energy | 9.86 | % |
Financials | 18.73 | % |
Healthcare | 10.12 | % |
Materials & Processing | 3.10 | % |
Producer Durables | 1.43 | % |
Technology | 40.32 | % |
Warrant | 0.16 | % |
Short-Term Investments | 2.03 | % |
Securities Lending Collateral | 0.06 | % |
Total Value of Securities | 100.27 | % |
Obligation to Return Securities Lending Collateral | (0.15 | %) |
Other Liabilities Net of Receivables and Other Assets | (0.12 | %) |
Total Net Assets | 100.00 | % |
²Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting.
Holdings are for informational purposes only and are subject to change at any time. They are not a recommendation to buy, sell, or hold any security.
Top 10 equity holdings | Percentage of net assets | |
Apple | 8.05 | % |
EOG Resources | 5.36 | % |
Crown Castle International | 5.24 | % |
Visa Class A | 5.03 | % |
QUALCOMM | 4.79 | % |
MasterCard Class A | 4.66 | % |
Kinder Morgan | 4.50 | % |
Allergan | 4.33 | % |
Google Class A | 4.01 | % |
Intuit | 3.88 | % |
10
Delaware U.S. Growth Fund | October 31, 2012 |
Number of shares | Value | ||||
²Common Stock – 98.02% | |||||
Consumer Discretionary – 11.24% | |||||
† | Liberty Interactive Class A | 2,109,440 | $ | 42,188,799 | |
NIKE Class B | 303,025 | 27,690,425 | |||
† | priceline.com | 62,775 | 36,018,412 | ||
† | Sally Beauty Holdings | 25,800 | 621,264 | ||
* | Staples | 1,616,725 | 18,616,588 | ||
125,135,488 | |||||
Consumer Staples – 3.22% | |||||
Walgreen | 1,018,425 | 35,879,113 | |||
35,879,113 | |||||
Energy – 9.86% | |||||
EOG Resources | 512,375 | 59,686,564 | |||
Kinder Morgan | 1,443,045 | 50,088,092 | |||
109,774,656 | |||||
Financials – 18.73% | |||||
CME Group | 418,573 | 23,410,788 | |||
† | IntercontinentalExchange | 295,175 | 38,667,925 | ||
MasterCard Class A | 112,650 | 51,923,765 | |||
Progressive | 1,722,814 | 38,418,752 | |||
Visa Class A | 403,900 | 56,045,163 | |||
208,466,393 | |||||
Healthcare – 10.12% | |||||
Allergan | 536,325 | 48,226,344 | |||
Novo Nordisk ADR | 256,125 | 41,054,276 | |||
Perrigo | 203,056 | 23,353,471 | |||
112,634,091 | |||||
Materials & Processing – 3.10% | |||||
Syngenta ADR | 443,400 | 34,567,464 | |||
34,567,464 | |||||
Producer Durables – 1.43% | |||||
Caterpillar | 187,850 | 15,931,559 | |||
15,931,559 |
11
Statement of net assets
Delaware U.S. Growth Fund
Number of shares | Value | |||||
²Common Stock (continued) | ||||||
Technology – 40.32% | ||||||
† | Adobe Systems | 1,156,850 | $ | 39,332,900 | ||
Apple | 150,650 | 89,651,814 | ||||
† | BMC Software | 967,475 | 39,376,233 | |||
† | Crown Castle International | 874,399 | 58,366,133 | |||
† | Google Class A | 65,700 | 44,660,889 | |||
Intuit | 726,375 | 43,161,203 | ||||
† | Polycom | 1,111,406 | 11,136,288 | |||
QUALCOMM | 910,425 | 53,328,144 | ||||
† | Teradata | 440,300 | 30,076,893 | |||
† | VeriFone Systems | 459,475 | 13,618,839 | |||
† | VeriSign | 706,325 | 26,183,468 | |||
448,892,804 | ||||||
Total Common Stock (cost $853,338,767) | 1,091,281,568 | |||||
Warrant – 0.16% | ||||||
† | Kinder Morgan CW 17 | 467,520 | 1,799,952 | |||
Total Warrant (cost $856,254) | 1,799,952 | |||||
Principal amount | ||||||
Short-Term Investments – 2.03% | ||||||
≠Discount Note – 0.20% | ||||||
Federal Home Loan Bank 0.095% 11/28/12 | $ | 2,204,931 | 2,204,817 | |||
2,204,817 | ||||||
Repurchase Agreements – 1.65% | ||||||
Bank of America 0.24%, dated 10/31/12, to be repurchased | ||||||
on 11/1/12, repurchase price $7,117,382 (collateralized | ||||||
by U.S. government obligations 0.00%-1.25% | ||||||
1/10/13-8/31/16; market value $7,259,681) | 7,117,335 | 7,117,335 | ||||
BNP Paribas 0.28%, dated 10/31/12, to be repurchased on | ||||||
11/1/12, repurchase price $11,250,753 (collateralized | ||||||
by U.S. government obligations 0.00-2.00% | ||||||
1/24/13-4/15/16; market value $11,475,679) | 11,250,665 | 11,250,665 | ||||
18,368,000 |
12
Principal amount | Value | |||||||
Short-Term Investments (continued) | ||||||||
≠U.S. Treasury Obligation – 0.18% | ||||||||
U.S. Treasury Bill 0.05% 11/15/12 | $ | 1,986,202 | $ | 1,986,158 | ||||
1,986,158 | ||||||||
Total Short-Term Investments (cost $22,558,938) | 22,558,975 | |||||||
Total Value of Securities Before Securities | ||||||||
Lending Collateral – 100.21% (cost $876,753,959) | 1,115,640,495 | |||||||
Number of shares | ||||||||
**Securities Lending Collateral – 0.06% | ||||||||
Investment Companies | ||||||||
Delaware Investments Collateral Fund No.1 | 676,998 | 676,998 | ||||||
| †@Mellon GSL Reinvestment Trust II | 976,789 | 0 | |||||
Total Securities Lending Collateral | ||||||||
(cost $1,653,787) | 676,998 | |||||||
Total Value of Securities – 100.27% | ||||||||
(cost $878,407,746) | 1,116,317,493 | © | ||||||
**Obligation to Return Securities | ||||||||
Lending Collateral – (0.15%) | (1,653,787 | ) | ||||||
Other Liabilities Net of Receivables | ||||||||
and Other Assets – (0.12%) | (1,370,039 | ) | ||||||
Net Assets Applicable to 61,502,257 | ||||||||
Shares Outstanding – 100.00% | $ | 1,113,293,667 | ||||||
Net Asset Value – Delaware U.S. Growth Fund | ||||||||
Class A ($146,111,534 / 8,443,283 Shares) | $17.31 | |||||||
Net Asset Value – Delaware U.S. Growth Fund | ||||||||
Class B ($2,270,854 / 152,584 Shares) | $14.88 | |||||||
Net Asset Value – Delaware U.S. Growth Fund | ||||||||
Class C ($31,103,255 / 1,928,045 Shares) | $16.13 | |||||||
Net Asset Value – Delaware U.S. Growth Fund | ||||||||
Class R ($11,201,845 / 662,069 Shares) | $16.92 | |||||||
Net Asset Value – Delaware U.S. Growth Fund | ||||||||
Institutional Class ($922,606,179 / 50,316,276 Shares) | $18.34 |
13
Statement of net assets
Delaware U.S. Growth Fund
Components of Net Assets at October 31, 2012: | ||||
Shares of beneficial interest (unlimited authorization – no par) | $ | 1,025,518,066 | ||
Accumulated net realized loss on investments | (150,134,146 | ) | ||
Net unrealized appreciation of investments | 237,909,747 | |||
Total net assets | $ | 1,113,293,667 |
² | Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting. |
† | Non income producing security. |
* | Fully or partially on loan. |
≠ | The rate shown is the effective yield at the time of purchase. |
** | See Note 8 in “Notes to financial statements” for additional information on securities lending. |
@ | Illiquid security. At October 31, 2012, the aggregate value of illiquid securities was $0, which represented 0.00% of the Fund’s net assets. See Note 9 in “Notes to financial statements.” |
© | Includes $1,621,761 of securities loaned. |
Net Asset Value and Offering Price Per Share – | |||
Delaware U.S. Growth Fund | |||
Net asset value Class A (A) | $ | 17.31 | |
Sales charges (5.75% of offering price) (B) | 1.06 | ||
Offering price | $ | 18.37 |
(A) | Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. | |
(B) | See the current prospectus for purchases of $50,000 or more. |
ADR — American Depositary Receipt
See accompanying notes, which are an integral part of the financial statements.
14
Delaware U.S. Growth Fund | Year Ended October 31, 2012 |
Investment Income: | ||||||||
Dividends | $ | 7,119,516 | ||||||
Securities lending income | 594,367 | |||||||
Interest | 15,712 | |||||||
Foreign tax withheld | (160,616 | ) | $ | 7,568,979 | ||||
Expenses: | ||||||||
Management fees | 5,229,280 | |||||||
Dividend disbursing and transfer agent fees and expenses | 1,171,122 | |||||||
Distribution expenses – Class A | 308,440 | |||||||
Distribution expenses – Class B | 28,623 | |||||||
Distribution expenses – Class C | 211,992 | |||||||
Distribution expenses – Class R | 32,093 | |||||||
Accounting and administration expenses | 324,503 | |||||||
Registration fees | 158,987 | |||||||
Reports and statements to shareholders | 87,660 | |||||||
Legal fees | 51,814 | |||||||
Audit and tax | 37,978 | |||||||
Trustees’ fees | 37,083 | |||||||
Custodian fees | 15,688 | |||||||
Dues and services | 12,796 | |||||||
Insurance fees | 11,064 | |||||||
Consulting fees | 7,327 | |||||||
Pricing fees | 2,702 | |||||||
Trustees’ expenses | 2,229 | 7,731,381 | ||||||
Less fees waived | (97,026 | ) | ||||||
Less waived distribution expenses – Class A | (51,407 | ) | ||||||
Less waived distribution expenses – Class R | (5,349 | ) | ||||||
Less expense paid indirectly | (867 | ) | ||||||
Total operating expenses | 7,576,732 | |||||||
Net Investment Loss | (7,753 | ) |
16
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | $ | 15,014,376 | ||
Foreign currencies | (1,429 | ) | ||
Net realized gain | 15,012,947 | |||
Net change in unrealized appreciation | ||||
(depreciation) of investments | 93,577,399 | |||
Net Realized and Unrealized Gain | 108,590,346 | |||
Net Increase in Net Assets Resulting from Operations | $ | 108,582,593 |
See accompanying notes, which are an integral part of the financial statements.
17
Statements of changes in net assets
Delaware U.S. Growth Fund
Year Ended | ||||||||
10/31/12 | 10/31/11 | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income (loss) | $ | (7,753 | ) | $ | 1,501,236 | |||
Net realized gain | 15,012,947 | 38,547,284 | ||||||
Net change in unrealized appreciation (depreciation) | 93,577,399 | 26,724,944 | ||||||
Net increase in net assets resulting from operations | 108,582,593 | 66,773,464 | ||||||
Dividends and Distributions to Shareholders from: | ||||||||
Net investment income: | ||||||||
Institutional Class | (762,634 | ) | (744,467 | ) | ||||
(762,634 | ) | (744,467 | ) | |||||
Capital Share Transactions: | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 97,179,803 | 18,776,727 | ||||||
Class B | 11,237 | 170,480 | ||||||
Class C | 18,695,774 | 3,044,588 | ||||||
Class R | 10,559,111 | 857,818 | ||||||
Institutional Class | 381,972,084 | 169,967,936 | ||||||
Net asset value of shares issued upon reinvestment | ||||||||
of dividends and distributions: | ||||||||
Institutional Class | 611,918 | 595,168 | ||||||
509,029,927 | 193,412,717 |
18
Year Ended | ||||||||
10/31/12 | 10/31/11 | |||||||
Capital Share Transactions (continued): | ||||||||
Cost of shares redeemed: | ||||||||
Class A | $ | (23,402,778 | ) | $ | (56,544,969 | ) | ||
Class B | (1,473,929 | ) | (1,736,808 | ) | ||||
Class C | (3,249,329 | ) | (3,364,554 | ) | ||||
Class R | (1,429,661 | ) | (1,751,349 | ) | ||||
Institutional Class | (116,061,003 | ) | (139,941,075 | ) | ||||
(145,616,700 | ) | (203,338,755 | ) | |||||
Increase (decrease) in net assets derived from | ||||||||
capital share transactions | 363,413,227 | (9,926,038 | ) | |||||
Net Increase in Net Assets | 471,233,186 | 56,102,959 | ||||||
Net Assets: | ||||||||
Beginning of year | 642,060,481 | 585,957,522 | ||||||
End of year (including undistributed net investment | ||||||||
income of $- and $756,769, respectively) | $ | 1,113,293,667 | $ | 642,060,481 |
See accompanying notes, which are an integral part of the financial statements.
19
Financial highlights
Delaware U.S. Growth Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income (loss)1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment loss to average net assets |
prior to fees waived |
Portfolio turnover |
1 The average shares outstanding method has been applied for per share information. |
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return during all of the periods shown reflects waivers by the manager and distributor. Performance would have been lower had the waivers not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
20
Year Ended | ||||||||||||||||
10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | 10/31/08 | ||||||||||||
$14.960 | $13.450 | $11.100 | $9.380 | $15.760 | ||||||||||||
(0.031 | ) | 0.006 | (0.038 | ) | 0.001 | (0.019 | ) | |||||||||
2.381 | 1.504 | 2.388 | 1.719 | (6.361 | ) | |||||||||||
2.350 | 1.510 | 2.350 | 1.720 | (6.380 | ) | |||||||||||
$17.310 | $14.960 | $13.450 | $11.100 | $9.380 | ||||||||||||
15.71% | 11.23% | 21.17% | 18.34% | (40.49% | ) | |||||||||||
$146,112 | $60,615 | $89,259 | $128,702 | $127,819 | ||||||||||||
1.10% | 1.10% | 1.07% | 1.00% | 1.01% | ||||||||||||
1.16% | 1.21% | 1.26% | 1.31% | 1.18% | ||||||||||||
(0.19% | ) | 0.04% | (0.31% | ) | 0.00% | (0.15% | ) | |||||||||
(0.25% | ) | (0.07% | ) | (0.50% | ) | (0.31% | ) | (0.32% | ) | |||||||
20% | 25% | 22% | 30% | 35% |
21
Financial highlights
Delaware U.S. Growth Fund Class B
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment loss1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived |
Ratio of net investment loss to average net assets |
Ratio of net investment loss to average net assets |
prior to fees waived |
Portfolio turnover |
1 The average shares outstanding method has been applied for per share information. |
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
22
Year Ended | ||||||||||||||
10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | 10/31/08 | ||||||||||
$12.960 | $11.740 | $9.760 | $8.310 | $14.070 | ||||||||||
(0.134 | ) | (0.090 | ) | (0.114 | ) | (0.058 | ) | (0.106 | ) | |||||
2.054 | 1.310 | 2.094 | 1.508 | (5.654 | ) | |||||||||
1.920 | 1.220 | 1.980 | 1.450 | (5.760 | ) | |||||||||
$14.880 | $12.960 | $11.740 | $9.760 | $8.310 | ||||||||||
14.81% | 10.39% | 20.29% | 17.45% | (40.94% | ) | |||||||||
$2,271 | $3,288 | $4,428 | $5,564 | $8,352 | ||||||||||
1.85% | 1.85% | 1.82% | 1.75% | 1.76% | ||||||||||
1.86% | 1.91% | 1.96% | 2.01% | 1.88% | ||||||||||
(0.94% | ) | (0.71% | ) | (1.06% | ) | (0.75% | ) | (0.90% | ) | |||||
(0.95% | ) | (0.77% | ) | (1.20% | ) | (1.01% | ) | (1.02% | ) | |||||
20% | 25% | 22% | 30% | 35% |
23
Financial highlights
Delaware U.S. Growth Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment loss1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived |
Ratio of net investment loss to average net assets |
Ratio of net investment loss to average net assets |
prior to fees waived |
Portfolio turnover |
1 The average shares outstanding method has been applied for per share information. |
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value and does not reflect the impact of a sales charge. Total investment return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
24
Year Ended | ||||||||||||||
10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | 10/31/08 | ||||||||||
$14.050 | $12.720 | $10.580 | $9.010 | $15.250 | ||||||||||
(0.146 | ) | (0.098 | ) | (0.123 | ) | (0.065 | ) | (0.115 | ) | |||||
2.226 | 1.428 | 2.263 | 1.635 | (6.125 | ) | |||||||||
2.080 | 1.330 | 2.140 | 1.570 | (6.240 | ) | |||||||||
$16.130 | $14.050 | $12.720 | $10.580 | $9.010 | ||||||||||
14.80% | 10.46% | 20.23% | 17.43% | (40.92% | ) | |||||||||
$31,103 | $13,456 | $12,535 | $13,112 | $14,536 | ||||||||||
1.85% | 1.85% | 1.82% | 1.75% | 1.76% | ||||||||||
1.86% | 1.91% | 1.96% | 2.01% | 1.88% | ||||||||||
(0.94% | ) | (0.71% | ) | (1.06% | ) | (0.75% | ) | (0.90% | ) | |||||
(0.95% | ) | (0.77% | ) | (1.20% | ) | (1.01% | ) | (1.02% | ) | |||||
20% | 25% | 22% | 30% | 35% |
25
Financial highlights
Delaware U.S. Growth Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment loss1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived |
Ratio of net investment loss to average net assets |
Ratio of net investment loss to average net assets |
prior to fees waived |
Portfolio turnover |
1 The average shares outstanding method has been applied for per share information. |
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return during all of the periods shown reflects waivers by the manager and distributor. Performance would have been lower had the waivers not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
26
Year Ended | ||||||||||||||
10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | 10/31/08 | ||||||||||
$14.660 | $13.210 | $10.930 | $9.260 | $15.600 | ||||||||||
(0.073 | ) | (0.030 | ) | (0.067 | ) | (0.022 | ) | (0.050 | ) | |||||
2.333 | 1.480 | 2.347 | 1.692 | (6.290 | ) | |||||||||
2.260 | 1.450 | 2.280 | 1.670 | (6.340 | ) | |||||||||
$16.920 | $14.660 | $13.210 | $10.930 | $9.260 | ||||||||||
15.42% | 10.98% | 20.86% | 18.03% | (40.64% | ) | |||||||||
$11,202 | $1,697 | $2,375 | $2,336 | $2,055 | ||||||||||
1.35% | 1.35% | 1.32% | 1.25% | 1.26% | ||||||||||
1.46% | 1.51% | 1.56% | 1.61% | 1.48% | ||||||||||
(0.44% | ) | (0.21% | ) | (0.56% | ) | (0.25% | ) | (0.40% | ) | |||||
(0.55% | ) | (0.37% | ) | (0.80% | ) | (0.61% | ) | (0.62% | ) | |||||
20% | 25% | 22% | 30% | 35% |
27
Financial highlights
Delaware U.S. Growth Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income (loss)1 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Total dividends and distributions |
Net asset value, end of period |
Total return2 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived |
Ratio of net investment income (loss) to average net assets |
Ratio of net investment income (loss) to average net assets |
prior to fees waived |
Portfolio turnover |
1 The average shares outstanding method has been applied for per share information. |
2 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return during all of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
See accompanying notes, which are an integral part of the financial statements.
28
Year Ended | ||||||||||||||
10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | 10/31/08 | ||||||||||
$15.830 | $14.220 | $11.710 | $9.890 | $16.580 | ||||||||||
0.011 | 0.045 | (0.008 | ) | 0.024 | 0.014 | |||||||||
2.520 | 1.587 | 2.527 | 1.813 | (6.704 | ) | |||||||||
2.531 | 1.632 | 2.519 | 1.837 | (6.690 | ) | |||||||||
(0.021 | ) | (0.022 | ) | (0.009 | ) | (0.017 | ) | — | ||||||
(0.021 | ) | (0.022 | ) | (0.009 | ) | (0.017 | ) | — | ||||||
$18.340 | $15.830 | $14.220 | $11.710 | $9.890 | ||||||||||
16.01% | 11.48% | 21.42% | 18.48% | (40.35% | ) | |||||||||
$922,606 | $563,004 | $477,361 | $460,756 | $542,554 | ||||||||||
0.85% | 0.85% | 0.82% | 0.75% | 0.76% | ||||||||||
0.86% | 0.91% | 0.96% | 1.01% | 0.88% | ||||||||||
0.06% | 0.29% | (0.06% | ) | 0.25% | 0.10% | |||||||||
0.05% | 0.23% | (0.20% | ) | (0.01% | ) | (0.02% | ) | |||||||
20% | 25% | 22% | 30% | 35% |
29
Notes to financial statements | |
Delaware U.S. Growth Fund | October 31, 2012 |
Delaware Group® Adviser Funds (Trust) is organized as a Delaware statutory trust and offers four series: Delaware Diversified Income Fund, Delaware Global Real Estate Opportunities Fund, Delaware International Bond Fund and Delaware U.S. Growth Fund. These financial statements and the related notes pertain to Delaware U.S. Growth Fund (Fund). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class B, Class C, Class R and Institutional Class shares. Class A shares are sold with a front-end sales charge of up to 5.75%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) of 1% if redeemed during the first year and 0.50% during the second year, provided that Delaware Distributors, L.P. (DDLP) paid a financial advisor a commission on the purchase of those shares. Class B shares may be purchased only through dividend reinvestment and certain permitted exchanges. Prior to June 1, 2007, Class B shares were sold with a CDSC that declined from 4% to zero depending upon the period of time the shares were held. Class B shares will automatically convert to Class A shares on a quarterly basis approximately eight years after purchase. Class C shares are sold with a CDSC of 1%, if redeemed during the first twelve months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors.
The investment objective of the Fund is to seek long-term capital appreciation by investing in equity securities of companies believed to have the potential for sustainable free cash flow growth.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and are consistently followed by the Fund.
Security Valuation — Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and ask prices will be used, which approximates fair value. U.S. government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value. Investment company securities are valued at net asset value per share, as reported by the underlying investment company. Generally, other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund’s Board of Trustees (Board). In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures or suspension of trading in a security. The Fund may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Fund values its securities generally as of 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including
30
broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Fund may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
Federal Income Taxes — No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken for all open federal income tax years (October 31, 2009 - October 31, 2012), and has concluded that no provision for federal income tax is required in the Fund’s financial statements.
Class Accounting — Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements — The Fund may purchase certain U.S. government securities subject to the counterparty’s agreement to repurchase them at an agreed upon date and price. The counterparty will be required on a daily basis to maintain the value of the collateral subject to the agreement at not less than the repurchase price (including accrued interest). The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system with the Fund’s custodian or a third party sub-custodian. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. All open repurchase agreements as of the date of this report were entered into on October 31, 2012.
Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the fair value of investments, the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the differences could be material.
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities
31
Notes to financial statements
Delaware U.S. Growth Fund
1. Significant Accounting Policies (continued)
sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Foreign dividends are also recorded on the ex-dividend date or as soon after the ex-dividend date that the Fund is aware of such dividends, net of all non-rebatable tax withholdings. Withholding taxes on foreign dividends have been recorded in accordance with the Fund’s understanding of the applicable country’s tax rules and rates. The Fund declares and pays dividends from net investment income and distributions from net realized gain on investments, if any, annually. The Fund may distribute income dividends and capital gains more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.
Subject to seeking best execution, the Fund may direct certain security trades to brokers who have agreed to rebate a portion of the related brokerage commission to the Fund in cash. Such commission rebates are included in realized gain on investments in the accompanying financial statements and totaled $3,444 for the year ended October 31, 2012. In general, best execution refers to many factors, including the price paid or received for a security, the commission charged, the promptness and reliability of execution, the confidentiality and placement accorded the order, and other factors affecting the overall benefit obtained by the Fund on the transaction.
The Fund may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. There were no earnings credits for the year ended October 31, 2012.
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which are used to offset transfer agent fees. The expense paid under this arrangement is included in dividend disbursing and transfer agent fees and expenses on the statement of operations with the corresponding expense offset shown as “expense paid indirectly.” For the year ended October 31, 2012, the Fund earned $867 under this agreement.
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.65% on the first $500 million of average daily net assets of the Fund, 0.60% on the next $500 million, 0.55% on the next $1.5 billion and 0.50% on the average daily net assets in excess $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that total annual operating expenses (excluding any 12b-1 plan and certain other expenses) do not exceed 0.85% of average daily net assets of the Fund through February 28, 2013. This waiver and reimbursements may only be terminated by agreement of the Manager and the Fund. This expense waiver and reimbursement applies only to expenses paid directly to the Fund.
32
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Fund. For these services, the Fund pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all Funds in the Delaware Investments Family of Funds on a relative net asset value basis. For the year ended October 31, 2012, the Fund was charged $40,702 for these services.
DSC is also the transfer agent and dividend disbursing agent of the Fund. The Fund pays DSC a monthly asset-based fee for these services. Pursuant to a sub-transfer agency agreement between DSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certain sub-transfer agency services to the Fund. Sub-transfer agency fees are passed on to and paid directly by the Fund.
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual distribution and service fee of 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and Class C shares and 0.60% of the average daily net assets of the Class R shares. Institutional Class shares pay no distribution and service expenses. DDLP has contracted to limit the distribution and service expenses through February 28, 2013 for Class A and Class R shares’ 12b-1 fees to 0.25% and 0.50%, respectively of average daily net assets.
At October 31, 2012, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC | $523,200 |
Dividend disbursing, transfer agent and fund accounting | |
oversight fees and other expenses payable to DSC | 24,556 |
Distribution fees payable to DDLP | 63,638 |
Other expenses payable to DMC and affiliates* | 11,488 |
*DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees’ fees.
As provided in the investment management agreement, the Fund bears the cost of certain legal and tax services, including internal legal and tax services provided to the Fund by DMC and/or its affiliates’ employees. For the year ended October 31, 2012, the Fund was charged $21,777 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
For the year ended October 31, 2012, DDLP earned $71,558 for commissions on sales of the Fund’s Class A shares. For the year ended October 31, 2012, DDLP received gross CDSC commissions of $27, $1,020, and $2,729 on redemption of the Fund’s Class A, Class B and Class C shares, respectively, and these commissions were entirely used to offset up-front commissions previously paid by DDLP to broker/dealers on sales of those shares.
33
Notes to financial statements
Delaware U.S. Growth Fund
2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued)
Trustees’ fees include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
3. Investments
For the year ended October 31, 2012, the Fund made purchases of $512,332,516 and sales of $160,850,435 of investment securities other than short-term investments.
At October 31, 2012, the cost of investments for federal income tax purposes was $887,646,910. At October 31, 2012, net unrealized appreciation was $228,670,583, of which $256,689,386 related to unrealized appreciation of investments and $28,018,803 related to unrealized depreciation of investments.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. A three level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three level hierarchy of inputs is summarized below.
Level 1 | – | inputs are quoted prices in active markets for identical investments (e.g., equity securities, open-end investment companies, futures contracts, exchange-traded options contracts) |
Level 2 | – | other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs) (e.g., debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, fair value securities) |
Level 3 | – | inputs are significant unobservable inputs (including the Fund’s own assumptions used to determine the fair value of investments) (e.g., broker-quoted securities, fair valued securities) |
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Level 3 investments are valued using significant unobservable inputs. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of October 31, 2012:
Level 1 | Level 2 | Level 3 | Total | ||||||||||
Common Stock | $ | 1,091,281,568 | $ | — | $ | — | $ | 1,091,281,568 | |||||
Warrant | 1,799,952 | — | — | 1,799,952 | |||||||||
Short-Term Investments | — | 22,558,975 | — | 22,558,975 | |||||||||
Securities Lending Collateral | — | 676,998 | — | 676,998 | |||||||||
Total | $ | 1,093,081,520 | $ | 23,235,973 | $ | — | $ | 1,116,317,493 |
The securities deemed worthless on the statement of net assets have been included as level 3 securities within the fair value hierarchy.
A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments at the beginning, interim or end of the period in relation to net assets.
During the year ended October 31, 2012, there were no transfers between Level 1 investments, Level 2 investments, or Level 3 investments that had a material impact to the Fund. The Fund’s policy is to recognize transfers between levels at the beginning of the reporting period.
Management has determined not to provide additional disclosure under ASU No. 2011-04 since the Level 3 investments are not considered material to the Fund’s net assets at the end of the period.
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Additionally, distributions from net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended October 31, 2012 and 2011 was as follows:
Year Ended | |||||
10/31/12 | 10/31/11 | ||||
Ordinary income | $ | 762,634 | $ | 744,467 |
35
Notes to financial statements
Delaware U.S. Growth Fund
5. Components of Net Assets on a Tax Basis
As of October 31, 2012, the components of net assets on a tax basis were as follows:
Shares of beneficial interest | $ | 1,025,518,066 | |
Capital loss carryforwards | (140,894,982 | ) | |
Unrealized appreciation | 228,670,583 | ||
Net assets | $ | 1,113,293,667 |
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of net operating losses, dividends and distributions and gain (loss) on foreign currency transactions. Results of operations and net assets were not affected by these reclassifications. For the year ended October 31, 2012, the Fund recorded the following reclassifications:
Distributions in excess of net investment income | $ | 13,618 | ||
Accumulated net realized loss | 1,429 | |||
Paid-in capital | (15,047 | ) |
For federal income tax purposes, capital loss carryforward may be carried forward and applied against future capital gains. $14,898,256 was utilized in October 31, 2012. Capital loss carryforwards remaining at October 31, 2012 will expire as follows: $140,894,982 expires in 2017.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the Act) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes were generally effective for taxable years beginning after the date of enactment. Under the Act, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under previous regulation.
36
6. Capital Shares
Transactions in capital shares were as follows:
Year Ended | |||||
10/31/12 | 10/31/11 | ||||
Shares sold: | |||||
Class A | 5,786,607 | 1,280,410 | |||
Class B | 782 | 13,679 | |||
Class C | 1,177,946 | 217,453 | |||
Class R | 632,605 | 59,998 | |||
Institutional Class | 21,318,038 | 10,998,934 | |||
Shares issued upon reinvestment of dividends and distributions: | |||||
Institutional Class | 38,269 | 39,784 | |||
28,954,247 | 12,610,258 | ||||
Shares redeemed: | |||||
Class A | (1,394,763 | ) | (3,867,181 | ) | |
Class B | (101,851 | ) | (137,165 | ) | |
Class C | (207,560 | ) | (244,978 | ) | |
Class R | (86,226 | ) | (124,051 | ) | |
Institutional Class | (6,597,075 | ) | (9,061,340 | ) | |
(8,387,475 | ) | (13,434,715 | ) | ||
Net increase (decrease) | 20,566,772 | (824,457 | ) |
For the years ended October 31, 2012 and 2011, 53,054 Class B shares were converted to 45,786 Class A shares valued at $773,729 and 75,628 Class B shares were converted to 65,761 Class A shares valued at $946,603, respectively. The respective amounts are included in Class B redemptions and Class A subscriptions in the table above and the statements of changes in net assets.
7. Line of Credit
The Fund, along with certain other funds in the Delaware Investments® Family of Funds (Participants), was a participant in a $100,000,000 revolving line of credit to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, the Participants were charged an annual commitment fee, which was allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants were permitted to borrow up to a maximum of one third of their net assets under the agreement. Each Participant was individually, and not jointly, liable for its particular advances, if any, under the line of credit. The line of credit under the agreement expired on November 15, 2011.
37
Notes to financial statements
Delaware U.S. Growth Fund
7. Line of Credit (continued)
On November 15, 2011, the Fund, along with the other Participants, entered into an amendment to the agreement for a $125,000,000 revolving line of credit. The agreement is to be used as described above and operates in substantially the same manner as the original agreement. The line of credit available under the agreement expired on November 13, 2012.
On November 13, 2012, the Fund, along with the other Participants, entered into an amendment to the agreement for a $125,000,000 revolving line of credit. The agreement is to be used as described above and operates in substantially the same manner as the original agreement. The line of credit available under the agreement expires on November 12, 2013. The Fund had no amounts outstanding as of October 31, 2012 or at any time during the year then ended.
8. Securities Lending
The Fund, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with The Bank of New York Mellon (BNY Mellon). At the time a security is loaned, the borrower must post collateral equal to the required percentage of the market value of the loaned security, including any accrued interest. The required percentage is: (i) 102% with respect to U.S. securities and foreign securities that are denominated and payable in U.S. dollars; and (ii) 105% with respect to foreign securities. With respect to each loan, if on any business day the aggregate market value of securities collateral plus cash collateral held is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral by the end of the following business day which, together with the collateral already held, will be not less than the applicable initial collateral requirements for such security loan. If the aggregate market value of securities collateral and cash collateral held with respect to a security loan exceeds the applicable initial collateral requirement, upon request of the borrower BNY Mellon must return enough collateral to the borrower by the end of the following business day to reduce the value of the remaining collateral to the applicable initial collateral requirement for such security loan. As a result of the foregoing, the value of the collateral held with respect to a loaned security may be temporarily more or less than the value of the security on loan.
Cash collateral received is generally invested in the Delaware Investments Collateral Fund No. 1 (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of funds managed by DMC that participate in BNY Mellon’s securities lending program. The Collective Trust may invest in U.S. government securities and high quality corporate debt, asset-backed and other money market securities and in repurchase agreements collateralized by such securities, provided that the Collective Trust will generally have a dollar-weighted average portfolio maturity of 60 days or less. In October 2008, BNY Mellon transferred certain distressed securities from the Fund’s previous collateral investment pool into the Mellon GSL Reinvestment Trust II. The Fund can also accept U.S. government securities and letters of credit (non-cash collateral) in connection
38
with securities loans. In the event of default or bankruptcy by the lending agent, realization and/ or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Fund, or at the discretion of the lending agent, replace the loaned securities. The Fund continues to record dividends or interest, as applicable, on the securities loaned and is subject to changes in value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. With respect to security loans collateralized by non-cash collateral, the Fund receives loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Fund, the security lending agent and the borrower. The Fund records security lending income net of allocations to the security lending agent and the borrower.
The Collective Trust used for the investment of cash collateral received from borrowers of securities seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. The Fund may incur investment losses as a result of investing securities lending collateral in the Collective Trust or another collateral investment pool. This could occur if an investment in a collateral investment pool defaulted or if it were necessary to liquidate assets in the collateral investment pool to meet returns on outstanding security loans at a time when the collateral investment pool’s net asset value per unit was less than $1.00. Under those circumstances, the Fund may not receive an amount from the collateral investment pool that is equal in amount to the collateral the Fund would be required to return to the borrower of the securities and the Fund would be required to make up for this shortfall.
At October 31, 2012, the value of the securities on loan was $1,621,761, for which cash collateral was received and invested in accordance with the Lending Agreement. At October 31, 2012, the value of invested collateral was $676,998. These investments are presented on the statement of net assets under the caption “Securities Lending Collateral.”
9. Credit and Market Risk
The Fund may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Fund’s Board has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 15% limit on investments in illiquid securities. As of October 31, 2012, there were no Rule 144A securities. Illiquid securities have been identified on the statement of net assets.
39
Notes to financial statements
Delaware U.S. Growth Fund
10. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
11. Subsequent Events
Except as described in Note 7, management has determined that no material events or transactions occurred subsequent to October 31, 2012 that would require recognition or disclosure in the Fund’s financial statements.
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Report of independent
registered public accounting firm
To the Board of Trustees of Delaware Group® Adviser Funds
and the Shareholders of Delaware U.S. Growth Fund:
In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Delaware U.S. Growth Fund (one of the series constituting Delaware Group Adviser Funds, hereafter referred to as the “Fund”) at October 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the two years in the period ended October 31, 2009 were audited by other independent accountants whose report dated December 22, 2009 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 14, 2012
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Other Fund information
(Unaudited)
Delaware U.S. Growth Fund
Board Consideration of Delaware U.S. Growth Fund Investment Advisory Agreement
At a meeting held on August 21-23, 2012 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware U.S. Growth Fund (the “Fund”). In making its decision, the Board considered information furnished at regular quarterly Board meetings, including reports detailing Fund performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory and sub-advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”) included materials provided by DMC and its affiliates (“Delaware Investments”) concerning, among other things, the nature, extent and quality of services provided to the Fund, the costs of such services to the Fund, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, reports were provided in May 2012 and included independent historical and comparative reports provided by Lipper, Inc., an independent statistical compilation organization (“Lipper”). The Lipper reports compared the Fund’s investment performance and expenses with those of other comparable mutual funds. The Independent Trustees reviewed and discussed the Lipper reports with independent legal counsel to the Independent Trustees. The Board requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; the structure of portfolio manager compensation; the investment manager’s profitability; comparative client fee information; and any constraints or limitations on the availability of securities in certain investment styles, which had in the past year inhibited, or which were likely in the future to inhibit, DMC’s ability to invest fully in accordance with Fund policies.
In considering information relating to the approval of the Fund’s advisory agreement, the Independent Trustees received assistance and advice from and met separately with independent legal counsel to the Independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
Nature, Extent and Quality of Service. The Board considered the services provided by Delaware Investments to the Fund and its shareholders. In reviewing the nature, extent and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Fund, compliance of portfolio managers with the investment policies, strategies and restrictions for the Fund, compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware Investments Family of Funds complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Fund’s investment advisor and the emphasis placed on research in the investment process. The Board recognized DMC’s receipt of several industry distinctions. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to fund matters. The Board noted that in July 2011 Management implemented measures to reduce
42
overall costs and improve transfer agent and shareholder servicing functions through outsourcing. The Board noted the benefits provided to Fund shareholders through each shareholder’s ability to exchange an investment in one Delaware Investments® fund for the same class of shares in another Delaware Investments fund without a sales charge, to reinvest Fund dividends into additional shares of the Fund or into additional shares of other Delaware Investments funds and the privilege to combine holdings in other Delaware Investments funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
Investment Performance. The Board placed significant emphasis on the investment performance of the Fund in view of the importance of investment performance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Investment Committee meetings throughout the year, the Board gave particular weight to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Lipper (the “Performance Universe”). A fund with the best performance ranked first, and a fund with the poorest performance ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25%, the second quartile; the next 25%, the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Fund was shown for the past one-, three-, five- and ten-year periods, as applicable, ended March 31, 2012. The Board’s objective is that the Fund’s performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Fund and the Board’s view of such performance.
The Performance Universe for the Fund consisted of the Fund and all retail and institutional large cap growth funds as selected by Lipper. The Lipper report comparison showed that the Fund’s total return for the one- and three-year periods was in the first quartile of its Performance Universe. The report further showed that the Fund’s total return for the five- and ten-year periods was in the second and third quartiles, respectively. The Board was satisfied with performance.
Comparative Expenses. The Board considered expense comparison data for the Delaware Investments Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Fund as of its most recently completed fiscal year. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Fund versus effective management fees and expense ratios of a group of similar funds as selected by Lipper (the “Expense Group”). In reviewing comparative costs, the Fund’s contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Fund’s total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency,
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Other Fund information
(Unaudited)
Delaware U.S. Growth Fund
Board Consideration of Delaware U.S. Growth Fund Investment Advisory Agreement (continued)
were shown by Lipper for Class A shares and comparative total expenses including 12b-1 and non 12b-1 service fees. The Board considered fees paid to Delaware Investments for non-management services. The Board’s objective is to limit the Fund’s total expense ratio to be competitive with that of the Expense Group. The following paragraph summarizes the expense results for the Fund and the Board’s view of such expenses.
The expense comparisons for the Fund showed that its actual management fee and total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was satisfied with the management fee and total expenses of the Fund in comparison to those of its Expense Group as shown in the Lipper report.
Management Profitability. The Board considered the level of profits realized by Delaware Investments in connection with the operation of the Fund. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflect recent operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent industry-wide Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the management fees were reasonable in light of the services rendered and the level of profitability of Delaware Investments.
Economies of Scale. The Trustees considered whether economies of scale are realized by Delaware Investments as the Fund’s assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees reviewed the standardized advisory fee pricing and structure, approved by the Board and shareholders, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case on all assets when the asset levels specified are exceeded. The Board noted that the fee under the Fund’s management contract fell within the standard structure. The Board also noted that the Fund’s assets exceeded the first breakpoint level. The Board believed that, given the extent to which economics of scale might be realized by the advisor and its affiliates, the schedule of
44
fees under the Investment Advisory Agreement provides a sharing of benefits with the Fund and its shareholders.
Tax Information
The information set forth below is for the Fund’s fiscal year as required by federal income tax laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information.
All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change. For any and all items requiring designation, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
For the fiscal year ended October 31, 2012, the Fund designates distributions paid during the year as follows:
(A) | Ordinary Income Distributions* (Tax Basis) | 100% |
(B) | Qualifying Dividends1 | 99% |
(A) | is based on a percentage of the Fund’s total distributions. |
(B) | is based on the Fund’s ordinary income distributions. |
1 Qualifying dividends represent dividends which qualify for the corporate dividends received deduction. |
* For the fiscal year ended October 31, 2012, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 and as extended by the Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010. The Fund intends to designate up to a maximum percentage of 99.23% to be taxed at a maximum rate of 15%. Complete information will be computed and reported in conjunction with your 2012 Form 1099-DIV. |
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Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
A mutual fund is governed by a Board of Trustees/Directors (“Trustees”), which has oversight responsibility for the management of a fund’s business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Interested Trustees | ||||
Patrick P. Coyne1 | Chairman, President, | Chairman and Trustee | ||
2005 Market Street | Chief Executive Officer, | since August 16, 2006 | ||
Philadelphia, PA 19103 | and Trustee | |||
April 1963 | President and | |||
Chief Executive Officer | ||||
since August 1, 2006 | ||||
1 Patrick P. Coyne is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor.
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for shareholder interests. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information.
Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Patrick P. Coyne has served in | 71 | Director and Audit | ||
various executive capacities | Committee Member | |||
at different times at | Kaydon Corp. | |||
Delaware Investments.2 | ||||
Board of Governors Member | ||||
Investment Company | ||||
Institute (ICI) | ||||
2 Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s(s’) investment advisor, principal underwriter, and its transfer agent.
47
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees | ||||
Thomas L. Bennett | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
October 1947 | ||||
John A. Fry | Trustee | Since January 2001 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
May 1960 | ||||
Anthony D. Knerr | Trustee | Since April 1990 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
December 1938 | ||||
Lucinda S. Landreth | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
June 1947 |
48
Number of Portfolios in | ||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships |
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer |
Private Investor | 71 | Director |
(March 2004–Present) | Bryn Mawr Bank Corp. (BMTC) | |
(2007–2011) | ||
President | 71 | Board of Governors Member — |
Drexel University | NASDAQ OMX PHLX LLC | |
(August 2010–Present) | ||
Director and Audit | ||
President | Committee Member | |
Franklin & Marshall College | Community Health Systems | |
(July 2002–July 2010) | ||
Director — Ecore | ||
International | ||
(2009–2010) | ||
Director — Allied | ||
Barton Securities Holdings | ||
(2005–2008) | ||
Managing Director | 71 | None |
Anthony Knerr & Associates | ||
(Strategic Consulting) | ||
(1990–Present) | ||
Private Investor | 71 | None |
(2004–Present) | ||
49
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees (continued) | ||||
Frances A. Sevilla-Sacasa | Trustee | Since September 2011 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1956 | ||||
50
Number of Portfolios in | ||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships |
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer |
Chief Executive Officer — | 71 | Trust Manager — Camden |
Banco Itaú Europa | Property Trust | |
International | (since August 2011) | |
(since April 2012) | ||
Executive Advisor to Dean | ||
(August 2011–March 2012) | ||
and Interim Dean | ||
(January 2011–July 2011) — | ||
University of Miami School of | ||
Business Administration | ||
President — U.S. Trust, | ||
Bank of America Private | ||
Wealth Management | ||
(Private Banking) | ||
(July 2007–December 2008) |
51
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees (continued) | ||||
Janet L. Yeomans | Trustee | Since April 1999 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1948 | ||||
J. Richard Zecher | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1940 | ||||
52
Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Vice President and Treasurer | 71 | Director, Audit | ||
(January 2006–July 2012) | Committee Member and | |||
Vice President — Mergers & Acquisitions | Investment Committee | |||
(January 2003–January 2006), and | Member | |||
Vice President and Treasurer | Okabena Company | |||
(July 1995–January 2003) | ||||
3M Corporation | Chair — 3M | |||
Investment Management | ||||
Company | ||||
(January 2005–July 2012) | ||||
Founder | 71 | Director and Compensation | ||
Investor Analytics | Committee Member | |||
(Risk Management) | Investor Analytics | |||
(May 1999–Present) | ||||
Director | ||||
Founder | Oxigene, Inc. | |||
P/E Investments | (2003–2008) | |||
(Hedge Fund) | ||||
(September 1996–Present) |
53
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Officers | ||||
David F. Connor | Vice President, | Vice President since | ||
2005 Market Street | Deputy General | September 2000 | ||
Philadelphia, PA 19103 | Counsel, and Secretary | and Secretary since | ||
December 1963 | October 2005 | |||
Daniel V. Geatens | Vice President | Treasurer | ||
2005 Market Street | and Treasurer | since October 2007 | ||
Philadelphia, PA 19103 | ||||
October 1972 | ||||
David P. O’Connor | Executive Vice President, | Executive Vice President | ||
2005 Market Street | General Counsel | since February 2012; | ||
Philadelphia, PA 19103 | and Chief Legal Officer | Senior Vice President | ||
February 1966 | October 2005– | |||
February 2012; | ||||
General Counsel and | ||||
Chief Legal Officer | ||||
since October 2005 | ||||
Richard Salus | Senior Vice President | Chief Financial Officer | ||
2005 Market Street | and Chief Financial Officer | since November 2006 | ||
Philadelphia, PA 19103 | ||||
October 1963 |
The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918.
54
Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
David F. Connor has served as | 71 | None3 | ||
Vice President and Deputy | ||||
General Counsel of | ||||
Delaware Investments | ||||
since 2000. | ||||
Daniel V. Geatens has served | 71 | None3 | ||
in various capacities at | ||||
different times at | ||||
Delaware Investments. | ||||
David P. O’Connor has served in | 71 | None3 | ||
various executive and legal | ||||
capacities at different times | ||||
at Delaware Investments. | ||||
Richard Salus has served in | 71 | None3 | ||
various executive capacities | ||||
at different times at | ||||
Delaware Investments. |
3 David F. Connor, Daniel V. Geatens, David P. O’Connor, and Richard Salus serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant.
55
About the organization
Board of trustees | |||
Patrick P. Coyne Thomas L. Bennett | John A. Fry Anthony D. Knerr | Lucinda S. Landreth Frances A. | Janet L. Yeomans J. Richard Zecher |
Affiliated officers | |||
David F. Connor | Daniel V. Geatens | David P. O’Connor | Richard Salus |
This annual report is for the information of Delaware U.S. Growth Fund shareholders, but it may be used with prospective investors when preceded or accompanied by the Delaware Investments Fund fact sheet for the most recently completed calendar quarter. These documents are available at delawareinvestments.com.
Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; and (ii) on the SEC’s website at sec.gov. In addition, a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities and the Fund’s Schedule of Investments are available without charge on the Fund’s website at delawareinvestments.com. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund’s website at delawareinvestments.com; and (ii) on the SEC’s website at sec.gov.
56
![](https://capedge.com/proxy/N-CSR/0001206774-13-000083/del_topimg02.jpg)
Annual report Delaware International Bond Fund October 31, 2012 Fixed income mutual fund |
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, if available, its summary prospectus, which may be obtained by visiting delawareinvestments.com or calling 800 523-1918. Investors should read the prospectus and, if available, the summary prospectus carefully before investing. |
You can obtain shareholder reports and prospectuses online instead of in the mail. Visit delawareinvestments.com/edelivery. |
Experience Delaware Investments
Delaware Investments is committed to the pursuit of consistently superior asset management and unparalleled client service. We believe in our investment processes, which seek to deliver consistent results, and in convenient services that help add value for our clients.
If you are interested in learning more about creating an investment plan, contact your financial advisor.
You can learn more about Delaware Investments or obtain a prospectus for Delaware International Bond Fund at delawareinvestments.com.
Manage your investments online |
|
Delaware Management Holdings, Inc. and its subsidiaries (collectively known by the marketing name of Delaware Investments) are wholly owned subsidiaries of Macquarie Group Limited, a global provider of banking, financial, advisory, investment and funds management services.
Investments in Delaware International Bond Fund are not and will not be deposits with or liabilities of Macquarie Bank Limited ABN 46 008 583 542 and its holding companies, including their subsidiaries or related companies (Macquarie Group), and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. No Macquarie Group company guarantees or will guarantee the performance of the Fund, the repayment of capital from the Fund, or any particular rate of return.
Table of contents | |
Portfolio management review | 1 |
Performance summary | 4 |
Disclosure of Fund expenses | 8 |
Security type/country allocation | 10 |
Statement of net assets | 12 |
Statement of operations | 22 |
Statements of changes in net assets | 24 |
Financial highlights | 26 |
Notes to financial statements | 31 |
Report of independent registered | |
public accounting firm | 46 |
Other Fund information | 47 |
Board of trustees/directors and | |
officers addendum | 52 |
About the organization | 62 |
Unless otherwise noted, views expressed herein are current as of Oct. 31, 2012, and subject to change.
Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. Delaware Investments, a member of Macquarie Group, refers to Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s distributor, Delaware Distributors, L.P. Macquarie Group refers to Macquarie Group Limited and its subsidiaries and affiliates worldwide.
© 2012 Delaware Management Holdings, Inc.
All third-party marks cited are the property of their respective owners.
Portfolio management review Delaware International Bond Fund | November 6, 2012 |
Performance preview (for the year ended October 31, 2012) | |||
Delaware International Bond Fund (Class A shares) | 1-year return | +5.23% | |
Barclays Global Aggregate ex-USD Index (benchmark) | 1-year return | +2.21% | |
Past performance does not guarantee future results. |
Throughout its fiscal year ended Oct. 31, 2012, the Fund was confronted by an investment climate that can be accurately described as “challenging,” as global economic growth disappointed and the sovereign debt crisis within Europe broadened and deepened. Global central banks continued to ease traditional monetary policy while the commitment to “unconventional measures” increased. Investors therefore had to navigate a delicate path between these often contrasting forces of traditional fundamental relationships and increasingly aggressive central bank action designed to stave off another crisis in confidence.
Though the European debt crisis has been unfolding for the past three years, the focus for much of the Fund’s fiscal year was primarily on Greece—which has now received two bailout packages in addition to subjecting private investors to a debt restructuring. However, the crisis has been broader than Greece, having already swept up Ireland, Portugal, and Spain, the latter of which represents a $1.4 trillion economy that is the world’s 12th largest as measured by gross domestic product (GDP). While outstanding Spanish government debt was elevated (at 80% of GDP) during the Fund’s fiscal year, another significant problem was that Spain’s household debt was more than 90% of GDP and corporate debt was a massive 190% of GDP. For the United States, comparable figures for government, household, and corporate debt are 97%, 95%, and 76%, respectively. (Source: Bloomberg.)
Debt markets began to focus on Spain when it admitted that it badly missed its 4.5% deficit-to-GDP target for 2011. The target has since been steadily revised higher and now stands at 8%. In early 2011, Spanish 10-year government bond yields traded below 5% before rising to a high of 7.62% on July 24, 2011. The inability of the euro zone to deliver a clear and decisive solution to its problems put the European Central Bank in an increasingly difficult situation, ultimately leading it to announce that it would do whatever was necessary to end the crisis. As of the end of the Fund’s fiscal year, no extraordinary action had been taken, though authorities have introduced a framework for a program known as outright monetary transactions (OMT) that can be engaged to support individual sovereign bond markets (so long as certain conditions are met). Since the announcement, yields on 10-year benchmark Spanish bonds have traded lower, reaching 5.37% by mid-October 2012. (Source: Barclays.)
1
Portfolio management review
Delaware International Bond Fund
As the Fund’s fiscal year wound down, European banks remained under pressure to deleverage. Doing so would have a greater global effect than U.S. deleveraging, largely because of European banks’ greater involvement in financing international trade. The dual effect of this occurring as austerity measures pressure European economies is that global growth has disappointed market expectations through 2012. For fixed income investors, the combination of slower global economic growth and increased central bank intervention has driven core bond yields lower while sending spreads higher on all other bond types.
Fund performance
For the fiscal year ended Oct. 31, 2012, Delaware International Bond Fund (Class A shares at net asset value, with all distributions reinvested) generated a +5.23% rate of return. In comparison, the Fund’s benchmark, the Barclays Global Aggregate ex-USD Index, returned +2.21% during the same period. Complete annualized performance for Delaware International Bond Fund is shown in the table on page 4.
Throughout the Fund’s fiscal year, many investors went back and forth with the degree of risk their investments entailed, often buying and selling riskier investments. Consequently, these substantive swings in so-called “risk-on” and “risk-off” investor sentiment significantly influenced Fund performance during its fiscal year. Driven by the interplay between deteriorating fundamentals and global central bank actions, the Fund (as well as its benchmark index) experienced volatile month-to-month returns. Importantly, our decision to eliminate the Fund’s holdings in peripheral European sovereign bonds was a significant contribution to its outperformance relative to the benchmark index. Instead, the Fund focused on investment grade credit and, to a lesser extent, debt issued within emerging markets. The Fund also benefited from a gradual increase in exposure to high yield bonds.
Navigating international markets
The Fund’s investment process embraces a macroeconomic view (sometimes referred to as a “top down” view) while simultaneously applying a rigorous fundamental analysis of each security—and its country of origin —being considered for investment (often referred to as a “bottom up” approach).
The Fund’s allocations to sovereign countries are generally biased toward countries with stable, in our view, political regimes, strong fiscal discipline, and contained debt dynamics. Thus, we have considered Australia, Sweden, Norway, and Germany as examples of favorable countries in the developed markets, while countries in Latin America and Asia have been particularly attractive within emerging markets. Because we remained deeply concerned about the dynamics facing several European countries, we limited allocations toward these sovereign bonds in those countries.
We believe a strong fundamental structure has been very supportive for investment grade corporate bonds, and therefore we have generally been comfortable holding a large and diverse collection of corporate bonds in the Fund’s portfolio. However, we note that many companies have seen their revenues affected by the slowing global economy, which caused us to gradually shift toward higher-quality issues as we headed
2
into the final months of 2012. In addition, many companies in the financial services sector are experiencing long-term structural changes, and we believe the transition will likely be volatile. We therefore preferred to position the Fund selectively in this particular sector and to maintain an underweight allocation relative to the benchmark index. Over the course of the Fund’s fiscal year, we gradually introduced high yield securities into its portfolio; we did this selectively, being mindful of the cycle risk that many companies are facing.
Against the global market backdrop described above, the Fund has broadly encompassed a defensive position, with an emphasis on the protection of capital. Among other measures, this strategy has resulted in the use of high-quality credit as an alternative to developed sovereign bonds, as well as a preference for selective emerging market country debt (versus debt issued by developed countries).
3
Performance summary Delaware International Bond Fund | October 31, 2012 |
The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Please obtain the performance data current for the most recent month end by calling 800 523-1918 or visiting our website at delawareinvestments.com/performance. Current performance may be lower or higher than the performance data quoted.
Fund performance1,2 | Average annual total returns through October 31, 2012 | |||||||
Lifetime | ||||||||
(if less than | ||||||||
1 year | 5 years | 10 years | 10 years) | |||||
Class A (Est. April 11, 1997) | ||||||||
Excluding sales charge | +5.23% | +7.63% | +8.32% | n/a | ||||
Including sales charge | +0.50% | +6.65% | +7.82% | n/a | ||||
Class C (Est. July 28, 2011) | ||||||||
Excluding sales charge | +4.40% | n/a | n/a | +1.80% | ||||
Including sales charge | +3.60% | n/a | n/a | +1.80% | ||||
Class R (Est. July 28, 2011) | ||||||||
Excluding sales charge | +5.00% | n/a | n/a | +2.36% | ||||
Including sales charge | +5.00% | n/a | n/a | +2.36% | ||||
Institutional Class (Est. July 28, 2011) | ||||||||
Excluding sales charge | +5.46% | n/a | n/a | +2.83% | ||||
Including sales charge | +5.46% | n/a | n/a | +2.83% |
1 Returns reflect the reinvestment of all distributions and are presented both with and without the applicable sales charges described below. Returns do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Expense limitations were in effect for certain classes during some or all of the periods shown in the “Fund performance” chart. The current expenses for each class are listed on the “Fund expense ratios” table on page 6. Performance would have been lower had expense limitations not been in effect.
Class A shares are sold with a maximum front-end sales charge of 4.50%, and have an annual distribution and service fee of 0.30% of average daily net assets. This fee has been contractually limited to 0.25% of average daily net assets from Feb. 28, 2012, through Feb. 28, 2013. Performance for Class A shares, excluding sales charges, assumes that no front-end sales charge applied. Performance for Class A shares, excluding sales charges, assumes that no front-end sales charge applied.
Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1.00% of average daily net assets.
Performance for Class C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed.
4
Class R shares are available only for certain retirement plan products. They are sold without a sales charge and have an annual distribution and service fee of 0.60% of average daily net assets, which has been limited contractually to 0.50% from Feb. 28, 2012, through Feb. 28, 2013.
Institutional Class shares are available without sales or asset-based distribution charges only to certain eligible institutional accounts.
The “Fund performance” table and the “Performance of a $10,000 investment” graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
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 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.
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.
“Nondiversified” Funds may allocate more of their net assets to investments in single securities than “diversified” Funds. Resulting adverse effects may subject these Funds to greater risks and volatility.
5
Performance summary
Delaware International Bond Fund
2 The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table. Delaware Investments has agreed to reimburse certain expenses and/or waive certain fees in order to prevent total fund operating expenses (excluding certain fees and expenses) from exceeding 0.85% of the Fund’s average daily net assets from Feb. 28, 2012, through Feb. 28, 2013. Please see the most recent prospectus and any applicable supplement(s) for additional information on these fee waivers and/or reimbursements.
Fund expense ratios | Class A | Class C | Class R | Institutional Class | |||
Total annual operating expenses | 2.65% | 3.35% | 2.95% | 2.35% | |||
(without fee waivers) | |||||||
Net expenses | 1.10% | 1.85% | 1.35% | 0.85% | |||
(including fee waivers, if any) | |||||||
Type of waiver | Contractual | Contractual | Contractual | Contractual |
Performance of a $10,000 investment1
Average annual total returns from Oct. 31, 2002, through Oct. 31, 2012
For period beginning Oct. 31, 2002, through Oct. 31, 2012 | Starting value | Ending value | ||
Delaware International Bond Fund — Class A Shares | $9,550 | $21,228 | ||
Barclays Global Aggregate ex-USD Index | $10,000 | $20,185 |
1 The “Performance of a $10,000 investment” graph assumes $10,000 invested in Class A shares of the Fund on Oct. 31, 2002, and includes the effect of a 4.50% front-end sales charge and the reinvestment of all distributions. The graph does not reflect the deduction of taxes the shareholders would pay on Fund distributions or redemptions of Fund shares. Expense limitations were in effect for some or all of the periods shown. Performance would have been lower had expense limitations not been in effect. Current expenses are listed in the “Fund expense ratios” table on page 6. Please note additional details on pages 4 through 7.
6
The chart also assumes $10,000 invested in the Barclays Global Aggregate ex-USD Index as of Oct. 31, 2002. The Barclays Global Aggregate ex-USD Index provides a broad-based measure of global investment grade fixed-rate debt markets, excluding U.S. dollar–denominated securities.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index. Past performance is not a guarantee of future results.
Performance of other Fund classes will vary due to different charges and expenses.
Nasdaq symbols | CUSIPs | ||||||||
Class A | DPIFX | 245917695 | |||||||
Class C | DCIFX | 245917687 | |||||||
Class R | DRIFX | 245917679 | |||||||
Institutional Class | DIIFX | 245917661 |
7
Disclosure of Fund expenses
For the six-month period from May 1, 2012 to October 31, 2012 (Unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period from May 1, 2012 to October 31, 2012.
Actual expenses
The first section of the table shown, “Actual Fund return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The second section of the table shown, “Hypothetical 5% return,” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The Fund’s expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions.
8
Delaware International Bond Fund
Expense analysis of an investment of $1,000
Beginning | Ending | Expenses | ||||||||||||
Account Value | Account Value | Annualized | Paid During Period | |||||||||||
5/1/12 | 10/31/12 | Expense Ratio | 5/1/12 to 10/31/12* | |||||||||||
Actual Fund return† | ||||||||||||||
Class A | $1,000.00 | $1,042.40 | 1.10% | $5.65 | ||||||||||
Class C | 1,000.00 | 1,038.10 | 1.85% | 9.48 | ||||||||||
Class R | 1,000.00 | 1,041.50 | 1.35% | 6.93 | ||||||||||
Institutional Class | 1,000.00 | 1,043.50 | 0.85% | 4.37 | ||||||||||
Hypothetical 5% return (5% return before expenses) | ||||||||||||||
Class A | $1,000.00 | $1,019.61 | 1.10% | $5.58 | ||||||||||
Class C | 1,000.00 | 1,015.84 | 1.85% | 9.37 | ||||||||||
Class R | 1,000.00 | 1,018.35 | 1.35% | 6.85 | ||||||||||
Institutional Class | 1,000.00 | 1,020.86 | 0.85% | 4.32 |
9
Security type/country allocation | |
Delaware International Bond Fund | As of October 31, 2012 (Unaudited) |
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one fund being different than another fund’s sector designations.
Security type/country | Percentage of net assets | |
Agency Collateralized Mortgage Obligation | 0.07 | % |
Corporate Bonds | 52.96 | % |
Australia | 1.98 | % |
Bermuda | 2.02 | % |
Brazil | 4.25 | % |
Canada | 4.04 | % |
Cayman Islands | 1.51 | % |
Chile | 2.43 | % |
Colombia | 0.30 | % |
France | 3.58 | % |
Ireland | 0.65 | % |
Italy | 1.06 | % |
Luxembourg | 3.42 | % |
Mexico | 2.43 | % |
Netherlands | 5.45 | % |
Qatar | 1.23 | % |
Republic of Korea | 1.37 | % |
Spain | 0.14 | % |
United Kingdom | 7.91 | % |
United States | 8.79 | % |
Venezuela | 0.40 | % |
Regional Bonds | 7.11 | % |
Australia | 5.69 | % |
Canada | 1.42 | % |
Sovereign Bonds | 31.47 | % |
Finland | 1.31 | % |
Germany | 6.00 | % |
Indonesia | 1.15 | % |
Ireland | 1.37 | % |
Malaysia | 0.77 | % |
Mexico | 4.44 | % |
Panama | 1.08 | % |
Peru | 1.04 | % |
Poland | 1.41 | % |
Portugal | 1.57 | % |
10
Security type/country | Percentage of net assets | |
Sovereign Bonds (continued) | ||
Russia | 0.77 | % |
Sri Lanka | 1.51 | % |
Sweden | 0.41 | % |
United Kingdom | 8.16 | % |
Uruguay | 0.48 | % |
Supranational Bank | 0.22 | % |
U.S. Treasury Obligation | 0.20 | % |
Option Purchased | 0.00 | % |
Short-Term Investments | 6.70 | % |
Total Value of Securities | 98.73 | % |
Receivables and Other Assets Net of Liabilities | 1.27 | % |
Total Net Assets | 100.00 | % |
11
Statement of net assets | |
Delaware International Bond Fund | October 31, 2012 |
Principal amount° | Value (U.S. $) | ||||||
Agency Collateralized Mortgage Obligation – 0.07% | |||||||
•# | FREMF Mortgage Trust Series 2012-K21 B 144A | ||||||
3.94% 7/25/45 | USD | 10,000 | $ | 10,200 | |||
Total Agency Collateralized Mortgage | |||||||
Obligation (cost $10,163) | 10,200 | ||||||
ΔCorporate Bonds – 52.96% | |||||||
Australia – 1.98% | |||||||
BHP Billiton Finance USA 3.25% 11/21/21 | 105,000 | 113,451 | |||||
# | Woodside Finance 144A 8.75% 3/1/19 | 60,000 | 80,403 | ||||
# | Woolworths 144A 4.55% 4/12/21 | 85,000 | 94,613 | ||||
288,467 | |||||||
Bermuda – 2.02% | |||||||
# | Digicel Group 144A 8.25% 9/30/20 | 200,000 | 216,500 | ||||
Weatherford International 5.125% 9/15/20 | 70,000 | 78,056 | |||||
294,556 | |||||||
Brazil – 4.25% | |||||||
Banco do Brasil 3.875% 10/10/22 | 200,000 | 199,900 | |||||
# | Oi 144A 5.75% 2/10/22 | 202,000 | 218,665 | ||||
Vale Overseas | |||||||
4.375% 1/11/22 | 36,000 | 38,500 | |||||
6.25% 1/23/17 | 140,000 | 163,194 | |||||
620,259 | |||||||
Canada – 4.04% | |||||||
Barrick Gold | |||||||
2.90% 5/30/16 | 115,000 | 121,438 | |||||
3.85% 4/1/22 | 45,000 | 48,072 | |||||
Canadian Natural Resources | |||||||
3.45% 11/15/21 | 45,000 | 48,925 | |||||
6.25% 3/15/38 | 25,000 | 33,817 | |||||
Encana 3.90% 11/15/21 | 50,000 | 54,024 | |||||
Talisman Energy 5.50% 5/15/42 | 25,000 | 29,249 | |||||
Teck Resources 4.75% 1/15/22 | 90,000 | 98,324 | |||||
• | TransCanada Pipelines 6.35% 5/15/67 | 145,000 | 155,975 | ||||
589,824 | |||||||
Cayman Islands – 1.51% | |||||||
Noble Holding International 3.95% 3/15/22 | 125,000 | 134,509 | |||||
Transocean 6.375% 12/15/21 | 70,000 | 85,331 | |||||
219,840 |
12
Principal amount° | Value (U.S. $) | ||||||
ΔCorporate Bonds (continued) | |||||||
Chile – 2.43% | |||||||
# | Banco Santander Chile 144A 3.875% 9/20/22 | USD | 150,000 | $ | 155,210 | ||
# | Telefonica Chile 144A 3.875% 10/12/22 | 200,000 | 199,189 | ||||
354,399 | |||||||
Colombia – 0.30% | |||||||
Bancolombia 5.125% 9/11/22 | 11,000 | 11,550 | |||||
Ecopetrol 7.625% 7/23/19 | 25,000 | 32,500 | |||||
44,050 | |||||||
France – 3.58% | |||||||
France Telecom 4.125% 9/14/21 | 85,000 | 95,117 | |||||
# | GDF Suez 144A 1.625% 10/10/17 | 50,000 | 50,400 | ||||
# | Pernod-Ricard 144A 4.45% 1/15/22 | 150,000 | 168,627 | ||||
Total Capital International 2.875% 2/17/22 | 125,000 | 131,827 | |||||
# | Vivendi 144A 6.625% 4/4/18 | 65,000 | 75,493 | ||||
521,464 | |||||||
Ireland – 0.65% | |||||||
# | Nara Cable Funding 144A 8.875% 12/1/18 | 100,000 | 95,000 | ||||
95,000 | |||||||
Italy – 1.06% | |||||||
# | ENI 144A 4.15% 10/1/20 | 150,000 | 153,915 | ||||
153,915 | |||||||
Luxembourg – 3.42% | |||||||
ArcelorMittal 5.75% 3/1/21 | 80,000 | 77,370 | |||||
Covidien International Finance 2.80% 6/15/15 | 110,000 | 115,805 | |||||
# | Schlumberger Investment 144A 3.30% 9/14/21 | 110,000 | 119,125 | ||||
Tyco Electronics Group 3.50% 2/3/22 | 85,000 | 88,679 | |||||
# | Wind Acquisition Finance 144A 7.25% 2/15/18 | 100,000 | 98,000 | ||||
498,979 | |||||||
Mexico – 2.43% | |||||||
America Movil SAB de CV 3.75% 6/28/17 | EUR | 145,000 | 208,155 | ||||
•# | Cemex SAB de CV 144A 5.362% 9/30/15 | USD | 150,000 | 146,625 | |||
354,780 | |||||||
Netherlands – 5.45% | |||||||
# | Carlson Wagonlit 144A 6.875% 6/15/19 | 200,000 | 210,000 | ||||
# | Deutsche Telekom International Finance 144A | ||||||
2.25% 3/6/17 | 150,000 | 153,813 |
13
Statement of net assets
Delaware International Bond Fund
Principal amount° | Value (U.S. $) | ||||||
ΔCorporate Bonds (continued) | |||||||
Netherlands (continued) | |||||||
# | Heineken 144A 3.40% 4/1/22 | USD | 125,000 | $ | 133,823 | ||
Koninklijke Philips Electronics 3.75% 3/15/22 | 115,000 | 127,527 | |||||
•# | Rabobank 144A 11.00% 12/29/49 | 115,000 | 154,719 | ||||
Syngenta Finance 3.125% 3/28/22 | 15,000 | 15,708 | |||||
795,590 | |||||||
Qatar – 1.23% | |||||||
# | Ras Laffan Liquefied Natural Gas III 144A | ||||||
5.832% 9/30/16 | 161,600 | 178,730 | |||||
178,730 | |||||||
Republic of Korea – 1.37% | |||||||
# | SK Telecom 144A 2.125% 5/1/18 | 200,000 | 200,088 | ||||
200,088 | |||||||
Spain – 0.14% | |||||||
Telefonica Emisiones 5.462% 2/16/21 | 20,000 | 20,375 | |||||
20,375 | |||||||
United Kingdom – 7.91% | |||||||
Abbey National Treasury Services 4.00% 4/27/16 | 50,000 | 52,501 | |||||
# | Algeco Scotsman Global Finance 144A | ||||||
8.50% 10/15/18 | 200,000 | 207,000 | |||||
# | BG Energy Capital 144A 4.00% 12/9/20 | 100,000 | 112,796 | ||||
# | Ceva Group 144A 8.375% 12/1/17 | 200,000 | 194,500 | ||||
Ensco 4.70% 3/15/21 | 105,000 | 121,121 | |||||
HSBC Holdings 6.25% 3/19/18 | EUR | 100,000 | 150,474 | ||||
# | Ineos Finance 144A 8.375% 2/15/19 | USD | 100,000 | 105,375 | |||
Rio Tinto Finance USA 1.625% 8/21/17 | 100,000 | 100,575 | |||||
Virgin Media Secured Finance 6.50% 1/15/18 | 100,000 | 109,000 | |||||
1,153,342 | |||||||
United States – 8.79% | |||||||
Anheuser-Busch Inbev Worldwide 1.375% 7/15/17 | 65,000 | 66,055 | |||||
Burlington Northern Santa Fe 5.65% 5/1/17 | 30,000 | 35,759 | |||||
CenturyLink 6.45% 6/15/21 | 75,000 | 82,358 | |||||
Comcast 6.30% 11/15/17 | 35,000 | 43,510 | |||||
Commonwealth Edison 1.95% 9/1/16 | 45,000 | 46,616 | |||||
# | Crown Castle Towers 144A 4.883% 8/15/20 | 35,000 | 40,061 | ||||
CSX 5.60% 5/1/17 | 30,000 | 35,449 | |||||
Domtar 4.40% 4/1/22 | 10,000 | 10,358 |
14
Principal amount° | Value (U.S. $) | ||||||
ΔCorporate Bonds (continued) | |||||||
United States (continued) | |||||||
Dow Chemical 8.55% 5/15/19 | USD | 30,000 | $ | 40,737 | |||
Enterprise Products Operating 6.30% 9/15/17 | 45,000 | 55,231 | |||||
• | Fifth Third Capital Trust IV 6.50% 4/15/37 | 55,000 | 55,344 | ||||
General Electric Capital | |||||||
5.30% 2/11/21 | 40,000 | 46,623 | |||||
5.50% 2/1/17 | NZD | 30,000 | 26,128 | ||||
Hewlett-Packard 4.65% 12/9/21 | USD | 25,000 | 25,071 | ||||
International Paper 4.75% 2/15/22 | 40,000 | 45,632 | |||||
Jersey Central Power & Light 5.625% 5/1/16 | 50,000 | 57,464 | |||||
JPMorgan Chase 2.92% 9/19/17 | CAD | 105,000 | 105,567 | ||||
Kinder Morgan Energy Partners 6.00% 2/1/17 | USD | 20,000 | 23,691 | ||||
# | Kraft Foods Group 144A 3.50% 6/6/22 | 20,000 | 21,729 | ||||
Laboratory Corporation of America Holdings | |||||||
2.20% 8/23/17 | 65,000 | 67,069 | |||||
Lowe’s 3.12% 4/15/22 | 30,000 | 31,745 | |||||
Molson Coors Brewing 2.00% 5/1/17 | 60,000 | 62,038 | |||||
National Semiconductor 6.60% 6/15/17 | 55,000 | 68,339 | |||||
Noble Energy 4.15% 12/15/21 | 20,000 | 22,088 | |||||
Safeway 4.75% 12/1/21 | 15,000 | 15,719 | |||||
SCANA 4.125% 2/1/22 | 15,000 | 15,781 | |||||
Tyson Foods 4.50% 6/15/22 | 25,000 | 26,625 | |||||
UDR 4.625% 1/10/22 | 15,000 | 16,759 | |||||
United Technologies 3.10% 6/1/22 | 15,000 | 16,185 | |||||
Vornado Realty 5.00% 1/15/22 | 15,000 | 17,044 | |||||
• | Wisconsin Energy 6.25% 5/15/67 | 55,000 | 59,046 | ||||
1,281,821 | |||||||
Venezuela – 0.40% | |||||||
Petroleos de Venezuela 9.00% 11/17/2021 | 70,000 | 58,275 | |||||
58,275 | |||||||
Total Corporate Bonds (cost $7,343,690) | 7,723,754 | ||||||
ΔRegional Bonds – 7.11% | |||||||
Australia – 5.69% | |||||||
New South Wales Treasury | |||||||
6.00% 4/1/19 | AUD | 189,000 | 225,488 | ||||
6.00% 3/1/22 | AUD | 178,000 | 216,040 |
15
Statement of net assets
Delaware International Bond Fund
Principal amount° | Value (U.S. $) | ||||||
ΔRegional Bonds (continued) | |||||||
Australia (continued) | |||||||
Queensland Treasury | |||||||
6.00% 10/21/15 | AUD | 135,000 | $ | 151,262 | |||
6.25% 6/14/19 | AUD | 100,000 | 120,723 | ||||
Treasury of Victoria 6.00% 10/17/22 | AUD | 94,000 | 115,496 | ||||
829,009 | |||||||
Canada – 1.42% | |||||||
Province of Quebec 4.25% 12/1/21 | CAD | 185,000 | 207,522 | ||||
207,522 | |||||||
Total Regional Bonds (cost $1,006,070) | 1,036,531 | ||||||
ΔSovereign Bonds – 31.47% | |||||||
Finland – 1.31% | |||||||
Finland Government Bond 3.875% 9/15/17 | EUR | 128,000 | 190,967 | ||||
190,967 | |||||||
Germany – 6.00% | |||||||
Deutschland Republic | |||||||
2.00% 1/4/22 | EUR | 107,000 | 146,356 | ||||
2.50% 1/4/21 | EUR | 67,886 | 97,107 | ||||
3.50% 7/4/19 | EUR | 233,000 | 353,489 | ||||
6.25% 1/4/24 | EUR | 145,000 | 277,880 | ||||
874,832 | |||||||
Indonesia – 1.15% | |||||||
Indonesia Treasury Bond 7.00% 5/15/27 | IDR | 1,500,000,000 | 168,269 | ||||
168,269 | |||||||
Ireland – 1.37% | |||||||
Ireland Government Bond 4.50% 10/18/18 | EUR | 150,000 | 200,162 | ||||
200,162 | |||||||
Malaysia – 0.77% | |||||||
Malaysia Government Bond 4.262% 9/15/16 | MYR | 330,000 | 112,791 | ||||
112,791 | |||||||
Mexico – 4.44% | |||||||
Mexican Bonos | |||||||
6.00% 6/18/15 | MXN | 1,265,000 | 99,037 | ||||
8.00% 12/17/15 | MXN | 3,461,000 | 286,482 |
16
Principal amount° | Value (U.S. $) | ||||||
ΔSovereign Bonds (continued) | |||||||
Mexico (continued) | |||||||
Mexico Government International Bond | |||||||
4.75% 3/8/44 | USD | 236,000 | $ | 262,550 | |||
648,069 | |||||||
Panama – 1.08% | |||||||
Panama Government International Bond | |||||||
6.70% 1/26/36 | 110,000 | 157,135 | |||||
157,135 | |||||||
Peru – 1.04% | |||||||
Peruvian Government International Bond | |||||||
7.125% 3/30/19 | 115,000 | 151,800 | |||||
151,800 | |||||||
Poland – 1.41% | |||||||
^ | Poland Government Bond 4.173% 7/25/14 | PLN | 700,000 | 205,586 | |||
205,586 | |||||||
Portugal – 1.57% | |||||||
Portugal Obrigacoes do Tesouro 4.45% 6/15/18 | EUR | 200,000 | 228,216 | ||||
228,216 | |||||||
Russia – 0.77% | |||||||
Russian Eurobond 7.50% 3/31/30 | USD | 88,350 | 112,054 | ||||
112,054 | |||||||
Sri Lanka – 1.51% | |||||||
# | Sri Lanka Government International Bond 144A | ||||||
5.875% 7/25/22 | 200,000 | 220,000 | |||||
220,000 | |||||||
Sweden – 0.41% | |||||||
Swedish Government Bond 3.00% 7/12/16 | SEK | 365,000 | 59,141 | ||||
59,141 | |||||||
United Kingdom – 8.16% | |||||||
United Kingdom Gilt | |||||||
1.75% 1/22/17 | GBP | 65,000 | 109,643 | ||||
4.00% 3/7/22 | GBP | 212,000 | 410,759 | ||||
5.00% 3/7/25 | GBP | 314,200 | 669,201 | ||||
1,189,603 |
17
Statement of net assets
Delaware International Bond Fund
Principal amount° | Value (U.S. $) | ||||||
ΔSovereign Bonds (continued) | |||||||
Uruguay – 0.48% | |||||||
Uruguay Government International Bond | |||||||
8.00% 11/18/22 | USD | 48,750 | $ | 70,688 | |||
70,688 | |||||||
Total Sovereign Bonds (cost $4,398,550) | 4,589,313 | ||||||
Supranational Bank – 0.22% | |||||||
Corp Andina de Fomento 4.375% 6/15/22 | 30,000 | 32,771 | |||||
Total Supranational Bank (cost $32,372) | 32,771 | ||||||
U.S. Treasury Obligation – 0.20% | |||||||
U.S. Treasury Note 1.625% 8/15/22 | 30,000 | 29,841 | |||||
Total U.S. Treasury Obligation (cost $29,876) | 29,841 | ||||||
Number of contracts | |||||||
Option Purchased – 0.00% | |||||||
Put Option – 0.00% | |||||||
AUD, strike price $1.00, expires 11/14/12 (BAML) | 37,000 | 9 | |||||
Total Option Purchased (cost $365) | 9 | ||||||
Principal amount° | |||||||
Short-Term Investments – 6.70% | |||||||
≠Discount Note – 0.04% | |||||||
Federal Home Loan Bank 0.095% 11/28/12 | USD | 4,929 | 4,929 | ||||
4,929 | |||||||
Repurchase Agreements – 5.45% | |||||||
Bank of America 0.24%, dated 10/31/12, to | |||||||
be repurchased on 11/1/12, repurchase price | |||||||
$308,053 (collateralized by U.S. government | |||||||
obligations 0.00%-1.25% 1/10/13-8/31/16; | |||||||
market value $314,212) | 308,051 | 308,051 | |||||
BNP Paribas 0.28%, dated 10/31/12, to be | |||||||
repurchased on 11/1/12, repurchase price | |||||||
$486,953 (collateralized by U.S. government | |||||||
obligations 0.00-2.00% 1/24/13-4/15/16; | |||||||
market value $496,688) | 486,949 | 486,949 | |||||
795,000 |
18
Principal amount° | Value (U.S. $) | ||||||||
Short-Term Investments (continued) | |||||||||
≠U.S. Treasury Obligation – 1.21% | |||||||||
U.S. Treasury Bill 0.05% 11/15/12 | USD | 176,946 | $ | 176,943 | |||||
176,943 | |||||||||
Total Short-Term Investments (cost $976,868) | 976,872 | ||||||||
Total Value of Securities – 98.73% | |||||||||
(cost $13,797,954) | 14,399,291 | ||||||||
«Receivables and Other Assets Net of | |||||||||
Liabilities – 1.27% | 185,767 | ||||||||
Net Assets Applicable to 1,553,593 | |||||||||
Shares Outstanding – 100.00% | $ | 14,585,058 | |||||||
Net Asset Value – Delaware International Bond Fund | |||||||||
Class A ($13,130,270 / 1,398,551 Shares) | $9.39 | ||||||||
Net Asset Value – Delaware International Bond Fund | |||||||||
Class C ($1,271,923 / 135,569 Shares) | $9.38 | ||||||||
Net Asset Value – Delaware International Bond Fund | |||||||||
Class R ($25,789 / 2,747 Shares) | $9.39 | ||||||||
Net Asset Value – Delaware International Bond Fund | |||||||||
Institutional Class ($157,076 / 16,726 Shares) | $9.39 | ||||||||
Components of Net Assets at October 31, 2012: | |||||||||
Shares of beneficial interest (unlimited authorization – no par) | $ | 14,301,005 | |||||||
Distributions in excess of net investment income | (53,747 | ) | |||||||
Accumulated net realized loss on investments | (265,309 | ) | |||||||
Net unrealized appreciation of investments and derivatives | 603,109 | ||||||||
Total net assets | $ | 14,585,058 |
° | Principal amount is stated in the currency in which each security is denominated. |
Δ | Securities have been classified by country of origin. |
# | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At October 31, 2012, the aggregate value of Rule 144A securities was $3,814,599, which represented 26.15% of the Fund’s net assets. See Note 11 in “Notes to financial statements.” |
• | Variable rate security. The rate shown is the rate as of October 31, 2012. Interest rates reset periodically. |
19
Statement of net assets
Delaware International Bond Fund
^ | Zero coupon security. The rate shown is the yield at the time of purchase. |
≠ | The rate shown is the effective yield at the time of purchase. |
« | Includes foreign currency valued at $365,786 with a cost of $365,493. |
Net Asset Value and Offering Price Per Share – | |||
Delaware International Bond Fund | |||
Net asset value Class A (A) | $ | 9.39 | |
Sales charges (4.50% of offering price) (B) | 0.44 | ||
Offering price | $ | 9.83 |
(A) | Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. |
(B) | See the current prospectus for purchases of $100,000 or more. |
The following foreign currency exchange contracts were outstanding at October 31, 2012:1
Foreign Currency Exchange Contracts
Unrealized | ||||||||||||||||
Appreciation | ||||||||||||||||
Counterparty | Contracts to Receive (Deliver) | In Exchange For | Settlement Date | (Depreciation) | ||||||||||||
BAML | AUD | (679,493 | ) | USD | 701,356 | 12/14/12 | $ | (1,109 | ) | |||||||
BAML | BRL | 203,250 | USD | (99,530 | ) | 12/14/12 | (109 | ) | ||||||||
BAML | CAD | 560,842 | USD | (560,220 | ) | 12/14/12 | 653 | |||||||||
BAML | EUR | 2,177,491 | USD | (2,817,346 | ) | 12/14/12 | 5,499 | |||||||||
BAML | GBP | 100,000 | USD | (160,585 | ) | 12/14/12 | 762 | |||||||||
BAML | INR | 10,794,000 | USD | (198,401 | ) | 12/14/12 | 479 | |||||||||
BAML | JPY | 209,419,570 | USD | (2,628,852 | ) | 12/14/12 | (3,853 | ) | ||||||||
BAML | MXN | (1,288,710 | ) | USD | 98,324 | 12/14/12 | 376 | |||||||||
BAML | NOK | (100,687 | ) | USD | 17,395 | 12/14/12 | (233 | ) | ||||||||
BAML | PHP | 4,162,100 | USD | (101,071 | ) | 12/14/12 | 153 | |||||||||
BAML | SEK | (107,421 | ) | USD | 16,064 | 12/14/12 | (98 | ) | ||||||||
CITI | TRY | 359,190 | USD | (198,395 | ) | 12/14/12 | 777 | |||||||||
HSBC | GBP | (64,161 | ) | USD | 102,906 | 12/14/12 | (615 | ) | ||||||||
MSC | GBP | (65,333 | ) | USD | 104,776 | 12/14/12 | (636 | ) | ||||||||
MSC | PHP | 4,160,500 | USD | (101,106 | ) | 12/14/12 | 79 | |||||||||
$ | 2,125 |
The use of foreign currency exchange contracts involves elements of market risk and risks in excess of the amounts disclosed in the financial statements. The foreign currency exchange contracts presented above represent the Fund’s total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Fund’s net assets.
1See Note 9 in “Notes to financial statements.”
20
Summary of abbreviations: |
See accompanying notes, which are an integral part of the financial statements.
21
Statement of operations | |
Delaware International Bond Fund | Year Ended October 31, 2012 |
Investment Income: | |||
Interest | $ | 446,469 | |
Foreign tax withheld | (80 | ) | |
446,389 | |||
Expenses: | |||
Registration fees | 121,628 | ||
Management fees | 79,346 | ||
Distribution expenses – Class A | 35,112 | ||
Distribution expenses – Class C | 4,139 | ||
Distribution expenses – Class R | 100 | ||
Legal fees | 38,915 | ||
Reports and statements to shareholders | 26,102 | ||
Audit and tax | 22,498 | ||
Dues and services | 8,834 | ||
Custodian fees | 7,788 | ||
Dividend disbursing and transfer agent fees and expenses | 7,299 | ||
Accounting and administration expenses | 4,772 | ||
Pricing fees | 4,644 | ||
Trustees’ fees | 562 | ||
Insurance fees | 189 | ||
Consulting fees | 85 | ||
Trustees’ expenses | 33 | ||
362,046 | |||
Less fees waived | (218,959 | ) | |
Less waived distribution expenses – Class A | (5,852 | ) | |
Less waived distribution expenses – Class R | (17 | ) | |
Less expense paid indirectly | (4 | ) | |
Total operating expenses | 137,214 | ||
Net Investment Income | 309,175 |
22
Net Realized and Unrealized Gain (Loss): | |||
Net realized gain (loss) on: | |||
Investments | $ | 185,632 | |
Foreign currencies | 68,599 | ||
Foreign currency exchange contracts | (251,075 | ) | |
Futures contracts | (45,870 | ) | |
Swap contracts | (27,841 | ) | |
Options written | 1,265 | ||
Net realized loss | (69,290 | ) | |
Net change in unrealized appreciation (depreciation) of: | |||
Investments | 393,298 | ||
Foreign currencies | (9,287 | ) | |
Foreign currency exchange contracts | 52,935 | ||
Net change in unrealized appreciation (depreciation) | 436,946 | ||
Net Realized and Unrealized Gain | 367,656 | ||
Net Increase in Net Assets Resulting from Operations | $ | 676,831 |
See accompanying notes, which are an integral part of the financial statements.
23
Statements of changes in net assets
Delaware International Bond Fund
Year Ended | ||||||||
10/31/12 | 10/31/11 | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 309,175 | $ | 382,004 | ||||
Net realized gain (loss) | (69,290 | ) | 2,587,604 | |||||
Net change in unrealized appreciation (depreciation) | 436,946 | (2,889,582 | ) | |||||
Net increase in net assets resulting from operations | 676,831 | 80,026 | ||||||
Dividends and Distributions to Shareholders from: | ||||||||
Net investment income: | ||||||||
Class A | (2,570,576 | ) | (951,076 | ) | ||||
Class C | (44,741 | ) | (1,007 | ) | ||||
Class R | (399 | ) | — | |||||
Institutional Class | (4,790 | ) | (98 | ) | ||||
(2,620,506 | ) | (952,181 | ) | |||||
Capital Share Transactions: | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 2,682,936 | 20,541,599 | ||||||
Class C | 1,100,808 | 179,034 | ||||||
Class R | 24,520 | 36 | ||||||
Institutional Class | 141,369 | 21,406 | ||||||
Net asset value of shares issued upon reinvestment | ||||||||
of dividends and distributions: | ||||||||
Class A | 2,564,714 | 951,031 | ||||||
Class C | 44,432 | 952 | ||||||
Class R | 399 | — | ||||||
Institutional Class | 4,790 | 98 | ||||||
Net assets from reorganization*: | ||||||||
Class A | — | — | ||||||
6,563,968 | 21,694,156 |
24
Year Ended | ||||||||
10/31/12 | 10/31/11 | |||||||
Capital Share Transactions (continued): | ||||||||
Cost of shares redeemed: | ||||||||
Class A | $ | (528,987 | ) | $ | (31,645,919 | ) | ||
Class C | (21,111 | ) | (10,000 | ) | ||||
Institutional Class | (3,937 | ) | (5,502 | ) | ||||
(554,035 | ) | (31,661,421 | ) | |||||
Increase (decrease) in net assets derived from | ||||||||
capital share transactions | 6,009,933 | (9,967,265 | ) | |||||
Net Increase (Decrease) in Net Assets | 4,066,258 | (10,839,420 | ) | |||||
Net Assets: | ||||||||
Beginning of year | 10,518,800 | 21,358,220 | ||||||
End of year (including undistributed (distributions in | ||||||||
excess of) net investment income of (53,747) and | ||||||||
$2,259,711, respectively) | $ | 14,585,058 | $ | 10,518,800 |
*See Note 7 in ”Notes to financial statements.”
See accompanying notes, which are an integral part of the financial statements.
25
Financial highlights
Delaware International Bond Fund Class A
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income from investment operations: |
Net investment income2 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Total dividends and distributions |
Net asset value, end of period |
Total return3 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived |
Portfolio turnover |
See accompanying notes, which are an integral part of the financial statements.
26
Year Ended | |||||||||||||||
10/31/12 | 10/31/111 | 10/31/101 | 10/31/091 | 10/31/081 | |||||||||||
$11.690 | $12.140 | $12.430 | $11.570 | $11.740 | |||||||||||
0.239 | 0.269 | 0.279 | 0.876 | 0.265 | |||||||||||
0.190 | (0.124 | ) | 0.752 | 1.173 | 0.189 | ||||||||||
0.429 | 0.145 | 1.031 | 2.049 | 0.454 | |||||||||||
(2.729 | ) | (0.595 | ) | (1.321 | ) | (1.189 | ) | (0.624 | ) | ||||||
(2.729 | ) | (0.595 | ) | (1.321 | ) | (1.189 | ) | (0.624 | ) | ||||||
$9.390 | $11.690 | $12.140 | $12.430 | $11.570 | |||||||||||
5.23% | 1.52% | 9.33% | 18.86% | 4.04% | |||||||||||
$13,130 | $10,337 | $21,358 | $19,538 | $29,815 | |||||||||||
1.10% | 0.72% | 0.60% | 0.60% | 0.60% | |||||||||||
2.94% | 1.28% | 0.81% | 0.79% | 0.72% | |||||||||||
2.56% | 2.33% | 2.48% | 7.73% | 2.22% | |||||||||||
0.72% | 1.77% | 2.27% | 7.54% | 2.10% | |||||||||||
132% | 151% | 31% | 98% | 26% |
27
Financial highlights
Delaware International Bond Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
Year | 7/28/111 | ||||||
Ended | to | ||||||
10/31/12 | 10/31/11 | ||||||
Net asset value, beginning of period | $11.690 | $12.020 | |||||
Income (loss) from investment operations: | |||||||
Net investment income (loss)2 | 0.170 | (0.025 | ) | ||||
Net realized and unrealized gain (loss) | 0.184 | (0.218 | ) | ||||
Total from investment operations | 0.354 | (0.243 | ) | ||||
Less dividends and distributions from: | |||||||
Net investment income | (2.664 | ) | (0.087 | ) | |||
Total dividends and distributions | (2.664 | ) | (0.087 | ) | |||
Net asset value, end of period | $9.380 | $11.690 | |||||
Total return3 | 4.40% | (2.03% | ) | ||||
Ratios and supplemental data: | |||||||
Net assets, end of period (000 omitted) | $1,272 | $166 | |||||
Ratio of expenses to average net assets | 1.82% | 1.85% | |||||
Ratio of expenses to average net assets | |||||||
prior to fees waived | 3.61% | 3.84% | |||||
Ratio of net investment income (loss) to average net assets | 1.84% | (0.81% | ) | ||||
Ratio of net investment income (loss) to average net assets | |||||||
prior to fees waived | 0.05% | (2.80% | ) | ||||
Portfolio turnover | 132% | 151% | 4 |
See accompanying notes, which are an integral part of the financial statements.
28
Delaware International Bond Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
Year | 7/28/111 | ||||||
Ended | to | ||||||
10/31/12 | 10/31/11 | ||||||
Net asset value, beginning of period | $11.690 | $12.020 | |||||
Income (loss) from investment operations: | |||||||
Net investment income (loss)2 | 0.210 | (0.013 | ) | ||||
Net realized and unrealized gain (loss) | 0.198 | (0.215 | ) | ||||
Total from investment operations | 0.408 | (0.228 | ) | ||||
Less dividends and distributions from: | |||||||
Net investment income | (2.708 | ) | (0.102 | ) | |||
Total dividends and distributions | (2.708 | ) | (0.102 | ) | |||
Net asset value, end of period | $9.390 | $11.690 | |||||
Total return3 | 5.00% | (1.91% | ) | ||||
Ratios and supplemental data: | |||||||
Net assets, end of period (000 omitted) | $26 | $— | |||||
Ratio of expenses to average net assets | 1.35% | 1.35% | |||||
Ratio of expenses to average net assets | |||||||
prior to fees waived | 3.24% | 3.44% | |||||
Ratio of net investment income (loss) to average net assets | 2.31% | (0.31% | ) | ||||
Ratio of net investment income (loss) to average net assets | |||||||
prior to fees waived | 0.42% | (2.40% | ) | ||||
Portfolio turnover | 132% | 151% | 4 |
See accompanying notes, which are an integral part of the financial statements.
29
Financial highlights
Delaware International Bond Fund Institutional Class
Selected data for each share of the Fund outstanding throughout each period were as follows:
Year | 7/28/111 | ||||||
Ended | to | ||||||
10/31/12 | 10/31/11 | ||||||
Net asset value, beginning of period | $11.690 | $12.020 | |||||
Income (loss) from investment operations: | |||||||
Net investment income2 | 0.259 | 0.006 | |||||
Net realized and unrealized gain (loss) | 0.191 | (0.218 | ) | ||||
Total from investment operations | 0.450 | (0.212 | ) | ||||
Less dividends and distributions from: | |||||||
Net investment income | (2.750 | ) | (0.118 | ) | |||
Total dividends and distributions | (2.750 | ) | (0.118 | ) | |||
Net asset value, end of period | $9.390 | $11.690 | |||||
Total return3 | 5.46% | (1.77% | ) | ||||
Ratios and supplemental data: | |||||||
Net assets, end of period (000 omitted) | $157 | $16 | |||||
Ratio of expenses to average net assets | 0.85% | 0.85% | |||||
Ratio of expenses to average net assets | |||||||
prior to fees waived | 2.64% | 2.84% | |||||
Ratio of net investment income to average net assets | 2.81% | 0.19% | |||||
Ratio of net investment income (loss) to average net assets | |||||||
prior to fees waived | 1.02% | (1.80% | ) | ||||
Portfolio turnover | 132% | 151% | 4 |
1 Date of commencement of operations; ratios have been annualized and total return has not been annualized. |
2 The average shares outstanding method has been applied for per share information. |
3 Total investment return is based on the change in net asset value of a share during the period and assumes reinvestment of dividends and distributions at net asset value. Total investment return during all of the periods shown reflect a waiver by the manager. Performance would have been lower had the waivers not been in effect. |
4 Portfolio Turnover is representative of the Fund for the period November 1, 2010 through October 31, 2011. |
See accompanying notes, which are an integral part of the financial statements.
30
Notes to financial statements | |
Delaware International Bond Fund | October 31, 2012 |
Delaware Group® Adviser Funds (Trust) is organized as Delaware statutory trust and four series: Delaware Diversified Income Fund, Delaware Global Real Estate Opportunities Fund, Delaware International Bond Fund and Delaware U.S. Growth Fund. These financial statements and the related notes pertain to the Delaware International Bond Fund (Fund). The Trust is an open-end investment company. The Fund is considered diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class C, Class R and Institutional Class shares. Class A shares are sold with a maximum front-end sales charge of up to 4.50%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) of 1% if redeemed during the first year and 0.50% during the second year, provided that Delaware Distributors, L.P. (DDLP) paid a financial advisor a commission on the purchase of those shares. Class C shares are sold with a CDSC of 1%, if redeemed during the first twelve months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors.
The investment objective of the Fund is to seek total return.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and are consistently followed by the Fund.
Security Valuation — Securities listed on a foreign exchange are normally valued at the last quoted sales price on the valuation date. U.S. government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value. Other debt securities and credit default swap (CDS) contracts are valued based upon valuations provided by an independent pricing service or counterparty and reviewed by management. To the extent current market prices are not available, the pricing service may take into account developments related to the specific security, as well as transactions in comparable securities. Valuations for fixed income securities utilize matrix systems, which reflect such factors as security prices, yields, maturities, and ratings, and are supplemented by dealer and exchange quotations. Swaps prices are derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash flows, trades and values of the underlying reference instruments. Foreign currency exchange contracts are valued at the mean between the bid and ask price, which approximates fair value. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. Futures contracts and options on futures contracts are valued at the daily quoted settlement prices. Exchange-traded options are valued at the last reported sale price or, if no sales are reported, at the mean between the last reported bid and ask prices, which approximates fair value. Generally, other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund’s Board of Trustees (Board). In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures or suspension of trading in a security. The Fund may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Fund values its securities, generally
31
Notes to financial statements
Delaware International Bond Fund
1. Significant Accounting Policies (continued)
as of 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Fund may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
Federal Income Taxes — No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken for all open federal income tax years (October 31, 2009 – October 31, 2012), and has concluded that no provision for federal income tax is required in the Fund’s financial statements.
Class Accounting — Investment income, common expenses and realized and unrealized gains (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements — The Fund may purchase certain U.S. government securities subject to the counterparty’s agreement to repurchase them at an agreed upon date and price. The counterparty will be required on a daily basis to maintain the value of the collateral subject to the agreement at not less than the repurchase price (including accrued interest). The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system with the Fund’s custodian or a third-party sub-custodian. In the event of default or bankruptcy by the other-party to the agreement, retention of the collateral may be subject to legal proceedings. All open repurchase agreements as of the date of this report were entered into on October 31, 2012.
Foreign Currency Transactions — Transactions denominated in foreign currencies are recorded at the prevailing exchange rates on the valuation date in accordance with the Fund’s prospectus. The value of all assets and liabilities denominated in foreign currencies is translated into U.S. dollars at the exchange rate of such currencies against the U.S. dollar daily. Transaction gains or losses resulting from changes in exchange rates during the reporting period or upon settlement of the foreign currency transaction are reported in operations for the current period. The Fund generally isolates that portion of realized gains and losses on investments in debt securities, which is due to changes in foreign exchange rates from that which is due to changes in market prices of debt securities. The Fund reports certain foreign currency related transactions as components of realized gains (losses) for financial reporting purposes, whereas such components are treated as ordinary income (loss) for federal income tax purposes.
32
Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the fair value of investments, reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the differences could be material.
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Interest income is recorded on the accrual basis. Discounts and premiums on debt securities are amortized to interest income over the estimated lives of the respective securities using the effective interest method. Withholding taxes on foreign interest have been recorded in accordance with the Fund’s understanding of the applicable country’s tax rules and rates. The Fund declares and pays dividends from net investment income monthly and distributions from net realized gain on investments, if any, annually. The Fund may distribute income dividends and capital gains more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.
The Fund may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. There were no earnings credits for the year ended October 31, 2012.
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which are used to offset transfer agent fees. The expense paid under this arrangement is included in dividend disbursing and transfer agent fees and expenses on the statement of operations with the corresponding expense offset shown as “expense paid indirectly.” For the year ended October 31, 2012, the Fund earned $4 under this agreement.
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.65% on the first $500 million of average daily net assets of the Fund, 0.60% on the next $500 million, 0.55% on the next $1.5 billion, and 0.50% on average daily net assets in excess of $2.5 billion.
DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that total annual operating expenses (excluding any 12b-1 fees, taxes, interest, short sale and dividend interest expenses, brokerage fees,
33
Notes to financial statements
Delaware International Bond Fund
2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued)
certain insurance costs, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations) do not exceed 0.85% of average daily net assets of the Fund through February 28, 2013. This expense waiver and reimbursement may only be terminated by agreement of the Fund’s Board and DMC. This expense waiver and reimbursement apply only to expenses paid directly by the Fund.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Fund. For these services, the Fund pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all Funds in the Delaware Investments® Family of Funds on a relative net asset value basis. For the year ended October 31, 2012, the Fund was charged $599 for these services.
DSC is also the transfer agent and dividend disbursing agent of the Fund. The Fund pays DSC a monthly asset-based fee for these services. Pursuant to a sub-transfer agency agreement between DSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certain sub-transfer agency services to the Fund. Sub-transfer agency fees are passed on to and paid directly by the Fund.
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class C shares and 0.60% of the average daily net assets of the Class R shares. Institutional Class shares pay no distribution and service expenses. DDLP has contracted to limit the Class A and Class R shares 12b-1 fees through February 28, 2013 to 0.25% and 0.50% of their respective average daily net assets.
At October 31, 2012, the Fund had receivables due from or liabilities payable to affiliates as follows:
Receivable from DMC under expense limitation agreement | $ | 5,618 |
Dividend disbursing, transfer agent and fund accounting | ||
oversight fees and other expenses payable to DSC | 336 | |
Distribution fees payable to DDLP | 3,731 | |
Other expenses payable to DMC and affiliates* | 1,202 |
*DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees’ fees.
As provided in the investment management agreement, the Fund bears the cost of certain legal and tax services, including internal legal and tax services provided to the Fund by DMC and/or its affiliates’ employees. For the year ended October 31, 2012, the Fund was charged $5,463 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
34
For the year ended October 31, 2012, DDLP earned $3,531 for commissions on sales of the Fund’s Class A shares. For the year ended October 31, 2012, DDLP received gross CDSC commissions of $ 79 on redemptions of the Fund’s Class C shares, and these commissions were entirely used to offset up-front commissions previously paid by DDLP to broker/dealers on sales of those shares.
Trustees’ fees include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
3. Investments
For the year ended October 31, 2012, the Fund made purchases of $16,395,828 and sales of $13,671,274 of investment securities other than U.S. government securities and short-term investments. For the year ended October 31, 2012, the Fund made purchases of $1,188,550 and sales of $1,154,998 of long-term U.S. government securities.
At October 31, 2012, the cost of investments for federal income tax purposes was $13,863,866. At October 31, 2012, the net unrealized appreciation was $535,425, of which $730,904 related to unrealized appreciation and $195,479 related to unrealized depreciation.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. A three level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three level hierarchy of inputs is summarized below.
Level 1 – | inputs are quoted prices in active markets for identical investments (e.g., equity securities, open-end investment companies, futures contracts, exchange-traded options contracts) |
Level 2 – | other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs) (e.g., debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, fair valued securities) |
35
Notes to financial statements
Delaware International Bond Fund
3. Investments (continued)
Level 3 – | inputs are significant unobservable inputs (including the Fund’s own assumptions used to determine the fair value of investments) (e.g., broker-quoted securities, fair valued securities) |
Level 3 investments are valued using significant unobservable inputs. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of October 31, 2012:
Level 2 | Level 3 | Total | |||||||
Agency Collateralized Mortgage Obligation | $ | — | $ | 10,200 | $ | 10,200 | |||
Corporate Bonds | 7,723,754 | — | 7,723,754 | ||||||
Foreign Debt | 5,658,615 | — | 5,658,615 | ||||||
Option Purchased | 9 | — | 9 | ||||||
Short-Term Investments | 976,872 | — | 976,872 | ||||||
U.S. Treasury Obligation | 29,841 | — | 29,841 | ||||||
Total | $ | 14,389,091 | $ | 10,200 | $ | 14,399,291 | |||
Foreign Currency Exchange Contracts | $ | 2,125 | $ | — | $ | 2,125 |
A reconciliation of level 3 investements is presented when the Fund has a significant amount of level 3 investments at the beginning, interim or end of the period in relation to net assets.
During the year ended October 31, 2012, there were no transfers between Level 1 investments, Level 2 investments or Level 3 investments that had a material impact to the Fund. The Fund’s policy is to recognize transfers between levels at the beginning of the reporting period.
Management has determined not to provide additional disclosure under ASU No. 2011-04 since the Level 3 investments are not considered material to the Fund’s net assets at the end of the period.
36
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Additionally, distributions from net gains on foreign currency transactions and net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended October 31, 2012 and 2011 was as follows:
Year Ended | ||||||
10/31/12 | 10/31/11 | |||||
Ordinary income | $ | 2,593,450 | $ | 952,181 | ||
Return of capital | 27,056 | — | ||||
Total | $ | 2,620,506 | $ | 952,181 |
5. Components of Net Assets on a Tax Basis
As of October 31, 2012, the components of net assets on a tax basis were as follows:
Shares of beneficial interest | $ | 14,301,005 | ||
Capital loss carryforwards | (199,397 | ) | ||
Other temporary differences | (52,333 | ) | ||
Unrealized appreciation | 535,783 | |||
Net assets | $ | 14,585,058 |
The differences between book basis and tax basis components of net assets are primarily attributable to mark-to-market of foreign currency exchange contracts, tax deferral of losses on straddles, tax treatment of market discount and premium on debt instruments.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to tax treatment of gain (loss) on foreign currency transactions, CDS contracts, market discount and premium on certain debt instruments operating losses, dividends and distributions. Results of operations and net assets were not affected by these reclassifications. For the year ended October 31, 2012, the Fund recorded the following reclassifications:
Distributions in excess of net investment income | $ | (2,127 | ) | |
Accumulated net realized loss | 128,815 | |||
Paid-in capital | (126,688 | ) |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains $99,632 was utilized in October 31, 2012. Capital loss carryforwards remaining at October 31, 2012 will expire as follows: $154,783 expires in 2014, $21,289 expires in 2016 and $23,325 expires in 2017.
37
Notes to financial statements
Delaware International Bond Fund
5. Components of Net Assets on a Tax Basis (continued)
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (Act) was enacted, which changed various technical rules governing the tax treatment of regulated investment companies. The changes were generally effective for taxable years beginning after the date of enactment. Under the Act, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under previous regulation.
6. Capital Shares
Transactions in capital shares were as follows:
Year Ended | ||||||
10/31/12 | 10/31/11 | |||||
Shares Sold: | ||||||
Class A | 286,660 | 1,743,017 | ||||
Class C | 118,699 | 14,949 | ||||
Class R | 2,700 | 3 | ||||
Institutional Class | 15,286 | 1,808 | ||||
Shares issued upon reinvestment of dividends and distributions: | ||||||
Class A | 285,008 | 86,604 | ||||
Class C | 4,937 | 80 | ||||
Class R | 44 | — | ||||
Institutional Class | 531 | 8 | ||||
713,865 | 1,846,469 | |||||
Shares redeemed: | ||||||
Class A | (57,366 | ) | (2,704,637 | ) | ||
Class C | (2,275 | ) | (821 | ) | ||
Institutional Class | (428 | ) | (479 | ) | ||
(60,069 | ) | (2,705,937 | ) | |||
Net increase (decrease) | 653,796 | (859,468 | ) |
38
7. Fund Reorganization
Following the close of business on July 28, 2011, pursuant to a Plan of Reorganization (Reorganization), the Fund received all of the assets and liabilities of The International Fixed Income Portfolio, a series of the Delaware Pooled® Trust (Portfolio). The shareholders of the Portfolio received Class A shares of the Fund with an aggregate net asset value equal to the aggregate net asset value of their shares in the Portfolio immediately prior to the Reorganization, shown as in the following table:
Shares Prior to | Shares After | ||||||||
Reorganization | Reorganization | Value | |||||||
Class A | — | 866,702 | $ | 10,430,781 | |||||
Institutional Class | 866,702 | — | 10,430,781 |
The Reorganization was treated as a tax-free reorganization for federal income purposes and, accordingly, the basis of the assets of the Fund reflected the historical basis of the assets of the Portfolio as of the date of the Reorganization. For financial reporting purposes, the Portfolio’s operating history prior to the Reorganization is reflected in the Fund’s financial statements and financial highlights. The net assets, net unrealized appreciation and accumulated net realized loss of the Portfolio as of the close of business on July 28, 2011, were as follows:
Net assets | $ | 10,480,781 | |
Accumulated net realized loss | 1,890,587 | ||
Net unrealized appreciation | 942,547 |
8. Line of Credit
The Fund, along with certain other funds in the Delaware Investments® Family of Funds (Participants), was a participant in a $100,000,000 revolving line of credit to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, the Participants were charged an annual commitment fee, which was allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants were permitted to borrow up to a maximum of one third of their net assets under the agreement. Each Participant was individually, and not jointly, liable for its particular advances, if any, under the line of credit. The line of credit under the agreement expired on November 15, 2011.
On November 15, 2011, the Fund, along with the other Participants, entered into an amendment to the agreement for a $125,000,000 revolving line of credit. The agreement is to be used as described above and operates in substantially the same manner as the original agreement. The line of credit available under the agreement expired on November 13, 2012.
39
Notes to financial statements
Delaware International Bond Fund
8. Line of Credit (continued)
On November 13, 2012, the Fund, along with the other Participants, entered into an amendment to the agreement for a $125,000,000 revolving line of credit. The agreement is to be used as described above and operates in substantially the same manner as the original agreement. The line of credit available under the agreement expires on November 12, 2013. The Fund had no amounts outstanding as of October 31, 2012 or at any time during the year then ended.
9. Derivatives
U.S. GAAP requires disclosures that enable investors to understand: 1) how and why an entity uses derivatives; 2) how they are accounted for; and 3) how they affect an entity’s results of operations and financial position.
Foreign Currency Exchange Contracts — The Fund enters into foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Fund may enter into these contracts to fix the U.S. dollar value of a security that it has agreed to buy or sell for the period between the date the trade was entered into and the date the security is delivered and paid for. The Fund may also use these contracts to hedge the U.S. dollar value of securities it already owns that are denominated in foreign currencies. The change in value is recorded as an unrealized gain or loss. When the contract is closed, a realized gain or loss is recorded equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
The use of foreign currency exchange contracts does not eliminate fluctuations in the underlying prices of the securities, but does establish a rate of exchange that can be achieved in the future. Although foreign currency exchange contracts limit the risk of loss due to an unfavorable change in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency change favorably. In addition, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. The Fund’s maximum risk of loss from counterparty credit risk is the value of its currency exchanged with the counterparty. The risk is generally mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty. The Fund posted $110,000 as cash collateral for foreign currency exchange contracts. The Fund recieved $10,000 in securities collateral for foreign currency exchange contracts.
Futures Contracts — A futures contract is an agreement in which the writer (or seller) of the contract agrees to deliver to the buyer an amount of cash or securities equal to a specific dollar amount times the difference between the value of a specific security or index at the close of the last trading day of the contract and the price at which the agreement is made. The Fund may use futures in the normal course of pursuing its investment objective. The Fund may invest in futures contracts to hedge its existing portfolio securities against fluctuations in fair value caused by changes in prevailing market interest rates. Upon entering into a futures contract, the Fund deposits cash or pledges U.S. government securities to a broker, equal to the minimum “initial margin” requirements of the exchange on which the contract is traded. Subsequent payments
40
are received from the broker or paid to the broker each day, based on the daily fluctuation in the market value of the contract. These receipts or payments are known as “variation margin” and are recorded daily by the Fund as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risks of entering into futures contracts include potential imperfect correlation between the futures contracts and the underlying securities and the possibility of an illiquid secondary market for these instruments. When investing in futures, there is minimal counterparty credit risk to the Fund because futures are exchange-traded and the exchange’s clearinghouse, as counterparty to all exchange-traded futures, guarantees against default. No futures contracts were outstanding at October 31, 2012.
Options Contracts — During the year ended October 31, 2012, the Fund entered into written call option contracts in the normal course of pursuing its investment objective. The Fund may buy or write options contracts for any number of reasons, including without limitation: to manage the Fund’s exposure to changes in securities prices and foreign currencies; as an efficient means of adjusting the Fund’s overall exposure to certain markets; to protect the value of portfolio securities; and as a cash management tool. The Fund may buy or write call or put options on securities, futures, swaps “swaptions,” financial indices, and foreign currencies. When the Fund buys an option, a premium is paid and an asset is recorded and adjusted on a daily basis to reflect the current market value of the options purchased. When the Fund writes an option, a premium is received and a liability is recorded and adjusted on a daily basis to reflect the current market value of the options written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is treated as realized gain or loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Fund has a realized gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option. When writing options, the Fund is subject to minimal counterparty risk because the counterparty is only obligated to pay premiums and does not bear the market risk of an unfavorable market change.
Transactions in options written during the year ended October 31, 2012 for the Fund were as follows:
Number of | |||||||||
Contracts | Premium | ||||||||
Options outstanding at October 31, 2011 | — | $ | — | ||||||
Options written | 9 | 2,954 | |||||||
Options expired | (2 | ) | (668 | ) | |||||
Options terminated in closing purchase transactions | (7 | ) | (2,286 | ) | |||||
Options outstanding at October 31, 2012 | — | $ | — |
41
Notes to financial statements
Delaware International Bond Fund
9. Derivatives (continued)
Swap Contracts — The Fund enters into CDS contracts in the normal course of pursuing its investment objective. The Fund may enter into CDS contracts in order to hedge against a credit event, to enhance total return or to gain exposure to certain securities or markets. The Fund will not be permitted to enter into any swap transactions unless, at the time of entering into such transactions, the unsecured long-term debt of the actual counterparty combined with any credit enhancements, is rated at least BBB- by S&P or Baa3 by Moody’s or is determined to be of equivalent quality by the manager.
Credit Default Swaps. A CDS contract is a risk-transfer instrument through which one party (purchaser of protection) transfers to another party (seller of protection) the financial risk of a credit event (as defined in the CDS agreement), as it relates to a particular reference security or basket of securities (such as an index). In exchange for the protection offered by the seller of protection, the purchaser of protection agrees to pay the seller of protection a periodic amount at a stated rate that is applied to the notional amount of the CDS contract. In addition, an upfront payment may be made or received by the Fund in connection with an unwinding or assignment of a CDS contract. Upon the occurrence of a credit event, the seller of protection would pay the par (or other agreed-upon) value of the reference security (or basket of securities) to the counterparty. Credit events generally include, among others, bankruptcy, failure to pay, and obligation default.
During the year ended October 31, 2012, the Fund entered into CDS contracts as a purchaser of protection. Periodic payments on such contracts are accrued daily and recorded as unrealized losses (gains) on swap contracts. Upon payment, such amounts are recorded as realized losses (gains) on swap contracts. Upfront payments made in connection with CDS contracts are amortized over the expected life of the CDS contracts as unrealized losses (gains) on swap contracts. The change in value of CDS contracts is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded upon a credit event (as defined in the CDS agreement) or the maturity or termination of the agreement.
CDS contracts may involve greater risks than if the Fund had invested in the reference obligation directly. CDS contracts are subject to general market risk, liquidity risk, counterparty risk and credit risk. The Fund’s maximum risk of loss from counterparty credit risk, either as the seller of protection or the buyer of protection, is the fair value of the contract. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty.
Swaps Generally. Because there are generally no organized markets for swap contracts, the value of open swaps may differ from that which would be realized in the event the Fund terminated its position in the agreement. Risks of entering into these contracts include the potential inability of the counterparty to meet the terms of the contracts. This type of risk is generally limited to the amount of favorable movement in the value of the underlying security, instrument or basket of instruments, if any, at the day of default. Risks also arise from potential losses from adverse market movements and such losses could exceed the unrealized amounts shown on the statement of net assets. No swap contracts were outstanding at October 31, 2012.
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Derivatives Generally. The table below summarizes the average balance of derivative holdings by the Fund during the year ended October 31, 2012. The average balance of derivatives held is generally similar to the volume of derivative activity for the year ended October 31, 2012.
For the year ended October 31, 2012, the Fund’s average volume of derivative activities is as follows:
Long | Short | |||||||
Derivative | Derivative | |||||||
Volume | Volume | |||||||
Forward foreign currency contracts (average cost) | USD | 5,033,868 | USD | 1,180,346 | ||||
Futures contracts (average notional value) | 438,685 | 236,208 | ||||||
Option contracts (average notional value) | 358 | 73 | ||||||
Swap contracts (average notional value) | 382,542 | — | ||||||
Swap contracts (average notional value)* | EUR | 33,992 | — |
*Long represents buying protection and short represents selling protection.
10. Securities Lending
The Fund, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with The Bank of New York Mellon (BNY Mellon). At the time a security is loaned, the borrower must post collateral equal to the required percentage of the market value of the loaned security, including any accrued interest. The required percentage is: (i) 102% with respect to U.S. securities and foreign securities that are denominated and payable in U.S. dollars; and (ii) 105% with respect to foreign securities. With respect to each loan, if on any business day the aggregate market value of securities collateral plus cash collateral held is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral by the end of the following business day which, together with the collateral already held, will be not less than the applicable initial collateral requirements for such security loan. If the aggregate market value of securities collateral and cash collateral held with respect to a security loan exceeds the applicable initial collateral requirement, upon the request of the borrower BNY Mellon must return enough collateral to the borrower by the end of the following business day to reduce the value of the remaining collateral to the applicable initial collateral requirement for such security loan. As a result of the foregoing, the value of the collateral held with respect to a loaned security may be temporarily more or less than the value of the security on loan.
Cash collateral received is generally invested in the Delaware Investments Collateral Fund No. 1 (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of funds managed by DMC that participate in BNY Mellon’s securities lending program. The Collective Trust may invest in U.S. government securities and high quality corporate debt, asset-backed and other money market securities and in repurchase agreements collateralized by such securities, provided that the Collective Trust will generally have a dollar-weighted average portfolio maturity of 60 days or less. In The Fund can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. In the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings.
43
Notes to financial statements
Delaware International Bond Fund
10. Securities Lending (continued)
In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Fund, or at the discretion of the lending agent, replace the loaned securities. The Fund continues to record dividends or interest, as applicable, on the securities loaned and is subject to changes in value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. With respect to security loans collateralized by non-cash collateral, the Fund receives loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Fund, the security lending agent and the borrower. The Fund records security lending income net of allocations to the security lending agent and the borrower.
The Collective Trust used for the investment of cash collateral received from borrowers of securities seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. The Fund may incur investment losses as a result of investing securities lending collateral in the Collective Trust. This could occur if an investment in the Collective Trust defaulted or if it were necessary to liquidate assets in the Collective Trust to meet returns on outstanding security loans at a time when the Collective Trust’s net asset value per unit was less than $1.00. Under those circumstances, the Fund may not receive an amount from the Collective Trust that is equal in amount to the collateral the Fund would be required to return to the borrower of the securities and the Fund would be required to make up for this shortfall. The Fund had no securities out on loan as of October 31, 2012.
11. Credit and Market Risk
Some countries in which the Fund may invest require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if there is deterioration in a country’s balance of payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad.
The securities exchanges of certain foreign markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by the Fund may be inhibited. In addition, a significant portion of the aggregate market value of securities listed on the major securities exchanges in emerging markets is held by a smaller number of investors. This may limit the number of shares available for acquisition or disposition by the Fund.
The Fund may invest in high yield fixed income securities, which are securities rated lower than BBB- by Standard & Poor’s and/or Baa by Moody’s Investor Services Inc., or similarly rated by another nationally recognized statistical rating organization. Investments in these higher yielding
44
securities are generally accompanied by a greater degree of credit risk than higher rated securities. Additionally, lower rated securities may be more susceptible to adverse economic and competitive industry conditions than investment-grade securities.
The Fund may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the Securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Fund’s Board has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 15% limit on investments in illiquid securities. As of October 31, 2012, no securities have been determined be illiquid under the Fund’s Liquidity Procedures. Rule 144A securities have been identified on the statement of net assets.
12. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
13. Subsequent Events
Except as described in Note 8, management has determined that no other material events or transactions occurred subsequent to October 31, 2012 that would require recognition or disclosure in the Fund’s financial statements.
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Report of independent
registered public accounting firm
To the Board of Trustees of Delaware Group® Adviser Funds and the Shareholders of
Delaware International Bond Fund (formerly The International Fixed Income Portfolio):
In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Delaware International Bond Fund (formerly The International Fixed Income Portfolio) (one of the series constituting Delaware Group Adviser Funds, hereafter referred to as the “Fund”) at October 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three periods then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the two years in the period ended October 31, 2009 were audited by other independent accountants whose report dated December 22, 2009 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 19, 2012
46
Other Fund information
(Unaudited)
Delaware International Bond Fund
Board Consideration of Delaware International Bond Fund Investment Advisory and Sub-Advisory Agreements
At a meeting held on August 21-23, 2012 (the “Annual Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement and Sub-Advisory Agreement for the Delaware International Bond Fund (the “Fund”). In making its decision, the Board considered information furnished at regular quarterly Board meetings, including reports detailing Fund performance, investment strategies and expenses, as well as information prepared specifically in connection with the renewal of the investment advisory and sub-advisory contracts. Information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (“DMC”) and Sub-Advisory Agreement with Macquarie Investment Management Limited (“MIML”) included materials provided by DMC and its affiliates (“Delaware Investments”) and MIML, as applicable, concerning, among other things, the nature, extent and quality of services provided to the Fund, the costs of such services to the Fund, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, reports were provided in May 2012 and included independent historical and comparative reports provided by Lipper, Inc., an independent statistical compilation organization (“Lipper”). The Lipper reports compared the Fund’s investment performance and expenses with those of other comparable mutual funds. The Independent Trustees reviewed and discussed the Lipper reports with independent legal counsel to the Independent Trustees. The Board requested and received information regarding DMC’s policy with respect to advisory fee levels and its breakpoint philosophy; the structure of portfolio manager compensation; the investment manager’s profitability; comparative client fee information; and any constraints or limitations on the availability of securities in certain investment styles, which had in the past year inhibited, or which were likely in the future to inhibit, DMC’s or MIML’s ability to invest fully in accordance with Fund policies.
In considering information relating to the approval of the Fund’s advisory and sub-advisory agreements, the Independent Trustees received assistance and advice from and met separately with independent legal counsel to the Independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract renewal considerations.
Nature, Extent and Quality of Service. The Board considered the services provided by Delaware Investments to the Fund and its shareholders. In reviewing the nature, extent and quality of services, the Board considered reports furnished to it throughout the year, which covered matters such as the relative performance of the Fund, compliance of portfolio managers with the investment policies, strategies and restrictions for the Fund, compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the Delaware Investments Family of Funds complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Fund’s investment advisor and the emphasis placed on research in the investment process. The Board recognized DMC’s receipt of several industry distinctions. The Board gave favorable
47
Other Fund information
(Unaudited)
Delaware International Bond Fund
Board Consideration of Delaware International Bond Fund Investment Advisory and Sub-Advisory Agreement (continued)
consideration to DMC’s efforts to control expenditures while maintaining service levels committed to fund matters. The Board noted that in July 2011 Management implemented measures to reduce overall costs and improve transfer agent and shareholder servicing functions through outsourcing. The Board noted the benefits provided to Fund shareholders through each shareholder’s ability to exchange an investment in one Delaware Investments fund for the same class of shares in another Delaware Investments fund without a sales charge, to reinvest Fund dividends into additional shares of the Fund or into additional shares of other Delaware Investments funds and the privilege to combine holdings in other Delaware Investments funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
Nature, Extent and Quality of Service. The Board considered the services provided by MIML under the terms of the subadvisory contract between DMC and MIML to the Fund and its shareholders. In reviewing the nature, extent and quality of services, the Board noted that reports furnished to it throughout the year at regular Board Meetings covering matters such as relative performance of the Fund. The Board was pleased with the current staffing of MIML and the emphasis placed on research in the investment process. The Board was satisfied with the nature, extent and quality of the overall services proposed to be provided by MIML.
Investment Performance. The Board placed significant emphasis on the investment performance of the Fund in view of the importance of investment performance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Investment Committee meetings throughout the year, the Board gave particular weight to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Lipper (the “Performance Universe”). A fund with the best performance ranked first, and a fund with the poorest performance ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25%, the second quartile; the next 25%, the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Fund was shown for the past one-, three-, five- and ten-year periods, as applicable, ended March 31, 2012. The Board’s objective is that the Fund’s performance for the periods considered be at or above the median of its Performance Universe. The following paragraph summarizes the performance results for the Fund and the Board’s view of such performance.
The Performance Universe for the Fund consisted of the Fund and all retail and institutional international income funds as selected by Lipper. The Lipper report comparison showed that the Fund’s total return for the one- and three-year periods was in the second quartile of its Performance Universe. The report further showed that the Fund’s total return for the five- and ten-year periods was in the first quartile. The Board was satisfied with performance.
48
Comparative Expenses. The Board considered expense comparison data for the Delaware Investments Family of Funds. Management provided the Board with information on pricing levels and fee structures for the Fund as of its most recently completed fiscal year. The Board also focused on the comparative analysis of effective management fees and total expense ratios of the Fund versus effective management fees and expense ratios of a group of similar funds as selected by Lipper (the “Expense Group”). In reviewing comparative costs, the Fund’s contractual management fee and the actual management fee incurred by the Fund were compared with the contractual management fees (assuming all funds in the Expense Group were similar in size to the Fund) and actual management fees (as reported by each fund) within the Expense Group, taking into account any applicable breakpoints and fee waivers. The Fund’s total expenses were also compared with those of its Expense Group. The Lipper total expenses, for comparative consistency, were shown by Lipper for Class A shares and comparative total expenses including 12b-1 and non 12b-1 service fees. The Board considered fees paid to Delaware Investments for non-management services. The Board’s objective is to limit the Fund’s total expense ratio to be competitive with that of the Expense Group. The following paragraph summarizes the expense results for the Fund and the Board’s view of such expenses.
The expense comparisons for the Fund showed that its contractual management fee and total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was satisfied with the management fee and total expenses of the Fund in comparison to those of its Expense Group as shown in the Lipper report.
Management Profitability. The Board considered the level of profits realized by Delaware Investments in connection with the operation of the Fund. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments’ business in providing management and other services to each of the individual funds and the Delaware Investments Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflect recent operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments’ efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent industry-wide Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the management fees were reasonable in light of the services rendered and the level of profitability of Delaware Investments.
Management Profitability. The Board considered the extent to which MIML might derive ancillary benefits from Fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware
49
Other Fund information
(Unaudited)
Delaware International Bond Fund
Board Consideration of Delaware International Bond Fund Investment Advisory and Sub-Advisory Agreement (continued)
Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the management fees were reasonable in light of the services rendered and the level of profitability of MIML.
Economies of Scale. The Trustees considered whether economies of scale are realized by Delaware Investments as the Fund’s assets increase and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees reviewed the standardized advisory fee pricing and structure, approved by the Board and shareholders, which includes breakpoints. Breakpoints in the advisory fee occur when the advisory fee rate is reduced on assets in excess of specified levels. Breakpoints result in a lower advisory fee than would otherwise be the case on all assets when the asset levels specified are exceeded. The Board noted that the fee under the Fund’s management contract fell within the standard structure. Although the Fund has not reached a size at which it can take advantage of breakpoints, the Board recognized that the fee was structured so that when the Fund grows, economies of scale may be shared.
Board Consideration of Delaware International Bond Fund Investment Sub-Advisory Agreement
At a meeting held on August 23, 2012, the Board, including a majority of disinterested or independent Trustees, approved a new sub-advisory agreement with Macquarie Bank International Limited (“MBIL”). In considering information relating to the approval of the Fund’s sub-advisory agreement with MBIL, the Independent Trustees received assistance and advice from and met separately with independent legal counsel to the Independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract approval considerations.
Nature, Quality and Extent of Services. The Board considered the nature, quality and extent of services that MBIL would provide as a sub-adviser to the Fund. The Board considered the investment process to be employed by MBIL in managing the Fund, and the qualifications and experience of MBIL’s portfolio management team with regard to implementing the Fund’s investment mandate. The Board considered MBIL’s organization, personnel and operations. The Board also considered DMC’s review and recommendation process with respect to MBIL, and DMC’s favorable assessment as to the nature, quality and extent of the sub-advisory services expected to be provided by MBIL to the Fund. Based on their consideration and review of the foregoing factors, the Board concluded that the nature, quality and extent of the sub-advisory services to be provided by MBIL, as well as MBIL’s ability to render such services based on its experience, organization and resources, were appropriate for the Fund, in light of the Fund’s investment objective, strategies and policies.
50
Sub-Advisory Fees and Economies of Scale. The Board considered the compensation to be paid to MBIL by DMC in conjunction with the services that would be rendered to the Fund. In addition, the Board considered DMC’s reasons for concluding that the proposed fee arrangement was reasonable. The Board considered that the sub-advisory fees would be paid by DMC to MBIL at a rate equal to MBIL’s reasonable costs, and would not create additional fees that would be borne by the Fund. The Board also considered the proposed fee arrangement and whether the proposed fee arrangement would reflect economies of scale for the benefit of Fund investors as assets in the Fund increased. The Board concluded that, in light of the quality and extent of the services to be provided, the proposed fee arrangement was reasonable.
Investment Performance. The Board considered the Fund’s historical performance with a former Fund portfolio manager, who is now a portfolio manager at MBIL. In doing so, they compared the Fund’s performance against that of comparable retail and institutional international income funds as selected by Lipper. The Lipper report comparison showed that the Fund’s total return for the one- and three-year periods was in the second quartile of its peer group and that the Fund’s total return for the five- and ten-year periods was in the first quartile of its peer group. Accordingly, the Board concluded that the Fund’s historical performance record, viewed together with the other relevant factors considered by the Board, supported a decision to approve the sub-advisory agreement with MBIL.
Tax Information
The information set forth below is for the Fund’s fiscal year as required by federal income tax laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information.
All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change. For any and all items requiring designation, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
For the fiscal year ended October 31, 2012, the Fund designates distributions paid during the year as follows:
(A) Ordinary Income Distributions (Tax Basis) | 98.97% |
(A) is based on a percentage of the Fund’s total distributions.
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Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
A mutual fund is governed by a Board of Trustees/Directors (“Trustees”), which has oversight responsibility for the management of a fund’s business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Interested Trustees | ||||
Patrick P. Coyne1 | Chairman, President, | Chairman and Trustee | ||
2005 Market Street | Chief Executive Officer, | since August 16, 2006 | ||
Philadelphia, PA 19103 | and Trustee | |||
April 1963 | President and | |||
Chief Executive Officer | ||||
since August 1, 2006 | ||||
1 Patrick P. Coyne is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor.
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for shareholder interests. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information.
Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Patrick P. Coyne has served in | 71 | Director and Audit | ||
various executive capacities | Committee Member | |||
at different times at | Kaydon Corp. | |||
Delaware Investments.2 | ||||
Board of Governors Member | ||||
Investment Company | ||||
Institute (ICI) | ||||
2 Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s(s’) investment advisor, principal underwriter, and its transfer agent.
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Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees | ||||
Thomas L. Bennett | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
October 1947 | ||||
John A. Fry | Trustee | Since January 2001 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
May 1960 | ||||
Anthony D. Knerr | Trustee | Since April 1990 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
December 1938 | ||||
Lucinda S. Landreth | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
June 1947 | ||||
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Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Private Investor | 71 | Director | ||
(March 2004–Present) | Bryn Mawr Bank Corp. (BMTC) | |||
(2007–2011) | ||||
President | 71 | Board of Governors Member — | ||
Drexel University | NASDAQ OMX PHLX LLC | |||
(August 2010–Present) | ||||
Director and Audit | ||||
President | Committee Member | |||
Franklin & Marshall College | Community Health Systems | |||
(July 2002–July 2010) | ||||
Director — Ecore | ||||
International | ||||
(2009–2010) | ||||
Director — Allied | ||||
Barton Securities Holdings | ||||
(2005–2008) | ||||
Managing Director | 71 | None | ||
Anthony Knerr & Associates | ||||
(Strategic Consulting) | ||||
(1990–Present) | ||||
Private Investor | 71 | None | ||
(2004–Present) | ||||
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Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees (continued) | ||||
Frances A. Sevilla-Sacasa | Trustee | Since September 2011 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1956 | ||||
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Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Chief Executive Officer — | 71 | Trust Manager — Camden | ||
Banco Itaú Europa | Property Trust | |||
International | (since August 2011) | |||
(since April 2012) | ||||
Executive Advisor to Dean | ||||
(August 2011–March 2012) | ||||
and Interim Dean | ||||
(January 2011–July 2011) — | ||||
University of Miami School of | ||||
Business Administration | ||||
President — U.S. Trust, | ||||
Bank of America Private | ||||
Wealth Management | ||||
(Private Banking) | ||||
(July 2007–December 2008) | ||||
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Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees (continued) | ||||
Janet L. Yeomans | Trustee | Since April 1999 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1948 | ||||
J. Richard Zecher | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1940 |
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Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Vice President and Treasurer | 71 | Director, Audit | ||
(January 2006–July 2012) | Committee Member and | |||
Vice President — Mergers & Acquisitions | Investment Committee | |||
(January 2003–January 2006), and | Member | |||
Vice President and Treasurer | Okabena Company | |||
(July 1995–January 2003) | ||||
3M Corporation | Chair — 3M | |||
Investment Management | ||||
Company | ||||
(January 2005–July 2012) | ||||
Founder | 71 | Director and Compensation | ||
Investor Analytics | Committee Member | |||
(Risk Management) | Investor Analytics | |||
(May 1999–Present) | ||||
Director | ||||
Founder | Oxigene, Inc. | |||
P/E Investments | (2003–2008) | |||
(Hedge Fund) | ||||
(September 1996–Present) |
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Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Officers | ||||
David F. Connor | Vice President, | Vice President since | ||
2005 Market Street | Deputy General | September 2000 | ||
Philadelphia, PA 19103 | Counsel, and Secretary | and Secretary since | ||
December 1963 | October 2005 | |||
Daniel V. Geatens | Vice President | Treasurer | ||
2005 Market Street | and Treasurer | since October 2007 | ||
Philadelphia, PA 19103 | ||||
October 1972 | ||||
David P. O’Connor | Executive Vice President, | Executive Vice President | ||
2005 Market Street | General Counsel | since February 2012; | ||
Philadelphia, PA 19103 | and Chief Legal Officer | Senior Vice President | ||
February 1966 | October 2005– | |||
February 2012; | ||||
General Counsel and | ||||
Chief Legal Officer | ||||
since October 2005 | ||||
Richard Salus | Senior Vice President | Chief Financial Officer | ||
2005 Market Street | and Chief Financial Officer | since November 2006 | ||
Philadelphia, PA 19103 | ||||
October 1963 | ||||
The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918.
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Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
David F. Connor has served as | 71 | None3 | ||
Vice President and Deputy | ||||
General Counsel of | ||||
Delaware Investments | ||||
since 2000. | ||||
Daniel V. Geatens has served | 71 | None3 | ||
in various capacities at | ||||
different times at | ||||
Delaware Investments. | ||||
David P. O’Connor has served in | 71 | None3 | ||
various executive and legal | ||||
capacities at different times | ||||
at Delaware Investments. | ||||
Richard Salus has served in | 71 | None3 | ||
various executive capacities | ||||
at different times at | ||||
Delaware Investments. | ||||
3 David F. Connor, Daniel V. Geatens, David P. O’Connor, and Richard Salus serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant.
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About the organization
Board of trustees | |||
Patrick P. Coyne Chairman, President, and Chief Executive Officer Delaware Investments® Family of Funds Philadelphia, PA Thomas L. Bennett Private Investor Rosemont, PA | John A. Fry President Drexel University Philadelphia, PA Anthony D. Knerr Founder and Managing Director Anthony Knerr & Associates New York, NY | Lucinda S. Landreth Former Chief Investment Officer Assurant, Inc. Philadelphia, PA Frances A. Sevilla-Sacasa Chief Executive Officer Banco Itaú Europa International Miami, FL | Janet L. Yeomans Former Vice President and Treasurer 3M Corporation St. Paul, MN J. Richard Zecher Founder Investor Analytics Scottsdale, AZ |
Affiliated officers | |||
David F. Connor Vice President, Deputy General Counsel, and Secretary Delaware Investments Family of Funds Philadelphia, PA | Daniel V. Geatens Vice President and Treasurer Delaware Investments Family of Funds Philadelphia, PA | David P. O’Connor Executive Vice President, General Counsel, and Chief Legal Officer Delaware Investments Family of Funds Philadelphia, PA | Richard Salus Senior Vice President and Chief Financial Officer Delaware Investments Family of Funds Philadelphia, PA |
This annual report is for the information of Delaware International Bond Fund shareholders, but it may be used with prospective investors when preceded or accompanied by the Delaware Investments Fund fact sheet for the most recently completed calendar quarter. These documents are available at delawareinvestments.com. |
Delaware Investments is the marketing name of Delaware Management Holdings, Inc. and its subsidiaries. The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; and (ii) on the SEC’s website at sec.gov. In addition, a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities and the Fund’s Schedule of Investments are available without charge on the Fund’s website at delawareinvestments.com. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330. Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund’s website at delawareinvestments.com; and (ii) on the SEC’s website at sec.gov. |
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![](https://capedge.com/proxy/N-CSR/0001206774-13-000083/del_topimg02.jpg)
Annual report Delaware Global Real Estate Opportunities Fund October 31, 2012 Alternative/specialty mutual fund |
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, if available, its summary prospectus, which may be obtained by visiting delawareinvestments.com or calling 800 523-1918. Investors should read the prospectus and, if available, the summary prospectus carefully before investing. |
You can obtain shareholder reports and prospectuses online instead of in the mail. Visit delawareinvestments.com/edelivery. |
Experience Delaware Investments
Delaware Investments is committed to the pursuit of consistently superior asset management and unparalleled client service. We believe in our investment processes, which seek to deliver consistent results, and in convenient services that help add value for our clients.
If you are interested in learning more about creating an investment plan, contact your financial advisor.
You can learn more about Delaware Investments or obtain a prospectus for Delaware Global Real Estate Opportunities Fund at delawareinvestments.com.
- 24-hour access to your account information
- Obtain share prices
- Check your account balance and recent transactions
- Request statements or literature
- Make purchases and redemptions
Delaware Management Holdings, Inc. and its subsidiaries (collectively known by the marketing name of Delaware Investments) are wholly owned subsidiaries of Macquarie Group Limited, a global provider of banking, financial, advisory, investment and funds management services.
Investments in Delaware Global Real Estate Opportunities Fund are not and will not be deposits with or liabilities of Macquarie Bank Limited ABN 46 008 583 542 and its holding companies, including their subsidiaries or related companies (Macquarie Group), and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. No Macquarie Group company guarantees or will guarantee the performance of the Fund, the repayment of capital from the Fund, or any particular rate of return.
Table of contents | ||
Portfolio management review | 1 | |
Performance summary | 4 | |
Disclosure of Fund expenses | 8 | |
Security type/country and sector allocations | 10 | |
Statement of net assets | 12 | |
Statement of operations | 18 | |
Statements of changes in net assets | 20 | |
Financial highlights | 22 | |
Notes to financial statements | 28 | |
Report of independent registered | ||
public accounting firm | 42 | |
Other Fund information | 43 | |
Board of trustees/directors and | ||
officers addendum | 46 | |
About the organization | 56 |
Unless otherwise noted, views expressed herein are current as of Oct. 31, 2012, and subject to change.
Funds are not FDIC insured and are not guaranteed. It is possible to lose the principal amount invested.
Mutual fund advisory services provided by Delaware Management Company, a series of Delaware Management Business Trust, which is a registered investment advisor. Delaware Investments, a member of Macquarie Group, refers to Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s distributor, Delaware Distributors, L.P. Macquarie Group refers to Macquarie Group Limited and its subsidiaries and affiliates worldwide.
© 2012 Delaware Management Holdings, Inc.
All third-party marks cited are the property of their respective owners.
Delaware Global Real Estate Opportunities Fund | November 6, 2012 |
Performance preview (for the year ended October 31, 2012) | ||||
Delaware Global Real Estate Opportunities Fund (Class A shares) | 1-year return | +17.79% | ||
FTSE EPRA/NAREIT Developed Index (benchmark) | 1-year return | +16.91% |
For complete, annualized performance for Delaware Global Real Estate Opportunities Fund, please see the table on page 4.
The performance of Class A shares excludes the applicable sales charge and reflects the reinvestment of all distributions.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.
Performance information for periods prior to Sept. 28, 2012, reflects the performance of The Global Real Estate Securities Portfolio of Delaware Pooled® Trust, which merged into Delaware Global Real Estate Opportunities Fund as of that date.
Market overview
As the Fund’s fiscal year began in November 2011, a number of serious problems faced the global economy, including: mounting evidence of a slowdown in Asia, especially in the vital Chinese economy; the ongoing sovereign debt crisis in Europe; and high unemployment in the United States.
In response to these challenging conditions, central banks around the world sought to boost economic growth through a variety of policy measures that included cutting interest rates and lowering capital reserve requirements. These actions helped increase demand for many real estate securities, which tend to benefit when financing is readily available. Accordingly, as credit became more accessible throughout the Fund’s fiscal year, real estate investment trusts (REITs) generally responded well.
In this favorable environment, REIT assets generally delivered positive performance for the Fund’s fiscal year. Countries like Singapore and Japan, where property leases tend to be shorter and therefore more economically sensitive, were particularly well positioned. The same was true in Europe, where policy makers’ aggressive response to the region’s debt crisis revitalized real estate securities.
Fund performance
For the fiscal year ended Oct. 31, 2012, Delaware Global Real Estate Opportunities Fund (Class A shares) returned +17.79% at net asset value and +10.97% at maximum offer price (both returns assume reinvestment of all distributions). In comparison, the Fund’s benchmark, the FTSE EPRA/NAREIT Developed Index, gained 16.91% during the same period. For complete, annualized performance of Delaware Global Real Estate Opportunities Fund, please see the table on page 4.
Gains in Singapore and China
Singapore-based holdings were among the notable sources of the Fund’s outperformance. The combination of lower interest rates and growth in rents provided support for stocks that included CapitaCommercial Trust, an office properties company, and Global Logistic Properties, an owner of warehouse and logistics properties.
In China, markets showed renewed strength as policy makers sought to promote lending by reducing interest rates and loosening the
1
Portfolio management review
Delaware Global Real Estate Opportunities Fund
amount of capital that banks are required to keep on reserve. Amid these reasonably constructive conditions, several of the Fund’s holdings made notable contributions to performance versus the index. Real estate developers Shimao Property Holdings and China Overseas Land & Investment are two examples. (We sold Shimao during the Fund’s fiscal year as it reached our valuation target.) Additional highlights at the country level:
- In Australia, the Fund’s investments in Centro Retail Australia, a mall operator, seemed to benefit from investor optimism about management’s decision to sell underperforming properties and pay down debt.
- In Hong Kong, Link Real Estate Investment Trust, which owns and operates retail properties that cater to the consumer staples sector, was among the Fund’s prominent contributors.
- In Europe, France-based shopping center REIT Klepierre and U.K.-based Derwent London, which owns office properties in London’s desirable West End neighborhood, also generated favorable results.
- In the U.S., the Fund saw favorable results from its exposure to holdings that included General Growth Properties and CBL & Associates Properties. Both firms own and operate regional shopping malls.
Few stocks delivered absolute declines
In such favorable market conditions, relatively few holdings in the Fund’s portfolio posted a decline in share price. One of them was Hang Lung Properties, an owner and operator of office and retail properties in
We again concentrated on what we viewed as the high-quality, attractively valued property stocks that we always emphasize, while liquidating stocks whose prices we believed had become too expensive relative to the underlying companies’ growth prospects. |
2
Hong Kong and China. Its stock failed to keep up with the rapid pace of the broad real estate market, and we exited the position as it reached our valuation target. In Germany, Alstria Office REIT, an owner of office properties, likewise registered negative results. Alstria was inexpensive, in our view, as the company raised equity to purchase an office portfolio with higher-than-average vacancy. We believe additional leasing could lead to better cash flow over time, and we therefore continued to hold the stock in the Fund’s portfolio at the end of the fiscal year. Relative performance was also hampered by a position in U.S.-based Strategic Hotels & Resorts, an owner of luxury hotel properties. At this writing, we believe the company continues to represent good underlying value, and its shares therefore remain in the Fund’s portfolio.
From a broader positioning perspective, the Fund’s results versus the benchmark index were compromised by its relatively lighter allocation to smaller-capitalization REITs. A number of these smaller companies led the broader REIT markets for the fiscal year, and the Fund’s relative underweight therefore dampened its relative performance. By way of example, the Fund’s portfolio did not hold U.S. healthcare property company Sabra Health Care REIT or regional mall operator Pennsylvania Real Estate Investment Trust, two benchmark constituents whose shares were up sharply.
Maintaining our approach
We did not make significant changes to our overall management approach during the Fund’s fiscal year. We again concentrated on what we viewed as the high-quality, attractively valued property stocks that we always seek to emphasize, while liquidating stocks whose prices we believed had become too expensive relative to the underlying companies’ growth prospects.
Given the risks facing real estate investors today, we are cautious as the Fund’s fiscal year comes to a close. We are mindful of unanswered questions, such as whether European officials will have the tools to resolve the region’s significant debt problems. We are also keeping in mind the potential effects of the so-called “fiscal cliff” that looms here in the U.S. — that is, an automatic series of spending cuts and tax increases that is scheduled to occur in January 2013, with the potential to significantly constrict the U.S. economy, if legislators are not proactive in developing a solution.
Against this backdrop, we aim to maintain our thorough approach to security-by-security research, seeking to consistently uncover attractive real estate companies at prices that represent a compelling value to us.
3
Delaware Global Real Estate Opportunities Fund | October 31, 2012 |
The performance data quoted represent past performance; past performance does not guarantee future results. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Please obtain the performance data current for the most recent month end by calling 800 523-1918 or visiting our website at delawareinvestments.com/performance. Current performance may be lower or higher than the performance data quoted.
Fund performance1,2 | Average annual total returns through October 31, 2012 | ||||||||||
Lifetime | |||||||||||
(if less than | |||||||||||
1 year | 5 years | 10 years) | |||||||||
Class A (Est. Jan. 10, 2007) | |||||||||||
Excluding sales charge | +17.79 | % | -2.95 | % | -1.58 | % | |||||
Including sales charge | +10.97 | % | -4.09 | % | -2.58 | % | |||||
Class C (Est. Sept. 28, 2012) | |||||||||||
Excluding sales charge | n/a | n/a | +1.68 | % | |||||||
Including sales charge | n/a | n/a | +0.68 | % | |||||||
Class R (Est. Sept. 28, 2012) | |||||||||||
Excluding sales charge | n/a | n/a | +1.68 | % | |||||||
Including sales charge | n/a | n/a | +1.68 | % | |||||||
Institutional Class (Est. Jan. 10, 2007) | |||||||||||
Excluding sales charge | +17.68 | % | -2.75 | % | -1.37 | % | |||||
Including sales charge | +17.68 | % | -2.75 | % | -1.37 | % |
1 Returns reflect the reinvestment of all distributions and are presented both with and without the applicable sales charges described below. Returns do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Expense limitations were in effect for certain classes during some or all of the periods shown in the “Fund performance” chart. The current expenses for each class are listed on the “Fund expense ratios” table on page 5. Performance would have been lower had expense limitations not been in effect.
Class A shares are sold with a maximum front-end sales charge of 5.75%, and have an annual distribution and service fee of 0.25% of average daily net assets. Performance for Class A shares, excluding sales charges, assumes that no front-end sales charge applied.
Class C shares are sold with a contingent deferred sales charge of 1.00% if redeemed during the first 12 months. They are also subject to an annual distribution and service fee of 1.00% of average daily net assets.
Performance for Class C shares, excluding sales charges, assumes either that contingent deferred sales charges did not apply or that the investment was not redeemed.
Class R shares are available only for certain retirement plan products. They are sold without a sales charge and have an annual distribution and service fee of 0.60% of average daily net assets, which has been limited contractually to 0.50% from Sept. 7, 2012, through Sept. 28, 2013.
4
Institutional Class shares are available without sales or asset-based distribution charges only to certain eligible institutional accounts.
The “Fund performance” table and the “Performance of a $10,000 investment” graph do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors.
REIT investments are subject to many of the risks associated with direct real estate ownership, including changes in economic conditions, credit risk, and interest rate fluctuations. A REIT fund’s tax status as a regulated investment company could be jeopardized if it holds real estate directly, as a result of defaults, or receives rental income from real estate holdings.
“Nondiversified” Funds may allocate more of their net assets to investments in single securities than “diversified” Funds. Resulting adverse effects may subject these Funds to greater risks and volatility.
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.
2 The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table. Delaware Investments has agreed to reimburse certain expenses and/or waive certain fees in order to prevent total fund operating expenses (excluding certain fees and expenses) from exceeding 1.15% of the Fund’s average daily net assets from Sept. 7, 2012, through Sept. 28, 2013. Please see the most recent prospectus and any applicable supplement(s) for additional information on these fee waivers and/or reimbursements.
Fund expense ratios | Class A | Class C | Class R | Institutional Class | ||||
Total annual operating expenses | 1.59% | 2.34% | 1.94% | 1.34% | ||||
(without fee waivers) | ||||||||
Net expenses | 1.40% | 2.15% | 1.65% | 1.15% | ||||
(including fee waivers, if any) | ||||||||
Type of waiver | Contractual | Contractual | Contractual | Contractual |
5
Performance summary
Delaware Global Real Estate Opportunities Fund
Performance of a $10,000 investment1
Average annual total returns from Jan. 10, 2007 (Fund’s inception) through Oct. 31, 2012
For period beginning Jan. 10, 2007, through Oct. 31, 2012 | Starting value | Ending value | |||||
FTSE EPRA/NAREIT Developed Index | $10,000 | $9,449 | |||||
Delaware Global Real Estate Opportunities Fund — | |||||||
Class A shares | $9,425 | $8,594 |
1 The Fund is the successor to The Global Real Estate Securities Portfolio, formerly a series of the Delaware Pooled® Trust, pursuant to the reorganization (Reorganization) of The Global Real Estate Securities Portfolio, which occurred on Sept. 28, 2012. Prior to the Reorganization, the Fund had no investment operations. Accordingly, the performance information shown in the graph is historical information for The Global Real Estate Securities Portfolio, which has been adjusted to reflect the Fund’s applicable sales charges and 12b-1 fees, but not certain other expenses. Because the Fund’s fees and expenses are higher than those of The Global Real Estate Securities Portfolio, the Fund’s performance would have been lower than that of The Global Real Estate Securities Portfolio.
The “Performance of a $10,000 investment” graph assumes $10,000 invested in Class A shares of the Fund on Jan. 10, 2007, and includes the effect of a 5.75% front-end sales charge and the reinvestment of all distributions. The graph does not reflect the deduction of taxes the shareholders would pay on Fund distributions or redemptions of Fund shares. Expense limitations were in effect for some or all of the periods shown. Performance would have been lower had expense limitations not been in effect. Current expenses are listed in the “Fund expense ratios” table on page 5. Please note additional details on pages 4 through 7.
6
The chart also assumes $10,000 invested in the FTSE EPRA/NAREIT Developed Index as of Jan. 10, 2007. The FTSE EPRA/NAREIT Developed Index tracks the performance of listed real estate companies and real estate investment trusts (REITs) worldwide, based in U.S. dollars.
Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index. Past performance is not a guarantee of future results.
Performance of other Fund classes will vary due to different charges and expenses.
Nasdaq symbols | CUSIPs | ||||||
Class A | DGRPX | 245917653 | |||||
Class C | DLPCX | 245917646 | |||||
Class R | DLPRX | 245917638 | |||||
Institutional Class | DGROX | 245917620 |
7
Disclosure of Fund expenses
For the six-month period from May 1, 2012 to October 31, 2012 (Unaudited)
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service (12b-1) fees; and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire six-month period from May 1, 2012 to October 31, 2012.
Actual expenses
The first section of the table shown, “Actual Fund return,” provides information about actual account values and actual expenses. You may use the information in this section of the table, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first section under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The second section of the table shown, “Hypothetical 5% return,” provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second section of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher. The Fund’s expenses shown in the table reflect fee waivers in effect. The expenses shown in the table assume reinvestment of all dividends and distributions.
8
Delaware Global Real Estate Opportunities
Expense analysis of an investment of $1,000
Beginning | Ending | Expenses | ||||||||||||||||||
Account Value | Account Value | Annualized | Paid During Period | |||||||||||||||||
5/1/12 | 10/31/12* | Expense Ratio | 5/1/12 to 10/31/12** | |||||||||||||||||
Actual Fund return† | ||||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,065.00 | 1.41 | % | $ | 7.32 | ||||||||||||
Class C | 1,000.00 | 1,016.80 | 2.15 | % | 1.84 | |||||||||||||||
Class R | 1,000.00 | 1,016.80 | 1.65 | % | 1.41 | |||||||||||||||
Institutional Class | 1,000.00 | 1,063.20 | 1.16 | % | 6.02 | |||||||||||||||
Hypothetical 5% return (5% return before expenses) | ||||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,018.05 | 1.41 | % | $ | 7.15 | ||||||||||||
Class C | 1,000.00 | 1,014.33 | 2.15 | % | 10.89 | |||||||||||||||
Class R | 1,000.00 | 1,016.84 | 1.65 | % | 8.36 | |||||||||||||||
Institutional Class | 1,000.00 | 1,019.30 | 1.16 | % | 5.89 |
*Class C and Class R commenced operations on October 1, 2012. The ending account value use performance since inception and is not annualized.
**The Fund is the successor to The Global Real Estate Securities Portfolio, formerly a series of the Delaware Pooled® Trust pursuant to the Reorganization of The Global Real Estate Securities Portfolio which occurred on September 28, 2012. Prior to the Reorganization, the Fund had no investment operations. Accordingly, the expenses paid during the period for “Actual Fund Return” are equal to the historical annualized expense ratio for the Global Real Estate Securities Portfolio, multiplied by the average account value over the period, multiplied by 31/366 for Class C and Class R (to reflect the actual since inception). The expenses paid during the period for the “Hypothetical 5% Return” are equal to the historical annualized expense ratio for The Global Real Estate Securities Portfolio multiplied by the average account value over the period, multiplied by the 184/366 (to reflect the one-half year period).
†Because actual returns reflect only the most recent six month period, the returns shown may differ significantly from fiscal year returns.
9
Security type/country and sector allocations | |
Delaware Global Real Estate Opportunities Fund | As of October 31, 2012 (Unaudited) |
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment manager’s internal sector classifications, which may result in the sector designations for one Fund being different than another Fund’s sector designations.
Security type/country | Percentage of net assets | |
Common Stock | 100.05 | % |
Australia | 9.98 | % |
Belgium | 0.50 | % |
Canada | 3.63 | % |
China/Hong Kong | 11.53 | % |
Finland | 0.84 | % |
France | 3.88 | % |
Germany | 1.04 | % |
Japan | 7.70 | % |
Singapore | 6.51 | % |
Sweden | 0.89 | % |
United Kingdom | 6.88 | % |
United States | 46.67 | % |
Warrant | 0.00 | % |
Short-Term Investments | 0.62 | % |
Securities Lending Collateral | 3.52 | % |
Total Value of Securities | 104.19 | % |
Obligation to Return Securities Lending Collateral | (4.04 | %) |
Other Liabilities Net of Receivables and Other Assets | (0.15 | %) |
Total Net Assets | 100.00 | % |
10
Common stock by sector | Percentage of net assets | |
Diversified REITs | 24.78 | % |
Healthcare REITs | 4.17 | % |
Hotel REITs | 2.36 | % |
Industrial REITs | 2.63 | % |
Mall REITs | 10.69 | % |
Manufactured Housing REIT | 0.69 | % |
Multifamily REITs | 8.63 | % |
Office REITs | 10.76 | % |
Real Estate Management Services | 5.26 | % |
Real Estate Operating Companies | 13.98 | % |
Self-Storage REITs | 3.94 | % |
Shopping Center REITs | 10.96 | % |
Single Tenant REIT | 1.20 | % |
Total | 100.05 | % |
11
Statement of net assets | |
Delaware Global Real Estate Opportunities Fund | October 31, 2012 |
Number of shares | Value (U.S. $) | |||||
ΔCommon Stock – 100.05% | ||||||
Australia – 9.98% | ||||||
Centro Retail Australia | 370,463 | $ | 826,364 | |||
Dexus Property Group | 1,259,240 | 1,286,864 | ||||
Goodman Group | 216,594 | 995,493 | ||||
=@† | GPT Group-In Specie | 1,377,200 | 0 | |||
Investa Office Fund | 211,591 | 651,991 | ||||
Mirvac Group | 466,887 | 729,015 | ||||
Stockland | 162,073 | 581,801 | ||||
Westfield Group | 233,743 | 2,585,139 | ||||
7,656,667 | ||||||
Belgium – 0.50% | ||||||
Cofinimmo | 3,390 | 385,421 | ||||
385,421 | ||||||
Canada – 3.63% | ||||||
Boardwalk Real Estate Investment Trust | 6,166 | 396,686 | ||||
* | Canadian Real Estate Investment Trust | 25,259 | 1,052,837 | |||
Dundee Real Estate Investment Trust | 15,739 | 577,412 | ||||
First Capital Realty | 41,183 | 762,648 | ||||
2,789,583 | ||||||
China/Hong Kong – 11.53% | ||||||
* | China Overseas Land & Investment | 158,164 | 414,285 | |||
Hongkong Land Holdings | 176,000 | 1,117,600 | ||||
Hysan Development | 220,037 | 972,415 | ||||
Kerry Properties | 152,000 | 754,111 | ||||
Link REIT | 328,500 | 1,634,012 | ||||
Sino Land | 102,000 | 182,678 | ||||
Sun Hung Kai Properties | 186,565 | 2,597,450 | ||||
Wharf Holdings | 171,685 | 1,175,204 | ||||
8,847,755 | ||||||
Finland – 0.84% | ||||||
Sponda | 145,479 | 644,710 | ||||
644,710 | ||||||
France – 3.88% | ||||||
ICADE | 5,069 | 456,045 | ||||
Klepierre | 30,208 | 1,119,701 | ||||
Unibail-Rodamco | 6,217 | 1,400,533 | ||||
2,976,279 |
12
Number of shares | Value (U.S. $) | ||||
ΔCommon Stock (continued) | |||||
Germany – 1.04% | |||||
* | Alstria Office REIT | 66,330 | $ | 800,886 | |
800,886 | |||||
Japan – 7.70% | |||||
Japan Real Estate Investment | 43 | 430,458 | |||
Kenedix Realty Investment | 99 | 338,372 | |||
Mitsubishi Estate | 98,142 | 1,941,568 | |||
Mitsui Fudosan | 112,446 | 2,272,448 | |||
Nippon Building Fund | 86 | 923,410 | |||
5,906,256 | |||||
Singapore – 6.51% | |||||
* | CapitaCommercial Trust | 722,534 | 929,628 | ||
CapitaLand | 380,145 | 1,018,703 | |||
Global Logistic Properties | 378,000 | 796,116 | |||
Keppel Land | 216,000 | 601,844 | |||
* | Mapletree Logistics Trust | 696,760 | 633,808 | ||
Suntec Real Estate Investment Trust | 772,000 | 1,015,415 | |||
4,995,514 | |||||
Sweden – 0.89% | |||||
Hufvudstaden Class A | 53,999 | 685,416 | |||
685,416 | |||||
United Kingdom – 6.88% | |||||
Big Yellow Group | 131,473 | 725,580 | |||
British Land | 101,094 | 862,171 | |||
Derwent London | 41,936 | 1,395,399 | |||
Hammerson | 201,172 | 1,531,611 | |||
Shaftesbury | 86,867 | 768,171 | |||
5,282,932 | |||||
United States – 46.67% | |||||
American Campus Communities | 9,175 | 415,719 | |||
Apartment Investment & Management | 32,020 | 854,614 | |||
AvalonBay Communities | 9,630 | 1,305,443 | |||
Boston Properties | 17,337 | 1,842,923 | |||
BRE Properties | 7,343 | 355,034 | |||
Camden Property Trust | 17,241 | 1,131,527 | |||
CBL & Associates Properties | 16,110 | 360,381 | |||
Colonial Properties Trust | 16,107 | 348,394 |
13
Statement of net assets
Delaware Global Real Estate Opportunities Fund
Number of shares | Value (U.S. $) | ||||
ΔCommon Stock (continued) | |||||
United States (continued) | |||||
Corporate Office Properties Trust | 29,093 | $ | 725,870 | ||
* | DCT Industrial Trust | 42,222 | 272,332 | ||
DDR | 33,454 | 513,853 | |||
Douglas Emmett | 14,867 | 348,631 | |||
Education Realty Trust | 50,322 | 529,891 | |||
Equity Lifestyle Properties | 7,913 | 532,782 | |||
Equity Residential | 22,399 | 1,285,927 | |||
Extra Space Storage | 28,003 | 965,823 | |||
Federal Realty Investment Trust | 7,046 | 759,770 | |||
† | First Industrial Realty Trust | 44,865 | 598,948 | ||
General Growth Properties | 61,609 | 1,211,233 | |||
HCP | 29,145 | 1,291,124 | |||
Healthcare Realty Trust | 24,754 | 581,471 | |||
Host Hotels & Resorts | 60,683 | 877,476 | |||
Kilroy Realty | 14,162 | 628,934 | |||
Kimco Realty | 21,387 | 417,474 | |||
Kite Realty Group Trust | 100,000 | 547,000 | |||
Lexington Realty Trust | 61,760 | 586,102 | |||
Liberty Property Trust | 19,398 | 681,258 | |||
Macerich | 26,880 | 1,532,160 | |||
* | National Retail Properties | 29,120 | 922,522 | ||
Parkway Properties | 41,698 | 574,181 | |||
ProLogis | 33,482 | 1,148,098 | |||
PS Business Parks | 7,141 | 457,952 | |||
Public Storage | 9,586 | 1,328,907 | |||
Ramco-Gershenson Properties Trust | 32,233 | 417,740 | |||
Regency Centers | 14,853 | 713,241 | |||
Simon Property Group | 29,713 | 4,522,617 | |||
SL Green Realty | 6,524 | 491,257 | |||
Starwood Hotels & Resorts Worldwide | 5,511 | 285,745 | |||
† | Strategic Hotel & Resorts | 69,249 | 380,177 | ||
Summit Hotel Properties | 32,907 | 271,812 | |||
Tanger Factory Outlet Centers | 18,364 | 577,915 | |||
Ventas | 20,961 | 1,326,202 | |||
Vornado Realty Trust | 11,218 | 899,796 | |||
35,820,256 | |||||
Total Common Stock (cost $71,170,327) | 76,791,675 |
14
Number of shares | Value (U.S. $) | |||||
Warrant – 0.00% | ||||||
= | Nieuwe Steen Investments | 13,471 | $ | 0 | ||
Total Warrant (cost $0) | 0 | |||||
Principal amount | ||||||
(U.S. $) | ||||||
Short-Term Investments – 0.62% | ||||||
Repurchase Agreements – 0.36% | ||||||
Bank of America 0.24%, dated 10/31/12, to be | ||||||
repurchased on 11/1/12, repurchase price | ||||||
$106,947 (collateralized by U.S. government | ||||||
obligations 0.00%-1.25% 1/10/13-8/31/16; | ||||||
market value $109,085) | $106,946 | 106,946 | ||||
BNP Paribas 0.28%, dated 10/31/12, to be | ||||||
repurchased on 11/1/12, repurchase price | ||||||
$169,055 (collateralized by U.S. government | ||||||
obligations 0.00%-2.00% 1/24/13-4/15/16; | ||||||
market value $172,435) | 169,054 | 169,054 | ||||
276,000 | ||||||
≠U.S. Treasury Obligation – 0.26% | ||||||
U.S. Treasury Bill 0.05% 11/15/12 | 197,686 | 197,681 | ||||
197,681 | ||||||
Total Short-Term Investments (cost $473,677) | 473,681 | |||||
Total Value of Securities Before Securities | ||||||
Lending Collateral – 100.67 (cost $71,644,004) | 77,265,356 | |||||
Number of shares | ||||||
**Securities Lending Collateral – 3.52% | ||||||
Investment Companies | ||||||
Delaware Investments Collateral Fund No.1 | 2,705,115 | 2,705,115 | ||||
@†Mellon GSL Reinvestment Trust II | 394,559 | 0 | ||||
Total Securities Lending Collateral | ||||||
(cost $3,099,674) | 2,705,115 |
15
Statement of net assets
Delaware Global Real Estate Opportunities Fund
Total Value of Securities – 104.19% | |||||
(cost $74,743,678) | $ | 79,970,471 | © | ||
**Obligation to Return Securities | |||||
Lending Collateral – (4.04%) | (3,099,674 | ) | |||
«Other Liabilities Net of Receivables and | |||||
Other Assets – (0.15%) | (115,791 | ) | |||
Net Assets Applicable to 12,657,592 Shares | |||||
Outstanding – 100.00% | $ | 76,755,006 | |||
Net Asset Value – Delaware Global Real Estate Opportunities Fund | |||||
Class A ($296,692 / 48,985 Shares) | $6.06 | ||||
Net Asset Value – Delaware Global Real Estate Opportunities Fund | |||||
Class C ($25,580 / 4,224 Shares) | $6.06 | ||||
Net Asset Value – Delaware Global Real Estate Opportunities Fund | |||||
Class R ($6,599 / 1,089 Shares) | $6.06 | ||||
Net Asset Value – Delaware Global Real Estate Opportunities Fund | |||||
Institutional Class ($76,426,135 / 12,603,294 Shares) | $6.06 | ||||
Components of Net Assets at October 31, 2012: | |||||
Shares of beneficial interest (unlimited authorization – no par) | $ | 177,917,487 | |||
Undistributed net investment income | 815,409 | ||||
Accumulated net realized loss on investments and derivatives | (107,203,711 | ) | |||
Net unrealized appreciation of investments and derivatives | 5,225,821 | ||||
Total net assets | $ | 76,755,006 |
Δ | Securities have been classified by country of origin. Classification by type of business has been presented on page 11 in “Security type/country and sector allocations.” |
= | Security is being fair valued in accordance with the Fund’s fair valuation policy. At October 31, 2012, the aggregate value of fair valued securities was $0, which represented 0.00% of the Fund’s net assets. See Note 1 in “Notes to financial statements.” |
@ | Illiquid security. At October 31, 2012, the aggregate value of illiquid securities was $0, which represented 0.00% of the Fund’s net assets. See Note 12 in “Notes to financial statements.” |
† | Non income producing security. |
* | Fully or partially on loan. |
≠ | The rate shown is the effective yield at the time of purchase. |
16
** | See Note 11 in “Notes to financial statements” for additional information on securities lending collateral. |
© | Includes $2,949,049 of securities loaned. |
« | Includes foreign currency valued at $6,735 with a cost of $6,748. |
Net Asset Value and Offering Price Per Share – | ||
Delaware Global Real Estate Opportunities Fund | ||
Net asset value Class A (A) | $ | 6.06 |
Sales charge (5.75% of offering price) (B) | 0.37 | |
Offering price | $ | 6.43 |
(A) | Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares. |
(B) | See the current prospectus for purchases of $50,000 or more. |
The following foreign currency exchange contract was outstanding at October 31, 2012:1
Foreign Currency Exchange Contract
Unrealized | ||||||||
Contracts to | Appreciation | |||||||
Counterparty | Receive (Deliver) | In Exchange For | Settlement Date | (Depreciation) | ||||
MNB | HKD 646,843 | USD (83,464) | 11/2/12 | $— |
The use of foreign currency exchange contracts involves elements of market risk and risks in excess of the amounts recognized in the financial statements. The foreign currency exchange contracts presented above represent the Fund’s total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Fund’s net assets.
1See Note 10 in “Notes to financial statements.”
Summary of abbreviations:
HKD — Hong Kong Dollar
MNB — Mellon National Bank
REIT — Real Estate Investment Trust
USD — United States Dollar
See accompanying notes, which are an integral part of the financial statements.
17
Statement of operations | |
Delaware Global Real Estate Opportunities Fund | Year Ended October 31, 2012 |
Investment Income: | |||||||
Dividends | $ | 1,621,790 | |||||
Securities lending income | 17,549 | ||||||
Interest | 3,366 | ||||||
Foreign tax withheld | (77,579 | ) | $ | 1,565,126 | |||
Expenses: | |||||||
Management fees | 547,382 | ||||||
Registration fees | 45,999 | ||||||
Custodian fees | 33,625 | ||||||
Accounting and administration expenses | 21,609 | ||||||
Audit and tax | 15,666 | ||||||
Legal fees | 13,070 | ||||||
Reports and statements to shareholders | 10,172 | ||||||
Dividend disbursing and transfer agent fees and expenses | 7,272 | ||||||
Dues and services | 5,887 | ||||||
Pricing fees | 3,663 | ||||||
Trustees’ fees | 2,473 | ||||||
Insurance fees | 842 | ||||||
Consulting fees | 428 | ||||||
Trustees’ expenses | 158 | ||||||
Distribution expense – Class A | 80 | ||||||
Distribution expense – Class C | 21 | ||||||
Distribution expense – Class R | 3 | 708,350 | |||||
Less fees waived | (85,047 | ) | |||||
Class R waiver | (1 | ) | |||||
Total operating expenses | 623,302 | ||||||
Net Investment Income | 941,824 |
18
Net Realized and Unrealized Gain (Loss): | |||
Net realized gain (loss) on: | |||
Investments | $ | 4,052,481 | |
Foreign currencies | (4,764 | ) | |
Foreign currency exchange contracts | (111,831 | ) | |
Net realized gain | 3,935,886 | ||
Net change in unrealized appreciation (depreciation): | |||
Investments | 4,060,445 | ||
Foreign currencies | (5,199 | ) | |
Foreign currency exchange contracts | 5,165 | ||
Net change in unrealized appreciation (depreciation) of investments | 4,060,411 | ||
Net Realized and Unrealized Gain | 7,996,297 | ||
Net Increase in Net Assets Resulting from Operations | $ | 8,938,121 |
See accompanying notes, which are an integral part of the financial statements.
19
Statements of changes in net assets
Delaware Global Real Estate Opportunities Fund
Year Ended | |||||||
10/31/12 | 10/31/11 | ||||||
Increase (Decrease) in Net Assets from Operations: | |||||||
Net investment income | $ | 941,824 | $ | 1,643,413 | |||
Net realized gain | 3,935,886 | 6,574,635 | |||||
Net change in unrealized appreciation (depreciation) | 4,060,411 | (6,921,809 | ) | ||||
Net increase in net assets resulting from operations | 8,938,121 | 1,296,239 | |||||
Dividends and Distributions to Shareholders from: | |||||||
Net investment income: | |||||||
Class A | (306 | ) | (645 | ) | |||
Institutional Class | (2,051,090 | ) | (5,063,856 | ) | |||
(2,051,396 | ) | (5,064,501 | ) | ||||
Capital Share Transactions: | |||||||
Proceeds from shares sold: | |||||||
Class A | 39,337 | — | |||||
Class C | 6 | — | |||||
Class R | 6 | — | |||||
Institutional Class | 40,552,760 | 7,162,052 | |||||
Net asset value of shares issued upon reinvestment of | |||||||
dividends and distributions: | |||||||
Class A | 306 | 645 | |||||
Institutional Class | 1,861,763 | 4,620,122 | |||||
Net assets from reorganization:* | |||||||
Class A | — | — | |||||
Institutional Class | — | — | |||||
Net assets from merger:** | |||||||
Class A | 243,416 | — | |||||
Class C | 25,156 | — | |||||
Class R | 7,010 | — | |||||
Institutional Class | 1,170,087 | — | |||||
43,899,847 | 11,782,819 |
20
Year Ended | |||||||||
10/31/12 | 10/31/11 | ||||||||
Capital Share Transactions (continued): | |||||||||
Cost of shares redeemed: | |||||||||
Class R | $ | (528 | ) | $ | — | ||||
Institutional Class | (23,398,216 | ) | (18,962,474 | ) | |||||
(23,398,744 | ) | (18,962,474 | ) | ||||||
Increase (decrease) in net assets derived from capital | |||||||||
share transactions | 20,501,103 | (7,179,655 | ) | ||||||
Net Increase (Decrease) in Net Assets | 27,387,828 | (10,947,917 | ) | ||||||
Net Assets: | |||||||||
Beginning of year | 49,367,178 | 60,315,095 | |||||||
End of year (including distributions in excess of | |||||||||
net investment income of $815,409 and | |||||||||
$1,276,350, respectively) | $ | 76,755,006 | $ | 49,367,178 | |||||
* | See Note 7 in “Notes to financial statements.” | ||||||||
** | See Note 8 in “Notes to financial statements.” |
See accompanying notes, which are an integral part of the financial statements.
21
Financial highlights
Delaware Global Real Estate Opportunities Class A1
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income2 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Total dividends and distributions |
Net asset value, end of period |
Total return3 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived |
Portfolio turnover |
See accompanying notes, which are an integral part of the financial statements.
22
Year Ended | |||||||||||||
10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | 10/31/08 | |||||||||
$5.370 | $5.780 | $5.040 | $4.420 | $9.000 | |||||||||
0.103 | 0.148 | 0.129 | 0.129 | 0.137 | |||||||||
0.799 | (0.069 | ) | 0.973 | 0.491 | (4.402 | ) | |||||||
0.902 | 0.079 | 1.102 | 0.620 | (4.265 | ) | ||||||||
(0.212 | ) | (0.489 | ) | (0.362 | ) | — | (0.315 | ) | |||||
(0.212 | ) | (0.489 | ) | (0.362 | ) | — | (0.315 | ) | |||||
$6.060 | $5.370 | $5.780 | $5.040 | $4.420 | |||||||||
17.79% | 1.68% | 23.26% | 14.03% | (48.88% | ) | ||||||||
$297 | $8 | $8 | $6 | $6 | |||||||||
1.38% | 1.39% | 1.50% | 1.32% | 1.34% | |||||||||
1.52% | 1.49% | 1.50% | 1.46% | 1.37% | |||||||||
1.65% | 2.69% | 2.52% | 3.20% | 1.96% | |||||||||
1.51% | 2.59% | 2.52% | 3.06% | 1.92% | |||||||||
128% | 155% | 185% | 124% | 96% |
23
Financial highlights
Delaware Global Real Estate Opportunities Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
10/1/121 | ||||
to | ||||
10/31/12 | ||||
Net asset value, beginning of period | $5.960 | |||
Income from investment operations: | ||||
Net investment loss2 | (0.005 | ) | ||
Net realized and unrealized gain | 0.105 | |||
Total from investment operations | 0.100 | |||
Net asset value, end of period | $6.060 | |||
Total return3 | 1.68% | |||
Ratios and supplemental data: | ||||
Net assets, end of period (000 omitted) | $25 | |||
Ratio of expenses to average net assets | 2.15% | |||
Ratio of expenses to average net assets | ||||
prior to fees waived | 2.52% | |||
Ratio of net investment loss to average net assets | (0.93% | ) | ||
Ratio of net investment loss to average net assets | ||||
prior to fees waived | (1.30% | ) | ||
Portfolio turnover4 | 128% |
See accompanying notes, which are an integral part of the financial statements.
24
Delaware Global Real Estate Opportunities Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
10/1/121 | ||||
to | ||||
10/31/12 | ||||
Net asset value, beginning of period | $5.960 | |||
Income from investment operations: | ||||
Net investment loss2 | (0.002 | ) | ||
Net realized and unrealized gain | 0.102 | |||
Total from investment operations | 0.100 | |||
Net asset value, end of period | $6.060 | |||
Total return3 | 1.68% | |||
Ratios and supplemental data: | ||||
Net assets, end of period (000 omitted) | $7 | |||
Ratio of expenses to average net assets | 1.65% | |||
Ratio of expenses to average net assets | ||||
prior to fees waived | 2.12% | |||
Ratio of net investment loss to average net assets | (0.43% | ) | ||
Ratio of net investment loss to average net assets | ||||
prior to fees waived | (0.90% | ) | ||
Portfolio turnover4 | 128% |
See accompanying notes, which are an integral part of the financial statements.
25
Financial highlights
Delaware Global Real Estate Opportunities Institutional Class1
Selected data for each share of the Fund outstanding throughout each period were as follows:
Net asset value, beginning of period |
Income (loss) from investment operations: |
Net investment income2 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Total dividends and distributions |
Net asset value, end of period |
Total return3 |
Ratios and supplemental data: |
Net assets, end of period (000 omitted) |
Ratio of expenses to average net assets |
Ratio of expenses to average net assets |
prior to fees waived |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived |
Portfolio turnover |
See accompanying notes, which are an integral part of the financial statements.
26
Year Ended | ||||||||||||||||
10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | 10/31/08 | ||||||||||||
$5.390 | $5.790 | $5.050 | $4.430 | $9.020 | ||||||||||||
0.105 | 0.163 | 0.142 | 0.139 | 0.155 | ||||||||||||
0.791 | (0.061 | ) | 0.971 | 0.490 | (4.409 | ) | ||||||||||
0.896 | 0.102 | 1.113 | 0.629 | (4.254 | ) | |||||||||||
(0.226 | ) | (0.502 | ) | (0.373 | ) | (0.009 | ) | (0.336 | ) | |||||||
(0.226 | ) | (0.502 | ) | (0.373 | ) | (0.009 | ) | (0.336 | ) | |||||||
$6.060 | $5.390 | $5.790 | $5.050 | $4.430 | ||||||||||||
17.68% | 2.10% | 23.49% | 13.75% | (48.74% | ) | |||||||||||
$76,426 | $49,359 | $60,307 | $54,761 | $87,945 | ||||||||||||
1.13% | 1.14% | 1.25% | 1.07% | 1.09% | ||||||||||||
1.27% | 1.24% | 1.25% | 1.21% | 1.12% | ||||||||||||
1.90% | 2.94% | 2.77% | 3.45% | 2.21% | ||||||||||||
1.76% | 2.84% | 2.77% | 3.31% | 2.17% | ||||||||||||
128% | 155% | 185% | 124% | 96% |
27
Delaware Global Real Estate Opportunities Fund | October 31, 2012 |
Delaware Group® Adviser Funds (Trust) is organized as a Delaware statutory trust and offers four series: Delaware Diversified Income Fund, Delaware Global Real Estate Opportunities Fund, Delaware International Bond Fund and Delaware U.S. Growth Fund. These financial statements and related notes pertain to Delaware Global Real Estate Opportunities Fund. The Trust is an open-end investment company. The Fund is considered non-diversified under the Investment Company Act of 1940, as amended, and offers Class A, Class C, Class R and Institutional Class shares. Class A shares are sold with a maximum front-end sales charge of up to 5.75%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) of 1% if redeemed during the first year and 0.50% during the second year, provided that Delaware Distributors, L.P. (DDLP) paid a financial advisor a commission on the purchase of those shares. Class C shares are sold with a CDSC of 1%, if redeemed during the first twelve months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors.
The investment objective of the Fund is to seek maximum long-term total return through a combination of current income and capital appreciation.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and are consistently followed by the Fund.
Security Valuation — Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and ask prices will be used, which approximates fair value. Securities listed on a foreign exchange are normally valued at the last quoted sales price on the valuation date. U.S. government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value. Investment company securities are valued at net asset value per share, as reported by the underlying investment company. Foreign currency exchange contracts are valued at the mean between the bid and ask prices, which approximates fair value. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. Generally, other securities and assets for which market quotations are not readily available are valued at fair value as determined in good faith under the direction of the Fund’s Board of Trustees (Board). In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures or suspension of trading in a security. The Fund may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Fund values its securities, generally as of 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Fund may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
28
Federal Income Taxes — No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Fund’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Management has analyzed the Fund’s tax positions taken for all open federal income tax years (October 31, 2009 – October 31, 2012), and has concluded that no provision for federal income tax is required in the Fund’s financial statements.
Class Accounting — Investment income, common expenses and realized and unrealized gain (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements — The Fund may purchase certain U.S. government securities subject to the counterparty’s agreement to repurchase them at an agreed upon date and price. The counterparty will be required on a daily basis to maintain the value of the collateral subject to the agreement at not less than the repurchase price (including accrued interest). The agreements are conditioned upon the collateral being deposited under the Federal Reserve book-entry system with the Fund’s custodian or a third party sub-custodian. In the event of default or bankruptcy by the other party to the agreement, retention of the collateral may be subject to legal proceedings. All open repurchase agreements as of the date of this report were entered into on October 31, 2012.
Foreign Currency Transactions — Transactions denominated in foreign currencies are recorded at the prevailing exchange rates on the valuation date in accordance with the Fund’s prospectus. The value of all assets and liabilities denominated in foreign currencies is translated into U.S. dollars at the exchange rate of such currencies against the U.S. dollar daily. Transaction gains or losses resulting from changes in exchange rates during the reporting period or upon settlement of the foreign currency transaction are reported in operations for the current period. The Fund generally does not isolate that portion of realized gains and losses on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices. The changes are included with the net realized and unrealized gain or loss on investments. The Fund reports certain foreign currency related transactions as components of realized gains (losses) for financial reporting purposes, whereas such components are treated as ordinary income (loss) for federal income tax purposes.
Use of Estimates — The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the fair value of investments, the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the differences could be material.
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1. Significant Accounting Policies (continued)
Other — Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Distributions received from investments in Real Estate Investment Trusts (REITs) are recorded as dividend income on ex-dividend date, subject to reclassification upon notice of the character of such distributions by the issuer. The financial statements reflect an estimate of the reclassification of the distribution character. Foreign dividends are also recorded on the ex-dividend date or as soon after the ex-dividend date that the Fund is aware of such dividends, net of all non-rebatable tax withholdings. Withholding taxes on foreign dividends have been recorded in accordance with the Fund’s understanding of the applicable country’s tax rules and rates. The Fund declares and pays dividends from net investment income and distributions from net realized gains on investments, if any, annually. Dividends and distributions, if any, are recorded on ex-dividend date. The Fund may distribute income dividends and capital gains more frequently, if necessary for tax purposes.
The Fund may receive earnings credits from its custodian when positive cash balances are maintained, which are used to offset custody fees. There were no earning credits for the year ended October 31, 2012.
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which are used to offset transfer agent fees. The expense paid under this arrangement is included in dividend disbursing and transfer agent fees and expenses on the statement of operations with the corresponding expense offset shown as “expense paid indirectly.” There were no earning credits for the year ended October 31, 2012.
2. Investment Management, Administration Agreements and Other Transactions with Affiliates
In accordance with the terms of its investment management agreement, the Fund pays Delaware Management Company (DMC), a series of Delaware Management Business Trust and the investment manager, an annual fee which is calculated daily at the rate of 0.99% on the first $100 million of average daily net assets of the Fund, 0.90% on the next $150 million, and 0.80% on average daily net assets in excess of $250 million.
DMC has contractually agreed to waive that portion, if any, of its management fee and reimburse the Fund to the extent necessary to ensure that total annual operating expenses (excluding any 12b-1 plan expenses and certain other expenses) do not exceed 1.15% of average daily net assets of the Fund through September 28, 2013. For purposes of this waiver and reimbursement, nonroutine expenses may also include such additional costs and expenses, as may be agreed
30
upon from time to time by the Fund’s Board and DMC. This waiver and reimbursement may be terminated only by agreement of the manager and the Fund. This waiver and reimbursement applies only to expenses paid directly by the Fund.
Delaware Service Company, Inc. (DSC), an affiliate of DMC, provides fund accounting and financial administration oversight services to the Fund. For these services, the Fund pays DSC fees based on the aggregate daily net assets of the Delaware Investments® Family of Funds at the following annual rate: 0.0050% of the first $30 billion; 0.0045% of the next $10 billion; 0.0040% of the next $10 billion; and 0.0025% of aggregate average daily net assets in excess of $50 billion. The fees payable to DSC under the service agreement described above are allocated among all Funds in the Delaware Investments® Family of Funds on a relative net asset value basis. For the year ended October 31, 2012, the Fund was charged $2,710 for these services.
DSC is also the transfer agent and dividend disbursing agent of the Fund. The Fund pays DSC a monthly asset-based fee for these services. Pursuant to a sub-transfer agency agreement between DSC and BNY Mellon Investment Servicing (US) Inc. (BNYMIS), BNYMIS provides certain sub-transfer agency services to the Fund. Sub-transfer agency fees are passed on to and paid directly by the Fund.
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual distribution and service fee of 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class C shares and 0.60% of the average daily net assets of Class R shares. Institutional Class shares pay no distribution and service expenses. DDLP has contracted to waive distribution and service fees of Class R shares to 0.50%, of average daily net assets through September 28, 2013.
At October 31, 2012, the Fund had liabilities payable to affiliates as follows:
Investment management fees payable to DMC | $ | 41,223 |
Dividend disbursing, transfer agent and fund accounting | ||
oversight fees and other expenses payable to DSC | 1,824 | |
Distribution fees payable to DDLP | 85 | |
Other expenses payable to DMC and affiliates* | 1,439 |
*DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees’ fees.
As provided in the investment management agreement, the Fund bears the cost of certain legal and tax services, including internal legal and tax services provided to the Fund by DMC and/or its affiliates’ employees. For the year ended October 31, 2012, the Fund was charged $9,570 for internal legal and tax services provided by DMC and/or its affiliates’ employees.
For the year ended October 31, 2012, DDLP earned $ 9 for commissions on sales of the Fund’s Class A shares.
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2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued)
Trustees’ fees include expenses accrued by the Fund for each Trustee’s retainer and meeting fees. Certain officers of DMC, DSC and DDLP are officers and/or Trustees of the Trust. These officers and Trustees are paid no compensation by the Fund.
3. Investments
For the year ended October 31, 2012, the Fund made purchases of $88,430,349 and sales of $69,800,038 of investment securities other than short-term investments.
At October 31, 2012, the cost of investments for federal income tax purposes was $77,299,937. At October 31, 2012, the net unrealized appreciation was $2,670,534, of which $6,142,445 related to unrealized appreciation of investments and $3,471,911 related to unrealized depreciation of investments.
U.S. GAAP defines fair value as the price that the Fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. A three level hierarchy for fair value measurements has been established based upon the transparency of inputs to the valuation of an asset or liability. Inputs may be observable or unobservable and refer broadly to the assumptions that market participants would use in pricing the asset or liability. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the reporting entity’s own assumptions about the assumptions that market participants would use in pricing the asset or liability developed based on the best information available under the circumstances. The Fund’s investment in its entirety is assigned a level based upon the observability of the inputs which are significant to the overall valuation. The three level hierarchy of inputs is summarized below.
Level 1 | – | inputs are quoted prices in active markets for identical investments (e.g., equity securities, open-end investment companies, futures contracts, exchange-traded options contracts) |
Level 2 | – | other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs) (e.g., debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing, broker-quoted securities, fair valued securities) |
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Level 3 – | inputs are significant unobservable inputs (including the Fund’s own assumptions used to determine the fair value of investments) (e.g., broker-quoted securities, fair valued securities) |
Level 3 investments are valued using significant unobservable inputs. The Fund may also use an income-based valuation approach in which the anticipated future cash flows of the investment are discounted to calculate fair value. Discounts may also be applied due to the nature or duration of any restrictions on the disposition of the investments. Valuations may also be based upon current market prices of securities that are comparable in coupon, rating, maturity and industry. The derived value of a Level 3 investment may not represent the value which is received upon disposition and this could impact the results of operations.
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of October 31, 2012:
Level 1 | Level 2 | Level 3 | Total | ||||||||||
Common Stock | $ | 76,791,675 | $ | — | $— | $ | 76,791,675 | ||||||
Short-Term Investments | — | 473,681 | — | 473,681 | |||||||||
Securities Lending Collateral | — | 2,705,115 | — | 2,705,115 | |||||||||
Total | $ | 76,791,675 | $ | 3,178,796 | $— | $ | 79,970,471 |
The securities deemed worthless on the statement of net assets have been included as level 3 securities within the fair value hierarchy.
A reconciliation of Level 3 investments is presented when the Fund has a significant amount of Level 3 investments at the beginning, interim, or end of period in relation to net assets.
During the year ended October 31, 2012, there were no transfers between Level 1 investments, Level 2 investments or Level 3 investments that had a material impact to the Fund. This does not include transfers between Level 1 investments and Level 2 investments due to the Fund utilizing international fair value pricing during the period. International Fair Value pricing uses other observable market-based inputs in place of the closing exchange price due to the events occurring after the close of the exchange or market on which the investment is principally traded in accordance with the Fair Valuation Procedures described in Note 1, causing a change in classification between levels. The Fund’s policy is to recognize transfers between levels at the beginning of the reporting period.
Management has determined not to provide additional disclosure under ASU No. 2011-04 since the Level 3 investments are not considered material to the Fund’s net assets at the end of the period.
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Notes to financial statements
Delaware Global Real Estate Opportunities Fund
4. Dividend and Distribution Information
Income and long-term capital gain distributions are determined in accordance with federal income tax regulations, which may differ from U.S. GAAP. Additionally, distributions from net gains on foreign currency transactions and net short-term gains on sales of investment securities are treated as ordinary income for federal income tax purposes. The tax character of dividends and distributions paid during the years ended October 31, 2012 and 2011 was as follows:
Year Ended | ||||
10/31/12 | 10/31/11 | |||
Ordinary income | $2,051,396 | $5,064,501 |
5. Components of Net Assets on a Tax Basis
As of October 31, 2012, the components of net assets on a tax basis were as follows:
Shares of beneficial interest | $ | 177,917,487 | |
Undistributed ordinary income | 1,674,234 | ||
*Capital loss carryforwards | (105,487,995 | ) | |
Unrealized appreciation | 2,651,280 | ||
Net assets | $ | 76,755,006 |
*The amount of this loss which can be utilized in subsequent years may be subject to an annual limitation in accordance with the Internal Revenue Code due to the Fund merger with Delaware Global Real Estate Securities Portfolio in September 2012.
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales and tax treatment of passive foreign investment companies.
For financial reporting purposes, capital accounts are adjusted to reflect the tax character of permanent book/tax differences. Reclassifications are primarily due to capital loss carryforward write-off due to limitation, tax treatment of passive foreign investment companies and gain (loss) on foreign currency transactions. Results of operations and net assets were not affected by these reclassifications. For the year ended October 31, 2012, the Fund recorded an estimate of these differences since the final tax characteristics cannot be determined until fiscal year end.
Undistributed net investment income | $ | 661,064 | |
Accumulated net realized gain | 172,747 | ||
Paid-in capital | (833,811 | ) |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. $2,352,016 was utilized in October 31, 2012. Capital loss carryforwards remaining at October 31, 2012 will expire as follows: $174,637 expires in 2016, $51,128,017 expires in 2017, $50,784,384 expires in 2018 and $3,400,957 expires in 2019.
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the Act) was enacted, which changed various technical rules governing the tax treatment of regulated
34
investment companies. The changes were generally effective for taxable years beginning after the date of enactment. Under the Act, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after the date of enactment for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather than being considered all short-term as permitted under previous regulation.
6. Capital Shares
Transactions in capital shares were as follows:
Year Ended | |||||
10/31/12 | 10/31/11 | ||||
Shares sold: | |||||
Class A | 6,568 | — | |||
Class C | 1 | — | |||
Class R | 1 | — | |||
Institutional Class | 7,017,753 | 1,295,717 | |||
Shares issued upon reinvestment of dividends and distributions: | |||||
Class A | 63 | 125 | |||
Institutional Class | 384,662 | 890,197 | |||
Shares from reorganization:* | |||||
Class A | — | — | |||
Institutional Class | — | — | |||
Shares from merger:** | |||||
Class A | 40,910 | — | |||
Class C | 4,223 | — | |||
Class R | 1,177 | — | |||
Institutional Class | 196,323 | — | |||
7,651,681 | 2,186,039 | ||||
Shares redeemed: | |||||
Class R | (89 | ) | — | ||
Institutional Class | (4,154,049 | ) | (3,439,667 | ) | |
(4,154,138 | ) | (3,439,667 | ) | ||
Net increase (decrease) | 3,497,543 | (1,253,628 | ) |
*See Note 7.
**See Note 8.
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Notes to financial statements
Delaware Global Real Estate Opportunities Fund
7. Fund Reorganization
Following the close of business on September 28, 2012, pursuant to a Plan of Reorganization (Reorganization), the Fund received all of the assets and liabilities of The Global Real Estate Securities Portfolio, a series of the Delaware Pooled® Trust (Portfolio). The shareholders of the Portfolio received Class A shares of the Fund with an aggregate net asset value equal to the aggregate net asset value of their shares in the Portfolio immediately prior to the Reorganization, shown as in the following table:
Shares Prior to | Shares After | |||||
Reorganization | Reorganization | Value | ||||
Class P | 1,507 | — | $ | 8,962 | ||
Class A | — | 1,507 | 8,962 | |||
Original Class | 12,857,133 | — | 76,624,023 | |||
Institutional Class | — | 12,857,133 | 76,624,023 |
The Reorganization was treated as a tax-free reorganization for federal income purposes and, accordingly, the basis of the assets of the Fund reflected the historical basis of the assets of the Portfolio as of the date of the Reorganization. For financial reporting purposes, the Portfolio’s operating history prior to the Reorganization is reflected in the Fund’s financial statements and financial highlights. The net assets, net unrealized appreciation and accumulated net realized loss of the Portfolio as of the close of business on September 28, 2012, were as follows:
Net assets | $ | 76,632,985 |
Accumulated net realized gain | 2,513,828 | |
Net unrealized appreciation | 5,067,741 |
8. Fund Merger
Also, on September 28, 2012, the Fund acquired all of the assets of the Delaware Global Real Estate Securities Fund (Acquired Fund), an open-end investment company, in exchange for the shares of the Portfolio (Acquiring Fund) pursuant to a Plan and Agreement of Reorganization (Reorganization). The shareholders of the Acquired Fund received shares of the respective class of the Acquiring Fund equal to the aggregate net asset value of their share in the Acquired Fund prior to the Reorganization, shown as in the following table:
Acquiring | Acquired | |||||
Fund | Fund | |||||
Shares | Shares | Value | ||||
Class A | 1,507 | 40,910 | $ | 243,416 | ||
Class C | — | 4,223 | 25,156 | |||
Class R | — | 1,177 | 7,010 | |||
Institutional Class | 12,857,133 | 196,323 | 1,170,087 |
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The Reorganization was treated as a non-taxable event and, accordingly, the Acquired Fund’s basis in securities acquired reflected historical cost basis as of the date of transfer. The net assets, net unrealized appreciation and accumulated net realized loss of the Acquired Fund as of the close of business on September 28, 2012 were as follows:
Net assets | $ | 1,445,669 | |
Accumulated net realized gain | (1,045,838 | ) | |
Net unrealized appreciation | 122,701 |
The net assets of the Acquiring Fund before the acquisition were $76,632,985. The net assets of the Acquiring Fund immediately following the acquisition were $78,078,653.
Assuming that the acquisition had been completed on November 1, 2011, the beginning of the Acquiring Fund’s reporting period, the Acquiring Fund’s pro forma results of operations for the year ended October 31, 2012, are as follows:
Net investment income | $ | 973,704 |
Net realized gain on investments | 4,012,939 | |
Change in unrealized appreciation | 4,206,645 | |
Net increase in net assets resulting from operations | 9,193,288 |
Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of the Acquired Fund that have been included in the Fund’s statement of operations since October 1, 2012.
9. Line of Credit
The Fund, along with certain other funds in the Delaware Investments® Family of Funds (Participants), was a participant in a $100,000,000 revolving line of credit to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares. Under the agreement, the Participants were charged an annual commitment fee, which was allocated across the Participants on the basis of each Participant’s allocation of the entire facility. The Participants were permitted to borrow up to a maximum of one third of their net assets under the agreement. Each Participant was individually, and not jointly, liable for its particular advances, if any, under the line of credit. The line of credit under the agreement expired on November 15, 2011.
On November 15, 2011, the Fund, along with the other Participants, entered into an amendment to the agreement for a $125,000,000 revolving line of credit. The agreement is to be used as described above and operates in substantially the same manner as the original agreement. The line of credit available under the agreement expired on November 13, 2012.
On November 13, 2012, the Fund, along with the other Participants, entered into an amendment to the agreement for a $125,000,000 revolving line of credit. The agreement is to be used as described above and operates in substantially the same manner as the original agreement. The line of credit available under the agreement expires on November 12, 2013. The Fund had no amounts outstanding as of October 31, 2012 or at any time during the year then ended.
37
Notes to financial statements
Delaware Global Real Estate Opportunities Fund
10. Derivatives
U.S. GAAP requires disclosures that enable investors to understand: 1) how and why an entity uses derivatives; 2) how they are accounted for; and 3) how they affect an entity’s results of operations and financial position.
Foreign Currency Exchange Contracts — The Fund may enter into foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Fund may enter into these contracts to fix the U.S. dollar value of a security that it has agreed to buy or sell for the period between the date the trade was entered into and the date the security is delivered and paid for. The Fund may also use these contracts to hedge the U.S. dollar value of securities it already owns that are denominated in foreign currencies. The change in value is recorded as an unrealized gain or loss. When the contract is closed, a realized gain or loss is recorded equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
The use of foreign currency exchange contracts does not eliminate fluctuations in the underlying prices of the securities, but does establish a rate of exchange that can be achieved in the future. Although foreign currency exchange contracts limit the risk of loss due to an unfavorable change in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency change favorably. In addition, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. The Fund’s maximum risk of loss from counterparty credit risk is the value of its currency exchanged with the counterparty. The risk is generally mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Fund’s exposure to the counterparty.
See the statement of operations on page 18 for the realized and unrealized gain or loss on derivatives.
Derivatives Generally. The table below summarizes the average daily balance of derivative holdings by the Fund during the year ended October 31, 2012. The average balance of derivatives held is generally similar to the volume of derivative activity for the year ended October 31, 2012.
Long Derivative Volume | ||
Foreign currency exchange contracts (average cost) | $ | 333,387 |
Short Derivative Volume | ||
Foreign currency exchange contracts (average cost) | 253,577 |
11. Securities Lending
The Fund, along with other funds in the Delaware Investments® Family of Funds, may lend its securities pursuant to a security lending agreement (Lending Agreement) with The Bank of New York Mellon (BNY Mellon). At the time a security is loaned, the borrower must post collateral equal to the required percentage of the market value of the loaned security, including any accrued interest. The required percentage is: (i) 102% with respect to U.S. securities and foreign securities that are denominated and payable in U.S. dollars; and (ii) 105% with respect to foreign securities.
38
With respect to each loan, if on any business day the aggregate market value of securities collateral plus cash collateral held is less than the aggregate market value of the securities which are the subject of such loan, the borrower will be notified to provide additional collateral by the end of the following business day which, together with the collateral already held, will be not less than the applicable initial collateral requirements for such security loan. If the aggregate market value of securities collateral and cash collateral held with respect to a security loan exceeds the applicable initial collateral requirement, upon the request of the borrower BNY Mellon must return enough collateral to the borrower by the end of the following business day to reduce the value of the remaining collateral to the applicable initial collateral requirement for such security loan. As a result of the foregoing, the value of the collateral held with respect to a loaned security may be temporarily more or less than the value of the security on loan.
Cash collateral received is generally invested in the Delaware Investments Collateral Fund No. 1 (Collective Trust) established by BNY Mellon for the purpose of investment on behalf of funds managed by DMC that participate in BNY Mellon’s securities lending program. The Collective Trust may invest in U.S. government securities and high quality corporate debt, asset-backed and other money market securities and in repurchase agreements collateralized by such securities, provided that the Collective Trust will generally have a dollar-weighted average portfolio maturity of 60 days or less. In October 2008, BNY Mellon transferred certain distressed securities from the Fund’s previous collateral investment pool into the Mellon GSL Reinvestment Trust II. The Fund can also accept U.S. government securities and letters of credit (non-cash collateral) in connection with securities loans. In the event of default or bankruptcy by the lending agent, realization and/or retention of the collateral may be subject to legal proceedings. In the event the borrower fails to return loaned securities and the collateral received is insufficient to cover the value of the loaned securities and provided such collateral shortfall is not the result of investment losses, the lending agent has agreed to pay the amount of the shortfall to the Fund, or at the discretion of the lending agent, replace the loaned securities. The Fund continues to record dividends or interest, as applicable, on the securities loaned and is subject to changes in value of the securities loaned that may occur during the term of the loan. The Fund has the right under the Lending Agreement to recover the securities from the borrower on demand. With respect to security loans collateralized by non-cash collateral, the Fund receives loan premiums paid by the borrower. With respect to security loans collateralized by cash collateral, the earnings from the collateral investments are shared among the Fund, the security lending agent and the borrower. The Fund records security lending income net of allocations to the security lending agent and the borrower.
The Collective Trust used for the investment of cash collateral received from borrowers of securities seeks to maintain a net asset value per unit of $1.00, but there can be no assurance that it will always be able to do so. The Fund may incur investment losses as a result of investing securities lending collateral in the Collective Trust or another collateral investment pool. This could occur if an investment in a collateral investment pool defaulted or if it were necessary to liquidate assets in the collateral investment pool to meet returns on outstanding security loans at a time when the collateral investment pool’s net asset value per unit was less than $1.00. Under
39
Notes to financial statements
Delaware Global Real Estate Opportunities Fund
11. Securities Lending (continued)
those circumstances, the Fund may not receive an amount from the collateral investment pool that is equal in amount to the collateral the Fund would be required to return to the borrower of the securities and the Fund would be required to make up for this shortfall.
At October 31, 2012, the value of securities on loan was $2,949,049, for which cash collateral was received and invested in accordance with the Lending Agreement. At October 31, 2012, the value of invested collateral was $2,705,115. These investments are presented on the statement of net assets under the caption “Securities Lending Collateral.”
12. Credit and Market Risk
Some countries in which the Fund may invest require governmental approval for the repatriation of investment income, capital or the proceeds of sales of securities by foreign investors. In addition, if there is deterioration in a country’s balance of payments or for other reasons, a country may impose temporary restrictions on foreign capital remittances abroad.
The securities exchanges of certain foreign markets are substantially smaller, less liquid, and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by the Fund may be inhibited. In addition, a significant portion of the aggregate market value of equity securities listed on the major securities exchanges in emerging markets are held by a smaller number of investors. This may limit the number of shares available for acquisition or disposition by the Fund.
The Fund concentrates its investments in the real estate industry and is subject to the risks associated with that industry. If the Fund holds real estate directly as a result of defaults or receives rental income directly from real estate holdings, its tax status as a regulated investment company may be jeopardized. The Fund is also affected by interest rate changes, particularly if the REITs it holds use floating rate debt to finance their ongoing operations. Its investments may also tend to fluctuate more in value than a portfolio that invests in a broader range of industries.
The Fund may invest up to 15% of its net assets in illiquid securities, which may include securities with contractual restrictions on resale, securities exempt from registration under Rule 144A of the securities Act of 1933, as amended, and other securities which may not be readily marketable. The relative illiquidity of these securities may impair the Fund from disposing of them in a timely manner and at a fair price when it is necessary or desirable to do so. While maintaining oversight, the Fund’s Board has delegated to DMC the day-to-day functions of determining whether individual securities are liquid for purposes of the Fund’s limitation on investments in illiquid securities. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are not subject to the Fund’s 15% limit on investments in illiquid securities. As of October 31, 2012, there were no Rule 144A securities and no securities have been determined to be illiquid under the Fund’s Liquidity Procedures.
40
13. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts. Management has reviewed the Fund’s existing contracts and expects the risk of loss to be remote.
14. Subsequent Events
Except as described in Note 9, management has determined that no material events or transactions occurred subsequent to October 31, 2012 that would require recognition or disclosure in the Fund’s financial statements.
41
Report of independent
registered public accounting firm
To the Board of Trustees of Delaware Group® Adviser Funds and the Shareholders of Delaware Global Real Estate Opportunities Fund (formerly The Global Real Estate Securities Portfolio):
In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Delaware Global Real Estate Opportunities Fund (formerly The Global Real Estate Securities Portfolio) (one of the series constituting Delaware Group Adviser Funds, hereafter referred to as the “Fund”) at October 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the three periods then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2012 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the two years in the period ended October 31, 2009 were audited by other independent accountants whose report dated December 22, 2009 expressed an unqualified opinion on those statements.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
December 19, 2012
42
Other Fund information
(Unaudited)
Delaware Global Real Estate Opportunities Fund
Board Consideration of Delaware Global Real Estate Opportunities Fund investment advisory agreement
At a meeting held on May 22-24, 2012 (the “Meeting”), the Board of Trustees (the “Board”), including a majority of disinterested or independent Trustees, approved the Investment Advisory Agreement for the Delaware Global Real Estate Opportunities Fund (the “Fund”). The creation of the Fund and the Fund’s Investment Advisory Agreement were approved at the Meeting as part of a plan to reorganize two existing funds into the Fund. In considering information relating to the approval of the Fund’s Investment Advisory Agreement with Delaware Management Company (“DMC”), the Independent Trustees received assistance and advice from and met separately with independent legal counsel to the Independent Trustees. Although the Board gave attention to all information furnished, the following discussion identifies, under separate headings, the primary factors taken into account by the Board during its contract approval considerations.
Nature, Extent and Quality of Service. The Board considered the services to be provided by Delaware Investments to the Fund and its shareholders. In doing so, the Board drew on its extensive knowledge of the comparable services provided by Delaware Investments to other funds in the Delaware Investments Family of Funds (“DIFF”) complex and, in particular, to the existing constituent funds in the proposed reorganization (the “Constituent Funds”). In reviewing the nature, extent and quality of services, the Board noted that Delaware Investments will furnish to the Board reports throughout the year at regular Board meetings covering matters such as relative performance of the Fund, compliance of portfolio managers with the investment policies, strategies and restrictions for the Fund, compliance by DMC and Delaware Distributors, L.P. (together, “Management”) personnel with the Code of Ethics adopted throughout the DIFF complex and adherence to fair value pricing procedures as established by the Board. The Board was pleased with the current staffing of the Fund’s investment advisor and the emphasis placed on research in the investment process. The Board gave favorable consideration to DMC’s efforts to control expenditures while maintaining service levels committed to Delaware Investments fund matters. The Board noted that in July 2011 Management implemented measures intended to reduce overall costs and enhance transfer agent and shareholder servicing functions through outsourcing. The Board also noted the benefits that will be provided to Fund shareholders through each shareholder’s ability to exchange an investment in one Delaware Investments fund for the same class of shares in another Delaware Investments fund without a sales charge, to reinvest Fund dividends into additional shares of the Fund or into additional shares of other Delaware Investments funds and the privilege to combine holdings in other Delaware Investments funds to obtain a reduced sales charge. The Board was satisfied with the nature, extent and quality of the overall services provided by Delaware Investments.
Investment Performance. The Board considered the investment performance of the Constituent Funds, both of which were ranked in the first quartile of their peer group for one year performance according to both Lipper and Morningstar. The Board also noted the global real estate expertise of the Delaware Investments funds and DMC.
43
Other Fund information
(Unaudited)
Delaware Global Real Estate Opportunities Fund
Board Consideration of Delaware Global Real Estate Opportunities Fund investment advisory agreement (continued)
Comparative Expenses. The Board considered management fee and total expense comparison data, including applicable fee waivers and expense reimbursements, for the Fund and the Constituent Funds, as presented in the Board materials. The Board was satisfied with the proposed management fee and total expenses of the Fund in comparison to the Constituent Funds.
Management Profitability. The Board considered the level of potential profits to be realized by Delaware Investments in connection with the operation of the Fund. In this respect, the Board reviewed certain pro forma expense information for the Fund included in the Board materials, which reflected the projected levels of expense reimbursement for each class of shares after the proposed reorganizations. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from Delaware Investments fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of Delaware Investments fund brokerage to improve trading efficiencies. The Board found that the proposed level of management fees was reasonable in light of the services rendered and the level of profitability of Delaware Investments.
Economies of Scale. The Trustees considered whether economies of scale are expected to be realized by Delaware Investments as the Fund’s assets increase (including any increase as a result of the proposed reorganization) and the extent to which any economies of scale are reflected in the level of management fees charged. The Trustees considered the standardized advisory fee pricing and structure approved by the Board. The Board noted that the fee of 99 basis points (for assets under management up to $100 million) under the Fund’s proposed management contract was slightly higher than the 85 basis points fee for standard international equity funds but lower than the 125 basis point fee for special international equity funds under the funds’ standard fee structure, in keeping with the nature of the securities within the Fund’s portfolio. Management believed, and the Board agreed, that the Fund was priced with an appropriate management fee.
44
Tax Information (Unaudited)
The information set forth below is for the Fund’s fiscal year as required by federal income tax laws. Shareholders, however, must report distributions on a calendar year basis for income tax purposes, which may include distributions for portions of two fiscal years of a fund. Accordingly, the information needed by shareholders for income tax purposes will be sent to them in January of each year. Please consult your tax advisor for proper treatment of this information.
All designations are based on financial information available as of the date of this annual report and, accordingly are subject to change. For any and all items requiring designation, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
For the fiscal year ended October 31, 2012, the Fund designates distributions paid during the year as follows:
(A) Ordinary Income Distributions* (Tax Basis) | 100% | |
(B) Qualifying Dividends1 | 0.26% |
(A) is based on a percentage of the Fund’s total distributions.
*For the fiscal year ended October 31, 2012, certain dividends paid by the Fund may be subject to a maximum tax rate of 15%, as provided for by the Jobs and Growth Tax Relief Reconciliation Act of 2003 and as extended by the Tax Relief, Unemployment Insurance Reauthorization and Jobs Creation Act of 2010. The Fund intends to designate up to a maximum percentage of 0.13% to be taxed at a maximum rate of 15%. Complete information will be computed and reported in conjunction with your 2012 Form 1099-DIV.
45
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
A mutual fund is governed by a Board of Trustees/Directors (“Trustees”), which has oversight responsibility for the management of a fund’s business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Interested Trustees | ||||
Patrick P. Coyne1 | Chairman, President, | Chairman and Trustee | ||
2005 Market Street | Chief Executive Officer, | since August 16, 2006 | ||
Philadelphia, PA 19103 | and Trustee | |||
April 1963 | President and | |||
Chief Executive Officer | ||||
since August 1, 2006 | ||||
1 Patrick P. Coyne is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor.
46
for shareholder interests. Each trustee has served in that capacity since he or she was elected to or appointed to the Board of Trustees, and will continue to serve until his or her retirement or the election of a new trustee in his or her place. The following is a list of the Trustees and Officers with certain background and related information.
Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Patrick P. Coyne has served in | 71 | Director and Audit | ||
various executive capacities | Committee Member | |||
at different times at | Kaydon Corp. | |||
Delaware Investments.2 | ||||
Board of Governors Member | ||||
Investment Company | ||||
Institute (ICI) | ||||
2 Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Fund’s(s’) investment advisor, principal underwriter, and its transfer agent.
47
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees | ||||
Thomas L. Bennett | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
October 1947 | ||||
John A. Fry | Trustee | Since January 2001 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
May 1960 | ||||
Anthony D. Knerr | Trustee | Since April 1990 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
December 1938 | ||||
Lucinda S. Landreth | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
June 1947 |
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Number of Portfolios in | ||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships |
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer |
Private Investor | 71 | Director |
(March 2004–Present) | Bryn Mawr Bank Corp. (BMTC) | |
(2007–2011) | ||
President | 71 | Board of Governors Member — |
Drexel University | NASDAQ OMX PHLX LLC | |
(August 2010–Present) | ||
Director and Audit | ||
President | Committee Member | |
Franklin & Marshall College | Community Health Systems | |
(July 2002–July 2010) | ||
Director — Ecore | ||
International | ||
(2009–2010) | ||
Director — Allied | ||
Barton Securities Holdings | ||
(2005–2008) | ||
Managing Director | 71 | None |
Anthony Knerr & Associates | ||
(Strategic Consulting) | ||
(1990–Present) | ||
Private Investor | 71 | None |
(2004–Present) | ||
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Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees (continued) | ||||
Frances A. Sevilla-Sacasa | Trustee | Since September 2011 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1956 | ||||
50
Number of Portfolios in | ||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships |
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer |
Chief Executive Officer — | 71 | Trust Manager — Camden |
Banco Itaú Europa | Property Trust | |
International | (since August 2011) | |
(since April 2012) | ||
Executive Advisor to Dean | ||
(August 2011–March 2012) | ||
and Interim Dean | ||
(January 2011–July 2011) — | ||
University of Miami School of | ||
Business Administration | ||
President — U.S. Trust, | ||
Bank of America Private | ||
Wealth Management | ||
(Private Banking) | ||
(July 2007–December 2008) |
51
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees (continued) | ||||
Janet L. Yeomans | Trustee | Since April 1999 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1948 | ||||
J. Richard Zecher | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
July 1940 | ||||
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Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
Vice President and Treasurer | 71 | Director, Audit | ||
(January 2006–July 2012) | Committee Member and | |||
Vice President — Mergers & Acquisitions | Investment Committee | |||
(January 2003–January 2006), and | Member | |||
Vice President and Treasurer | Okabena Company | |||
(July 1995–January 2003) | ||||
3M Corporation | Chair — 3M | |||
Investment Management | ||||
Company | ||||
(January 2005–July 2012) | ||||
Founder | 71 | Director and Compensation | ||
Investor Analytics | Committee Member | |||
(Risk Management) | Investor Analytics | |||
(May 1999–Present) | ||||
Director | ||||
Founder | Oxigene, Inc. | |||
P/E Investments | (2003–2008) | |||
(Hedge Fund) | ||||
(September 1996–Present) |
53
Board of trustees/directors and officers addendum
Delaware Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Officers | ||||
David F. Connor | Vice President, | Vice President since | ||
2005 Market Street | Deputy General | September 2000 | ||
Philadelphia, PA 19103 | Counsel, and Secretary | and Secretary since | ||
December 1963 | October 2005 | |||
Daniel V. Geatens | Vice President | Treasurer | ||
2005 Market Street | and Treasurer | since October 2007 | ||
Philadelphia, PA 19103 | ||||
October 1972 | ||||
David P. O’Connor | Executive Vice President, | Executive Vice President | ||
2005 Market Street | General Counsel | since February 2012; | ||
Philadelphia, PA 19103 | and Chief Legal Officer | Senior Vice President | ||
February 1966 | October 2005– | |||
February 2012; | ||||
General Counsel and | ||||
Chief Legal Officer | ||||
since October 2005 | ||||
Richard Salus | Senior Vice President | Chief Financial Officer | ||
2005 Market Street | and Chief Financial Officer | since November 2006 | ||
Philadelphia, PA 19103 | ||||
October 1963 |
The Statement of Additional Information for the Fund(s) includes additional information about the Trustees and Officers and is available, without charge, upon request by calling 800 523-1918.
54
Number of Portfolios in | ||||
Principal Occupation(s) | Fund Complex Overseen | Other Directorships | ||
During Past 5 Years | by Trustee or Officer | Held by Trustee or Officer | ||
David F. Connor has served as | 71 | None3 | ||
Vice President and Deputy | ||||
General Counsel of | ||||
Delaware Investments | ||||
since 2000. | ||||
Daniel V. Geatens has served | 71 | None3 | ||
in various capacities at | ||||
different times at | ||||
Delaware Investments. | ||||
David P. O’Connor has served in | 71 | None3 | ||
various executive and legal | ||||
capacities at different times | ||||
at Delaware Investments. | ||||
Richard Salus has served in | 71 | None3 | ||
various executive capacities | ||||
at different times at | ||||
Delaware Investments. |
3 David F. Connor, Daniel V. Geatens, David P. O’Connor, and Richard Salus serve in similar capacities for the six portfolios of the Optimum Fund Trust, which have the same investment advisor, principal underwriter, and transfer agent as the registrant.
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About the organization
Board of trustees | |||
Patrick P. Coyne Thomas L. Bennett | John A. Fry Anthony D. Knerr | Lucinda S. Landreth Frances A. | Janet L. Yeomans J. Richard Zecher |
Affiliated officers | |||
David F. Connor | Daniel V. Geatens | David P. O’Connor | Richard Salus |
This annual report is for the information of Delaware Global Real Estate Opportunities Fund shareholders, but it may be used with prospective investors when preceded or accompanied by the Delaware Investments Fund fact sheet for the most recently completed calendar quarter. These documents are available at delawareinvestments.com.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission (SEC) for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q, as well as a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities are available without charge (i) upon request, by calling 800 523-1918; and (ii) on the SEC’s website at sec.gov. In addition, a description of the policies and procedures that the Fund uses to determine how to vote proxies (if any) relating to portfolio securities and the Fund’s Schedule of Investments are available without charge on the Fund’s website at delawareinvestments.com. The Fund’s Forms N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C.; information on the operation of the Public Reference Room may be obtained by calling 800 SEC-0330.
Information (if any) regarding how the Fund voted proxies relating to portfolio securities during the most recently disclosed 12-month period ended June 30 is available without charge (i) through the Fund’s website at delawareinvestments.com; and (ii) on the SEC’s website at sec.gov.
56
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. A copy of the registrant’s Code of Business Ethics has been posted on the Delaware Investments Internet Web site at www.delawareinvestments.com. Any amendments to the Code of Business Ethics, and information on any waiver from its provisions granted by the registrant, will also be posted on this Web site within five business days of such amendment or waiver and will remain on the Web site for at least 12 months.
Item 3. Audit Committee Financial Expert
The registrant’s Board of Trustees/Directors has determined that certain members of the registrant’s Audit Committee are audit committee financial experts, as defined below. For purposes of this item, an “audit committee financial expert” is a person who has the following attributes:
a. An understanding of generally accepted accounting principles and financial statements;
b. The ability to assess the general application of such principles in connection with the accounting for estimates, accruals, and reserves;
c. Experience preparing, auditing, analyzing, or evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by the registrant’s financial statements, or experience actively supervising one or more persons engaged in such activities;
d. An understanding of internal controls and procedures for financial reporting; and
e. An understanding of audit committee functions.
An “audit committee financial expert” shall have acquired such attributes through:
a. Education and experience as a principal financial officer, principal accounting officer, controller, public accountant, or auditor or experience in one or more positions that involve the performance of similar functions;
b. Experience actively supervising a principal financial officer, principal accounting officer, controller, public accountant, auditor, or person performing similar functions;
c. Experience overseeing or assessing the performance of companies or public accountants with respect to the preparation, auditing, or evaluation of financial statements; or
d. Other relevant experience.
The registrant’s Board of Trustees/Directors has also determined that each member of the registrant’s Audit Committee is independent. In order to be “independent” for purposes of this item, the Audit Committee member may not: (i) other than in his or her capacity as a member of the Board of Trustees/Directors or any committee thereof, accept directly or indirectly any consulting, advisory or other compensatory fee from the issuer; or (ii) be an “interested person” of the registrant as defined in Section 2(a)(19) of the Investment Company Act of 1940.
The names of the audit committee financial experts on the registrant’s Audit Committee are set forth below:
Thomas L. Bennett
John A. Fry
Frances A. Sevilla-Sacasa
Janet L. Yeomans
Item 4. Principal Accountant Fees and Services
(a) Audit fees.
The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant’s annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $333,940 for the fiscal year ended October 31, 2012.
The aggregate fees billed for services provided to the registrant by its independent auditors for the audit of the registrant’s annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $287,300 for the fiscal year ended October 31, 2011.
(b) Audit-related fees.
The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the registrant’s financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended October 31, 2012.
The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the financial statements of the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $685,000 for the registrant’s fiscal year ended October 31, 2012. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: Year end audit procedures. Group reporting and subsidiary statutory audits.
The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the registrant’s financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended October 31, 2011.
The aggregate fees billed by the registrant’s independent auditors for services relating to the performance of the audit of the financial statements of the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $593,000 for the registrant’s fiscal year ended October 31, 2011. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These audit-related services were as follows: Year end audit procedures. Reporting up and subsidiary statutory audits.
(c) Tax fees.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $69,550 for the fiscal year ended October 31, 2012. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: Review of income tax returns and review of annual excise distribution calculations.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended October 31, 2012.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant were $55,700 for the fiscal year ended October 31, 2011. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These tax-related services were as follows: Review of income tax returns and review of annual excise distribution calculations.
The aggregate fees billed by the registrant’s independent auditors for tax-related services provided to the registrant’s investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended October 31, 2011.
d) All other fees.
The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended October 31, 2012.
The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant’s independent auditors to the registrant’s adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $0 for the registrant’s fiscal year ended October 31, 2012. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%.
The aggregate fees billed for all services provided by the independent auditors to the registrant other than those set forth in paragraphs (a), (b) and (c) of this Item were $0 for the fiscal year ended October 31, 2011.
The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrant’s independent auditors to the registrant’s adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $25,000 for the registrant’s fiscal year ended October 31, 2011. The percentage of these fees relating to services approved by the registrant’s Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These other services were as follows: These fees were for the attest examination of management's assertion to the controls in place at the transfer agent to be in compliance with Rule 17ad-13(a)(3) of the Securities Exchange Act of 1934.
(e) The registrant’s Audit Committee has established pre-approval policies and procedures as permitted by Rule 2-01(c)(7)(i)(B) of Regulation S-X (the “Pre-Approval Policy”) with respect to services provided by the registrant’s independent auditors. Pursuant to the Pre-Approval Policy, the Audit Committee has pre-approved the services set forth in the table below with respect to the registrant up to the specified fee limits.
Certain fee limits are based on aggregate fees to the registrant and other registrants within the Delaware Investments Family of Funds.
Service | Range of Fees |
Audit Services | |
Statutory audits or financial audits for new Funds | up to $25,000 per Fund |
Services associated with SEC registration statements (e.g., Form N-1A, Form N-14, etc.), periodic reports and other documents filed with the SEC or other documents issued in connection with securities offerings (e.g., comfort letters for closed-end Fund offerings, consents), and assistance in responding to SEC comment letters | up to $10,000 per Fund |
Consultations by Fund management as to the accounting or disclosure treatment of transactions or events and/or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be considered “audit-related services” rather than “audit services”) | up to $25,000 in the aggregate |
Audit-Related Services | |
Consultations by Fund management as to the accounting or disclosure treatment of transactions or events and /or the actual or potential impact of final or proposed rules, standards or interpretations by the SEC, FASB, or other regulatory or standard-setting bodies (Note: Under SEC rules, some consultations may be considered “audit services” rather than “audit-related services”) | up to $25,000 in the aggregate |
Tax Services | |
U.S. federal, state and local and international tax planning and advice (e.g., consulting on statutory, regulatory or administrative developments, evaluation of Funds’ tax compliance function, etc.) | up to $25,000 in the aggregate |
U.S. federal, state and local tax compliance (e.g., excise distribution reviews, etc.) | up to $5,000 per Fund |
Review of federal, state, local and international income, franchise and other tax returns | up to $5,000 per Fund |
Under the Pre-Approval Policy, the Audit Committee has also pre-approved the services set forth in the table below with respect to the registrant’s investment adviser and other entities controlling, controlled by or under common control with the investment adviser that provide ongoing services to the registrant (the “Control Affiliates”) up to the specified fee limit. This fee limit is based on aggregate fees to the investment adviser and its Control Affiliates.
Service | Range of Fees |
Non-Audit Services | |
Services associated with periodic reports and other documents filed with the SEC and assistance in responding to SEC comment letters | up to $10,000 in the aggregate |
The Pre-Approval Policy requires the registrant’s independent auditors to report to the Audit Committee at each of its regular meetings regarding all services initiated since the last such report was rendered, including those services authorized by the Pre-Approval Policy.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the registrant’s independent auditors for services rendered to the registrant and to its investment adviser and other service providers under common control with the adviser were $10,867,923 and $5,228,766 for the registrant’s fiscal years ended October 31, 2012 and October 31, 2011, respectively.
(h) In connection with its selection of the independent auditors, the registrant’s Audit Committee has considered the independent auditors’ provision of non-audit services to the registrant’s investment adviser and other service providers under common control with the adviser that were not required to be pre-approved pursuant to Rule 2-01(c)(7)(ii) of Regulation S-X. The Audit Committee has determined that the independent auditors’ provision of these services is compatible with maintaining the auditors’ independence.
Item 5. Audit Committee of Listed Registrants
Not applicable.
Item 6. Investments
(a) Included as part of report to shareholders filed under Item 1 of this Form N-CSR.
(b) Divestment of securities in accordance with Section 13(c) of the Investment Company Act of 1940.
Not applicable.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 11. Controls and Procedures
The registrant’s principal executive officer and principal financial officer have evaluated the registrant’s disclosure controls and procedures within 90 days of the filing of this report and have concluded that they are effective in providing reasonable assurance that the information required to be disclosed by the registrant in its reports or statements filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
There were no significant changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by the report to stockholders included herein (i.e., the registrant’s second fiscal quarter) that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits
(a) (1) Code of Ethics
Not applicable.
(2) Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 30a-2 under the Investment Company Act of 1940 are attached hereto as Exhibit 99.CERT.
(3) Written solicitations to purchase securities pursuant to Rule 23c-1 under the Securities Exchange Act of 1934.
Not applicable.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are furnished herewith as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf, by the undersigned, thereunto duly authorized.
Name of Registrant: DELAWARE GROUP® ADVISER FUNDS
/s/ PATRICK P. COYNE | |
By: | Patrick P. Coyne |
Title: | Chief Executive Officer |
Date: | January 7, 2012 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ PATRICK P. COYNE | |
By: | Patrick P. Coyne |
Title: | Chief Executive Officer |
Date: | January 7, 2012 |
/s/ RICHARD SALUS | |
By: | Richard Salus |
Title: | Chief Financial Officer |
Date: | January 7, 2012 |