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, 2013 |
Item 1. Reports to Stockholders
Annual report Delaware Diversified Income Fund October 31, 2013 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 its summary prospectus, which may be obtained by visiting delawareinvestments.com or calling 800 523-1918. Investors should read the prospectus and 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.
- 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 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 | |
Schedule of investments | 12 | |
Statement of assets and liabilities | 62 | |
Statement of operations | 64 | |
Statements of changes in net assets | 66 | |
Financial highlights | 68 | |
Notes to financial statements | 78 | |
Report of independent registered | ||
public accounting firm | 96 | |
Other Fund information | 97 | |
Board of trustees/directors and | ||
officers addendum | 102 | |
About the organization | 110 |
Unless otherwise noted, views expressed herein are current as of Oct. 31, 2013, 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.
© 2013 Delaware Management Holdings, Inc.
All third-party marks cited are the property of their respective owners.
Portfolio management review | |
Delaware Diversified Income Fund | November 12, 2013 |
Performance preview (for the year ended October 31, 2013) | ||||
Delaware Diversified Income Fund (Class A shares) | 1-year return | -0.66% | ||
Barclays U.S. Aggregate Index (benchmark) | 1-year return | -1.08% |
For complete, annualized performance for Delaware Diversified Income Fund, please see the table on page 4.
Unless otherwise noted, performance data and market developments cited below are based on sources that include Barclays, Bloomberg, and Dow Jones.
Despite periodic outbreaks of monetary and fiscal uncertainty, many investors were generally willing to take on more risk than usual as a “risk-on” mentality generally prevailed throughout the Fund’s fiscal year ended Oct. 31, 2013. As a result, lower-rated sectors of the global fixed-income market — with the notable exception of emerging market bonds — strongly outperformed their higher-quality counterparts over the entirety of the Fund’s fiscal year. Intermediate- and longer-term Treasury debt in particular struggled to tread water, in our view, as a result of the perceived possibility that another financial crisis had been mitigated by central bank largess.
During the first half of the Fund’s fiscal year, government bond yields remained near their all-time lows, restrained by policy rates of essentially 0.0% and the U.S. Federal Reserve’s unprecedented pledge to keep these rates there until unemployment fell to 6.5%. Notably, the Fed even revealed a willingness to accept modestly higher inflation (up to 2.5%) on a temporary basis to further enable sustained healing in the labor market. Then in December, policymakers expanded the third round of so-called quantitative
The Fund’s fiscal year was characterized by the following:
|
1
Portfolio management review
Delaware Diversified Income Fund
easing to include $85 billion of Treasury bond and mortgage-backed security (MBS) purchases each month.
Conditions changed abruptly in May 2013 when Fed Chairman Ben Bernanke revealed that the Fed might taper (or scale back) its bond-buying program by the end of 2013 and conclude it altogether by mid-2014. Taken by surprise, investors rushed to trade ahead of a potential Fed pullback, causing yields to climb higher by about 1.0% across most sectors. High yield, emerging markets, and longer-dated Treasurys were especially hit hard by the ensuing selloff.
In September, however, the Fed pulled another surprise by declining to initiate the tapering process. With the Fed on hold amid a data blackout caused by the government shutdown, yields pulled back and prices rallied modestly over the final two months of the fiscal year.
Fund performance
For the fiscal year ended Oct. 31, 2013, Delaware Diversified Income Fund (Class A shares) returned -0.66% at net asset value and -5.18% at maximum offer price (both returns assume reinvestment of all distributions). For the same period, the Barclays U.S. Aggregate Index returned -1.08%. Complete, annualized performance for Delaware Diversified Income Fund is shown in the table on page 4.
Early in the fiscal year, the Fund benefited from a significant overweight allocation to investment grade corporate bonds. Security selection contributed to relative performance, with the industrial, utility, and financial sectors each generating solid returns. Similarly, the Fund’s overweight to BBB-rated corporate issues — the lowest rung on the investment grade ladder — was also beneficial as credit spreads tightened. Our focus on intermediate- and longer-term maturities within the corporate sector was a positive factor as well.
Given many investors’ strong appetite for risk at the time, it came as no surprise that the Fund’s high yield securities generated strong positive absolute and relative returns, which were magnified by security selection, in late 2012. Positions in dollar-based and non-dollar emerging market bonds were also contributors to Fund performance.
As the calendar turned to 2013, many of the same underlying dynamics still held sway over fixed-income markets in the United States and abroad. Generally speaking, the Fund would have continued to benefit from its underweight to the Treasury sector, yet its focus on the intermediate- to longer-dated section of the Treasury curve hurt its performance as those maturities experienced the largest backup in rates.
As the higher-quality sectors continued to struggle, credit remained the strongest-performing area. In fact, high yield bonds represented the Fund’s strongest source of performance during the early months of 2013. Security selection among high yield bonds also was positive, as were the Fund’s investments in bank loans. The Fund’s overweight allocation to investment grade corporate bonds was a net positive as well. It was a far different story overseas, however, as Fund holdings in emerging market and non-dollar developed market bonds detracted from performance at this point in the fiscal period.
2
In May 2013, the Fed shocked the markets with its talk of scaling back. At this time, many of the prevailing relative strength trends were abruptly terminated, and traditional relationships became skewed. High-quality sectors, including Treasurys, actually outperformed despite hints of faster economic growth; given the Fund’s large underweight to the sector — and especially to that portion of the yield curve that experienced the biggest rise in yields — the Fund’s Treasury holdings were a significant detractor at this time.
As part of this sudden trend reversal, the Fund’s overweight to investment grade corporate bonds, which had previously boosted Fund performance, was a negative factor during this period, as expanding spreads exacerbated the effect of rising yields. On the plus side, however, security selection within the domestic high yield sector continued to contribute to absolute and relative returns. Poor performance among the Fund’s holdings in emerging market and developed market bonds, however, offset this gain once again.
The Fed’s surprise decision in September 2013 to delay tapering caused yet another sharp reversal in relative strength patterns during the final months of the Fund’s fiscal year. With the Fed standing pat, once again risk was “back on,” causing positive relative performance from the Fund’s positions in investment grade and high yield corporate bonds. In each case, security selection was a contributor. The Fund’s holdings in emerging market and non-dollar developed-market debt also posted positive relative returns, although our underweight to the Treasury sector became a detractor when government bond yields drifted lower over the final weeks of the fiscal period.
As the fiscal year drew to a close, the Fund’s use of hedging derivatives had been significantly reduced, and they had an immaterial effect on Fund performance during the fiscal year. The Fund maintained its long-held overweight allocation to investment grade and high yield U.S. corporate bonds, emerging markets, and bank loans. From a credit perspective, we continued to emphasize AAA- and BBB-rated bonds at the expense of AA and A-rated securities. As of the end of the fiscal year, about 25% of Fund assets also were invested in bonds rated below investment grade.
3
Performance summary | |
Delaware Diversified Income Fund | October 31, 2013 |
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 and benchmark performance1,2 | Average annual total returns through October 31, 2013 | |||||
1 year | 5 years | 10 years | ||||
Class A (Est. Dec. 29, 1997) | ||||||
Excluding sales charge | -0.66% | +9.67% | +6.59% | |||
Including sales charge | -5.18% | +8.66% | +6.11% | |||
Class B (Est. Oct. 28, 2002) | ||||||
Excluding sales charge | -1.52% | +8.84% | +5.93% | |||
Including sales charge | -5.31% | +8.63% | +5.93% | |||
Class C (Est. Oct. 28, 2002) | ||||||
Excluding sales charge | -1.51% | +8.83% | +5.79% | |||
Including sales charge | -2.46% | +8.83% | +5.79% | |||
Class R (Est. June 2, 2003) | ||||||
Excluding sales charge | -1.02% | +9.38% | +6.30% | |||
Including sales charge | -1.02% | +9.38% | +6.30% | |||
Institutional Class (Est. Oct. 28, 2002) | ||||||
Excluding sales charge | -0.52% | +9.92% | +6.84% | |||
Including sales charge | -0.52% | +9.92% | +6.84% | |||
Barclays U.S. Aggregate Index | -1.08% | +6.09% | +4.78% |
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. 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 0.25% of average daily net assets. Prior to Oct. 1, 2013, Class A shares had an annual distribution and service fee of 0.30% of average daily net assets. This fee was contractually limited to 0.25% during the period Nov. 1, 2012 until Oct. 1, 2013. Performance for Class A shares, excluding sales charges, assumes that no front-end sales charge applied.
4
Class B shares may be purchased only through dividend reinvestment and certain permitted exchanges as described in the prospectus. 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 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 0.50% of average daily net assets. Prior to Oct. 1, 2013, Class R shares had an annual distribution and service fee of 0.60% of average daily net assets. This fee was contractually limited to 0.50% during the period from Nov. 1, 2012 until Oct. 1, 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.
5
Performance summary
Delaware Diversified Income Fund
Diversification may not protect against market risk.
If and when the Fund invests in forward foreign currency contracts or use other investments to hedge against currency risks, the Fund will be subject to special risks, including counterparty risk.
The Fund may invest in derivatives, which may involve additional expenses and are subject to risk, including the risk that an underlying security or securities index moves in the opposite direction from what the portfolio manager anticipated. A derivative transaction depends upon the counterparties’ ability to fulfill their contractual obligations.
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 | 0.90% | 1.65% | 1.65% | 1.15% | 0.65% | ||||
(without fee waivers) | |||||||||
Net expenses | 0.90% | 1.65% | 1.65% | 1.15% | 0.65% | ||||
(including fee waivers, if any) | |||||||||
Type of waiver | n/a | n/a | n/a | n/a | n/a |
6
Performance of a $10,000 investment1
Average annual total returns from Oct. 31, 2003, through Oct. 31, 2013
For period beginning Oct. 31, 2003, through Oct. 31, 2013 | Starting value | Ending value | ||
Delaware Diversified Income Fund — Class A Shares | $9,550 | $18,065 | ||
Barclays U.S. Aggregate Index | $10,000 | $15,944 |
1 The “Performance of a $10,000 investment” graph assumes $10,000 invested in Class A shares of the Fund on Oct. 31, 2003, 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. 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, 2003. 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, 2013 to October 31, 2013 (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, 2013 to October 31, 2013.
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 | ||||||||||||||
5/1/13 | 10/31/13 | Expense Ratio | 5/1/13 to 10/31/13* | ||||||||||||||
Actual Fund return† | |||||||||||||||||
Class A | $ | 1,000.00 | $ | 972.40 | 0.90% | $ | 4.47 | ||||||||||
Class B | 1,000.00 | 967.60 | 1.65% | 8.18 | |||||||||||||
Class C | 1,000.00 | 967.60 | 1.65% | 8.18 | |||||||||||||
Class R | 1,000.00 | 970.00 | 1.15% | 5.71 | |||||||||||||
Institutional Class | 1,000.00 | 972.50 | 0.65% | 3.23 | |||||||||||||
Hypothetical 5% return (5% return before expenses) | |||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,020.67 | 0.90% | $ | 4.58 | ||||||||||
Class B | 1,000.00 | 1,016.89 | 1.65% | 8.39 | |||||||||||||
Class C | 1,000.00 | 1,016.89 | 1.65% | 8.39 | |||||||||||||
Class R | 1,000.00 | 1,019.41 | 1.15% | 5.85 | |||||||||||||
Institutional Class | 1,000.00 | 1,021.93 | 0.65% | 3.31 |
9
Security type/sector allocation | |
Delaware Diversified Income Fund | As of October 31, 2013 (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 | 2.04 | % |
Agency Mortgage-Backed Securities | 16.91 | % |
Commercial Mortgage-Backed Securities | 3.72 | % |
Convertible Bonds | 2.83 | % |
Corporate Bonds | 54.93 | % |
Automotive | 0.51 | % |
Banking | 6.85 | % |
Basic Industry | 4.81 | % |
Brokerage | 0.47 | % |
Capital Goods | 1.69 | % |
Communications | 8.23 | % |
Consumer Cyclical | 2.98 | % |
Consumer Non-Cyclical | 3.53 | % |
Electric | 4.87 | % |
Energy | 5.10 | % |
Finance Companies | 2.27 | % |
Healthcare | 1.04 | % |
Insurance | 2.34 | % |
Natural Gas | 3.26 | % |
Real Estate | 1.89 | % |
Services | 0.95 | % |
Technology | 2.57 | % |
Transportation | 1.14 | % |
Utilities | 0.43 | % |
Municipal Bonds | 0.95 | % |
Non-Agency Asset-Backed Securities | 0.72 | % |
Non-Agency Collateralized Mortgage Obligations | 0.59 | % |
Regional Bonds | 0.76 | % |
Senior Secured Loans | 9.34 | % |
Sovereign Bonds | 3.70 | % |
Supranational Banks | 0.20 | % |
10
Security type/sector | Percentage of net assets | |
U.S. Treasury Obligations | 0.59 | % |
Common Stock | 0.02 | % |
Convertible Preferred Stock | 0.64 | % |
Preferred Stock | 0.66 | % |
Short-Term Investments | 12.68 | % |
Securities Lending Collateral | 2.64 | % |
Total Value of Securities | 113.93 | % |
Obligation to Return Securities Lending Collateral | (2.64 | %) |
Other Liabilities Net of Receivables and Other Assets | (11.29 | %) |
Total Net Assets | 100.00 | % |
11
Schedule of investments | |
Delaware Diversified Income Fund | October 31, 2013 |
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 | $ | 932,604 | |||||
Fannie Mae Whole Loan | |||||||||
Series 2001-W2 6.473% 10/25/31 | 1,558 | 1,649 | |||||||
• | Series 2002-W11 AV1 0.51% 11/25/32 | 9,452 | 8,610 | ||||||
Total Agency Asset-Backed Securities | |||||||||
(cost $878,719) | 942,863 | ||||||||
Agency Collateralized Mortgage Obligations – 2.04% | |||||||||
Fannie Mae Grantor Trust | |||||||||
• | Series 1999-T2 A1 7.50% 1/19/39 | 18,016 | 20,191 | ||||||
Series 2002-T4 A3 7.50% 12/25/41 | 182,497 | 209,468 | |||||||
Series 2002-T19 A1 6.50% 7/25/42 | 129,537 | 149,175 | |||||||
Series 2004-T1 1A2 6.50% 1/25/44 | 61,346 | 70,905 | |||||||
Fannie Mae Interest Strip | |||||||||
Series 265 2 9.00% 3/1/24 | 8,565 | 10,357 | |||||||
Fannie Mae REMICS | |||||||||
Series 1990-92 C 7.00% 8/25/20 | 1,070 | 1,196 | |||||||
Series 1996-46 ZA 7.50% 11/25/26 | 189,489 | 218,411 | |||||||
Series 2001-50 BA 7.00% 10/25/41 | 93,269 | 107,977 | |||||||
Series 2002-83 GH 5.00% 12/25/17 | 205,840 | 218,715 | |||||||
Series 2002-90 A2 6.50% 11/25/42 | 244,442 | 280,603 | |||||||
Series 2003-26 AT 5.00% 11/25/32 | 4,812,065 | 5,013,229 | |||||||
Series 2003-38 MP 5.50% 5/25/23 | 2,947,333 | 3,263,614 | |||||||
Series 2003-78 B 5.00% 8/25/23 | 18,970 | 20,968 | |||||||
Series 2003-106 WE 4.50% 11/25/22 | 3,160,565 | 3,237,161 | |||||||
Series 2005-110 MB 5.50% 9/25/35 | 1,502,269 | 1,625,820 | |||||||
Series 2009-94 AC 5.00% 11/ 25/39 | 5,995,610 | 6,558,154 | |||||||
Series 2010-41 PN 4.50% 4/25/40 | 7,623,413 | 8,291,415 | |||||||
Series 2010-75 NA 4.00% 9/25/28 | 573,452 | 595,586 | |||||||
Series 2010-96 DC 4.00% 9/25/25 | 14,795,000 | 15,767,238 | |||||||
Series 2011-113 CP 5.00% 9/25/39 | 123,770 | 126,519 | |||||||
Series 2012-19 HB 4.00% 1/25/42 | 128,854 | 133,923 | |||||||
û• | Series 2012-122 SD 5.93% 11/25/42 | 11,676,214 | 2,900,032 | ||||||
û• | Series 2012-124 SD 5.98% 11/25/42 | 19,253,437 | 4,611,749 | ||||||
û | Series 2013-20 IH 3.00% 3/25/33 | 3,143,757 | 551,174 | ||||||
û | Series 2013-23 IL 3.00% 3/25/33 | 3,116,060 | 477,781 | ||||||
û | Series 2013-26 ID 3.00% 4/25/33 | 15,571,966 | 2,729,534 | ||||||
û | Series 2013-31 MI 3.00% 4/25/33 | 5,351,540 | 938,023 |
12
Principal amount° | Value (U.S. $) | ||||||||
Agency Collateralized Mortgage Obligations (continued) | |||||||||
Fannie Mae REMICS (continued) | |||||||||
û | Series 2013-38 AI 3.00% 4/25/33 | USD | 15,861,363 | $ | 2,567,868 | ||||
û | Series 2013-44 DI 3.00% 5/25/33 | 44,892,377 | 7,856,826 | ||||||
Fannie Mae Whole Loan | |||||||||
• | Series 2002-W1 2A 6.69% 2/25/42 | 18,681 | 22,222 | ||||||
• | Series 2002-W6 2A 6.976% 6/25/42 | 37,080 | 43,660 | ||||||
• | Series 2003-W1 2A 6.747% 12/25/42 | 18,773 | 22,121 | ||||||
Series 2003-W10 1A4 4.505% 6/25/43 | 27,196 | 29,112 | |||||||
Series 2003-W15 2A7 5.55% 8/25/43 | 13,453 | 14,460 | |||||||
Series 2004-W11 1A2 6.50% 5/25/44 | 389,447 | 453,798 | |||||||
Freddie Mac REMICs | |||||||||
Series 1730 Z 7.00% 5/15/24 | 225,598 | 258,813 | |||||||
Series 2326 ZQ 6.50% 6/15/31 | 649,566 | 728,765 | |||||||
Series 2557 WE 5.00% 1/15/18 | 2,444,683 | 2,598,756 | |||||||
Series 2621 QH 5.00% 5/15/33 | 34,197 | 37,082 | |||||||
Series 2622 PE 4.50% 5/15/18 | 3,726,169 | 3,935,904 | |||||||
Series 2624 QH 5.00% 6/15/33 | 35,923 | 38,903 | |||||||
Series 2717 MH 4.50% 12/15/18 | 65,258 | 69,267 | |||||||
Series 2762 LG 5.00% 9/15/32 | 1,419,388 | 1,435,477 | |||||||
Series 2809 DC 4.50% 6/15/19 | 1,299,055 | 1,375,496 | |||||||
Series 3123 HT 5.00% 3/15/26 | 45,408 | 50,061 | |||||||
Series 3150 EQ 5.00% 5/15/26 | 45,000 | 49,754 | |||||||
Series 3173 PE 6.00% 4/15/35 | 209,682 | 213,028 | |||||||
Series 3416 GK 4.00% 7/15/22 | 84,624 | 86,717 | |||||||
Series 3656 PM 5.00% 4/15/40 | 11,118,918 | 12,180,729 | |||||||
Series 4065 DE 3.00% 6/15/32 | 1,626,000 | 1,599,272 | |||||||
û | Series 4122 LI 3.00% 10/15/27 | 1,172,874 | 161,613 | ||||||
û• | Series 4148 SA 5.926% 12/15/42 | 19,124,015 | 4,532,030 | ||||||
û | Series 4185 LI 3.00% 3/15/33 | 11,619,236 | 2,042,544 | ||||||
û | Series 4191 CI 3.00% 4/15/33 | 4,540,759 | 712,880 | ||||||
û | Series 4217 HI 2.50% 6/15/28 | 1,747,312 | 213,320 | ||||||
• | Freddie Mac Strip Series 19 F 1.064% 6/1/28 | 5,402 | 5,235 | ||||||
t | Freddie Mac Structured Pass Through Securities | ||||||||
Series T-42 A5 7.50% 2/25/42 | 107,544 | 126,878 | |||||||
Series T-54 2A 6.50% 2/25/43 | 29,319 | 35,044 | |||||||
Series T-58 2A 6.50% 9/25/43 | 645,341 | 740,931 | |||||||
• | Series T-60 1A4C 4.852% 3/25/44 | 5,680 | 5,734 | ||||||
GNMA Series 2010-113 KE 4.50% 9/20/40 | 20,392,264 | 22,283,768 | |||||||
NCUA Guaranteed Notes | |||||||||
Series 2010-C1 A2 2.90% 10/29/20 | 9,280,000 | 9,665,900 |
13
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||||
Agency Collateralized Mortgage Obligations (continued) | |||||||||
• | Vendee Mortgage Trust | ||||||||
Series 2000-1 1A 6.512% 1/15/30 | USD | 7,333 | $ | 8,481 | |||||
Total Agency Collateralized Mortgage | |||||||||
Obligations (cost $131,306,152) | 134,331,367 | ||||||||
Agency Mortgage-Backed Securities – 16.91% | |||||||||
Fannie Mae | |||||||||
4.50% 5/1/41 | 4,319,763 | 4,554,465 | |||||||
6.50% 8/1/17 | 85,856 | 94,979 | |||||||
7.00% 11/15/16 | 15,006 | 15,161 | |||||||
• | Fannie Mae ARM | ||||||||
1.878% 7/1/33 | 72,022 | 76,495 | |||||||
2.005% 11/1/24 | 2,768 | 2,878 | |||||||
2.235% 9/1/38 | 486,982 | 515,566 | |||||||
2.239% 1/1/36 | 95,611 | 100,715 | |||||||
2.277% 10/1/33 | 83,061 | 85,121 | |||||||
2.287% 12/1/33 | 4,232 | 4,424 | |||||||
2.305% 8/1/34 | 7,779 | 8,233 | |||||||
2.397% 6/1/34 | 88,807 | 94,156 | |||||||
2.412% 6/1/37 | 9,420 | 10,087 | |||||||
2.418% 5/1/43 | 6,423,942 | 6,387,886 | |||||||
2.433% 8/1/36 | 34,998 | 37,450 | |||||||
2.439% 3/1/38 | 11,072 | 11,711 | |||||||
2.452% 4/1/36 | 1,012 | 1,084 | |||||||
2.484% 11/1/35 | 611,311 | 646,135 | |||||||
2.489% 7/1/36 | 66,863 | 72,205 | |||||||
2.491% 6/1/36 | 130,815 | 141,281 | |||||||
2.517% 4/1/37 | 1,338,822 | 1,426,798 | |||||||
2.527% 6/1/34 | 1,617 | 1,709 | |||||||
2.527% 7/1/36 | 2,303 | 2,499 | |||||||
2.546% 6/1/43 | 1,447,638 | 1,449,086 | |||||||
2.551% 4/1/36 | 442,915 | 469,862 | |||||||
2.568% 11/1/35 | 124,208 | 131,473 | |||||||
2.597% 4/1/36 | 288,277 | 304,937 | |||||||
2.715% 11/1/32 | 505 | 538 | |||||||
3.293% 9/9/93 | 5,478,568 | 5,656,795 | |||||||
4.996% 5/1/36 | 179,092 | 193,450 | |||||||
5.142% 8/1/35 | 77,886 | 83,546 | |||||||
5.306% 11/1/33 | 182,635 | 192,005 | |||||||
5.817% 8/1/37 | 551,116 | 593,881 |
14
Principal amount° | Value (U.S. $) | ||||||||
Agency Mortgage-Backed Securities (continued) | |||||||||
Fannie Mae Relocation 15 yr 4.00% 9/1/20 | USD | 179,318 | $ | 186,716 | |||||
Fannie Mae Relocation 30 yr | |||||||||
4.00% 3/1/35 | 4,688 | 4,882 | |||||||
5.00% 9/1/33 | 193,341 | 208,069 | |||||||
5.00% 11/1/33 | 81,963 | 88,200 | |||||||
5.00% 1/1/34 | 7,533 | 8,115 | |||||||
5.00% 11/1/34 | 48,496 | 52,231 | |||||||
5.00% 4/1/35 | 134,392 | 144,736 | |||||||
5.00% 10/1/35 | 126,953 | 136,600 | |||||||
5.00% 1/1/36 | 163,316 | 175,796 | |||||||
Fannie Mae S.F. 10 yr 6.00% 9/1/17 | 7,200 | 7,679 | |||||||
Fannie Mae S.F. 15 yr | |||||||||
2.50% 7/1/27 | 876,626 | 887,133 | |||||||
2.50% 9/1/27 | 3,369,421 | 3,407,871 | |||||||
2.50% 10/1/27 | 972,567 | 983,666 | |||||||
2.50% 11/1/27 | 290,464 | 293,952 | |||||||
2.50% 2/1/28 | 12,088,948 | 12,234,151 | |||||||
2.50% 4/1/28 | 92,265 | 93,318 | |||||||
2.50% 5/1/28 | 2,260,781 | 2,286,580 | |||||||
3.00%3/1/27 | 6,909,795 | 7,184,111 | |||||||
3.00% 6/1/27 | 92,615 | 96,306 | |||||||
3.00% 8/1/27 | 3,384,355 | 3,519,354 | |||||||
3.00% 11/1/27 | 1,540,163 | 1,602,038 | |||||||
3.00% 4/1/28 | 33,085 | 34,426 | |||||||
3.00% 5/1/28 | 1,450,387 | 1,509,176 | |||||||
3.50% 7/1/26 | 5,846,945 | 6,179,704 | |||||||
3.50% 3/1/27 | 189,997 | 200,782 | |||||||
4.00% 11/1/25 | 15,803,568 | 16,915,262 | |||||||
4.50% 4/1/18 | 5,645 | 6,000 | |||||||
4.50% 3/1/19 | 99,498 | 105,740 | |||||||
4.50% 7/1/20 | 72,580 | 77,153 | |||||||
5.00% 6/1/19 | 62,379 | 66,197 | |||||||
5.00% 9/1/20 | 5,396 | 5,788 | |||||||
5.00% 5/1/21 | 487,894 | 520,735 | |||||||
5.50% 3/1/18 | 562 | 596 | |||||||
5.50% 11/1/18 | 10,612 | 11,260 | |||||||
5.50% 5/1/19 | 81,304 | 86,244 | |||||||
5.50% 4/1/23 | 111,695 | 121,622 | |||||||
5.50% 6/1/23 | 73,872 | 80,424 | |||||||
6.00% 12/1/16 | 16,349 | 17,226 |
15
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||||
Agency Mortgage-Backed Securities (continued) | |||||||||
Fannie Mae S.F. 15 yr (continued) | |||||||||
6.00% 8/1/17 | USD | 36,686 | $ | 38,642 | |||||
6.00% 12/1/17 | 494 | 521 | |||||||
6.00% 9/1/19 | 181,346 | 194,069 | |||||||
6.00% 3/1/21 | 1,410 | 1,541 | |||||||
6.00% 9/1/21 | 3,161,206 | 3,513,417 | |||||||
6.00% 2/1/22 | 71,953 | 78,482 | |||||||
6.00% 8/1/22 | 47,424 | 52,055 | |||||||
6.00% 2/1/23 | 5,787 | 6,335 | |||||||
Fannie Mae S.F. 15 yr TBA | |||||||||
2.50% 11/1/28 | 112,900,000 | 114,029,000 | |||||||
3.00% 1/1/27 | 128,484,000 | 132,780,197 | |||||||
3.00% 12/1/27 | 1,076,000 | 1,114,669 | |||||||
3.50% 1/1/26 | 87,515,000 | 91,924,942 | |||||||
Fannie Mae S.F. 20 yr | |||||||||
4.50% 9/1/23 | 1,005,698 | 1,075,888 | |||||||
5.00% 11/1/23 | 431,702 | 468,904 | |||||||
5.00% 12/1/23 | 194,932 | 211,686 | |||||||
5.50% 2/1/24 | 43,168 | 47,028 | |||||||
5.50% 12/1/24 | 384,933 | 419,525 | |||||||
5.50% 11/1/25 | 131,745 | 145,319 | |||||||
5.50% 3/1/27 | 153,538 | 167,851 | |||||||
5.50% 3/1/28 | 164,791 | 180,383 | |||||||
5.50% 8/1/28 | 2,556,539 | 2,796,107 | |||||||
5.50% 12/1/29 | 721,019 | 788,711 | |||||||
Fannie Mae S.F. 30 yr | |||||||||
3.00% 10/1/42 | 2,440,858 | 2,410,651 | |||||||
3.00% 12/1/42 | 10,723,445 | 10,592,436 | |||||||
3.00% 7/1/43 | 9,145,148 | 9,043,447 | |||||||
3.50% 4/1/42 | 11,684 | 11,993 | |||||||
3.50% 7/1/42 | 742,271 | 761,993 | |||||||
3.50% 9/1/42 | 593,392 | 609,616 | |||||||
3.50% 1/1/43 | 813,008 | 834,591 | |||||||
3.50% 6/1/43 | 1,800,673 | 1,849,243 | |||||||
4.00% 11/1/40 | 2,265,496 | 2,388,424 | |||||||
4.00% 1/1/41 | 10,677,859 | 11,258,657 | |||||||
4.00% 7/1/41 | 419,672 | 442,625 | |||||||
4.00% 10/1/41 | 33,053 | 34,840 | |||||||
4.00% 12/1/41 | 12,622 | 13,307 | |||||||
4.00% 3/1/42 | 14,027,314 | 14,786,965 |
16
Principal amount° | Value (U.S. $) | ||||||||
Agency Mortgage-Backed Securities (continued) | |||||||||
Fannie Mae S.F. 30 yr (continued) | |||||||||
4.00% 1/1/43 | USD | 4,897,581 | $ | 5,162,020 | |||||
4.50% 7/1/36 | 1,758,539 | 1,882,235 | |||||||
4.50% 4/1/40 | 2,163,887 | 2,315,119 | |||||||
4.50% 11/1/40 | 5,292,132 | 5,669,803 | |||||||
4.50% 12/1/40 | 1,931,400 | 2,069,229 | |||||||
4.50% 2/1/41 | 2,523,743 | 2,704,732 | |||||||
4.50% 3/1/41 | 10,728,823 | 11,500,369 | |||||||
4.50% 4/1/41 | 110,014 | 118,023 | |||||||
4.50% 5/1/41 | 5,741,701 | 6,168,336 | |||||||
4.50% 8/1/41 | 3,651 | 3,914 | |||||||
4.50% 10/1/41 | 7,612,987 | 8,167,986 | |||||||
4.50% 11/1/41 | 5,752,566 | 6,167,249 | |||||||
4.50% 9/1/43 | 4,645,074 | 4,987,784 | |||||||
5.00% 4/1/33 | 151,203 | 164,842 | |||||||
5.00% 7/1/33 | 165,608 | 180,448 | |||||||
5.00% 11/1/33 | 173,488 | 189,063 | |||||||
5.00% 3/1/34 | 71,099 | 77,426 | |||||||
5.00% 4/1/34 | 319,161 | 349,211 | |||||||
5.00% 2/1/35 | 1,499,332 | 1,631,334 | |||||||
5.00% 5/1/35 | 37,086 | 40,284 | |||||||
5.00% 6/1/35 | 5,273 | 5,728 | |||||||
5.00% 7/1/35 | 111,530 | 121,241 | |||||||
5.00% 8/1/35 | 100,977 | 109,675 | |||||||
5.00% 9/1/35 | 413,255 | 450,259 | |||||||
5.00% 11/1/35 | 23,678 | 25,720 | |||||||
5.00% 8/1/36 | 8,917 | 9,685 | |||||||
5.00% 12/1/36 | 10,550 | 11,460 | |||||||
5.50% 3/1/34 | 259,736 | 283,641 | |||||||
5.50% 1/1/35 | 9,268 | 10,114 | |||||||
5.50% 4/1/35 | 3,194 | 3,512 | |||||||
5.50% 8/1/35 | 270,799 | 296,105 | |||||||
5.50% 9/1/35 | 4,189 | 4,570 | |||||||
5.50% 12/1/35 | 226,374 | 247,306 | |||||||
5.50% 1/1/36 | 8,044 | 8,773 | |||||||
5.50% 3/1/36 | 62,132 | 67,766 | |||||||
5.50% 4/1/36 | 75,233 | 82,039 | |||||||
5.50% 5/1/36 | 188,249 | 205,387 | |||||||
5.50% 9/1/36 | 205,939 | 224,849 | |||||||
5.50% 11/1/36 | 33,721 | 36,780 |
17
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||||
Agency Mortgage-Backed Securities (continued) | |||||||||
Fannie Mae S.F. 30 yr (continued) | |||||||||
5.50% 12/1/36 | USD | 178,780 | $ | 194,667 | |||||
5.50% 1/1/37 | 202,468 | 221,175 | |||||||
5.50% 8/1/37 | 295,101 | 321,988 | |||||||
6.00% 11/1/34 | 10,618 | 11,769 | |||||||
6.00% 12/1/34 | 429,842 | 476,430 | |||||||
6.00% 6/1/35 | 3,404 | 3,722 | |||||||
6.00% 7/1/35 | 4,879 | 5,415 | |||||||
6.00% 9/1/35 | 112,967 | 125,112 | |||||||
6.00% 10/1/35 | 73,665 | 81,638 | |||||||
6.00% 11/11/35 | 34,714 | 38,473 | |||||||
6.00% 12/1/35 | 821,474 | 910,168 | |||||||
6.00% 7/1/36 | 35,510 | 39,093 | |||||||
6.00% 8/1/36 | 408,961 | 448,904 | |||||||
6.00% 9/1/36 | 262,807 | 288,455 | |||||||
6.00% 3/1/37 | 34,532 | 37,817 | |||||||
6.00% 8/1/37 | 134,211 | 148,748 | |||||||
6.00% 1/1/38 | 202,500 | 221,964 | |||||||
6.00% 5/1/38 | 832 | 909 | |||||||
6.00% 6/1/38 | 267,266 | 300,114 | |||||||
6.00% 10/1/38 | 9,788 | 10,763 | |||||||
6.00% 12/1/38 | 14,753 | 16,178 | |||||||
6.00% 9/1/39 | 1,736 | 1,898 | |||||||
6.00% 3/1/40 | 3,334 | 3,645 | |||||||
6.50% 2/1/36 | 1,788,659 | 2,004,591 | |||||||
6.50% 3/1/36 | 82,337 | 91,052 | |||||||
6.50% 8/1/36 | 112,289 | 130,604 | |||||||
6.50% 11/1/36 | 609,730 | 673,244 | |||||||
6.50% 3/1/37 | 13,752 | 15,175 | |||||||
6.50% 8/1/37 | 121,367 | 133,927 | |||||||
6.50% 9/1/37 | 1,456,397 | 1,621,736 | |||||||
6.50% 1/1/38 | 2,404 | 2,653 | |||||||
6.50% 10/1/38 | 63,816 | 70,847 | |||||||
7.00% 8/1/32 | 71,900 | 81,779 | |||||||
7.00% 9/1/32 | 67,967 | 77,089 | |||||||
7.00% 2/1/36 | 16,159 | 17,797 | |||||||
7.00% 4/1/37 | 13,356 | 14,841 | |||||||
7.00% 12/1/37 | 10,518 | 12,001 | |||||||
7.50% 1/1/31 | 1,571 | 1,904 | |||||||
7.50% 3/1/32 | 25,905 | 31,592 | |||||||
7.50% 4/1/32 | 25,113 | 29,241 |
18
Principal amount° | Value (U.S. $) | ||||||||
Agency Mortgage-Backed Securities (continued) | |||||||||
Fannie Mae S.F. 30 yr (continued) | |||||||||
7.50% 6/1/34 | USD | 26,464 | $ | 30,780 | |||||
7.50% 10/1/34 | 19,101 | 22,193 | |||||||
Fannie Mae S.F. 30 yr TBA | |||||||||
3.00% 11/1/43 | 146,521,000 | 144,575,026 | |||||||
3.50% 1/1/42 | 153,251,000 | 156,292,083 | |||||||
4.00% 1/1/41 | 100,485,000 | 105,210,940 | |||||||
4.50% 1/1/40 | 43,829,000 | 46,677,889 | |||||||
4.50% 12/1/40 | 16,195,000 | 17,295,755 | |||||||
Freddie Mac | |||||||||
7.00% 2/25/14 | 11 | 11 | |||||||
• | Freddie Mac ARM | ||||||||
2.342% 12/1/33 | 265,704 | 277,453 | |||||||
2.35% 4/1/33 | 2,140 | 2,152 | |||||||
2.406% 8/1/37 | 8,576 | 9,105 | |||||||
2.498% 7/1/36 | 342,837 | 365,708 | |||||||
2.506% 4/1/34 | 22,136 | 23,401 | |||||||
2.512% 5/1/35 | 255,034 | 269,895 | |||||||
2.589% 2/1/37 | 690,461 | 743,509 | |||||||
2.674% 10/1/36 | 65,223 | 69,613 | |||||||
2.676% 12/1/33 | 53,151 | 56,376 | |||||||
2.703% 3/1/36 | 95,220 | 102,215 | |||||||
6.022% 10/1/37 | 4,143 | 4,407 | |||||||
6.18% 10/1/37 | 122,106 | 130,246 | |||||||
Freddie Mac Relocation 15 yr 3.50% 10/1/18 | 51,745 | 53,548 | |||||||
Freddie Mac Relocation 30 yr | |||||||||
5.00% 9/1/33 | 204,190 | 220,110 | |||||||
6.50% 10/1/30 | 707 | 781 | |||||||
Freddie Mac S.F. 15 yr | |||||||||
3.00% 12/1/26 | 179,536 | 186,220 | |||||||
4.00% 11/1/26 | 2,495,598 | 2,637,456 | |||||||
4.50% 5/1/20 | 1,100,567 | 1,164,535 | |||||||
5.00% 6/1/18 | 398,256 | 422,475 | |||||||
5.00% 4/1/20 | 516,369 | 547,749 | |||||||
5.00% 7/1/23 | 113,748 | 122,993 | |||||||
5.50% 7/1/14 | 227 | 238 | |||||||
6.00% 4/1/17 | 6,380 | 6,770 | |||||||
Freddie Mac S.F. 20 yr | |||||||||
5.00% 10/1/23 | 71,543 | 77,135 | |||||||
5.00% 3/1/24 | 601,320 | 648,329 |
19
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||||
Agency Mortgage-Backed Securities (continued) | |||||||||
Freddie Mac S.F. 20 yr (continued) | |||||||||
5.00% 9/1/25 | USD | 3,165,093 | $ | 3,454,966 | |||||
5.00% 12/1/29 | 218,726 | 235,910 | |||||||
5.50% 1/1/23 | 12,290 | 13,297 | |||||||
Freddie Mac S.F. 30 yr | |||||||||
3.00% 10/1/42 | 4,758,419 | 4,679,118 | |||||||
3.00% 11/1/42 | 5,596,702 | 5,507,569 | |||||||
3.50% 11/1/41 | 261,247 | 267,414 | |||||||
3.50% 4/1/42 | 62,539 | 63,976 | |||||||
4.00% 11/1/40 | 4,287,241 | 4,497,524 | |||||||
4.00% 12/1/40 | 642,786 | 674,652 | |||||||
4.00% 2/1/41 | 203,032 | 213,106 | |||||||
4.00% 2/1/42 | 2,438,213 | 2,559,063 | |||||||
4.50% 7/1/39 | 1,263,867 | 1,348,258 | |||||||
4.50% 10/1/39 | 7,246,685 | 7,730,718 | |||||||
4.50% 1/1/41 | 8,066,509 | 8,493,257 | |||||||
4.50% 3/1/42 | 11,370,277 | 12,140,570 | |||||||
4.50% 10/1/43 | 2,147,822 | 2,293,355 | |||||||
5.00% 3/1/34 | 124,718 | 135,142 | |||||||
5.00% 4/1/35 | 41,280 | 44,691 | |||||||
5.00% 6/1/36 | 26,796 | 28,904 | |||||||
5.50% 2/1/35 | 17,190 | 18,655 | |||||||
6.00% 12/1/33 | 16,377 | 18,118 | |||||||
6.00% 11/1/34 | 64,737 | 70,651 | |||||||
6.00% 2/1/36 | 2,908,162 | 3,201,573 | |||||||
6.00% 10/1/37 | 25,655 | 27,941 | |||||||
6.00% 6/1/38 | 14,659 | 15,965 | |||||||
6.00% 8/1/38 | 5,500,687 | 6,012,440 | |||||||
6.50% 10/1/32 | 1,938 | 2,211 | |||||||
6.50% 8/1/38 | 499,662 | 555,903 | |||||||
7.00% 11/1/33 | 227,711 | 261,183 | |||||||
Freddie Mac S.F. 30 yr TBA 5.50% 1/1/38 | 8,496,000 | 9,194,929 | |||||||
GNMA I S.F. 30 yr | |||||||||
7.00% 5/15/28 | 130,104 | 152,207 | |||||||
7.00% 12/15/34 | 2,643,553 | 3,097,774 | |||||||
7.50% 10/15/30 | 1,520 | 1,740 | |||||||
7.50% 2/15/32 | 443 | 538 | |||||||
9.50% 9/15/17 | 2,305 | 2,534 | |||||||
10.00% 7/15/17 | 2,366 | 2,379 | |||||||
Total Agency Mortgage-Backed Securities | |||||||||
(cost $1,108,586,133) | 1,113,918,972 |
20
Principal amount° | Value (U.S. $) | ||||||
Commercial Mortgage-Backed Securities – 3.72% | |||||||
• | Bear Stearns Commercial Mortgage Securities | ||||||
Series 2005-PW10 A4 5.405% 12/11/40 | USD | 7,786,000 | $ | 8,300,265 | |||
Series 2005-T20 A4A 5.14% 10/12/42 | 3,000,000 | 3,202,872 | |||||
Series 2006-PW12 A4 5.711% 9/11/38 | 8,134,000 | 8,924,682 | |||||
Citigroup Commercial Mortgage Trust | |||||||
Series 2012-GC8 A4 3.024% 9/10/45 | 8,950,000 | 8,736,301 | |||||
t | Commercial Mortgage Pass Through Certificates | ||||||
•Series 2005-C6 A5A 5.116% 6/10/44 | 4,470,000 | 4,734,485 | |||||
•Series 2013-CR8 A5 3.612% 6/10/46 | 4,030,000 | 4,068,507 | |||||
Series 2013-CR12 A4 4.046% 10/10/46 | 3,195,000 | 3,298,838 | |||||
• | Credit Suisse Mortgage Capital Certificates | ||||||
Series 2006-C1 AAB 5.39% 2/15/39 | 235,477 | 240,060 | |||||
# | DBUBS Mortgage Trust | ||||||
Series 2011-LC1A A3 144A 5.002% 11/10/46 | 20,074,000 | 22,596,800 | |||||
#• | FREMF Mortgage Trust 144A | ||||||
Series 2011-K702 Mortgage Trust 4.77% 4/25/44 | 4,780,000 | 5,082,249 | |||||
Series 2012-K21 B 3.939% 7/25/45 | 7,041,000 | 6,596,692 | |||||
• | General Electric Capital Commercial Mortgage | ||||||
Series 2005-C4 A4 5.31% 11/10/45 | 108,000 | 115,639 | |||||
Goldman Sachs Mortgage Securities II | |||||||
Series 2005-GG4 A4A 4.751% 7/10/39 | 28,499,000 | 29,738,535 | |||||
•Series 2006-GG6 A4 5.553% 4/10/38 | 8,405,000 | 9,103,506 | |||||
#Series 2010-C1 A2 144A 4.592% 8/10/43 | 9,975,000 | 11,007,542 | |||||
#•Series 2010-C1 C 144A 5.635% 8/10/43 | 4,640,000 | 5,118,477 | |||||
• | Greenwich Capital Commercial Funding | ||||||
Series 2005-GG5 A5 5.224% 4/10/37 | 15,005,000 | 15,919,210 | |||||
JP Morgan Chase Commercial Mortgage | |||||||
Securities Trust | |||||||
•Series 2005-LDP5 A4 5.20% 12/15/44 | 10,685,000 | 11,447,460 | |||||
Series 2006-LDP8 5.44% 5/15/45 | 6,732,000 | 7,403,537 | |||||
Series 2011-C5 A3 4.171% 8/15/46 | 5,200,000 | 5,574,119 | |||||
Lehman Brothers-UBS Commercial Mortgage Trust | |||||||
Series 2004-C1 A4 4.568% 1/15/31 | 2,076,462 | 2,103,246 | |||||
•Series 2005-C3 4.895% 7/15/40 | 2,980,000 | 3,076,734 | |||||
Merrill Lynch Mortgage Trust | |||||||
Series 2005-CIP1 A2 4.96% 7/12/38 | 89,822 | 90,295 | |||||
Morgan Stanley Capital I | |||||||
Series 2005-HQ6 A4A 4.989% 8/13/42 | 4,695,000 | 4,941,084 | |||||
•Series 2005-HQ7 5.206% 11/14/42 | 13,733,000 | 13,559,525 | |||||
•Series 2007-T27 A4 5.647% 6/11/42 | 11,915,500 | 13,523,378 |
21
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Commercial Mortgage-Backed Securities (continued) | |||||||
# | Timberstar Trust 144A | ||||||
Series 2006-1A A 5.668% 10/15/36 | USD | 9,295,000 | $ | 10,222,529 | |||
Series 2006-1A C 5.884% 10/15/36 | 4,500,000 | 4,881,528 | |||||
# | VNO Mortgage Trust | ||||||
Series 2012-6AVE 144A 2.996% 11/15/30 | 10,355,000 | 9,862,630 | |||||
WF-RBS Commercial Mortgage Trust | |||||||
Series 2012-C9 A3 2.87% 11/15/45 | 6,440,000 | 6,175,966 | |||||
Series 2013-C11 A5 3.071% 3/15/45 | 5,740,000 | 5,572,392 | |||||
Total Commercial Mortgage-Backed Securities | |||||||
(cost $244,611,976) | 245,219,083 | ||||||
Convertible Bonds – 2.83% | |||||||
Advanced Micro Devices 6.00% exercise price | |||||||
$28.08, expiration date 4/30/15 | 4,343,000 | 4,533,006 | |||||
# | Alaska Communications System Group 144A 6.25 | ||||||
exercise price $10.28, expiration date 4/27/18 | 5,531,000 | 4,784,315 | |||||
* | Alere 3.00% exercise price $43.98, | ||||||
expiration date 5/15/16 | 4,499,000 | 4,934,841 | |||||
Ares Capital 5.75% exercise price $19.13, | |||||||
expiration date 2/1/16 | 4,415,000 | 4,765,441 | |||||
*Φ | ArvinMeritor 4.00% exercise price $26.73, | ||||||
expiration date 2/12/27 | 8,326,000 | 7,675,530 | |||||
* | BGC Partners 4.50% exercise price $9.84, | ||||||
expiration date 7/13/16 | 4,053,000 | 4,187,256 | |||||
*# | Blucora 144A 4.25% exercise price $21.66, | ||||||
expiration date 3/29/19 | 3,621,000 | 4,646,196 | |||||
Chesapeake Energy 2.25% exercise price $85.81, | |||||||
expiration date 12/15/38 | 1,000,000 | 946,875 | |||||
# | Ciena 144A 3.75% exercise price $20.17, | ||||||
expiration date 10/14/18 | 3,494,000 | 4,987,685 | |||||
Dendreon 2.875% exercise price $51.24, | |||||||
expiration date 1/13/16 | 3,121,000 | 2,059,860 | |||||
Equinix 4.75% exercise price $84.32, | |||||||
expiration date 6/13/16 | 1,902,000 | 3,798,056 | |||||
Φ | General Cable 4.50% exercise price $36.34, | ||||||
expiration date 11/15/29 | 5,104,000 | 5,939,780 | |||||
Gilead Sciences 1.625% | |||||||
exercise price $22.71, expiration date 5/1/16 | 2,165,000 | 6,785,933 | |||||
* | Helix Energy Solutions Group 3.25% | ||||||
exercise price $25.02, expiration date 3/12/32 | 4,690,000 | 5,962,163 |
22
Principal amount° | Value (U.S. $) | ||||||
Convertible Bonds (continued) | |||||||
*Φ | Hologic 2.00% exercise price $31.17, | ||||||
expiration date 2/27/42 | USD | 5,004,000 | $ | 5,244,818 | |||
Iconix Brand Group 2.50% exercise price $30.75, | |||||||
expiration date 5/31/16 | 2,314,000 | 3,006,754 | |||||
# | Illumina 144A 0.25% exercise price $83.55, | ||||||
expiration date 3/11/16 | 3,389,000 | 4,223,541 | |||||
Intel 3.25% exercise price $21.94, | |||||||
expiration date 8/1/39 | 3,090,000 | 4,047,915 | |||||
Jefferies Group 3.875% exercise price $45.62, | |||||||
expiration date 10/31/29 | 4,483,000 | 4,726,763 | |||||
L-3 Communications Holdings 3.00% exercise price | |||||||
$90.24, expiration date 8/1/35 | 4,301,000 | 4,930,021 | |||||
# | Lexington Realty Trust 144A 6.00% exercise price | ||||||
$6.84, expiration date 1/11/30 | 2,233,000 | 3,877,046 | |||||
# | Liberty Interactive 144A | ||||||
0.75% exercise price $1,000.00, | |||||||
expiration date 3/30/43 | 4,291,000 | 5,149,200 | |||||
1.00% exercise price $74.31, expiration date 9/28/34 | 2,536,000 | 2,613,665 | |||||
Linear Technology 3.00% exercise price $41.46, | |||||||
expiration date 4/30/27 | 3,520,000 | 3,777,400 | |||||
MGM Resorts International 4.25% exercise price | |||||||
$18.58, expiration date 4/10/15 | 3,838,000 | 4,711,145 | |||||
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 9/15/15 | 1,576,000 | 4,534,940 | |||||
Nuance Communications 2.75% exercise price $32.30, | |||||||
expiration date 11/1/31 | 6,394,000 | 6,274,113 | |||||
NuVasive 2.75% exercise price $42.13, | |||||||
expiration date 6/30/17 | 7,757,000 | 8,474,522 | |||||
# | Opko Health 144A 3.00% exercise price $7.07, | ||||||
expiration date 1/28/33 | 1,205,000 | 1,815,031 | |||||
# | Owens-Brockway Glass Container 144A | ||||||
3.00% exercise price $47.47, | |||||||
expiration date 5/28/15 | 4,916,000 | 5,124,930 | |||||
* | Peabody Energy 4.75% exercise price $57.95, | ||||||
expiration date 12/15/41 | 7,059,000 | 5,876,618 | |||||
PHH 4.00% exercise price $25.80, | |||||||
expiration date 8/27/14 | 5,080,000 | 5,591,175 | |||||
Rovi 2.625% exercise price $47.36, | |||||||
expiration date 2/10/40 | 3,407,000 | 3,470,881 |
23
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Convertible Bonds (continued) | |||||||
*# | Ryman Hospitality Properties 144A 3.75% | ||||||
exercise price $21.64, expiration date 9/29/14 | USD | 2,597,000 | $ | 4,487,941 | |||
* | SanDisk 1.50% exercise price $52.17, | ||||||
expiration date 8/11/17 | 4,224,000 | 6,214,560 | |||||
SBA Communications 4.00% exercise price $30.38, | |||||||
expiration date 9/29/14 | 1,031,000 | 2,974,435 | |||||
* | TIBCO Software 2.25% exercise price $50.57, | ||||||
expiration date 4/30/32 | 5,915,000 | 6,022,209 | |||||
Titan Machinery 3.75% exercise price $43.17, | |||||||
expiration date 4/30/19 | 3,641,000 | 3,217,734 | |||||
# | Vantage Drilling 144A 5.50% exercise price $2.39, | ||||||
expiration date 7/15/43 | 300,000 | 323,625 | |||||
• | Vector Group 2.50% exercise price $17.62, | ||||||
expiration date 1/14/19 | 1,904,000 | 2,230,271 | |||||
VeriSign 3.25% exercise price $34.37, | |||||||
expiration date 8/15/37 | 2,581,000 | 4,303,818 | |||||
# | WellPoint 144A 2.75% exercise price $75.31, | ||||||
expiration date 10/15/42 | 2,440,000 | 3,181,150 | |||||
Total Convertible Bonds (cost $169,669,365) | 186,433,158 | ||||||
Corporate Bonds – 54.93% | |||||||
Automotive – 0.51% | |||||||
American Axle & Manufacturing | |||||||
6.25% 3/15/21 | 4,810,000 | 5,086,575 | |||||
7.75% 11/15/19 | 162,000 | 183,870 | |||||
# | Chassix 144A 9.25% 8/1/18 | 825,000 | 888,938 | ||||
* | Chrysler Group 8.25% 6/15/21 | 6,011,000 | 6,829,999 | ||||
Ford Motor 7.45% 7/16/31 | 9,269,000 | 11,598,179 | |||||
# | International Automotive Components | ||||||
Group 144A 9.125% 6/1/18 | 89,000 | 92,115 | |||||
# | LKQ 144A 4.75% 5/15/23 | 600,000 | 573,000 | ||||
Meritor 6.75% 6/15/21 | 2,195,000 | 2,227,925 | |||||
Tomkins 9.00% 10/1/18 | 1,290,000 | 1,419,000 | |||||
# | TRW Automotive 144A 4.50% 3/1/21 | 4,570,000 | 4,684,250 | ||||
33,583,851 | |||||||
Banking – 6.85% | |||||||
# | Banco BTG Pactual 144A 4.00% 1/16/20 | 6,865,000 | 6,257,448 | ||||
# | Banco de Costa Rica 144A 5.25% 8/12/18 | 7,500,000 | 7,593,750 | ||||
# | Banco do Brasil 144A 3.75% 7/25/18 | EUR | 8,610,000 | 12,158,732 |
24
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Banking (continued) | |||||||
# | Banco Nacional de Costa Rica 144A | ||||||
4.875% 11/1/18 | USD | 4,305,000 | $ | 4,299,834 | |||
# | Banco Santander Mexico 144A 4.125% 11/9/22 | 9,165,000 | 8,786,944 | ||||
Bancolombia 5.95% 6/3/21 | 4,187,000 | 4,442,407 | |||||
Bank of America | |||||||
2.60% 1/15/19 | 12,635,000 | 12,735,738 | |||||
3.875% 3/22/17 | 7,660,000 | 8,219,103 | |||||
# | Bank of Georgia JSC 144A 7.75% 7/5/17 | 5,055,000 | 5,348,822 | ||||
* | Barclays Bank 7.625% 11/21/22 | 9,770,000 | 10,102,180 | ||||
BB&T | |||||||
3.95% 3/22/22 | 250,000 | 252,319 | |||||
5.25% 11/1/19 | 18,704,000 | 21,141,841 | |||||
# | BBVA Banco Continental 144A 3.25% 4/8/18 | 6,875,000 | 6,926,563 | ||||
# | BBVA Bancomer 144A 6.50% 3/10/21 | 5,365,000 | 5,834,438 | ||||
BBVA US Senior 4.664% 10/9/15 | 2,875,000 | 3,028,485 | |||||
• | Branch Banking & Trust 0.574% 9/13/16 | 5,010,000 | 4,967,305 | ||||
Citigroup | |||||||
3.875% 10/25/23 | 9,325,000 | 9,345,366 | |||||
6.25% 6/29/17 | NZD | 5,901,000 | 5,067,845 | ||||
* | City National 5.25% 9/15/20 | USD | 12,875,000 | 13,973,752 | |||
# | Credit Suisse 144A 6.50% 8/8/23 | 9,325,000 | 9,976,818 | ||||
• | Fifth Third Bank 5.10% 12/31/49 | 9,360,000 | 8,447,400 | ||||
• | Fifth Third Capital Trust IV 6.50% 4/15/37 | 10,756,000 | 10,661,885 | ||||
Goldman Sachs Group 3.375% 2/1/18 | CAD | 5,527,000 | 5,345,143 | ||||
#• | HBOS Capital Funding 144A 6.071% 6/29/49 | USD | 10,276,000 | 10,276,000 | |||
# | ING Bank 144A 5.80% 9/25/23 | 12,455,000 | 13,086,966 | ||||
JPMorgan Chase | |||||||
2.92% 9/19/17 | CAD | 8,630,000 | 8,355,148 | ||||
4.25% 11/2/18 | NZD | 15,865,000 | 12,452,096 | ||||
5.625% 8/16/43 | USD | 7,740,000 | 7,994,453 | ||||
KeyBank 6.95% 2/1/28 | 17,740,000 | 21,499,531 | |||||
Morgan Stanley | |||||||
4.10% 5/22/23 | 13,470,000 | 13,036,683 | |||||
*7.375% 2/22/18 | AUD | 5,466,000 | 5,630,219 | ||||
*7.60% 8/8/17 | NZD | 9,768,000 | 8,625,739 | ||||
• | National City Bank 0.628% 6/7/17 | USD | 9,875,000 | 9,734,745 | |||
Northern Trust 3.95% 10/30/25 | 4,495,000 | 4,512,778 | |||||
*• | PNC Financial Services Group 4.85% 5/29/49 | 7,960,000 | 7,283,400 |
25
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Banking (continued) | |||||||
#• | PNC Preferred Funding Trust II 144A | ||||||
1.477% 3/31/49 | USD | 13,400,000 | $ | 11,658,000 | |||
Regions Financial 2.00% 5/15/18 | 9,765,000 | 9,612,383 | |||||
# | Russian Agricultural Bank 144A 5.10% 7/25/18 | 6,270,000 | 6,428,004 | ||||
Santander Holdings USA 3.45% 8/27/18 | 5,695,000 | 5,897,822 | |||||
# | Santander UK 144A 5.00% 11/7/23 | 7,540,000 | 7,600,848 | ||||
# | Sberbank of Russia 144A 4.95% 2/7/17 | 8,310,000 | 8,870,925 | ||||
State Street 3.10% 5/15/23 | 6,240,000 | 5,903,914 | |||||
SunTrust Banks 2.35% 11/1/18 | 8,820,000 | 8,866,102 | |||||
SVB Financial Group 5.375% 9/15/20 | 5,130,000 | 5,688,662 | |||||
# | Turkiye Halk Bankasi 144A 3.875% 2/5/20 | 2,755,000 | 2,515,673 | ||||
U.S. Bank 4.95% 10/30/14 | 4,535,000 | 4,738,082 | |||||
• | USB Capital IX 3.50% 10/29/49 | 27,182,000 | 21,473,779 | ||||
# | Vnesheconombank 144A | ||||||
5.375% 2/13/17 | 5,650,000 | 6,049,455 | |||||
6.025% 7/5/22 | 3,585,000 | 3,826,988 | |||||
• | Wachovia 0.614% 10/15/16 | 7,415,000 | 7,328,882 | ||||
Wells Fargo 5.375% 11/2/43 | 9,420,000 | 9,566,283 | |||||
Zions Bancorp | |||||||
4.50% 3/27/17 | 6,860,000 | 7,213,064 | |||||
4.50% 6/13/23 | 6,815,000 | 6,847,317 | |||||
7.75% 9/23/14 | 3,770,000 | 3,979,005 | |||||
451,467,064 | |||||||
Basic Industry – 4.81% | |||||||
* | AK Steel 7.625% 5/15/20 | 3,259,000 | 2,933,100 | ||||
# | Alpek 144A 4.50% 11/20/22 | 6,440,000 | 6,238,750 | ||||
ArcelorMittal | |||||||
6.125% 6/1/18 | 3,732,000 | 4,063,215 | |||||
10.35% 6/1/19 | 12,195,000 | 15,487,649 | |||||
BHP Billiton Finance USA 5.00% 9/30/43 | 4,150,000 | 4,280,028 | |||||
# | Cemex Espana Luxembourg 144A 9.25% 5/12/20 | 9,240,000 | 10,117,800 | ||||
CF Industries | |||||||
6.875% 5/1/18 | 18,314,000 | 21,716,740 | |||||
7.125% 5/1/20 | 2,841,000 | 3,389,029 | |||||
Clearwater Paper 4.50% 2/1/23 | 3,990,000 | 3,670,800 | |||||
* | Cliffs Natural Resources 6.25% 10/1/40 | 3,950,000 | 3,531,332 | ||||
# | Codelco 144A 5.625% 10/18/43 | 4,935,000 | 4,970,967 | ||||
Dow Chemical 8.55% 5/15/19 | 33,051,000 | 42,826,824 | |||||
# | Essar Steel Algoma 144A 9.375% 3/15/15 | 48,000 | 46,320 |
26
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Basic Industry (continued) | ||||||||
*# | FMG Resources August 2006 144A | |||||||
6.875% 2/1/18 | USD | 156,000 | $ | 165,945 | ||||
6.875% 4/1/22 | 4,558,000 | 4,865,665 | ||||||
7.00% 11/1/15 | 3,887,000 | 4,040,051 | ||||||
Georgia-Pacific 8.00% 1/15/24 | 17,166,000 | 22,348,380 | ||||||
*# | Gerdau Trade 144A 4.75% 4/15/23 | 9,635,000 | 9,032,813 | |||||
# | Glencore Funding 144A 2.50% 1/15/19 | 13,040,000 | 12,566,021 | |||||
HD Supply | ||||||||
#144A 7.50% 7/15/20 | 2,684,000 | 2,838,330 | ||||||
11.00% 4/15/20 | 2,855,000 | 3,440,846 | ||||||
Headwaters 7.625% 4/1/19 | 6,122,000 | 6,550,540 | ||||||
# | Inmet Mining 144A 8.75% 6/1/20 | 82,000 | 91,020 | |||||
International Paper | ||||||||
6.00% 11/15/41 | 5,215,000 | 5,723,384 | ||||||
7.50% 8/15/21 | 7,000,000 | 8,708,896 | ||||||
*# | JMC Steel Group 144A 8.25% 3/15/18 | 97,000 | 96,636 | |||||
LyondellBasell Industries 5.75% 4/15/24 | 4,000,000 | 4,589,680 | ||||||
# | Masonite International 144A 8.25% 4/15/21 | 103,000 | 113,815 | |||||
# | MMC Finance 144A 5.55% 10/28/20 | 5,526,000 | 5,599,468 | |||||
Mohawk Industries 6.375% 1/15/16 | 2,349,000 | 2,588,149 | ||||||
# | New Gold 144A 6.25% 11/15/22 | 232,000 | 229,680 | |||||
Norcraft 10.50% 12/15/15 | 3,465,000 | 3,577,613 | ||||||
Nortek 8.50% 4/15/21 | 5,564,000 | 6,127,355 | ||||||
Novelis 8.75% 12/15/20 | 5,145,000 | 5,749,538 | ||||||
Nucor 4.00% 8/1/23 | 4,295,000 | 4,291,929 | ||||||
Packaging Corp of America 4.50% 11/1/23 | 6,710,000 | 6,913,857 | ||||||
# | Perstorp Holding 144A 8.75% 5/15/17 | 2,825,000 | 2,966,250 | |||||
*# | PhosAgro 144A 4.204% 2/13/18 | 11,553,000 | 11,610,765 | |||||
PolyOne 5.25% 3/15/23 | 3,470,000 | 3,465,663 | ||||||
Rio Tinto Finance USA | ||||||||
2.25% 12/14/18 | 365,000 | 366,648 | ||||||
3.50% 11/2/20 | 250,000 | 255,164 | ||||||
Rock Tenn | ||||||||
3.50% 3/1/20 | 3,271,000 | 3,269,358 | ||||||
4.00% 3/1/23 | 6,975,000 | 6,837,230 | ||||||
Rockwood Specialties Group | ||||||||
4.625% 10/15/20 | 2,189,000 | 2,260,143 | ||||||
Ryerson | ||||||||
9.00% 10/15/17 | 3,784,000 | 3,973,200 | ||||||
*11.25% 10/15/18 | 1,584,000 | 1,663,200 |
27
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Basic Industry (continued) | |||||||
# | Samarco Mineracao 144A 5.75% 10/24/23 | USD | 3,555,000 | $ | 3,563,888 | ||
# | Taminco Global Chemical 144A 9.75% 3/31/20 | 111,000 | 126,540 | ||||
# | TPC Group 144A 8.75% 12/15/20 | 2,852,000 | 3,015,990 | ||||
*# | Uralkali 144A 3.723% 4/30/18 | 4,470,000 | 4,306,756 | ||||
*# | US Coatings Acquisition 144A 7.375% 5/1/21 | 4,585,000 | 4,894,488 | ||||
Vale Overseas | |||||||
5.625% 9/15/19 | 2,910,000 | 3,205,749 | |||||
6.25% 1/23/17 | 500,000 | 564,355 | |||||
*# | Vedanta Resources 144A 6.00% 1/31/19 | 6,540,000 | 6,343,800 | ||||
Weyerhaeuser 4.625% 9/15/23 | 10,010,000 | 10,450,300 | |||||
316,661,652 | |||||||
Brokerage – 0.47% | |||||||
Jefferies Group | |||||||
5.125% 1/20/23 | 6,495,000 | 6,596,322 | |||||
6.45% 6/8/27 | 3,810,000 | 3,991,623 | |||||
6.50% 1/20/43 | 2,450,000 | 2,443,432 | |||||
Lazard Group 6.85% 6/15/17 | 15,744,000 | 17,909,618 | |||||
30,940,995 | |||||||
Capital Goods – 1.69% | |||||||
# | Ardagh Packaging Finance 144A 7.00% 11/15/20 | 4,410,000 | 4,410,000 | ||||
Ball 4.00% 11/15/23 | 4,965,000 | 4,598,831 | |||||
Berry Plastics 9.75% 1/15/21 | 5,165,000 | 6,094,700 | |||||
# | BOE Merger 144A 9.50% 11/1/17 | 290,000 | 307,400 | ||||
# | Cemex 144A | ||||||
*•4.999% 10/15/18 | 3,645,000 | 3,754,350 | |||||
9.50% 6/15/18 | 1,345,000 | 1,536,663 | |||||
# | Consolidated Container 144A 10.125% 7/15/20 | 3,016,000 | 3,272,360 | ||||
# | Crown Americas 144A 4.50% 1/15/23 | 2,075,000 | 1,955,688 | ||||
Flowserve 4.00% 11/15/23 | 5,045,000 | 5,029,093 | |||||
# | Ingersoll-Rand Global Holding 144A 4.25% 6/15/23 | 17,235,000 | 17,344,976 | ||||
*# | Metalloinvest Finance 144A 5.625% 4/17/20 | 6,355,000 | 6,355,000 | ||||
# | Milacron 144A 7.75% 2/15/21 | 3,335,000 | 3,501,750 | ||||
# | OAS Investments GmbH 144A 8.25% 10/19/19 | 5,530,000 | 5,488,525 | ||||
# | Plastipak Holdings 144A 6.50% 10/1/21 | 2,915,000 | 3,046,175 | ||||
Reynolds Group Issuer | |||||||
9.00% 4/15/19 | 12,220,000 | 13,136,500 | |||||
9.875% 8/15/19 | 110,000 | 122,238 | |||||
# | Sealed Air 144A 6.50% 12/1/20 | 4,145,000 | 4,523,231 |
28
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Capital Goods (continued) | |||||||
*# | Silver II Borrower 144A 7.75% 12/15/20 | USD | 1,370,000 | $ | 1,441,925 | ||
TransDigm 7.50% 7/15/21 | 3,825,000 | 4,188,375 | |||||
# | URS 144A | ||||||
4.35% 4/1/17 | 1,207,000 | 1,254,744 | |||||
5.50% 4/1/22 | 5,745,000 | 5,870,540 | |||||
# | Votorantim Cimentos 144A 7.25% 4/5/41 | 12,650,000 | 12,523,500 | ||||
# | Voto-Votorantim Overseas Trading Operations 144A | ||||||
6.625% 9/25/19 | 1,485,000 | 1,695,128 | |||||
111,451,692 | |||||||
Communications – 8.23% | |||||||
AMC Networks 4.75% 12/15/22 | 4,670,000 | 4,541,575 | |||||
America Movil 5.00% 3/30/20 | 10,870,000 | 11,954,272 | |||||
# | American Tower Trust I 144A | ||||||
1.551% 3/15/43 | 4,245,000 | 4,170,570 | |||||
3.07% 3/15/23 | 10,210,000 | 9,778,398 | |||||
AT&T 4.30% 12/15/42 | 6,170,000 | 5,170,404 | |||||
Bell Canada 3.35% 3/22/23 | CAD | 14,736,000 | 13,374,818 | ||||
# | Brasil Telecom 144A 5.75% 2/10/22 | USD | 5,318,000 | 5,038,805 | |||
CC Holdings GS V 3.849% 4/15/23 | 5,370,000 | 5,107,965 | |||||
CCO Holdings | |||||||
5.25% 9/30/22 | 4,068,000 | 3,844,260 | |||||
7.375% 6/1/20 | 2,250,000 | 2,469,375 | |||||
CenturyLink 5.80% 3/15/22 | 12,355,000 | 12,293,224 | |||||
# | Cequel Communications Holdings I 144A | ||||||
6.375% 9/15/20 | 182,000 | 189,735 | |||||
Clear Channel Worldwide Holdings 7.625% 3/15/20 | 5,985,000 | 6,412,903 | |||||
# | Clearwire Communications 144A 12.00% 12/1/15 | 4,003,000 | 4,157,116 | ||||
# | Columbus International 144A 11.50% 11/20/14 | 10,626,000 | 11,502,645 | ||||
# | Cox Communications 144A 3.25% 12/15/22 | 19,300,000 | 17,759,898 | ||||
# | Crown Castle Towers 144A 4.883% 8/15/20 | 44,715,000 | 48,165,477 | ||||
CSC Holdings 6.75% 11/15/21 | 3,205,000 | 3,509,475 | |||||
# | Digicel Group 144A | ||||||
8.25% 9/1/17 | 2,227,000 | 2,330,556 | |||||
8.25% 9/30/20 | 6,674,000 | 7,074,440 | |||||
*10.50% 4/15/18 | 4,410,000 | 4,784,850 | |||||
# | Digicel Limited 144A 6.00% 4/15/21 | 1,295,000 | 1,259,388 | ||||
DISH DBS | |||||||
5.00% 3/15/23 | 4,195,000 | 4,032,444 | |||||
5.875% 7/15/22 | 1,499,000 | 1,542,096 |
29
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Communications (continued) | |||||||
DISH DBS (continued) | |||||||
7.125% 2/1/16 | USD | 415,000 | $ | 459,613 | |||
7.875% 9/1/19 | 1,998,000 | 2,332,665 | |||||
# | Entel Chile 144A 4.875% 10/30/24 | 3,890,000 | 3,900,250 | ||||
Equinix | |||||||
4.875% 4/1/20 | 5,205,000 | 5,250,544 | |||||
5.375% 4/1/23 | 1,735,000 | 1,730,663 | |||||
Gray Television 7.50% 10/1/20 | 4,390,000 | 4,620,475 | |||||
Hughes Satellite Systems 7.625% 6/15/21 | 2,255,000 | 2,480,500 | |||||
# | Intelsat Jackson Holdings 144A 5.50% 8/1/23 | 4,270,000 | 4,136,563 | ||||
# | Intelsat Luxembourg 144A | ||||||
7.75% 6/1/21 | 4,665,000 | 4,939,069 | |||||
8.125% 6/1/23 | 4,010,000 | 4,255,613 | |||||
Lamar Media 5.00% 5/1/23 | 4,975,000 | 4,763,563 | |||||
Level 3 Communications | |||||||
8.875% 6/1/19 | 31,000 | 33,984 | |||||
*11.875% 2/1/19 | 2,041,000 | 2,377,765 | |||||
Level 3 Financing | |||||||
7.00% 6/1/20 | 57,000 | 60,990 | |||||
10.00% 2/1/18 | 4,092,000 | 4,386,113 | |||||
*# | Lynx II 144A 6.375% 4/15/23 | 1,235,000 | 1,272,050 | ||||
# | MDC Partners 144A 6.75% 4/1/20 | 4,070,000 | 4,253,150 | ||||
MetroPCS Wireless 6.625% 11/15/20 | 2,848,000 | 3,022,440 | |||||
*# | Millicom International Cellular 144A | ||||||
4.75% 5/22/20 | 5,610,000 | 5,287,425 | |||||
6.625% 10/15/21 | 2,075,000 | 2,142,438 | |||||
*# | MTS International Funding 144A 8.625% 6/22/20 | 5,695,000 | 6,890,950 | ||||
# | Myriad International Holding 144A | ||||||
6.00% 7/18/20 | 1,905,000 | 2,038,350 | |||||
6.375% 7/28/17 | 11,040,000 | 12,199,199 | |||||
# | Nara Cable Funding 144A 8.875% 12/1/18 | 6,420,000 | 6,885,450 | ||||
Nielsen Finance 4.50% 10/1/20 | 1,955,000 | 1,925,675 | |||||
Omnicom Group 3.625% 5/1/22 | 4,370,000 | 4,275,088 | |||||
# | Qtel International Finance 144A 3.25% 2/21/23 | 7,655,000 | 7,072,837 | ||||
Qwest 6.75% 12/1/21 | 11,645,000 | 12,727,076 | |||||
Satelites Mexicanos 9.50% 5/15/17 | 50,000 | 54,625 | |||||
# | SBA Tower Trust 144A 2.24% 4/16/18 | 7,245,000 | 7,201,954 | ||||
# | SES 144A 3.60% 4/4/23 | 17,139,000 | 16,689,872 |
30
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Communications (continued) | |||||||
Sinclair Television Group | |||||||
5.375% 4/1/21 | USD | 4,900,000 | $ | 4,814,250 | |||
6.125% 10/1/22 | 2,143,000 | 2,193,896 | |||||
# | Sirius XM Radio 144A 4.625% 5/15/23 | 4,240,000 | 3,900,800 | ||||
# | Sprint 144A | ||||||
7.25% 9/15/21 | 1,730,000 | 1,870,563 | |||||
7.875% 9/15/23 | 1,340,000 | 1,457,250 | |||||
Sprint Capital 6.90% 5/1/19 | 4,335,000 | 4,692,638 | |||||
Sprint Nextel | |||||||
6.00% 12/1/16 | 2,895,000 | 3,137,456 | |||||
8.375% 8/15/17 | 940,000 | 1,092,750 | |||||
*# | TBG Global 144A 4.625% 4/3/18 | 5,285,000 | 5,152,875 | ||||
*# | Telefonica Chile 144A 3.875% 10/12/22 | 10,930,000 | 10,149,084 | ||||
Telefonica Emisiones | |||||||
3.192% 4/27/18 | 6,890,000 | 6,998,256 | |||||
4.57% 4/27/23 | 10,644,000 | 10,629,045 | |||||
5.289% 12/9/22 | GBP | 2,050,000 | 3,461,895 | ||||
# | Telemar Norte Leste 144A 5.50% 10/23/20 | USD | 10,130,000 | 9,826,100 | |||
# | Telesat Canada 144A 6.00% 5/15/17 | 3,580,000 | 3,754,525 | ||||
Time Warner 4.70% 1/15/21 | 250,000 | 270,936 | |||||
Time Warner Cable | |||||||
5.85% 5/1/17 | 6,947,000 | 7,659,741 | |||||
8.25% 4/1/19 | 13,136,000 | 15,416,435 | |||||
# | Univision Communications 144A | ||||||
5.125% 5/15/23 | 6,985,000 | 6,950,075 | |||||
6.75% 9/15/22 | 1,575,000 | 1,724,625 | |||||
# | UPC Holding 144A 9.875% 4/15/18 | 2,254,000 | 2,451,225 | ||||
# | UPCB Finance III 144A 6.625% 7/1/20 | 8,039,000 | 8,621,828 | ||||
VeriSign 4.625% 5/1/23 | 2,065,000 | 2,021,119 | |||||
Verizon Communications | |||||||
5.15% 9/15/23 | 25,265,000 | 27,465,656 | |||||
6.40% 9/15/33 | 7,090,000 | 8,048,589 | |||||
# | Vimpel Communications 144A 7.748% 2/2/21 | 9,019,000 | 9,898,353 | ||||
Virgin Media Finance 8.375% 10/15/19 | 2,217,000 | 2,424,844 | |||||
Virgin Media Secured Finance 6.50% 1/15/18 | 34,343,000 | 35,802,577 | |||||
# | Wind Acquisition Finance 144A | ||||||
7.25% 2/15/18 | 1,335,000 | 1,411,763 | |||||
11.75% 7/15/17 | 3,151,000 | 3,351,876 |
31
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Communications (continued) | |||||||
Windstream | |||||||
7.50% 6/1/22 | USD | 49,000 | $ | 51,573 | |||
7.50% 4/1/23 | 1,375,000 | 1,440,313 | |||||
#144A 7.75% 10/1/21 | 2,300,000 | 2,466,750 | |||||
Zayo Group 8.125% 1/1/20 | 1,590,000 | 1,749,000 | |||||
542,490,299 | |||||||
Consumer Cyclical – 2.98% | |||||||
Burlington Coat Factory Warehouse 10.00% 2/15/19 | 96,000 | 108,000 | |||||
Carnival 3.95% 10/15/20 | 3,665,000 | 3,723,226 | |||||
# | CDR DB Sub 144A 7.75% 10/15/20 | 112,000 | 111,440 | ||||
# | Chinos Intermediate Holdings A 144A | ||||||
7.75% 5/1/19 | 3,445,000 | 3,475,144 | |||||
# | Daimler Finance North America 144A | ||||||
2.25% 7/31/19 | 11,265,000 | 11,105,702 | |||||
Dave & Buster’s 11.00% 6/1/18 | 1,809,000 | 2,003,468 | |||||
#^ | Dave & Buster’s Entertainment 144A | ||||||
9.12% 2/15/16 | 119,000 | 97,431 | |||||
Delphi 6.125% 5/15/21 | 6,275,000 | 6,933,875 | |||||
# | General Motors 144A 3.50% 10/2/18 | 6,545,000 | 6,708,625 | ||||
Hanesbrands 6.375% 12/15/20 | 4,960,000 | 5,406,400 | |||||
Historic TW 6.875% 6/15/18 | 24,649,000 | 29,776,040 | |||||
Host Hotels & Resorts | |||||||
3.75% 10/15/23 | 2,945,000 | 2,799,331 | |||||
4.75% 3/1/23 | 9,740,000 | 10,015,876 | |||||
5.25% 3/15/22 | 5,250,000 | 5,563,273 | |||||
5.875% 6/15/19 | 3,045,000 | 3,305,305 | |||||
International Game Technology 5.35% 10/15/23 | 10,759,000 | 11,197,268 | |||||
# | Landry’s 144A 9.375% 5/1/20 | 1,579,000 | 1,717,163 | ||||
Levi Strauss | |||||||
6.875% 5/1/22 | 4,085,000 | 4,452,650 | |||||
*7.625% 5/15/20 | 1,350,000 | 1,488,375 | |||||
Marriott International 3.375% 10/15/20 | 5,755,000 | 5,798,013 | |||||
Michaels Stores 11.375% 11/1/16 | 27,000 | 27,743 | |||||
Pantry 8.375% 8/1/20 | 94,000 | 100,345 | |||||
*# | Party City Holdings 144A 8.875% 8/1/20 | 99,000 | 108,653 | ||||
QVC 4.375% 3/15/23 | 19,655,000 | 18,718,615 | |||||
Rite Aid 9.25% 3/15/20 | 4,097,000 | 4,752,520 | |||||
# | SACI Falabella 144A 3.75% 4/30/23 | 6,475,000 | 6,005,563 | ||||
Sally Holdings 5.75% 6/1/22 | 4,201,000 | 4,379,543 |
32
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Consumer Cyclical (continued) | |||||||
Tempur Sealy International 6.875% 12/15/20 | USD | 60,000 | $ | 64,350 | |||
# | Tenedora Nemak 144A 5.50% 2/28/23 | 7,940,000 | 7,900,300 | ||||
Viacom 5.85% 9/1/43 | 8,470,000 | 9,025,217 | |||||
Western Union | |||||||
2.875% 12/10/17 | 4,410,000 | 4,559,975 | |||||
3.65% 8/22/18 | 6,540,000 | 6,818,819 | |||||
# | Wok Acquisition 144A 10.25% 6/30/20 | 56,000 | 61,180 | ||||
Wyndham Worldwide | |||||||
4.25% 3/1/22 | 4,480,000 | 4,474,077 | |||||
5.625% 3/1/21 | 6,295,000 | 6,868,141 | |||||
* | YUM! Brands 3.875% 11/1/23 | 6,530,000 | 6,522,843 | ||||
196,174,489 | |||||||
Consumer Non-Cyclical – 3.53% | |||||||
*# | Anadolu Efes Biracilik Ve Malt Sanayii AS 144A | ||||||
3.375% 11/1/22 | 4,965,000 | 4,245,075 | |||||
# | BFF International 144A 7.25% 1/28/20 | 4,025,000 | 4,598,563 | ||||
Boston Scientific | |||||||
2.65% 10/1/18 | 4,810,000 | 4,854,882 | |||||
6.00% 1/15/20 | 12,080,000 | 14,100,525 | |||||
# | BRF Brasil Foods 144A 5.875% 6/6/22 | 9,025,000 | 9,408,563 | ||||
CareFusion 6.375% 8/1/19 | 33,340,000 | 38,477,261 | |||||
Celgene 3.95% 10/15/20 | 10,845,000 | 11,300,826 | |||||
# | Coca-Cola Icecek 144A 4.75% 10/1/18 | 5,895,000 | 6,133,453 | ||||
Constellation Brands | |||||||
3.75% 5/1/21 | 745,000 | 716,131 | |||||
6.00% 5/1/22 | 5,215,000 | 5,710,425 | |||||
# | Cosan Luxembourg 144A 5.00% 3/14/23 | 6,735,000 | 6,297,225 | ||||
Del Monte 7.625% 2/15/19 | 3,741,000 | 3,914,021 | |||||
Energizer Holdings 4.70% 5/24/22 | 16,395,000 | 16,685,519 | |||||
*# | ESAL 144A 6.25% 2/5/23 | 9,545,000 | 8,733,675 | ||||
Fomento Economico Mexicano 4.375% 5/10/43 | 6,810,000 | 5,805,205 | |||||
Jarden 6.125% 11/15/22 | 2,095,000 | 2,246,888 | |||||
# | JBS Investments 144A 7.75% 10/28/20 | 7,800,000 | 8,014,500 | ||||
# | Korea Expressway 144A 1.875% 10/22/17 | 9,585,000 | 9,462,254 | ||||
NBTY 9.00% 10/1/18 | 2,296,000 | 2,531,340 | |||||
# | Pernod-Ricard 144A | ||||||
4.45% 1/15/22 | 2,110,000 | 2,184,886 | |||||
5.75% 4/7/21 | 22,920,000 | 25,725,889 | |||||
Quest Diagnostics 4.70% 4/1/21 | 3,425,000 | 3,624,886 |
33
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Consumer Non-Cyclical (continued) | |||||||
Scotts Miracle-Gro 6.625% 12/15/20 | USD | 3,438,000 | $ | 3,713,040 | |||
Smithfield Foods 6.625% 8/15/22 | 4,100,000 | 4,335,750 | |||||
# | Spectrum Brands Escrow 144A | ||||||
6.375% 11/15/20 | 4,575,000 | 4,872,375 | |||||
6.625% 11/15/22 | 68,000 | 72,760 | |||||
Visant 10.00% 10/1/17 | 51,000 | 47,175 | |||||
# | Want Want China Finance 144A 1.875% 5/14/18 | 5,350,000 | 5,169,673 | ||||
Yale University 2.90% 10/15/14 | 2,452,000 | 2,512,589 | |||||
Zimmer Holdings 4.625% 11/30/19 | 15,596,000 | 17,260,592 | |||||
232,755,946 | |||||||
Electric – 4.87% | |||||||
Ameren Illinois 9.75% 11/15/18 | 16,200,000 | 21,747,495 | |||||
# | American Transmission Systems 144A 5.25% 1/15/22 | 20,040,000 | 21,530,454 | ||||
CenterPoint Energy 5.95% 2/1/17 | 8,650,000 | 9,816,383 | |||||
CMS Energy 6.25% 2/1/20 | 7,695,000 | 8,970,577 | |||||
ComEd Financing III 6.35% 3/15/33 | 8,849,000 | 8,605,653 | |||||
# | Comision Federal de Electricidad 144A | ||||||
4.875% 1/15/24 | 2,165,000 | 2,200,181 | |||||
Duquense Light Holdings 5.50% 8/15/15 | 3,168,000 | 3,373,689 | |||||
#• | Electricite de France 144A 5.25% 12/29/49 | 12,365,000 | 12,176,755 | ||||
#• | Enel SpA 144A 8.75% 9/24/73 | 6,930,000 | 7,533,257 | ||||
Entergy Louisiana 4.05% 9/1/23 | 13,980,000 | 14,439,368 | |||||
# | Eskom Holdings 144A 6.75% 8/6/23 | 6,025,000 | 6,259,674 | ||||
Exelon Generation 4.25% 6/15/22 | 13,170,000 | 12,919,691 | |||||
Great Plains Energy | |||||||
4.85% 6/1/21 | 4,610,000 | 4,935,729 | |||||
5.292% 6/15/22 | 13,505,000 | 14,766,678 | |||||
• | Integrys Energy Group 6.11% 12/1/66 | 13,885,000 | 13,964,089 | ||||
Ipalco Enterprises 5.00% 5/1/18 | 5,745,000 | 6,032,250 | |||||
LG&E & KU Energy | |||||||
3.75% 11/15/20 | 9,202,000 | 9,373,884 | |||||
4.375% 10/1/21 | 15,300,000 | 15,876,045 | |||||
# | Narragansett Electric 144A 4.17% 12/10/42 | 6,195,000 | 5,594,054 | ||||
NextEra Energy Capital Holdings | |||||||
3.625% 6/15/23 | 4,585,000 | 4,406,809 | |||||
•6.35% 10/1/66 | 17,926,000 | 17,937,742 | |||||
•6.65% 6/15/67 | 1,105,000 | 1,133,527 | |||||
NV Energy 6.25% 11/15/20 | 10,888,000 | 12,724,740 | |||||
Pennsylvania Electric 5.20% 4/1/20 | 9,283,000 | 10,032,797 |
34
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Electric (continued) | |||||||
• | PPL Capital Funding 6.70% 3/30/67 | USD | 5,820,000 | $ | 5,882,617 | ||
Public Service Company of Oklahoma 5.15% 12/1/19 | 13,635,000 | 15,399,601 | |||||
Puget Energy 6.00% 9/1/21 | 4,685,000 | 5,138,096 | |||||
• | Puget Sound Energy 6.974% 6/1/67 | 18,119,000 | 19,068,218 | ||||
SCANA 4.125% 2/1/22 | 9,065,000 | 9,012,396 | |||||
• | Wisconsin Energy 6.25% 5/15/67 | 19,330,000 | 19,828,810 | ||||
320,681,259 | |||||||
Energy – 5.10% | |||||||
AmeriGas Finance 6.75% 5/20/20 | 1,260,000 | 1,379,700 | |||||
AmeriGas Partners 6.50% 5/20/21 | 1,467,000 | 1,577,025 | |||||
Antero Resources Finance 6.00% 12/1/20 | 1,500,000 | 1,590,000 | |||||
# | Anton Oilfield Services Group 144A 7.50% 11/6/18 | 2,035,000 | 2,063,968 | ||||
BP Capital Markets 3.994% 9/26/23 | 6,475,000 | 6,686,467 | |||||
Bristow Group 6.25% 10/15/22 | 3,640,000 | 3,835,650 | |||||
Chaparral Energy | |||||||
7.625% 11/15/22 | 44,000 | 47,740 | |||||
8.25% 9/1/21 | 78,000 | 85,800 | |||||
Chesapeake Energy | |||||||
*5.375% 6/15/21 | 650,000 | 679,250 | |||||
*5.75% 3/15/23 | 8,165,000 | 8,695,725 | |||||
6.125% 2/15/21 | 44,000 | 48,290 | |||||
6.625% 8/15/20 | 98,000 | 110,985 | |||||
# | CNOOC Curtis Funding 144A 4.50% 10/3/23 | 3,645,000 | 3,736,264 | ||||
# | CNOOC Finance 2012 144A 3.875% 5/2/22 | 4,955,000 | 4,899,202 | ||||
Comstock Resources 7.75% 4/1/19 | 2,301,000 | 2,416,050 | |||||
Continental Resources 4.50% 4/15/23 | 10,950,000 | 11,100,563 | |||||
# | Drill Rigs Holdings 144A 6.50% 10/1/17 | 2,254,000 | 2,383,605 | ||||
Ecopetrol | |||||||
4.25% 9/18/18 | 2,740,000 | 2,883,850 | |||||
7.625% 7/23/19 | 8,247,000 | 9,978,870 | |||||
# | Exterran Partners 144A 6.00% 4/1/21 | 1,270,000 | 1,270,000 | ||||
# | Gazprom Neft 144A 4.375% 9/19/22 | 13,200,000 | 12,490,500 | ||||
Halcon Resources 8.875% 5/15/21 | 3,976,000 | 4,159,890 | |||||
# | Hercules Offshore 144A 8.75% 7/15/21 | 1,270,000 | 1,403,350 | ||||
# | KazMunayGas National 144A 9.125% 7/2/18 | 8,410,000 | 10,323,275 | ||||
Key Energy Services 6.75% 3/1/21 | 4,135,000 | 4,228,038 | |||||
Kodiak Oil & Gas 8.125% 12/1/19 | 3,925,000 | 4,376,375 |
35
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Energy (continued) | |||||||
Laredo Petroleum | |||||||
7.375% 5/1/22 | USD | 23,000 | $ | 25,013 | |||
9.50% 2/15/19 | 79,000 | 88,678 | |||||
Linn Energy | |||||||
6.50% 5/15/19 | 1,216,000 | 1,219,040 | |||||
#144A 7.00% 11/1/19 | 2,180,000 | 2,185,450 | |||||
8.625% 4/15/20 | 1,912,000 | 2,045,840 | |||||
* | Lukoil International Finance 6.125% 11/9/20 | 16,320,000 | 18,013,200 | ||||
* | Midstates Petroleum 9.25% 6/1/21 | 3,835,000 | 3,969,225 | ||||
# | Murphy Oil USA 144A 6.00% 8/15/23 | 2,805,000 | 2,861,100 | ||||
Newfield Exploration 5.625% 7/1/24 | 8,205,000 | 8,410,125 | |||||
# | North Atlantic Drilling 144A 6.08% 10/30/18 | NOK | 13,000,000 | 2,188,188 | |||
# | Oasis Petroleum 144A 6.875% 3/15/22 | 3,480,000 | 3,775,800 | ||||
* | ONGC Videsh 2.50% 5/7/18 | 8,240,000 | 7,832,697 | ||||
# | Pacific Rubiales Energy 144A 7.25% 12/12/21 | 6,470,000 | 7,149,350 | ||||
PDC Energy 7.75% 10/15/22 | 1,273,000 | 1,387,570 | |||||
# | Pertamina Persero 144A | ||||||
4.30% 5/20/23 | 1,425,000 | 1,307,438 | |||||
4.875% 5/3/22 | 5,715,000 | 5,514,975 | |||||
Petrobras Global Finance | |||||||
•2.384% 1/15/19 | 1,700,000 | 1,656,650 | |||||
3.00% 1/15/19 | 10,605,000 | 10,118,146 | |||||
Petrobras International Finance | |||||||
5.375% 1/27/21 | 10,086,000 | 10,305,602 | |||||
Petrohawk Energy 7.25% 8/15/18 | 14,808,000 | 16,088,892 | |||||
Petroleos de Venezuela 9.00% 11/17/21 | 12,746,000 | 10,515,450 | |||||
Petroleos Mexicanos | |||||||
3.50% 1/30/23 | 1,380,000 | 1,283,400 | |||||
6.50% 6/2/41 | 3,250,000 | 3,477,500 | |||||
Pioneer Energy Services 9.875% 3/15/18 | 284,000 | 306,720 | |||||
Pride International 6.875% 8/15/20 | 30,695,000 | 36,878,537 | |||||
# | PTT Exploration & Production 144A 3.707% 9/16/18 | 6,630,000 | 6,821,236 | ||||
Range Resources | |||||||
5.00% 8/15/22 | 213,000 | 213,799 | |||||
5.75% 6/1/21 | 1,800,000 | 1,926,000 | |||||
# | Regency Energy Partners 144A 4.50% 11/1/23 | 5,420,000 | 5,040,600 | ||||
Rosetta Resources 5.625% 5/1/21 | 6,245,000 | 6,338,675 | |||||
# | Samson Investment 144A 10.25% 2/15/20 | 3,933,000 | 4,267,305 |
36
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Energy (continued) | |||||||
SandRidge Energy | |||||||
7.50% 3/15/21 | USD | 1,838,000 | $ | 1,957,470 | |||
8.125% 10/15/22 | 6,009,000 | 6,429,630 | |||||
*8.75% 1/15/20 | 30,000 | 32,550 | |||||
*# | Sinopec Group Overseas Development 2013 144A | ||||||
5.375% 10/17/43 | 4,375,000 | 4,488,019 | |||||
Suburban Propane Partners 7.375% 8/1/21 | 1,449,000 | 1,568,543 | |||||
* | Talisman Energy 5.50% 5/15/42 | 21,110,000 | 18,780,870 | ||||
# | Woodside Finance 144A | ||||||
8.125% 3/1/14 | 3,815,000 | 3,905,679 | |||||
8.75% 3/1/19 | 10,421,000 | 13,450,968 | |||||
336,276,362 | |||||||
Finance Companies – 2.27% | |||||||
# | CDP Financial 144A | ||||||
4.40% 11/25/19 | 20,171,000 | 22,630,570 | |||||
5.60% 11/25/39 | 3,130,000 | 3,617,354 | |||||
E Trade Financial 6.375% 11/15/19 | 4,618,000 | 4,964,350 | |||||
Ford Motor Credit | |||||||
5.75% 2/1/21 | 4,435,000 | 5,062,854 | |||||
5.875% 8/2/21 | 3,220,000 | 3,694,908 | |||||
12.00% 5/15/15 | 6,152,000 | 7,204,318 | |||||
General Electric Capital | |||||||
2.10% 12/11/19 | 3,230,000 | 3,206,883 | |||||
#144A 3.80% 6/18/19 | 6,510,000 | 6,892,768 | |||||
4.208% 12/6/21 | SEK | 4,000,000 | 634,617 | ||||
4.375% 9/16/20 | USD | 11,465,000 | 12,504,142 | ||||
•6.25% 12/15/49 | 11,735,000 | 12,284,703 | |||||
•7.125% 12/15/49 | 6,010,000 | 6,712,100 | |||||
General Electric Capital Canada Funding | |||||||
2.42% 5/31/18 | CAD | 980,000 | 933,328 | ||||
# | Hyundai Capital America 144A 2.125% 10/2/17 | USD | 6,005,000 | 6,040,712 | |||
International Lease Finance | |||||||
*5.875% 4/1/19 | 3,520,000 | 3,805,662 | |||||
6.25% 5/15/19 | 3,012,000 | 3,298,140 | |||||
6.625% 11/15/13 | 170,000 | 170,319 | |||||
8.25% 12/15/20 | 3,395,000 | 4,018,831 | |||||
8.75% 3/15/17 | 6,429,000 | 7,586,220 | |||||
# | IPIC GMTN 144A 5.50% 3/1/22 | 4,242,000 | 4,729,830 |
37
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Finance Companies (continued) | |||||||
• | National Rural Utilities Cooperative Finance | ||||||
4.75% 4/30/43 | USD | 10,510,000 | $ | 9,839,988 | |||
# | Nuveen Investments 144A 9.50% 10/15/20 | 9,434,000 | 9,033,055 | ||||
# | Temasek Financial I 144A 2.375% 1/23/23 | 11,275,000 | 10,443,063 | ||||
149,308,715 | |||||||
Healthcare – 1.04% | |||||||
Accellent 8.375% 2/1/17 | 1,770,000 | 1,865,138 | |||||
Air Medical Group Holdings 9.25% 11/1/18 | 3,817,000 | 4,141,445 | |||||
Alere 7.25% 7/1/18 | 1,158,000 | 1,276,695 | |||||
Biomet | |||||||
6.50% 8/1/20 | 2,515,000 | 2,684,763 | |||||
6.50% 10/1/20 | 3,908,000 | 4,083,860 | |||||
Community Health Systems | |||||||
7.125% 7/15/20 | 50,000 | 52,688 | |||||
8.00% 11/15/19 | 2,221,000 | 2,418,114 | |||||
# | Fresenius Medical Care US Finance II 144A | ||||||
5.875% 1/31/22 | 4,243,000 | 4,518,795 | |||||
HCA 7.50% 2/15/22 | 5,344,000 | 6,018,679 | |||||
HCA Holdings | |||||||
6.25% 2/15/21 | 2,813,000 | 2,960,683 | |||||
7.75% 5/15/21 | 7,024,000 | 7,708,839 | |||||
Immucor 11.125% 8/15/19 | 3,332,000 | 3,756,830 | |||||
Kinetic Concepts 10.50% 11/1/18 | 209,000 | 236,693 | |||||
# | MultiPlan 144A 9.875% 9/1/18 | 4,653,000 | 5,164,830 | ||||
# | Mylan 144A | ||||||
3.125% 1/15/23 | 4,630,000 | 4,253,988 | |||||
6.00% 11/15/18 | 2,985,000 | 3,212,373 | |||||
Par Pharmaceutical 7.375% 10/15/20 | 1,776,000 | 1,855,920 | |||||
* | Radnet Management 10.375% 4/1/18 | 2,656,000 | 2,828,640 | ||||
Tenet Healthcare | |||||||
#144A 6.00% 10/1/20 | 1,720,000 | 1,822,125 | |||||
8.00% 8/1/20 | 1,725,000 | 1,882,406 | |||||
Truven Health Analytics 10.625% 6/1/20 | 31,000 | 35,301 | |||||
# | Valeant Pharmaceuticals International 144A | ||||||
7.00% 10/1/20 | 705,000 | 763,163 | |||||
# | Valeant Pharmaceuticals International Escrow | ||||||
144A 6.375% 10/15/20 | 4,801,000 | 5,149,073 | |||||
68,691,041 |
38
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Insurance – 2.34% | |||||||
• | Allstate 5.75% 8/15/53 | USD | 8,435,000 | $ | 8,640,603 | ||
American International Group | |||||||
•8.175% 5/15/58 | 1,778,000 | 2,200,275 | |||||
8.25% 8/15/18 | 14,270,000 | 18,089,407 | |||||
Berkshire Hathaway Finance 2.90% 10/15/20 | 7,670,000 | 7,776,168 | |||||
• | Chubb 6.375% 3/29/67 | 12,663,000 | 13,865,985 | ||||
# | Highmark 144A | ||||||
4.75% 5/15/21 | 5,310,000 | 5,102,427 | |||||
6.125% 5/15/41 | 1,995,000 | 1,858,424 | |||||
# | Hockey Merger Sub 2 144A 7.875% 10/1/21 | 3,555,000 | 3,688,313 | ||||
• | ING US 5.65% 5/15/53 | 8,420,000 | 8,045,470 | ||||
#Liberty Mutual Group 144A | |||||||
4.25% 6/15/23 | 11,320,000 | 11,347,700 | |||||
4.95% 5/1/22 | 6,750,000 | 7,148,723 | |||||
6.50% 5/1/42 | 4,410,000 | 4,943,681 | |||||
•7.00% 3/15/37 | 3,778,000 | 3,948,010 | |||||
MetLife 6.40% 12/15/36 | 35,000 | 36,619 | |||||
# | MetLife Capital Trust X 144A 9.25% 4/8/38 | 11,520,000 | 14,947,199 | ||||
# | Metropolitan Life Global Funding I 144A | ||||||
3.00% 1/10/23 | 9,190,000 | 8,874,912 | |||||
# | Onex USI Acquisition 144A 7.75% 1/15/21 | 709,000 | 726,725 | ||||
Prudential Financial | |||||||
3.875% 1/14/15 | 4,025,000 | 4,176,251 | |||||
4.50% 11/15/20 | 3,390,000 | 3,699,182 | |||||
•5.625% 6/15/43 | 4,580,000 | 4,585,725 | |||||
•5.875% 9/15/42 | 4,095,000 | 4,176,900 | |||||
6.00% 12/1/17 | 7,310,000 | 8,505,222 | |||||
• | XL Group 6.50% 12/29/49 | 7,814,000 | 7,704,604 | ||||
154,088,525 | |||||||
Natural Gas – 3.26% | |||||||
# | Centrica 144A 4.00% 10/16/23 | 7,885,000 | 7,937,506 | ||||
El Paso Pipeline Partners Operating | |||||||
6.50% 4/1/20 | 12,715,000 | 14,836,549 | |||||
• | Enbridge Energy Partners 8.05% 10/1/37 | 17,920,000 | 20,220,963 | ||||
Energy Transfer Partners | |||||||
3.60% 2/1/23 | 2,020,000 | 1,931,128 | |||||
5.95% 10/1/43 | 9,130,000 | 9,531,392 | |||||
6.50% 2/1/42 | 8,245,000 | 9,058,171 | |||||
9.70% 3/15/19 | 8,030,000 | 10,551,476 |
39
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Natural Gas (continued) | |||||||
Enterprise Products Operating | |||||||
•7.034% 1/15/68 | USD | 21,704,000 | $ | 24,004,862 | |||
•8.375% 8/1/66 | 1,492,000 | 1,647,811 | |||||
9.75% 1/31/14 | 2,836,000 | 2,899,027 | |||||
Kinder Morgan Energy Partners | |||||||
*3.50% 9/1/23 | 2,225,000 | 2,111,231 | |||||
4.15% 2/1/24 | 3,765,000 | 3,749,804 | |||||
9.00% 2/1/19 | 15,377,000 | 19,829,964 | |||||
# | Korea Gas 144A 2.875% 7/29/18 | 6,965,000 | 7,060,532 | ||||
NiSource Finance | |||||||
5.65% 2/1/45 | 10,285,000 | 10,682,876 | |||||
5.80% 2/1/42 | 9,765,000 | 10,233,876 | |||||
Plains All American Pipeline 8.75% 5/1/19 | 13,244,000 | 17,121,274 | |||||
• | TransCanada PipeLines 6.35% 5/15/67 | 25,930,000 | 26,950,422 | ||||
Williams Partners 7.25% 2/1/17 | 12,398,000 | 14,464,697 | |||||
214,823,561 | |||||||
Real Estate – 1.89% | |||||||
Alexandria Real Estate Equities 3.90% 6/15/23 | 465,000 | 448,039 | |||||
Corporate Office Properties | |||||||
3.60% 5/15/23 | 6,520,000 | 6,012,809 | |||||
5.25% 2/15/24 | 5,290,000 | 5,534,350 | |||||
DDR | |||||||
4.625% 7/15/22 | 3,390,000 | 3,516,325 | |||||
4.75% 4/15/18 | 7,215,000 | 7,856,969 | |||||
7.50% 4/1/17 | 4,950,000 | 5,803,276 | |||||
7.875% 9/1/20 | 7,229,000 | 8,989,898 | |||||
* | Digital Realty Trust | ||||||
5.25% 3/15/21 | 15,183,000 | 15,997,582 | |||||
5.875% 2/1/20 | 6,920,000 | 7,590,320 | |||||
Duke Realty 3.625% 4/15/23 | 6,990,000 | 6,643,345 | |||||
Liberty Property 4.40% 2/15/24 | 6,500,000 | 6,585,404 | |||||
Mid-America Apartments 4.30% 10/15/23 | 3,805,000 | 3,826,582 | |||||
National Retail Properties 3.80% 10/15/22 | 2,050,000 | 1,989,593 | |||||
ProLogis 3.35% 2/1/21 | 5,720,000 | 5,729,541 | |||||
Regency Centers | |||||||
4.80% 4/15/21 | 8,630,000 | 9,174,311 | |||||
5.875% 6/15/17 | 2,023,000 | 2,263,533 |
40
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Real Estate (continued) | |||||||
UDR 3.70% 10/1/20 | USD | 3,120,000 | $ | 3,175,386 | |||
#• | USB Realty 144A 1.391% 12/22/49 | 4,485,000 | 3,879,525 | ||||
# | WEA Finance 144A 4.625% 5/10/21 | 9,770,000 | 10,411,987 | ||||
Weingarten Realty Investors | |||||||
3.50% 4/15/23 | 8,080,000 | 7,625,540 | |||||
4.45% 1/15/24 | 1,215,000 | 1,230,579 | |||||
124,284,894 | |||||||
Services – 0.95% | |||||||
# | Algeco Scotsman Global Finance 144A | ||||||
8.50% 10/15/18 | 3,195,000 | 3,442,613 | |||||
10.75% 10/15/19 | 5,371,000 | 5,599,267 | |||||
Ameristar Casinos 7.50% 4/15/21 | 5,395,000 | 5,947,987 | |||||
Avis Budget Car Rental 5.50% 4/1/23 | 4,790,000 | 4,718,150 | |||||
Corrections Corp of America 4.625% 5/1/23 | 3,851,000 | 3,706,588 | |||||
# | DigitalGlobe 144A 5.25% 2/1/21 | 1,890,000 | 1,838,025 | ||||
FTI Consulting 6.75% 10/1/20 | 4,030,000 | 4,332,250 | |||||
Geo Group 5.125% 4/1/23 | 905,000 | 852,963 | |||||
H&E Equipment Services 7.00% 9/1/22 | 5,153,000 | 5,642,534 | |||||
M/I Homes 8.625% 11/15/18 | 4,998,000 | 5,447,819 | |||||
# | Mattamy Group 144A 6.50% 11/15/20 | 233,000 | 232,418 | ||||
MGM Resorts International | |||||||
6.75% 10/1/20 | 1,010,000 | 1,103,425 | |||||
7.75% 3/15/22 | 157,000 | 178,588 | |||||
11.375% 3/1/18 | 7,287,000 | 9,382,012 | |||||
PHH 7.375% 9/1/19 | 3,243,000 | 3,445,688 | |||||
Pinnacle Entertainment 7.75% 4/1/22 | 98,000 | 107,678 | |||||
Seven Seas Cruises 9.125% 5/15/19 | 92,000 | 101,545 | |||||
Swift Services Holdings 10.00% 11/15/18 | 91,000 | 102,375 | |||||
United Rentals North America | |||||||
6.125% 6/15/23 | 10,000 | 10,325 | |||||
10.25% 11/15/19 | 2,831,000 | 3,216,724 | |||||
# | Wynn Las Vegas 144A 4.25% 5/30/23 | 2,975,000 | 2,829,969 | ||||
62,238,943 | |||||||
Technology – 2.57% | |||||||
# | Activision Blizzard 144A 6.125% 9/15/23 | 1,825,000 | 1,911,688 | ||||
Altera 2.50% 11/15/18 | 7,260,000 | 7,230,691 | |||||
# | Avaya 144A 7.00% 4/1/19 | 3,011,000 | 2,890,560 | ||||
Baidu 3.25% 8/6/18 | 12,020,000 | 12,309,861 | |||||
# | BMC Software Finance 144A 8.125% 7/15/21 | 2,760,000 | 2,932,500 |
41
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Technology (continued) | |||||||
Broadridge Financial Solutions 3.95% 9/1/20 | USD | 5,895,000 | $ | 6,056,871 | |||
EMC 2.65% 6/1/20 | 2,355,000 | 2,358,043 | |||||
Fidelity National Information Services 3.50% 4/15/23 | 9,315,000 | 8,531,441 | |||||
First Data | |||||||
11.25% 3/31/16 | 2,166,000 | 2,182,245 | |||||
#144A 11.25% 1/15/21 | 3,105,000 | 3,427,144 | |||||
#144A 11.75% 8/15/21 | 1,660,000 | 1,697,350 | |||||
GXS Worldwide 9.75% 6/15/15 | 7,702,000 | 7,904,178 | |||||
Infor US 9.375% 4/1/19 | 1,549,000 | 1,758,115 | |||||
Jabil Circuit 7.75% 7/15/16 | 1,178,000 | 1,351,755 | |||||
Microsoft 2.125% 11/15/22 | 5,595,000 | 5,127,308 | |||||
National Semiconductor 6.60% 6/15/17 | 23,197,000 | 27,173,754 | |||||
NetApp | |||||||
2.00% 12/15/17 | 5,785,000 | 5,758,667 | |||||
3.25% 12/15/22 | 6,425,000 | 6,013,871 | |||||
# | NXP Funding 144A | ||||||
3.75% 6/1/18 | 1,450,000 | 1,460,875 | |||||
5.75% 3/15/23 | 2,055,000 | 2,121,788 | |||||
# | Samsung Electronics America 144A 1.75% 4/10/17 | 10,895,000 | 11,034,717 | ||||
# | Seagate HDD Cayman 144A | ||||||
3.75% 11/15/18 | 2,405,000 | 2,405,000 | |||||
4.75% 6/1/23 | 2,405,000 | 2,350,888 | |||||
Symantec 4.20% 9/15/20 | 8,975,000 | 9,317,010 | |||||
*# | Tencent Holdings 144A 3.375% 3/5/18 | 10,265,000 | 10,491,395 | ||||
Total System Services | |||||||
2.375% 6/1/18 | 3,482,000 | 3,431,236 | |||||
3.75% 6/1/23 | 8,405,000 | 7,845,252 | |||||
# | Viasystems 144A 7.875% 5/1/19 | 96,000 | 102,720 | ||||
Xerox 6.35% 5/15/18 | 10,483,000 | 12,100,495 | |||||
169,277,418 | |||||||
Transportation – 1.14% | |||||||
# | Brambles USA 144A | ||||||
3.95% 4/1/15 | 3,625,000 | 3,746,887 | |||||
5.35% 4/1/20 | 6,815,000 | 7,423,143 | |||||
Burlington Northern Santa Fe 5.15% 9/1/43 | 12,295,000 | 12,708,567 | |||||
# | DP World Sukuk 144A 6.25% 7/2/17 | 6,790,000 | 7,469,000 | ||||
# | ERAC USA Finance 144A 5.25% 10/1/20 | 28,120,000 | 31,446,878 |
42
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Transportation (continued) | ||||||||
# | Red de Carreteras de Occidente SAPIB de CV 144A | |||||||
9.00% 6/10/28 | MXN | 28,960,000 | $ | 1,972,982 | ||||
United Parcel Service 5.125% 4/1/19 | USD | 8,970,000 | 10,366,450 | |||||
75,133,907 | ||||||||
Utilities – 0.43% | ||||||||
AES | ||||||||
4.875% 5/15/23 | 3,595,000 | 3,460,188 | ||||||
7.375% 7/1/21 | 3,062,000 | 3,483,025 | ||||||
8.00% 6/1/20 | 2,398,000 | 2,811,655 | ||||||
*# | Calpine 144A 6.00% 1/15/22 | 5,255,000 | 5,465,200 | |||||
Elwood Energy 8.159% 7/5/26 | 2,577,351 | 2,744,879 | ||||||
* | GenOn Energy 9.875% 10/15/20 | 4,119,000 | 4,633,875 | |||||
* | Mirant Americas Generation 8.50% 10/1/21 | 3,433,000 | 3,767,718 | |||||
NRG Energy 7.875% 5/15/21 | 1,749,000 | 1,941,390 | ||||||
28,307,930 | ||||||||
Total Corporate Bonds (cost $3,509,958,819) | 3,618,638,543 | |||||||
Municipal Bonds – 0.95% | ||||||||
California Statewide Communities | ||||||||
Development Authority | ||||||||
(Kaiser Permanente) Series A 5.00% 4/1/42 | 5,395,000 | 5,448,303 | ||||||
Fairfax County, Virginia Series B 5.00% 4/1/24 | 3,635,000 | 4,424,704 | ||||||
Golden State, California Tobacco Securitization | ||||||||
Corporation Settlement Revenue | ||||||||
(Asset-Backed Senior Notes) Series A-1 | ||||||||
5.125% 6/1/47 | 6,330,000 | 4,436,507 | ||||||
5.75% 6/1/47 | 7,005,000 | 5,404,498 | ||||||
Grand Parkway, Texas Transportation | ||||||||
Subordinated Tier Toll Revenue | ||||||||
Series B 5.00% 4/1/53 | 6,130,000 | 6,087,948 | ||||||
New Jersey Transportation Trust Fund | ||||||||
Series A 5.00% 6/15/42 | 1,285,000 | 1,313,835 | ||||||
Series AA 5.00% 6/15/44 | 4,080,000 | 4,151,522 | ||||||
New York City, New York Series I 5.00% 8/1/22 | 2,680,000 | 3,163,713 | ||||||
New York City Transitional Finance Authority | ||||||||
(New York City Recovery) Series 13 5.00% 11/1/22 | 3,730,000 | 4,482,826 | ||||||
Oregon State Taxable Pension 5.892% 6/1/27 | 305,000 | 367,687 |
43
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Municipal Bonds (continued) | ||||||||
Prince George’s County, Maryland | ||||||||
Consolidated Public Improvement | ||||||||
Series A 5.00% 3/1/22 | USD | 1,980,000 | $ | 2,409,323 | ||||
State of Georgia Series D 5.00% 2/1/23 | 5,265,000 | 6,433,725 | ||||||
State of Maryland Local Facilities | ||||||||
Series A 5.00% 8/1/21 | 3,960,000 | 4,813,142 | ||||||
State of North Carolina Series C 5.00% 5/1/22 | 3,645,000 | 4,445,114 | ||||||
Texas A&M University | ||||||||
Series D 5.00% 5/15/22 | 770,000 | 931,739 | ||||||
Series D 5.00% 5/15/23 | 825,000 | 1,011,384 | ||||||
Texas Private Activity Bond Surface Transportation | ||||||||
Senior Lien Revenue Bond (NTE Mobility) | ||||||||
6.75% 6/30/43 (AMT) | 2,795,000 | 2,948,697 | ||||||
Total Municipal Bonds (cost $61,079,008) | 62,274,667 | |||||||
Non-Agency Asset-Backed Securities – 0.72% | ||||||||
• | Ally Master Owner Trust | |||||||
Series 2013-2 A 0.624% 4/15/18 | 5,000,000 | 4,988,890 | ||||||
t | Ameriquest Mortgage Securities Asset Back | |||||||
Pass Through Certificates | ||||||||
Series 2003-8 AF4 5.639% 10/25/33 | 65,350 | 66,207 | ||||||
# | Avis Budget Rental Car Funding AESOP | |||||||
Series 2011-2A A 144A 2.37% 11/20/14 | 5,455,000 | 5,528,708 | ||||||
# | California Republic Auto Receivables Trust | |||||||
Series 2013-1 A2 144A 1.41% 9/17/18 | 4,595,000 | 4,587,138 | ||||||
Capital One Multi-Asset Execution Trust | ||||||||
•Series 2007-A1 A1 0.224% 11/15/19 | 1,500,000 | 1,485,461 | ||||||
Series 2007-A7 A7 5.75% 7/15/20 | 300,000 | 348,550 | ||||||
Citicorp Residential Mortgage Securities | ||||||||
Series 2006-3 A4 5.703% 11/25/36 | 3,844,661 | 3,835,092 | ||||||
Series 2006-3 A5 5.948% 11/25/36 | 5,800,000 | 5,550,750 | ||||||
Citifinancial Mortgage Securities | ||||||||
Series 2003-2 AF4 4.598% 5/25/33 | 253,832 | 251,829 | ||||||
Contimortgage Home Equity Trust | ||||||||
Series 1996-4 A8 7.22% 1/15/28 | 5,473 | 5,323 | ||||||
• | Countrywide Asset-Backed Certificates | |||||||
Series 2006-13 1AF3 5.146% 1/25/37 | 22,416 | 21,621 |
44
Principal amount° | Value (U.S. $) | |||||||
Non-Agency Asset-Backed Securities (continued) | ||||||||
Discover Card Master Trust | ||||||||
Series 2012-A1 A1 0.81% 8/15/17 | USD | 10,000 | $ | 10,042 | ||||
# | Enterprise Fleet Financing | |||||||
Series 2012-1 A2 144A 1.14% 11/20/17 | 1,314,034 | 1,316,381 | ||||||
# | FRS I Series 2013-1A A1 144A 1.80% 4/15/43 | 2,638,612 | 2,629,435 | |||||
General Electric Capital Credit Card Master | ||||||||
Note Trust Series 2012-2A 2.22% 1/15/22 | 4,945,000 | 4,990,306 | ||||||
# | Golden Credit Card Trust | |||||||
Series 2012-5A A 144A 0.79% 9/15/17 | 4,440,000 | 4,446,851 | ||||||
# | Great America Leasing Receivables | |||||||
Series 2013-1 B 144A 1.44% 5/15/18 | 945,000 | 939,416 | ||||||
Mid-State Trust XI Series 11 A1 4.864% 7/15/38 | 365,142 | 389,773 | ||||||
• | Residential Asset Securities | |||||||
Series 2006-EMX1 A2 0.40% 1/25/36 | 1,567,541 | 1,546,680 | ||||||
Series 2006-KS3 AI3 0.34% 4/25/36 | 16,479 | 16,350 | ||||||
# | Trinity Rail Leasing | |||||||
Series 2012-1A A1 144A 2.266% 1/15/43 | 4,750,077 | 4,691,865 | ||||||
Total Non-Agency Asset-Backed Securities | ||||||||
(cost $46,108,795) | 47,646,668 | |||||||
Non-Agency Collateralized Mortgage Obligations – 0.59% | ||||||||
American Home Mortgage Investment Trust | ||||||||
Series 2005-2 5A1 5.064% 9/25/35 | 839,711 | 838,377 | ||||||
Bank of America Alternative Loan Trust | ||||||||
Series 2005-1 2A1 5.50% 2/25/20 | 297,930 | 305,417 | ||||||
Series 2005-3 2A1 5.50% 4/25/20 | 261,860 | 271,221 | ||||||
Series 2005-6 7A1 5.50% 7/25/20 | 1,050,099 | 1,090,070 | ||||||
• | Bank of America Mortgage Securities | |||||||
Series 2003-E 2A2 2.856% 6/25/33 | 110,638 | 110,877 | ||||||
Series 2005-I 2A2 2.752% 10/25/35 | 935 | 0 | ||||||
• | Chase Mortgage Finance | |||||||
Series 2005-A1 3A1 2.861% 12/25/35 | 806,282 | 717,415 | ||||||
• | ChaseFlex Trust | |||||||
Series 2006-1 A4 5.328% 6/25/36 | 6,119,000 | 5,198,917 | ||||||
#• | CIFC Funding | |||||||
Series 2013-2A A1L 144A 1.476% 4/21/25 | 10,000,000 | 9,874,999 | ||||||
Citicorp Mortgage Securities | ||||||||
Series 2006-3 1A9 5.75% 6/25/36 | 871,461 | 872,562 | ||||||
• | Citigroup Mortgage Loan Trust | |||||||
Series 2004-UST1 A6 3.796% 8/25/34 | 443,247 | 441,759 |
45
Schedule of investments
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 | 451,462 | $ | 380,160 | ||||
•t | Countrywide Home Loan Mortgage | |||||||
Pass Through Trust | ||||||||
Series 2003-21 A1 2.817% 5/25/33 | 39,184 | 39,343 | ||||||
Series 2004-HYB2 2A 2.806% 7/20/34 | 151,654 | 134,675 | ||||||
Series 2004-HYB5 3A1 2.661% 4/20/35 | 159,092 | 138,653 | ||||||
t | First Horizon Mortgage Pass Through Trust | |||||||
Series 2004-5 2A1 6.25% 8/25/17 | 20,942 | 21,497 | ||||||
#• | GSMPS Mortgage Loan Trust | |||||||
Series 1998-3 A 144A 7.75% 9/19/27 | 61,731 | 64,939 | ||||||
• | GSR Mortgage Home Loan Trust | |||||||
Series 2004-9 4A1 2.669% 8/25/34 | 120,370 | 117,979 | ||||||
Series 2006-AR1 3A1 3.154% 1/25/36 | 780,935 | 678,356 | ||||||
• | JPMorgan Mortgage Trust | |||||||
Series 2005-A8 1A1 5.13% 11/25/35 | 553,052 | 520,623 | ||||||
Series 2006-A2 3A3 5.175% 4/25/36 | 1,815,600 | 1,609,942 | ||||||
Series 2007-A1 7A4 2.767% 7/25/35 | 129,259 | 68,932 | ||||||
• | MASTR ARM Trust | |||||||
Series 2003-6 1A2 2.825% 12/25/33 | 45,732 | 46,156 | ||||||
Series 2004-10 2A2 3.05% 10/25/34 | 62,009 | 27,921 | ||||||
Series 2005-6 7A1 5.195% 6/25/35 | 1,141,946 | 1,075,605 | ||||||
Series 2006-2 4A1 2.63% 2/25/36 | 247,156 | 237,860 | ||||||
#• | MASTR Specialized Loan Trust | |||||||
Series 2005-2 A2 144A 5.006% 7/25/35 | 250,790 | 251,975 | ||||||
t | Washington Mutual Alternative Mortgage Pass | |||||||
Through Certificates | ||||||||
Series 2005-1 5A2 6.00% 3/25/35 | 395,831 | 229,984 | ||||||
t | Washington Mutual Mortgage Pass Through Certificates | |||||||
Series 2003-S10 A2 5.00% 10/25/18 | 283,849 | 292,111 | ||||||
•Series 2006-AR14 2A1 4.057% 11/25/36 | 4,837,014 | 4,094,837 | ||||||
Wells Fargo Mortgage-Backed Securities Trust | ||||||||
Series 2005-18 1A1 5.50% 1/25/36 | 915,879 | 864,758 | ||||||
Series 2006-2 3A1 5.75% 3/25/36 | 2,957,054 | 2,919,686 | ||||||
Series 2006-3 A11 5.50% 3/25/36 | 2,823,122 | 2,872,571 | ||||||
•Series 2006-AR5 2A1 2.641% 4/25/36 | 2,334,915 | 2,152,946 | ||||||
Series 2007-8 2A6 6.00% 7/25/37 | 211,187 | 197,877 | ||||||
Series 2007-14 1A1 6.00% 10/25/37 | 180,966 | 180,011 | ||||||
Total Non-Agency Collateralized Mortgage | ||||||||
Obligations (cost $35,664,636) | 38,941,011 |
46
Principal amount° | Value (U.S. $) | |||||||
ΔRegional Bonds – 0.76% | ||||||||
Australia – 0.76% | ||||||||
New South Wales Treasury | ||||||||
3.75% 11/20/20 | AUD | 3,660,000 | $ | 4,343,014 | ||||
6.00% 3/1/22 | AUD | 19,656,000 | 20,655,182 | |||||
Victoria Treasury 6.00% 10/17/22 | AUD | 23,733,000 | 25,011,415 | |||||
Total Regional Bonds (cost $57,334,264) | 50,009,611 | |||||||
«Senior Secured Loans – 9.34% | ||||||||
ABC Supply Tranche B 1st Lien 3.50% 4/5/20 | USD | 2,490,000 | 2,497,089 | |||||
Air Medical Group Holdings Tranche B1 | ||||||||
1st Lien 6.50% 5/26/18 | 2,466,363 | 2,506,441 | ||||||
Albertsons | ||||||||
Tranche B 4.25% 3/21/16 | 2,472,188 | 2,480,796 | ||||||
Tranche B 1st Lien 4.75% 3/21/19 | 2,567,487 | 2,576,570 | ||||||
Allegion US Holding Company Tranche B | ||||||||
3.00% 12/26/20 | 2,020,000 | 2,025,050 | ||||||
ARAMARK Tranche D 4.00% 9/30/19 | 2,250,000 | 2,259,833 | ||||||
Arysta Lifescience | ||||||||
1st Lien 4.50% 5/20/20 | 1,945,125 | 1,958,076 | ||||||
2nd Lien 8.25% 11/22/20 | 2,560,000 | 2,581,568 | ||||||
Avaya | ||||||||
Tranche B-3 6.25% 10/27/17 | 1,939,172 | 1,798,312 | ||||||
Tranche B5 8.00% 3/31/18 | 755,346 | 739,085 | ||||||
Bally Technologies Tranche B 4.25% 8/22/20 | 8,300,000 | 8,325,938 | ||||||
Biomet 1st Lien 3.75% 7/25/17 | 2,857,838 | 2,882,835 | ||||||
BJ’S Wholesale Club | ||||||||
2nd Lien 9.75% 3/29/19 | 10,235,000 | 10,475,952 | ||||||
Tranche B 4.25% 9/26/19 | 1,175,000 | 1,177,337 | ||||||
Blackboard Tranche B2 1st Lien 6.25% 11/8/18 | 8,448,123 | 8,516,764 | ||||||
BMC Software 1st Lien 5.00% 8/9/20 | 4,850,000 | 4,905,571 | ||||||
Bombardier Recreational 1st Lien 5.00% 1/17/19 | 5,295,086 | 5,321,561 | ||||||
Bowie Recourse Tranche B 1st Lien 6.75% 8/9/20 | 4,225,000 | 4,264,609 | ||||||
Burlington Coat Factory Warehouse Tranche | ||||||||
B2 4.25% 2/23/17 | 9,988,022 | 10,050,447 | ||||||
Calpine Construction Finance Tranche B 3.00% 5/1/20 | 5,206,950 | 5,152,709 | ||||||
Carestream Health Tranche B 5.00% 6/5/19 | 6,186,688 | 6,256,288 | ||||||
Chrysler Group Tranche B 4.25% 5/24/17 | 636,743 | 643,329 | ||||||
Citycenter Holdings Tranche B 5.00% 10/9/20 | 2,980,000 | 3,009,490 | ||||||
Clear Channel Communications Tranche B | ||||||||
3.65% 1/29/16 | 8,701,940 | 8,461,827 |
47
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
«Senior Secured Loans (continued) | ||||||||
Community Health Systems | ||||||||
3.50% 1/25/17 | USD | 4,253,000 | $ | 4,273,674 | ||||
Crown Castle Operating Tranche B 3.25% 1/31/19 | 5,519,191 | 5,514,489 | ||||||
DaVita | ||||||||
Tranche B 4.50% 10/20/16 | 6,677,013 | 6,689,479 | ||||||
Tranche B2 4.00% 8/1/19 | 4,858,288 | 4,891,256 | ||||||
Delta Air LinesTranche B 1st Lien 4.25% 4/15/17 | 10,377,120 | 10,443,835 | ||||||
Drillships Financing Holdings | ||||||||
Tranche B1 6.00% 2/17/21 | 5,590,988 | 5,690,580 | ||||||
Tranche B2 5.50% 8/17/16 | 199,500 | 202,243 | ||||||
DuPont Performance Coatings Tranche B | ||||||||
4.75% 2/1/20 | 4,840,675 | 4,897,403 | ||||||
Dynegy Tranche B2 4.00% 4/16/20 | 1,212,346 | 1,214,511 | ||||||
Emdeon1st Lien 3.75% 11/2/18 | 7,405,504 | 7,439,443 | ||||||
Equipower Resources Holdings | ||||||||
Tranche B 4.25% 12/21/18 | 2,021,950 | 2,034,167 | ||||||
Tranche C 4.25% 12/21/19 | 3,216,938 | 3,236,374 | ||||||
Essar Steel Algoma 8.75% 9/12/14 | 5,080,449 | 5,169,357 | ||||||
Exide Technologies DIP 9.00% 10/9/14 | 3,000,000 | 3,063,750 | ||||||
Exopack Tranche B 1st Lien 5.25% 4/24/19 | 2,195,000 | 2,229,297 | ||||||
Fieldwood Energy 2nd Lien 8.375% 9/30/20 | 3,175,000 | 3,236,846 | ||||||
First Data 1st Lien 4.00% 4/5/17 | 11,597,445 | 11,637,792 | ||||||
Flying Fortress 1st Lien 3.50% 6/30/17 | 1,225,209 | 1,229,038 | ||||||
Gardner Denver 1st Lien 4.25% 7/23/20 | 6,140,000 | 6,150,119 | ||||||
Generac Power Systems Tranche B 3.50% 5/10/20 | 3,814,706 | 3,813,516 | ||||||
Gentiva Health Services | ||||||||
Tranche B 6.50% 10/10/19 | 1,495,000 | 1,487,525 | ||||||
Tranche C 5.75% 10/10/18 | 2,370,000 | 2,364,075 | ||||||
Getty Images Tranche B 4.75% 9/19/19 | 2,988,844 | 2,634,854 | ||||||
GIM Channelview Cogeneration 4.25% 4/18/20 | 3,196,988 | 3,216,969 | ||||||
Gray Television 4.50% 10/11/19 | 3,287,494 | 3,308,041 | ||||||
Great Wolf Resorts 1st Lien 4.50% 7/31/20 | 2,413,950 | 2,423,379 | ||||||
Harrahs Operating Tranche B 9.50% 10/31/16 | 8,452,308 | 8,466,837 | ||||||
HCA Tranche B4 2.75% 5/1/18 | 1,800,000 | 1,806,100 | ||||||
HD Supply Tranche B 4.50% 10/12/17 | 7,425,381 | 7,472,822 | ||||||
Hilton Worldwide Finance Tranche B2 4.00% 9/23/20 | 7,510,000 | 7,562,104 | ||||||
Hologic Tranche B 3.75% 8/1/19 | 5,572,661 | 5,611,826 | ||||||
Hostess Brands 1st Lien 6.75% 3/12/20 | 555,000 | 571,650 |
48
Principal amount° | Value (U.S. $) | |||||||
«Senior Secured Loans (continued) | ||||||||
Houghton International | ||||||||
1st Lien 4.00% 12/10/19 | USD | 1,905,600 | $ | 1,909,173 | ||||
2nd Lien 9.50% 11/20/20 | 2,605,000 | 2,616,397 | ||||||
HUB International Tranche B 1st Lien 4.75% 9/17/20 | 8,080,000 | 8,127,979 | ||||||
Hudson’s Bay | ||||||||
1st Lien 4.75% 10/7/20 | 4,140,000 | 4,200,030 | ||||||
2nd Lien 8.25% 10/7/21 | 1,830,000 | 1,872,699 | ||||||
Huntsman International Tranche B | ||||||||
2.75% 10/11/20 | 5,865,000 | 5,878,748 | ||||||
IASIS Healthcare Tranche B 1st Lien 4.50% 5/3/18 | 8,136,105 | 8,200,136 | ||||||
Immucor Tranche B2 5.00% 8/19/18 | 9,854,291 | 9,924,088 | ||||||
Ineos US Finance 4.00% 5/4/18 | 6,053,831 | 6,081,261 | ||||||
Infor US Tranche B2 5.25% 4/5/18 | 3,978,650 | 4,015,930 | ||||||
Intelsat Jackson Holdings Tranche B1 4.50% 4/2/18 | 11,082,366 | 11,157,571 | ||||||
KIK Custom Products 1st Lien 5.50% 5/17/19 | 8,418,900 | 8,310,153 | ||||||
Kinetic Concepts Tranche D1 4.50% 5/4/18 | 1,810,000 | 1,826,969 | ||||||
La Frontera Generation Tranche B 4.50% 9/30/20 | 1,774,915 | 1,789,613 | ||||||
Landry’s Tranche B 4.75% 4/24/18 | 7,688,787 | 7,759,270 | ||||||
Level 3 Financing Tranche B 4.00% 1/15/20 | 10,170,000 | 10,237,325 | ||||||
LTS Buyer | ||||||||
1st Lien 4.50% 3/15/20 | 1,326,675 | 1,332,894 | ||||||
2nd Lien 8.00% 3/15/21 | 1,985,000 | 1,998,234 | ||||||
MGM Resorts International 3.50% 12/20/19 | 5,007,163 | 5,013,942 | ||||||
Michael Stores Tranche B 1st Lien 3.75% 1/16/20 | 2,329,784 | 2,340,384 | ||||||
Moxie Liberty Tranche B 7.50% 8/21/20 | 7,686,000 | 7,676,393 | ||||||
MultiPlan Tranche B 4.00% 8/18/17 | 4,319,049 | 4,356,392 | ||||||
Neiman Marcus Group 5.00% 10/18/20 | 1,605,000 | 1,617,371 | ||||||
NEP Broadcasting 2nd Lien 9.50% 7/3/20 | 6,737,857 | 6,959,647 | ||||||
Nuveen Investments | ||||||||
1st Lien 4.00% 5/13/17 | 2,300,000 | 2,290,800 | ||||||
2nd Lien 6.50% 2/28/19 | 27,877,000 | 27,453,047 | ||||||
NXP BV Tranche C 4.75% 12/4/20 | 1,414,313 | 1,433,539 | ||||||
OSI Restaurants Tranche B 1st Lien 3.50% 10/26/19 | 4,027,000 | 4,034,551 | ||||||
Otter Products Tranche B 5.25% 4/29/19 | 6,408,875 | 6,444,886 | ||||||
Panda Temple Power II Tranche B 1st Lien | ||||||||
7.25% 3/28/19 | 5,866,000 | 5,961,323 | ||||||
Peabody Energy Tranche B 4.25% 9/20/20 | 4,580,000 | 4,565,688 | ||||||
Pharmaceutical Product Development 4.25% 12/5/18 | 4,049,400 | 4,083,557 | ||||||
Pinnacle Entertainment Tranche B2 3.75% 8/13/20 | 1,521,188 | 1,524,356 | ||||||
PQ Tranche B 4.50% 8/7/17 | 5,613,844 | 5,661,460 |
49
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
«Senior Secured Loans (continued) | ||||||||
PVH Tranche B 3.25% 12/19/19 | USD | 5,569,321 | $ | 5,594,990 | ||||
Quickrete 2nd Lien 7.00% 3/19/21 | 3,475,000 | 3,555,359 | ||||||
Ranpak 2nd Lien 8.50% 4/10/20 | 3,970,000 | 4,089,100 | ||||||
Remy International Tranche B 1st Lien 4.25% 3/5/20 | 3,308,730 | 3,333,545 | ||||||
Reynolds Group Holdings 1st Lien | ||||||||
4.75% 9/21/18 | 8,607,129 | 8,687,287 | ||||||
RGIS Services 4.25% 5/3/17 | 5,199,492 | 5,153,996 | ||||||
Rite Aid 2nd Lien 5.75% 8/3/20 | 7,370,000 | 7,561,930 | ||||||
Samson Investment 2nd Lien 6.00% 9/10/18 | 6,699,000 | 6,768,087 | ||||||
Scientific Games International 4.25% 5/22/20 | 9,895,000 | 9,922,389 | ||||||
Sedgwick Tranche B 1st Lien 4.25% 6/10/18 | 122,848 | 123,347 | ||||||
Sensus USA 2nd Lien 8.50% 4/13/18 | 6,235,000 | 6,198,631 | ||||||
Seven Seas Cruises 1st Lien 4.75% 12/21/18 | 5,016,500 | 5,072,936 | ||||||
Smart & Final | ||||||||
2nd Lien 10.50% 11/8/20 | 7,506,154 | 7,656,277 | ||||||
Tranche B 1st Lien 4.50% 11/15/19 | 6,431,946 | 6,452,850 | ||||||
Sophia Tranche B 1st Lien 4.50% 1/29/18 | 1,945,397 | 1,963,287 | ||||||
Sprouts Farmers Markets Holdings 4.50% 4/12/20 | 2,364,450 | 2,376,272 | ||||||
State Class Tankers II 1st Lien 6.75% 6/10/20 | 3,090,000 | 3,117,038 | ||||||
Sungard Data Systems 1st Lien 4.50% 12/4/19 | 1,002,425 | 1,010,979 | ||||||
SuperValu 5.00% 3/21/19 | 3,224,437 | 3,248,955 | ||||||
Surgical Care Affiliates Tranche B 5.50% 5/26/18 | 992,513 | 986,309 | ||||||
Taminco Global Chemical Tranche B 4.25% 2/15/19 | 3,662,113 | 3,689,579 | ||||||
Tempur-Pedic International Tranche B 3.50% 3/18/20 | 4,189 | 4,188 | ||||||
Topaz Power Holdings 5.25% 2/4/20 | 3,861,994 | 3,895,184 | ||||||
TransDigm Tranche C 3.75% 2/7/20 | 4,603,405 | 4,615,696 | ||||||
Truven Health Analytics Tranche B 4.50% 5/23/19 | 6,219,358 | 6,240,659 | ||||||
United Airlines Tranche B 1st Lien 4.00% 3/12/19 | 3,089,475 | 3,112,260 | ||||||
Univision Communications | ||||||||
1st Lien 4.00% 3/1/20 | 2,159,150 | 2,159,342 | ||||||
Tranche C1 1st Lien 4.75% 2/22/20 | 2,806,981 | 2,820,578 | ||||||
Tranche C2 4.75% 2/6/20 | 12,691,225 | 12,755,811 | ||||||
U.S. Airways | ||||||||
Tranche B1 1st Lien 4.25% 5/21/19 | 3,245,000 | 3,254,852 | ||||||
Tranche B2 1st Lien 3.50% 11/21/16 | 1,008,406 | 1,013,448 | ||||||
USI Insurance Services Tranche B 5.00% 12/14/19 | 8,957,313 | 9,011,056 | ||||||
Valeant Pharmaceuticals Tranche B 4.50% 5/30/20 | 10,138,388 | 10,285,394 | ||||||
Vantage Drilling Tranche B 6.25% 10/17/17 | 2,899,474 | 2,934,508 | ||||||
Visant 5.25% 12/22/16 | 1,293,818 | 1,270,469 | ||||||
Wide Open West Finance 4.75% 3/27/19 | 12,850,425 | 12,965,282 |
50
Principal amount° | Value (U.S. $) | |||||||
«Senior Secured Loans (continued) | ||||||||
Yankee Cable Acquisition 5.25% 2/13/20 | USD | 3,005,380 | $ | 3,024,164 | ||||
Zayo Group Tranche B 1st Lien 4.50% 7/2/19 | 9,658,195 | 9,721,582 | ||||||
Total Senior Secured Loans | ||||||||
(cost $610,510,360) | 615,154,250 | |||||||
ΔSovereign Bonds – 3.70% | ||||||||
Armenia – 0.10% | ||||||||
# | Republic of Armenia 144A 6.00% 9/30/20 | 6,926,000 | 6,846,351 | |||||
6,846,351 | ||||||||
Australia – 0.09% | ||||||||
Australia Government Bond 4.00% 8/20/20 | AUD | 3,342,000 | 5,783,705 | |||||
5,783,705 | ||||||||
Brazil – 0.85% | ||||||||
*# | Banco Nacional de Desenvolvimento | |||||||
Economico e Social 144A 5.75% 9/26/23 | USD | 4,740,000 | 4,929,600 | |||||
Brazil Notas do Tesouro Nacional | ||||||||
Series B 6.00% 8/15/20 | BRL | 19,384 | 20,790,926 | |||||
Series F | ||||||||
10.00% 1/1/15 | BRL | 13,915,000 | 6,173,435 | |||||
10.00% 1/1/17 | BRL | 45,356,000 | 19,537,154 | |||||
Brazilian Government International Bond | ||||||||
4.25% 1/7/25 | USD | 4,687,000 | 4,585,058 | |||||
56,016,173 | ||||||||
Finland – 0.23% | ||||||||
# | Finland Government Bond 144A 4.00% 7/4/25 | EUR | 9,289,000 | 14,950,321 | ||||
14,950,321 | ||||||||
Iceland – 0.08% | ||||||||
# | Iceland Government International Bond | |||||||
144A 5.875% 5/11/22 | USD | 5,275,000 | 5,510,692 | |||||
5,510,692 | ||||||||
Indonesia – 0.42% | ||||||||
Indonesia Treasury Bond 5.625% 5/15/23 | IDR | 135,828,000,000 | 10,667,604 | |||||
# | Indonesian Government International Bond | |||||||
144A 3.375% 4/15/23 | USD | 10,812,000 | 9,784,860 | |||||
*# | Perusahaan Penerbit SBSN 144A | |||||||
6.125% 3/15/19 | 6,890,000 | 7,475,650 | ||||||
27,928,114 |
51
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
ΔSovereign Bonds (continued) | ||||||||
Malaysia – 0.08% | ||||||||
Malaysia Government 4.262% 9/15/16 | MYR | 15,658,000 | $ | 5,114,424 | ||||
5,114,424 | ||||||||
Mexico – 0.42% | ||||||||
Mexican Bonos | ||||||||
6.50% 6/10/21 | MXN | 71,091,100 | 5,737,950 | |||||
6.50% 6/9/22 | MXN | 75,281,000 | 6,006,516 | |||||
7.75% 12/14/17 | MXN | 51,781,000 | 4,404,447 | |||||
10.00% 11/20/36 | MXN | 116,983,000 | 11,640,997 | |||||
27,789,910 | ||||||||
Netherlands – 0.04% | ||||||||
Republic of Angola Via Northern Lights | ||||||||
7.00% 8/16/19 | USD | 2,410,000 | 2,617,863 | |||||
2,617,863 | ||||||||
New Zealand – 0.07% | ||||||||
New Zealand Government Bond 3.00% 4/15/20 | NZD | 5,763,000 | 4,418,353 | |||||
4,418,353 | ||||||||
Nigeria – 0.07% | ||||||||
Nigeria Government Bond 15.10% 4/27/17 | NGN | 718,750,000 | 4,890,487 | |||||
4,890,487 | ||||||||
Norway – 0.08% | ||||||||
Norwegian Government Bond 5.00% 5/15/15 | NOK | 28,559,000 | 5,037,637 | |||||
5,037,637 | ||||||||
Panama – 0.21% | ||||||||
Panama Government International Bond | ||||||||
*7.125% 1/29/26 | USD | 4,995,000 | 6,243,750 | |||||
8.875% 9/30/27 | 5,330,000 | 7,428,688 | ||||||
13,672,438 | ||||||||
Paraguay – 0.08% | ||||||||
# | Republic of Paraguay 144A 4.625% 1/25/23 | 5,640,000 | 5,386,200 | |||||
5,386,200 | ||||||||
Poland – 0.24% | ||||||||
Poland Government Bond 5.75% 10/25/21 | PLN | 8,821,000 | 3,191,969 | |||||
Poland Government International Bond | ||||||||
3.00% 3/17/23 | PLN | 13,540,000 | 12,666,670 | |||||
15,858,639 |
52
Principal amount° | Value (U.S. $) | ||||||
ΔSovereign Bonds (continued) | |||||||
Republic of Korea – 0.18% | |||||||
Korea Treasury Inflation-Linked Bonds | |||||||
1.125% 6/10/23 | KRW | 280,859,600 | $ | 256,208 | |||
2.75% 6/10/20 | KRW | 11,442,108,718 | 11,595,291 | ||||
11,851,499 | |||||||
South Africa – 0.16% | |||||||
South Africa Government Bond | |||||||
10.50% 12/21/26 | ZAR | 70,192,000 | 8,398,995 | ||||
South Africa Government Bond - CPI Linked | |||||||
2.75% 1/31/22 | ZAR | 19,273,660 | 2,116,545 | ||||
10,515,540 | |||||||
Sweden – 0.03% | |||||||
Sweden Government Bond 4.25% 3/12/19 | SEK | 12,505,000 | 2,181,586 | ||||
2,181,586 | |||||||
Turkey – 0.07% | |||||||
# | Hazine Mustesarligi Varlik Kiralama AS 144A | ||||||
4.557% 10/10/18 | USD | 4,425,000 | 4,534,298 | ||||
4,534,298 | |||||||
United Kingdom – 0.20% | |||||||
United Kingdom Gilt 4.00% 3/7/22 | GBP | 7,119,265 | 12,881,840 | ||||
12,881,840 | |||||||
Total Sovereign Bonds (cost $251,776,003) | 243,786,070 | ||||||
Supranational Banks – 0.20% | |||||||
# | Eurasian Development Bank 5.00% 9/26/20 | 5,000,000 | 5,100,000 | ||||
International Bank for Reconstruction | |||||||
& Development | |||||||
2.786% 9/24/18 | AUD | 157,000 | 148,499 | ||||
6.00% 2/15/17 | AUD | 7,700,000 | 7,859,240 | ||||
Total Supranational Banks (cost $11,992,071) | 13,107,739 | ||||||
U.S. Treasury Obligations – 0.59% | |||||||
U.S. Treasury Bonds | |||||||
∞2.75% 11/15/42 | USD | 41,385,000 | 34,656,709 | ||||
2.875% 5/15/43 | 710,000 | 609,269 | |||||
U.S. Treasury Note 1.25% 10/31/18 | 3,695,000 | 3,683,597 | |||||
Total U.S. Treasury Obligations | |||||||
(cost $44,636,998) | 38,949,575 |
53
Schedule of investments
Delaware Diversified Income Fund
Number of shares | Value (U.S. $) | ||||
Common Stock – 0.02% | |||||
AES | 100,182 | $ | 1,411,563 | ||
=† | Century Communications Tracking | 7,875,000 | 0 | ||
Delta Air Lines | 197 | 5,197 | |||
Masco | 30 | 634 | |||
NRG Energy | 252 | 7,190 | |||
† | United Continental Holdings | 10 | 340 | ||
Total Common Stock (cost $1,580,101) | 1,424,924 | ||||
Convertible Preferred Stock – 0.64% | |||||
ArcelorMittal 6.00% exercise price $20.61, | |||||
expiration date 12/21/15 | 106,550 | 2,580,513 | |||
Bank of America 7.25% exercise price $50.00, | |||||
expiration date 12/31/49 | 1,465 | 1,578,904 | |||
# | Chesapeake Energy 144A 5.75% | ||||
exercise price $27.83, expiration date 12/31/49 | 3,161 | 3,712,199 | |||
Dominion Resources | |||||
6.00% exercise price $65.27, | |||||
expiration date 7/1/16 | 23,556 | 1,277,442 | |||
6.125% exercise price $65.27, | |||||
expiration date 4/1/16 | 23,556 | 1,276,029 | |||
Goodyear Tire & Rubber 5.875% exercise price | |||||
$18.21, expiration date 3/31/14 | 74,235 | 4,479,622 | |||
HealthSouth 6.50% exercise price $30.50, | |||||
expiration date 12/31/49 | 4,544 | 5,967,976 | |||
Huntington Bancshares 8.50% exercise price | |||||
$11.95, expiration date 12/31/49 | 3,272 | 4,184,888 | |||
Intelsat 5.75% exercise price $22.05, | |||||
expiration date 5/1/16 | 112,941 | 6,121,401 | |||
MetLife 5.00% exercise price $44.27, | |||||
expiration date 3/26/14 | 77,175 | 2,217,238 | |||
SandRidge Energy 8.50% exercise price $8.01, | |||||
expiration date 12/31/49 | 46,052 | 4,852,960 | |||
Wells Fargo 7.50% exercise price $156.71, | |||||
expiration date 12/31/49 | 3,298 | 3,756,422 | |||
Total Convertible Preferred Stock | |||||
(cost $40,243,813) | 42,005,594 |
54
Number of shares | Value (U.S. $) | |||||||
Preferred Stock – 0.66% | ||||||||
Alabama Power 5.625% | 288,353 | $ | 6,614,818 | |||||
# | Ally Financial 144A 7.00% | 9,820 | 9,429,349 | |||||
Halcon Resources 5.75% | 2,745 | 2,888,426 | ||||||
• | Integrys Energy Group 6.00% | 205,100 | 4,965,471 | |||||
National Retail Properties 5.70% | 202,445 | 4,028,656 | ||||||
*• | PNC Financial Services Group 8.25% | 4,602,000 | 4,615,806 | |||||
Public Storage 5.20% | 212,995 | 4,340,838 | ||||||
* | Wells Fargo 5.20% | 304,993 | 6,404,847 | |||||
Total Preferred Stock | ||||||||
(cost $47,026,221) | 43,288,211 | |||||||
Principal amount° | ||||||||
Short-Term Investments – 12.68% | ||||||||
≠Discount Notes – 1.51% | ||||||||
Federal Home Loan Bank Discount Notes | ||||||||
0.025% 11/15/13 | USD | 20,336,627 | 20,336,546 | |||||
0.05% 12/27/13 | 10,598,644 | 10,598,315 | ||||||
0.065% 11/6/13 | 68,644,455 | 68,644,387 | ||||||
99,579,248 | ||||||||
Repurchase Agreements – 5.14% | ||||||||
Bank of America 0.06%, dated 10/31/13, to be | ||||||||
repurchased on 11/1/13, repurchase price | ||||||||
$84,534,514 (collateralized by U.S. government | ||||||||
obligations 0.625%-1.625% 7/15/14-1/15/15; | ||||||||
market value $86,225,071) | 84,534,374 | 84,534,374 | ||||||
BNP Paribas 0.08%, dated 10/31/13, to be | ||||||||
repurchased on 11/1/13, repurchase price | ||||||||
$254,253,191 (collateralized by U.S. government | ||||||||
obligations 0.25%-3.875% 12/15/13-8/15/40; | ||||||||
market value $259,337,683) | 254,252,626 | 254,252,626 | ||||||
338,787,000 |
55
Schedule of investments
Delaware Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Short-Term Investments (continued) | ||||||||
≠U.S. Treasury Obligations – 6.03% | ||||||||
United States Treasury Bills | ||||||||
0.02% 12/19/13 | USD | 66,045,651 | $ | 66,042,877 | ||||
0.033% 1/23/14 | 86,495,411 | 86,488,405 | ||||||
0.053% 11/14/13 | 141,259,779 | 141,259,073 | ||||||
0.065% 4/24/14 | 103,163,822 | 103,125,136 | ||||||
396,915,491 | ||||||||
Total Short-Term Investments | ||||||||
(cost $835,286,585) | 835,281,739 | |||||||
Total Value of Securities Before Securities | ||||||||
Lending Collateral – 111.29% | ||||||||
(cost $7,208,250,019) | 7,331,354,045 | |||||||
**Securities Lending Collateral – 2.64% | ||||||||
Investment Companies | ||||||||
Delaware Investments Collateral Fund No.1 | 174,358,902 | 174,358,738 | ||||||
Total Securities Lending Collateral | ||||||||
(cost $174,358,738) | 174,358,738 | |||||||
Total Value of Securities – 113.93% | ||||||||
(cost $7,382,608,757) | $ | 7,505,712,783 |
° | 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 Oct. 31, 2013. Interest rates reset periodically. |
û | Interest only security. An interest only security is the interest only portion of a fixed income security which is separated and sold individually from the principal portion of the security. |
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 Oct. 31, 2013, the aggregate value of Rule 144A securities was $1,414,268,072, which represented 21.47% 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 Oct. 31, 2013. |
56
^ | Zero coupon security. The rate shown is the yield at the time of purchase. |
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 Oct. 31, 2013. |
∞ | Fully or partially pledged as collateral for futures contracts. |
= | Security is being fair valued in accordance with the Fund’s fair valuation policy. At Oct. 31, 2013, 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.” |
† | Non income producing security. |
≠ | 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 $166,400,866 of securities loaned. |
57
Schedule of investments
Delaware Diversified Income Fund
The following foreign currency exchange contracts, futures contracts and swap contracts were outstanding at Oct. 31, 2013:1 |
Foreign Currency Exchange Contracts
Unrealized | ||||||||||||||||
Appreciation | ||||||||||||||||
Counterparty | Contracts to Receive (Deliver) | In Exchange For | Settlement Date | (Depreciation) | ||||||||||||
BAML | AUD | (11,574,000 | ) | USD | 10,992,210 | 11/1/13 | $ | 49,709 | ||||||||
BAML | AUD | (24,368,628 | ) | USD | 22,989,754 | 12/6/2013 | 4,032 | |||||||||
BAML | CAD | (10,635,203 | ) | USD | 10,186,402 | 12/6/2013 | (3,294 | ) | ||||||||
BAML | EUR | (4,983,376 | ) | USD | 6,846,066 | 12/6/2013 | 78,920 | |||||||||
BAML | GBP | (1,244,731 | ) | USD | 2,014,646 | 12/6/2013 | 19,324 | |||||||||
BAML | IDR | 71,774,832,300 | USD | (6,673,625 | ) | 12/6/2013 | (372,336 | ) | ||||||||
BAML | JPY | (2,425,774,357 | ) | USD | 24,934,286 | 12/6/2013 | 258,233 | |||||||||
BAML | MYR | 21,516,503 | USD | (6,872,965 | ) | 12/6/2013 | (73,520 | ) | ||||||||
BAML | NZD | 9,369,641 | USD | (7,821,571 | ) | 12/6/2013 | (101,590 | ) | ||||||||
BAML | PLN | (42,397,500 | ) | USD | 13,857,900 | 11/5/2013 | 102,637 | |||||||||
BAML | TRY | 26,961,565 | USD | (13,543,761 | ) | 12/6/2013 | (124,793 | ) | ||||||||
BNP | AUD | (7,604,203 | ) | USD | 7,278,728 | 12/6/2013 | 106,059 | |||||||||
BCLY | MXN | (127,849,343 | ) | USD | 9,835,420 | 12/6/2013 | 58,539 | |||||||||
CITI | CLP | 4,810,473,184 | USD | (9,480,633 | ) | 12/6/2013 | (140,308 | ) | ||||||||
CITI | JPY | 1,053,567,228 | USD | (10,823,613 | ) | 12/6/2013 | (106,260 | ) | ||||||||
CITI | PLN | (4,673,965 | ) | USD | 1,535,803 | 12/6/2013 | 22,389 | |||||||||
DB | MXN | 60,283,000 | USD | (4,633,411 | ) | 11/4/2013 | (11,595 | ) | ||||||||
GSC | GBP | (2,441,301 | ) | USD | 3,949,781 | 12/6/2013 | 36,341 | |||||||||
HSBC | BRL | (14,049,369 | ) | USD | 6,377,959 | 12/6/2013 | 159,801 | |||||||||
HSBC | EUR | (26,802,506 | ) | USD | 36,963,202 | 12/6/2013 | 566,894 | |||||||||
HSBC | JPY | 2,594,060,948 | USD | (26,637,773 | ) | 12/6/2013 | (249,835 | ) | ||||||||
HSBC | PHP | 382,073,727 | USD | (8,914,043 | ) | 12/6/2013 | (66,467 | ) | ||||||||
JPMC | EUR | 11,067,366 | USD | (15,263,337 | ) | 12/6/2013 | (234,471 | ) | ||||||||
JPMC | JPY | 831,502,678 | USD | (8,543,128 | ) | 12/6/2013 | (84,715 | ) | ||||||||
JPMC | NOK | (98,108,302 | ) | USD | 16,493,780 | 11/5/2013 | 19,072 | |||||||||
JPMC | SEK | (12,449,479 | ) | USD | 1,963,052 | 12/6/2013 | 44,007 | |||||||||
MSC | JPY | 3,131,962,439 | USD | (32,182,330 | ) | 12/6/2013 | (322,619 | ) | ||||||||
TD | GBP | 3,941,902 | USD | (6,378,329 | ) | 12/6/2013 | (59,404 | ) | ||||||||
TD | IDR | 221,663,707,870 | USD | (20,596,888 | ) | 12/6/2013 | (1,136,486 | ) | ||||||||
TD | JPY | (6,639,372,592 | ) | USD | 68,235,470 | 12/6/2013 | 696,829 | |||||||||
TD | ZAR | (21,043,804 | ) | USD | 2,133,032 | 12/6/2013 | 49,205 | |||||||||
UBS | CAD | (10,557,457 | ) | USD | 10,104,280 | 12/6/2013 | (10,926 | ) | ||||||||
$ | (826,628 | ) |
58
Futures Contracts | |||||||||||||||||
Unrealized | |||||||||||||||||
Notional Cost | Appreciation | ||||||||||||||||
Contracts to Buy (Sell) | (Proceeds) | Notional Value | Expiration Date | (Depreciation) | |||||||||||||
(186) | Euro-O.A.T. | $ | (32,887,661 | ) | $ | (34,014,794 | ) | 12/11/13 | $ | (1,127,133 | ) | ||||||
(98) | U.S. Treasury Long Bond | (13,008,285 | ) | (13,211,625 | ) | 1/1/14 | (203,340 | ) | |||||||||
3,155 | U.S. Treasury 10 yr Notes | 400,864,270 | 401,818,828 | 1/1/14 | 954,558 | ||||||||||||
$ | 354,968,324 | $ | (375,915 | ) |
Swap Contracts | ||||||||||
CDS Contracts2 | ||||||||||
Annual | Unrealized | |||||||||
Protection | Termination | Appreciation | ||||||||
Counterparty | Swap Referenced Obligation | Notional Value | Payments | Date | (Depreciation) | |||||
Protection Purchased: | ||||||||||
DB | CDX.EM.20 | USD21,950,000 | 5.00% | 12/20/18 | $98,516 |
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 foreign currency exchange contracts and notional values 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.
Summary of abbreviations:
AMT — Subject to Alternative Minimum Tax
ARM — Adjustable Rate Mortgage
AUD — Australian Dollar
BAML — Bank of America Merrill Lynch
BCLY — Barclays Bank
BNP — Banque Paribas
BRL— Brazilian Real
CAD — Canadian Dollar
CDX.EM — Credit Default Swap Index Emerging Markets
59
Schedule of investments
Delaware Diversified Income Fund
CITI — Citigroup Global Markets
CLP — Chilean Peso
CPI — Consumer Price Index
DB — Deutsche Bank
DIP — Debtor in Possession
EUR — European Monetary Unit
GBP — British Pound Sterling
GNMA — Government National Mortgage Association
GSC — Goldman Sachs Capital
GSMPS — Goldman Sachs Reperforming Mortgage Securities
HSBC — Hong Kong Shanghai Bank
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
NGN — Nigerian Naira
NOK — Norwegian Krone
NZD — New Zealand Dollar
O.A.T. — Obligations Assimilables du Tresor
PHP — Philippine Peso
PLN — Polish Zloty
RASC — Residential Asset Securities Corporation
REMIC — Real Estate Mortgage Investment Conduit
SEK — Swedish Krona
S.F. — Single Family
TBA — To be announced
TD — Toronto Dominion Securities
TRY — Turkish Lira
UBS — Union Bank of Switzerland
USD — United States Dollar
yr — Year
ZAR — South African Rand
See accompanying notes, which are an integral part of the financial statements.
60
Statement of assets and liabilities | |
Delaware Diversified Income Fund | October 31, 2013 |
Assets: | |||
Investments, at value1 (including securities on loan of $166,400,866) | $ | 6,496,072,306 | |
Short-term investments, at value2 | 835,281,739 | ||
Short-term investments held as collateral for loaned securities, at value3 | 174,358,738 | ||
Foreign currencies, at value4 | 23,018,102 | ||
Cash collateral for derivatives | 7,580,000 | ||
Receivable for securities sold | 1,016,877,073 | ||
Dividends and interest receivable | 64,804,915 | ||
Receivable for fund shares sold | 11,697,764 | ||
Unrealized gain of foreign currency exchange contracts | 2,271,991 | ||
Securities lending income receivable | 77,890 | ||
Total assets | 8,632,040,518 | ||
Liabilities: | |||
Cash overdraft | 5,814,245 | ||
Payable for securities purchased | 1,767,337,727 | ||
Payable for fund shares redeemed | 76,125,746 | ||
Obligation to return securities lending collateral | 174,358,738 | ||
Unrealized loss of foreign currency exchange contracts | 3,098,619 | ||
Unrealized loss on credit default swap contracts | |||
(including upfront payments received $2,438,014) | 2,339,498 | ||
Variation margin payable on futures contracts | 1,117,330 | ||
Distributions payable | 6,508,051 | ||
Annual protection payments on credit default swap contracts | 127,526 | ||
Investment management fees payable | 2,572,080 | ||
Distribution fees payable to affiliates | 2,045,028 | ||
Trustees fees payable | 19,467 | ||
Other affiliates payable | 565,331 | ||
Other accrued expenses | 1,976,784 | ||
Total liabilities | 2,044,006,170 | ||
Total Net Assets | $ | 6,588,034,348 | |
1Investments, at cost | $ | 6,372,963,434 | |
2Short-term investments, at cost | 835,286,585 | ||
3Short-term investments held as collateral for loaned securities, at cost | 174,358,738 | ||
4Foreign currencies, at cost | 23,035,997 |
62
Net Assets Consist of: | ||||
Paid-in capital | $ | 6,554,184,992 | ||
Distributions in excess of net investment income | (13,486,194 | ) | ||
Accumulated net realized loss on investments and derivatives | (74,478,595 | ) | ||
Net unrealized appreciation of investments and derivatives | 121,814,145 | |||
Total Net Assets | $ | 6,588,034,348 | ||
Net Asset Value | ||||
Class A | ||||
Net assets | $ | 3,244,801,250 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 361,948,290 | |||
Net asset value per share | $ | 8.96 | ||
Sales charge | 4.50% | |||
Offering price per share, equal to net asset value per share/(1 - sales charge) | $ | 9.38 | ||
Class B | ||||
Net assets | $ | 9,442,518 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 1,054,948 | |||
Net asset value per share | $ | 8.95 | ||
Class C | ||||
Net assets | $ | 1,471,552,731 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 164,166,807 | |||
Net asset value per share | $ | 8.96 | ||
Class R | ||||
Net assets | $ | 124,586,270 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 13,904,331 | |||
Net asset value per share | $ | 8.96 | ||
Institution Class | ||||
Net assets | $ | 1,737,651,579 | ||
Shares of beneficial interest outstanding, unlimited authorization, no par | 193,694,017 | |||
Net asset value per share | $ | 8.97 |
See accompanying notes, which are an integral part of the financial statements.
63
Statement of operations | |
Delaware Diversified Income Fund | Year Ended October 31, 2013 |
Investment Income: | |||||||
Interest | $ | 324,456,506 | |||||
Dividends | 7,963,986 | ||||||
Securities lending income | 1,129,900 | $ | 333,550,392 | ||||
Expenses: | |||||||
Management fees | 37,444,345 | ||||||
Distribution expenses – Class A | 12,445,564 | ||||||
Distribution expenses – Class B | 153,578 | ||||||
Distribution expenses – Class C | 19,391,665 | ||||||
Distribution expenses – Class R | 856,815 | ||||||
Dividend disbursing and transfer agent fees and expenses | 11,014,965 | ||||||
Accounting and administration expenses | 3,290,694 | ||||||
Reports and statements to shareholders | 774,401 | ||||||
Legal fees | 583,691 | ||||||
Custodian fees | 572,113 | ||||||
Trustees’ fees | 408,231 | ||||||
Registration fees | 263,322 | ||||||
Insurance | 174,087 | ||||||
Consulting fees | 82,178 | ||||||
Audit and tax | 68,558 | ||||||
Dues and services | 55,414 | ||||||
Pricing fees | 52,836 | ||||||
Trustees’ expenses | 30,482 | 87,662,939 | |||||
Less waived distribution expenses – Class A | (1,956,841 | ) | |||||
Less waived distribution expenses – Class R | (133,983 | ) | |||||
Less expense paid indirectly | (6,044 | ) | |||||
Total operating expenses | 85,566,071 | ||||||
Net Investment Income | 247,984,321 |
64
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | $ | 46,057,177 | ||
Foreign currencies | (26,164,488 | ) | ||
Foreign currency exchange contracts | (21,207,353 | ) | ||
Futures contracts | (2,522,432 | ) | ||
Swap contracts | (27,896,558 | ) | ||
Options written | 1,017,690 | |||
Net realized loss | (30,715,964 | ) | ||
Net change in unrealized appreciation (depreciation) of: | ||||
Investments | (322,660,281 | ) | ||
Foreign currencies | 727,024 | |||
Foreign currency exchange contracts | 1,496,081 | |||
Futures contracts | 1,595,423 | |||
Swap contracts | 1,138,105 | |||
Net change in unrealized appreciation (depreciation) | (317,703,648 | ) | ||
Net Realized and Unrealized Loss | (348,419,612 | ) | ||
Net Decrease in Net Assets Resulting from Operations | $ | (100,435,291 | ) |
See accompanying notes, which are an integral part of the financial statements.
65
Statements of changes in net assets
Delaware Diversified Income Fund
Year Ended | ||||||||
10/31/13 | 10/31/12 | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 247,984,321 | $ | 280,187,960 | ||||
Net realized gain (loss) | (30,715,964 | ) | 110,739,974 | |||||
Net change in unrealized appreciation (depreciation) | (317,703,648 | ) | 271,623,747 | |||||
Net increase (decrease) in net assets resulting | ||||||||
from operations | (100,435,291 | ) | 662,551,681 | |||||
Dividends and Distributions to Shareholders from: | ||||||||
Net investment income: | ||||||||
Class A | (113,401,573 | ) | (174,424,606 | ) | ||||
Class B | (325,601 | ) | (790,648 | ) | ||||
Class C | (41,424,219 | ) | (63,819,927 | ) | ||||
Class R | (3,628,912 | ) | (5,355,993 | ) | ||||
Institutional Class | (63,836,683 | ) | (76,401,112 | ) | ||||
Net realized gain: | ||||||||
Class A | (44,853,987 | ) | (111,610,939 | ) | ||||
Class B | (179,929 | ) | (732,822 | ) | ||||
Class C | (20,830,889 | ) | (51,559,199 | ) | ||||
Class R | (1,508,898 | ) | (3,715,709 | ) | ||||
Institutional Class | (22,333,841 | ) | (42,449,672 | ) | ||||
Return of capital: | ||||||||
Class A | (37,093,319 | ) | — | |||||
Class B | (107,045 | ) | — | |||||
Class C | (13,596,818 | ) | — | |||||
Class R | (1,187,785 | ) | — | |||||
Institutional Class | (20,849,919 | ) | — | |||||
(385,159,418 | ) | (530,860,627 | ) | |||||
Capital Share Transactions: | ||||||||
Proceeds from shares sold: | ||||||||
�� Class A | 889,060,120 | 1,520,100,444 | ||||||
Class B | 48,967 | 350,897 | ||||||
Class C | 174,308,080 | 467,468,216 | ||||||
Class R | 51,152,003 | 74,337,347 | ||||||
Institutional Class | 977,466,627 | 1,048,542,437 |
66
Year Ended | ||||||||
10/31/13 | 10/31/12 | |||||||
Capital Share Transactions (continued): | ||||||||
Net asset value of shares issued upon reinvestment | ||||||||
of dividends and distributions: | ||||||||
Class A | $ | 188,583,462 | $ | 264,504,195 | ||||
Class B | 564,306 | 1,316,405 | ||||||
Class C | 53,114,891 | 101,704,055 | ||||||
Class R | 6,130,292 | 9,025,664 | ||||||
Institutional Class | 94,270,920 | 103,962,231 | ||||||
2,434,699,668 | 3,591,311,891 | |||||||
Cost of shares redeemed: | ||||||||
Class A | (2,484,540,885 | ) | (1,333,075,813 | ) | ||||
Class B | (12,268,441 | ) | (11,412,519 | ) | ||||
Class C | (875,859,568 | ) | (381,583,967 | ) | ||||
Class R | (85,464,560 | ) | (71,438,247 | ) | ||||
Institutional Class | (1,445,552,892 | ) | (564,023,225 | ) | ||||
(4,903,686,346 | ) | (2,361,533,771 | ) | |||||
Increase (decrease) in net assets derived from | ||||||||
capital share transactions | (2,468,986,678 | ) | 1,229,778,120 | |||||
Net Increase (Decrease) in Net Assets | (2,954,581,387 | ) | 1,361,469,174 | |||||
Net Assets: | ||||||||
Beginning of year | 9,542,615,735 | 8,181,146,561 | ||||||
End of year (including distributions in excess of | ||||||||
net investment income of $13,486,194 and | ||||||||
$37,607,692, respectively.) | $ | 6,588,034,348 | $ | 9,542,615,735 |
See accompanying notes, which are an integral part of the financial statements.
67
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 |
Return of capital |
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 |
See accompanying notes, which are an integral part of the financial statements.
68
Year Ended | ||||||||||||||||
10/31/13 | 10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | ||||||||||||
$9.450 | $9.330 | $9.770 | $9.270 | $7.740 | ||||||||||||
0.278 | 0.304 | 0.359 | 0.444 | 0.500 | ||||||||||||
(0.350 | ) | 0.396 | (0.033 | ) | 0.598 | 1.611 | ||||||||||
(0.072 | ) | 0.700 | 0.326 | 1.042 | 2.111 | |||||||||||
(0.248 | ) | (0.346 | ) | (0.399 | ) | (0.474 | ) | (0.581 | ) | |||||||
(0.089 | ) | (0.234 | ) | (0.367 | ) | (0.068 | ) | — | ||||||||
(0.081 | ) | — | — | — | — | |||||||||||
(0.418 | ) | (0.580 | ) | (0.766 | ) | (0.542 | ) | (0.581 | ) | |||||||
$8.960 | $9.450 | $9.330 | $9.770 | $9.270 | ||||||||||||
(0.66% | ) | 7.82% | 3.64% | 11.60% | 28.42% | |||||||||||
$3,244,801 | $4,890,056 | $4,370,224 | $4,423,278 | $3,658,355 | ||||||||||||
0.90% | 0.90% | 0.92% | 0.93% | 0.97% | ||||||||||||
0.95% | 0.95% | 0.97% | 0.98% | 1.02% | ||||||||||||
3.03% | 3.26% | 3.84% | 4.68% | 5.96% | ||||||||||||
2.98% | 3.21% | 3.79% | 4.63% | 5.91% | ||||||||||||
238% | 238% | 237% | 232% | 213% |
69
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 |
Return of capital |
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 |
See accompanying notes, which are an integral part of the financial statements.
70
Year Ended | ||||||||||||||||
10/31/13 | 10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | ||||||||||||
$9.440 | $9.320 | $9.750 | $9.260 | $7.730 | ||||||||||||
0.210 | 0.233 | 0.288 | 0.372 | 0.438 | ||||||||||||
(0.351 | ) | 0.397 | (0.022 | ) | 0.589 | 1.610 | ||||||||||
(0.141 | ) | 0.630 | 0.266 | 0.961 | 2.048 | |||||||||||
(0.196 | ) | (0.276 | ) | (0.329 | ) | (0.403 | ) | (0.518 | ) | |||||||
(0.089 | ) | (0.234 | ) | (0.367 | ) | (0.068 | ) | — | ||||||||
(0.064 | ) | — | — | — | — | |||||||||||
(0.349 | ) | (0.510 | ) | (0.696 | ) | (0.471 | ) | (0.518 | ) | |||||||
$8.950 | $9.440 | $9.320 | $9.750 | $9.260 | ||||||||||||
(1.52% | ) | 7.02% | 2.98% | 10.78% | 27.51% | |||||||||||
$9,442 | $21,974 | $31,451 | $45,741 | $50,608 | ||||||||||||
1.65% | 1.65% | 1.67% | 1.68% | 1.72% | ||||||||||||
2.28% | 2.51% | 3.09% | 3.93% | 5.21% | ||||||||||||
238% | 238% | 237% | 232% | 213% |
71
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 |
Return of capital |
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 |
See accompanying notes, which are an integral part of the financial statements.
72
Year Ended | ||||||||||||||||
10/31/13 | 10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | ||||||||||||
$9.450 | $9.330 | $9.760 | $9.270 | $7.740 | ||||||||||||
0.209 | 0.234 | 0.289 | 0.373 | 0.437 | ||||||||||||
(0.349 | ) | 0.397 | (0.023 | ) | 0.588 | 1.611 | ||||||||||
(0.140 | ) | 0.631 | 0.266 | 0.961 | 2.048 | |||||||||||
(0.197 | ) | (0.277 | ) | (0.329 | ) | (0.403 | ) | (0.518 | ) | |||||||
(0.089 | ) | (0.234 | ) | (0.367 | ) | (0.068 | ) | — | ||||||||
(0.064 | ) | — | — | — | — | |||||||||||
(0.350 | ) | (0.511 | ) | (0.696 | ) | (0.471 | ) | (0.518 | ) | |||||||
$8.960 | $9.450 | $9.330 | $9.760 | $9.270 | ||||||||||||
(1.51% | ) | 7.01% | 2.98% | 10.65% | 27.47% | |||||||||||
$1,471,553 | $2,230,985 | $2,012,603 | $2,097,340 | $1,375,429 | ||||||||||||
1.65% | 1.65% | 1.67% | 1.68% | 1.72% | ||||||||||||
2.28% | 2.51% | 3.09% | 3.93% | 5.21% | ||||||||||||
238% | 238% | 237% | 232% | 213% |
73
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 |
Return of capital |
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 |
See accompanying notes, which are an integral part of the financial statements.
74
Year Ended | ||||||||||||||||
10/31/13 | 10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | ||||||||||||
$9.450 | $9.330 | $9.760 | $9.270 | $7.730 | ||||||||||||
0.255 | 0.280 | 0.336 | 0.420 | 0.479 | ||||||||||||
(0.350 | ) | 0.397 | (0.023 | ) | 0.589 | 1.621 | ||||||||||
(0.095 | ) | 0.677 | 0.313 | 1.009 | 2.100 | |||||||||||
(0.231 | ) | (0.323 | ) | (0.376 | ) | (0.451 | ) | (0.560 | ) | |||||||
(0.089 | ) | (0.234 | ) | (0.367 | ) | (0.068 | ) | — | ||||||||
(0.075 | ) | — | — | — | — | |||||||||||
(0.395 | ) | (0.557 | ) | (0.743 | ) | (0.519 | ) | (0.560 | ) | |||||||
$8.960 | $9.450 | $9.330 | $9.760 | $9.270 | ||||||||||||
(1.02% | ) | 7.55% | 3.49% | 11.33% | 28.27% | |||||||||||
$124,586 | $160,695 | $146,620 | $172,642 | $137,179 | ||||||||||||
1.15% | 1.15% | 1.17% | 1.18% | 1.22% | ||||||||||||
1.24% | 1.25% | 1.27% | 1.28% | 1.32% | ||||||||||||
2.78% | 3.01% | 3.59% | 4.43% | 5.71% | ||||||||||||
2.69% | 2.91% | 3.49% | 4.33% | 5.61% | ||||||||||||
238% | 238% | 237% | 232% | 213% |
75
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 |
Return of capital |
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 |
See accompanying notes, which are an integral part of the financial statements.
76
Year Ended | |||||||||||||||||||||
10/31/13 | 10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | |||||||||||||||||
$9.460 | $9.340 | $9.770 | $9.280 | $7.740 | |||||||||||||||||
0.301 | 0.327 | 0.383 | 0.470 | 0.521 | |||||||||||||||||
(0.350 | ) | 0.397 | (0.023 | ) | 0.586 | 1.621 | |||||||||||||||
(0.049 | ) | 0.724 | 0.360 | 1.056 | 2.142 | ||||||||||||||||
(0.265 | ) | (0.370 | ) | (0.423 | ) | (0.498 | ) | (0.602 | ) | ||||||||||||
(0.089 | ) | (0.234 | ) | (0.367 | ) | (0.068 | ) | — | |||||||||||||
(0.087 | ) | — | — | — | — | ||||||||||||||||
(0.441 | ) | (0.604 | ) | (0.790 | ) | (0.566 | ) | (0.602 | ) | ||||||||||||
$8.970 | $9.460 | $9.340 | $9.770 | $9.280 | |||||||||||||||||
(0.52% | ) | 8.08% | 4.01% | 11.76% | 28.87% | ||||||||||||||||
$1,737,652 | $2,238,906 | $1,620,249 | $1,242,001 | $323,134 | |||||||||||||||||
0.65% | 0.65% | 0.67% | 0.68% | 0.72% | |||||||||||||||||
3.28% | 3.51% | 4.09% | 4.93% | 6.21% | |||||||||||||||||
238% | 238% | 237% | 232% | 213% |
77
Notes to financial statements | ||
Delaware Diversified Income Fund | October 31, 2013 |
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 1.00% 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 4.00% 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 1.00%, 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, 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 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. Debt securities, credit default swap (CDS) contracts and interest rate swap contracts are valued based upon valuations provided by an independent pricing service or broker/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. U.S. government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value. For asset-backed securities, collateralized mortgage obligations, commercial mortgage securities and U.S. government agency mortgage securities, pricing vendors utilize matrix pricing which considers prepayment speed, attributes of the collateral, yield or price of bonds of comparable quality, coupon, maturity and type as well as broker/dealer-supplied prices. Swap prices are derived using daily swap curves and models that incorporate a number of market data factors, such as discounted cash
78
flows, trades and values of the underlying reference instruments. Investment company securities are valued at net asset value per share, as reported by the underlying investment company. Foreign currency exchange contracts and foreign cross 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. 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 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 value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
Federal & Foreign 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 (Oct. 31, 2010–Oct. 31, 2013), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. In regard to foreign taxes only, the Fund has open tax years in certain foreign countries it invests in that may date back to the inception of the Fund.
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
79
Notes to financial statements
Delaware Diversified Income Fund
1. Significant Accounting Policies (continued)
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 Oct. 31, 2013.
To Be Announced Trades (TBA) — The Fund may contract to purchase or sell 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 or deliver 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 daily into U.S. dollars at the exchange rate of such currencies against the U.S. dollar. 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 bifurcates 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. That portion of gains (losses) is included in the statement of operations under the caption net realized gain (loss) on foreign currencies. 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.
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 among 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.
80
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 and reclaims on foreign interest have been recorded in accordance with the Fund’s understanding of the applicable country’s tax rules and rates. The Fund may pay foreign capital gain taxes on certain foreign securities held, which are reported as components of realized losses for financial reporting purposes, whereas such components are treated as ordinary loss for federal income tax purposes. 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 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 Oct. 31, 2013.
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which are used to offset transfer agent fees. If the amount earned is greater than one dollar, the expense paid under this arrangement is included in dividend disbursing and transfer agent fees and expenses and appears on the statement of operations with the corresponding expense offset shown as “expense paid indirectly.” For the year ended Oct. 31, 2013, the Fund earned $6,044 under the 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 Oct. 31, 2013, the Fund was charged $411,365 for these services.
81
Notes to financial statements
Delaware Diversified Income Fund
2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued)
DSC is also the transfer agent and dividend disbursing agent of the Fund. For these services, the Fund pays DSC fees based on the aggregate daily net assets of the retail funds within the Delaware Investments Family of Funds at the following annual rate: 0.025% of the first $20 billion; 0.020% of the next $5 billion; 0.015% of the next $5 billion; and 0.013% on average daily net assets in excess of $30 billion. 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. These amounts are included in the statement of operations as dividend disbursing and transfer agent fees and expenses. For the year ended Oct. 31, 2013, the amounts charged by DSC and BNYMIS were $9,426,553 and $1,588,412, respectively.
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 1.00% of the average daily net assets of the Class B and C shares. Effective Oct. 1, 2013, the Fund pays DDLP annual distribution and service fees of 0.25% and 0.50%, respectively, of the average daily net assets of the Class A and Class R shares’. Prior to Oct. 1, 2013, the Fund paid an annual distribution and service fee of 0.30% and 0.60%, respectively, of the average daily net assets of the Class A and Class R shares’. For the period from Nov. 1, 2012 to Oct. 1, 2013 the distribution and service fees for Class A and Class R were contractually limited to 0.25% and 0.50%, respectively, of the classes’ average daily net assets. Institutional Class shares pay no distribution and service expenses.
As provided in the investment management agreement, the Fund bears the cost of certain legal services, including internal legal services provided to the Fund by DMC and/or its affiliates’ employees. For the year ended Oct. 31, 2013, the Fund was charged $257,696 for internal legal services provided by DMC and/or its affiliates’ employees.
For the year ended Oct. 31, 2013, DDLP earned $174,375 for commissions on sales of the Fund’s Class A shares. For the year ended Oct. 31, 2013, DDLP received gross CDSC commissions of $55,149, $710 and $43,664 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 Oct. 31, 2013, the Fund made purchases of $17,205,789,295 and sales of $18,871,534,067 of investment securities other than U.S. government securities and short-term investments. For the year ended Oct. 31, 2013, the Fund made purchases of $2,114,460,066 and sales of $2,580,371,635 of long-term U.S. government securities.
82
At Oct. 31, 2013, the cost of investments for federal income tax purposes was $7,426,104,734. At Oct. 31, 2013, net unrealized appreciation was $79,608,049, of which $222,393,679 related to unrealized appreciation and $142,785,630 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) | |
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.
83
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 Oct. 31, 2013:
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Agency, Asset- & | |||||||||||||||
Mortgage-Backed | |||||||||||||||
Securities1 | $ | — | $ | 1,567,826,126 | $ | 13,173,838 | $ | 1,580,999,964 | |||||||
Corporate Debt | — | 3,805,071,701 | — | 3,805,071,701 | |||||||||||
Senior Secured Loans | — | 615,154,250 | — | 615,154,250 | |||||||||||
Foreign Debt | — | 306,903,420 | — | 306,903,420 | |||||||||||
Municipal Bonds | — | 62,274,667 | — | 62,274,667 | |||||||||||
U.S. Treasury Obligations | — | 38,949,575 | — | 38,949,575 | |||||||||||
Common Stock | 1,424,924 | — | — | 1,424,924 | |||||||||||
Convertible Preferred | |||||||||||||||
Stock2 | 18,833,420 | 23,172,174 | — | 42,005,594 | |||||||||||
Preferred Stock2 | 26,354,630 | 16,933,581 | — | 43,288,211 | |||||||||||
Short-Term Investments | — | 835,281,739 | — | 835,281,739 | |||||||||||
Securities Lending | |||||||||||||||
Collateral | — | 174,358,738 | — | 174,358,738 | |||||||||||
Total | $ | 46,612,974 | $ | 7,445,925,971 | $ | 13,173,838 | $ | 7,505,712,783 | |||||||
Foreign Currency | |||||||||||||||
Exchange Contracts | $ | — | $ | (826,628 | ) | $ | — | $ | (826,628 | ) | |||||
Futures Contracts | (375,915 | ) | — | — | (375,915 | ) | |||||||||
Swap Contracts | — | 98,516 | — | 98,516 |
1Security type is valued across multiple levels. The amounts attributed to Level 2 investments and Level 3 investments represent 99.79% and 0.21%, respectively, of the total market value of this security type. Level 2 investments represent investments with observable inputs while Level 3 investments represent investments without observable inputs. |
2Security type is valued across multiple levels. The amounts attributed to Level 1 investments and Level 2 investments represent 44.84% and 55.16% and 60.88% and 39.12%, respectively, of the total market value of these security types. Level 1 investments represent exchange traded investments while Level 2 investments represent investments with observable inputs. |
During the year ended Oct. 31, 2013, there were no transfers between Level 1 investments, Level 2 investments or Level 3 investments that had a significant impact to the Fund. The Fund’s policy is to recognize transfers between levels at the beginning of the reporting period.
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. Management has determined not to provide additional disclosure on Level 3 inputs under ASU No. 2011-04 since the Level 3 investments are not considered significant to the Fund’s net assets at the end of the period.
84
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 Oct. 31, 2013 and 2012 were as follows:
Year Ended | ||||||
10/31/13 | 10/31/12 | |||||
Ordinary income | $ | 275,299,727 | $ | 412,360,537 | ||
Long-term capital gain | 37,024,805 | 118,500,090 | ||||
Return of capital | 72,834,886 | — | ||||
Total | $ | 385,159,418 | $ | 530,860,627 |
5. Components of Net Assets on a Tax Basis
As of Oct. 31, 2013, the components of net assets on a tax basis were as follows:
Shares of beneficial interest | $ | 6,554,184,992 | ||
Distributions payable | (6,508,051 | ) | ||
Capital loss carryforward | (35,118,418 | ) | ||
Other temporary differences | 6,508,051 | |||
Unrealized appreciation | 68,967,774 | |||
Net assets | $ | 6,588,034,348 |
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 foreign currency exchange contracts, mark-to-market of futures and/or options 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 gain (loss) on foreign currency transactions, tax treatment of contingent payments on debt instruments, market discount and premium on certain debt instruments, CDS contracts, foreign capital gain taxes and tax treatment of paydown gains (losses) of asset-and mortgage-backed securities. Results of operations and net assets were not affected by these reclassifications. For the year ended Oct. 31, 2013, the Fund recorded the following reclassifications:
Distributions in excess of net investment income | $ | (1,245,835 | ) | |
Accumulated net realized gain (loss) | 1,245,835 |
85
Notes to financial statements
Delaware Diversified Income Fund
5. Components of Net Assets on a Tax Basis (continued)
The Regulated Investment Company Modernization Act of 2010 (the Act) was enacted on Dec. 22, 2010. The Act makes changes to several tax rules, including providing for the unlimited carryover of future capital losses. The Act also provides that each capital loss carryforward retains its character as short-term or long-term capital loss.
Losses incurred by the Fund that will be carried forward under the Act are as follows:
Loss carryforward character | |||||
Short-term | Long-term | ||||
$ | 35,118,418 | — |
6. Capital Shares
Transactions in capital shares were as follows:
Year Ended | ||||||
10/31/13 | 10/31/12 | |||||
Shares sold: | ||||||
Class A | 96,364,829 | 163,424,367 | ||||
Class B | 5,288 | 37,636 | ||||
Class C | 18,780,252 | 50,237,269 | ||||
Class R | 5,561,330 | 7,995,088 | ||||
Institutional Class | 105,812,619 | 112,519,790 | ||||
Shares issued upon reinvestment of dividends and distributions: | ||||||
Class A | 20,512,652 | 28,668,206 | ||||
Class B | 61,303 | 143,303 | ||||
Class C | 5,787,536 | 11,038,873 | ||||
Class R | 667,773 | 979,616 | ||||
Institutional Class | 10,266,953 | 11,255,199 | ||||
263,820,535 | 386,299,347 | |||||
Shares redeemed: | ||||||
Class A | (272,143,771 | ) | (143,178,609 | ) | ||
Class B | (1,339,486 | ) | (1,228,493 | ) | ||
Class C | (96,397,088 | ) | (40,970,892 | ) | ||
Class R | (9,329,920 | ) | (7,687,930 | ) | ||
Institutional Class | (159,031,102 | ) | (60,631,716 | ) | ||
(538,241,367 | ) | (253,697,640 | ) | |||
Net increase (decrease) | (274,420,832 | ) | 132,601,707 |
86
For the years ended Oct. 31, 2013 and 2012, 162,021 Class B shares were converted to 161,950 Class A shares valued at $1,492,498 and 372,298 Class B shares were converted to 372,250 Class A shares valued at $3,468,560, 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 $125,000,000 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 Nov. 13, 2012.
On Nov. 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 line of credit was to be used as described above and operated in substantially the same manner as the original agreement. The line of credit available under the agreement expired on Nov. 12, 2013.
On Nov. 12, 2013, the Fund, along with the other Participants, entered into an amendment to the agreement for a $225,000,000 revolving line of credit. The line of credit 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 Nov. 10, 2014.
The Fund had no amounts outstanding as of Oct. 31, 2013 or at any time during the year then ended.
8. 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. As of Oct. 31, 2013, the Fund had the following unfunded loan commitment:
Unfunded Loan | |||
Borrower | Commitment | ||
Community Health Systems | $ | 4,215,000 |
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.
87
Notes to financial statements
Delaware Diversified Income Fund
9. Derivatives (continued)
Foreign Currency Exchange Contracts — The Fund may enter into foreign currency exchange contracts and foreign cross 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 and foreign cross 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 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.
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 reduced 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.
88
Options Contracts — During the year ended Oct. 31, 2013, 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 option 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 option 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. No options contracts were outstanding at Oct. 31, 2013.
Transactions in options written during the year ended Oct. 31, 2013 for the Fund were as follows:
Number of | |||||||
Call Options | Contracts | Premiums | |||||
Options outstanding at Oct. 31, 2012 | — | $ | — | ||||
Options written | 2,200 | 767,212 | |||||
Options terminated in closing purchase transactions | (2,200 | ) | (767,212 | ) | |||
Options outstanding at Oct. 31, 2013 | — | $ | — | ||||
Number of | |||||||
Put Options | Contracts | Premiums | |||||
Options outstanding at Oct. 31, 2012 | — | $ | — | ||||
Options written | 3,224 | $ | 1,369,277 | ||||
Options terminated in closing purchase transactions | (3,224 | ) | (1,369,277 | ) | |||
Options outstanding at Oct. 31, 2013 | — | $ | — |
Swap Contracts — The Fund may enter into interest rate swap contracts and CDS contracts in the normal course of pursuing its investment objective. The Fund may use interest rate swaps to adjust the Fund’s sensitivity to interest rates or to hedge against changes in interest rates. 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
89
Notes to financial statements
Delaware Diversified Income Fund
9. Derivatives (continued)
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 Standard & Poor’s (S&P) or Baa3 by Moody’s Investors Service (Moody’s) or is determined to be of equivalent credit quality by the manager.
Interest Rate Swaps. An interest rate swap contract is an exchange of interest rates between counterparties. In one instance, an interest rate swap involves payments received by the Fund from another party based on a variable or floating interest rate, in return for making payments based on a fixed interest rate. An interest rate swap can also work in reverse with the Fund receiving payments based on a fixed interest rate and making payments based on a variable or floating interest rate. Interest rate swaps may be used to adjust the Fund’s sensitivity to interest rates or to hedge against changes in interest rates. Periodic payments on such contracts are accrued daily and recorded as unrealized appreciation/depreciation on swap contracts. Upon periodic payment/receipt or termination of the contract, such amounts are recorded as realized gains or losses on swap contracts. The Fund’s maximum risk of loss from counterparty credit risk is the discounted net value of the cash flows to be received from/paid to the counterparty over the interest rate swap contract’s remaining life, to the extent that the amount is positive. This risk is mitigated by (1) 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 for trades entered prior to June 10, 2013, and (2) trading these instruments through a central counterparty for trades entered on or after June 10, 2013.
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 Oct. 31, 2013, 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 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. For trades prior to June 10, 2013, the Fund had posted $7,580,000 as collateral for certain open derivatives, which is presented as cash
90
collateral for derivatives on the statements of assets and liabilities. The Fund received $828,000 in securities as collateral for open swap contracts. Initial margin and variation margin is posted to central counterparties for CDS basket trades submitted on or after June 10, 2013, as determined by the applicable central counterparty.
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 (1) 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 for trades entered prior to June 10, 2013, and (2) trading these instruments through a central counterparty for trades entered on or after June 10, 2013.
Swaps Generally. 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 assets and liabilities.
Fair values of derivative instruments as of Oct. 31, 2013 were as follows:
Asset Derivatives | Liability Derivatives | |||||||||||
Statement of Assets | Statement of Assets and | |||||||||||
and Liabilities Location | Fair Value | Liabilities Location | Fair Value | |||||||||
Forward currency exchange | ||||||||||||
contracts (Foreign currency | ||||||||||||
exchange contracts) | Unrealized gain of foreign currency exchange contracts | $ | 2,271,991 | Unrealized loss of foreign currency exchange contracts | $ | (3,098,619 | ) | |||||
Interest rate contracts | ||||||||||||
(Futures contracts) | Variation margin payable on futures | 954,558 | * | Variation margin payable on futures contracts | (1,330,473 | )* | ||||||
Credit contracts | ||||||||||||
(Swap contracts) | Unrealized loss on credit default swap contracts | 98,516 | Unrealized loss on credit default swap contracts | — | ||||||||
Total | $ | 3,325,065 | $ | (4,429,092 | ) |
*Includes cumulative appreciation of futures contracts from the date the contracts are opened through Oct. 31, 2013. Only current day variation margin is reported on the Fund’s statement of assets and liabilities.
91
Notes to financial statements
Delaware Diversified Income Fund
9. Derivatives (continued)
The effect of derivative instruments on the statement of operations for the year ended Oct. 31, 2013 was as follows:
Net Realized Gain (Loss) on: | ||||||||||||||||||||
Foreign | Financial | |||||||||||||||||||
Currency | Futures | |||||||||||||||||||
Transactions | Contracts | Options1 | Swaps | Total | ||||||||||||||||
Forward currency | ||||||||||||||||||||
exchange contracts | $ | (21,207,353 | ) | $ | — | $ | (474,061 | ) | $ | — | $ | (21,681,414 | ) | |||||||
Interest rate contracts | — | (2,522,432 | ) | (2,036,784 | ) | (4,272,596 | ) | (8,831,812 | ) | |||||||||||
Credit contracts | — | — | — | (23,623,962 | ) | (23,623,962 | ) | |||||||||||||
Total | $ | (21,207,353 | ) | $ | (2,522,432 | ) | $ | (2,510,845 | ) | $ | (27,896,558 | ) | $ | (54,137,188 | ) | |||||
Net Change in Unrealized Appreciation (Depreciation) of: | ||||||||||||||||||||
Foreign | Financial | |||||||||||||||||||
Currency | Futures | |||||||||||||||||||
Transactions | Contracts | Options1 | Swaps | Total | ||||||||||||||||
Forward currency | ||||||||||||||||||||
exchange contracts | $ | 1,496,081 | $ | — | $ | — | $ | — | $ | 1,496,081 | ||||||||||
Interest rate contracts | — | 1,595,423 | — | — | 1,595,423 | |||||||||||||||
Credit contracts | — | — | — | 1,138,105 | 1,138,105 | |||||||||||||||
Total | $ | 1,496,081 | $ | 1,595,423 | $ | — | $ | 1,138,105 | $ | 4,229,609 |
1Options purchased are included in the net realized gain (loss) on investments and net change in unrealized appreciation (depreciation) of investments.
Derivatives Generally. The table below summarizes the average balance of derivative holdings by the Fund during the year ended Oct. 31, 2013.
Long | Short | |||||
Derivative | Derivative | |||||
Volume | Volume | |||||
Foreign currency exchange contracts (average cost) | USD | 355,386,984 | USD | 603,820,879 | ||
Futures contracts (average notional value) | 422,671,918 | 288,552,499 | ||||
Options contracts (average notional value) | 56,907 | 69,137 | ||||
CDS contracts (average notional value) | EUR | 43,574,623 | — | |||
USD | 38,023,420 | 4,213,889 | ||||
Interest rate swap contracts (average notional value) | COP | 33,505,325,397 | — | |||
USD | 22,113,571 | — |
* | Long represents buying protection and short represents selling protection. |
** | Long represents receiving fixed interest payments and short represents paying fixed interest payments. |
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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. 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.
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Notes to financial statements
Delaware Diversified Income Fund
10. Securities Lending (continued)
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 Oct. 31, 2013, the value of securities on loan was $166,400,866, for which cash collateral was received and invested in accordance with the Lending Agreement. At Oct. 31, 2013, the value of invested collateral was $174,358,738. This investment is are presented on the schedule of investments under the caption “Securities Lending Collateral.”
11. Credit and Market Risk
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 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.
The Fund invests a portion of its assets in high yield fixed income securities, which are securities rated lower than BBB- by S&P and Baa3 by Moody’s, or similarly rated by another nationally recognized statistical rating organization. Investments in these higher yielding 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.
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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 invests in certain obligations that may have liquidity protection to ensure that the receipt of payments due on the underlying security is timely. Such protection may be provided through guarantees, insurance policies or letters of credit obtained by the issuer or sponsor through third parties, through various means of structuring the transaction or through a combination of such approaches. The Fund will not pay any additional fees for such credit support, although the existence of credit support may increase the price of a security.
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 schedule of investments.
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 7, management has determined that no other material events or transactions occurred subsequent to Oct. 31, 2013 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 assets and liabilities, including the schedule of investments, 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, 2013, 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 four 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, 2013 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for the year 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 23, 2013
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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 the 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 disclosures 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 reporting, it is the intention of the Fund to report the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
For the fiscal year ended Oct 31, 2013, the Fund reports distributions paid during the year as follows:
(A) Long-Term Distributions (Tax Basis) | 9.61% |
(B) Ordinary Income Distributions (Tax Basis) | 71.48% |
(C) Return of Capital (Tax Basis) | 18.91% |
Total Distributions (Tax Basis) | 100.00% |
(A), (B) and (C) are based on a percentage of the Fund’s total distributions.
For the fiscal year ended Oct 31, 2013, certain interest income paid by the Fund, determined to be Qualified Interest Income 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 Job Creations Act of 2010, and the American Taxpayer Relief Act of 2012. For the fiscal year ended Oct 31, 2013, the Fund has reported maximum distributions of Qualified Interest Income of $244,477,532.
Board consideration of Delaware Diversified Income Fund investment advisory agreement
At a meeting held on August 20-22, 2013 (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 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
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Other Fund information
(Unaudited)
Delaware Diversified Income Fund
Board consideration of Delaware Diversified Income Fund investment advisory agreement (continued)
provided to the Trustees in May 2013 and included 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 for 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 recent 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 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.
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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 ended March 31, 2013. 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- and three-year periods was in the fourth 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 quartile of its Performance Universe. The Fund’s short-term performance results were not in line with the Board’s objective. In evaluating the Fund’s performance, the Board considered the investment policy changes implemented in late 2012. The Board also considered the numerous investment and performance reports delivered by Management personnel to the Board’s Investments Committee. The Board was satisfied with the Fund’s longer term performance and believed that Management was taking action to improve the Fund’s short-term performance and to meet the Board’s performance objective.
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
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Other Fund information
(Unaudited)
Delaware Diversified Income Fund
Board consideration of Delaware Diversified Income Fund investment advisory agreement (continued)
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, reflects 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 Management Agreement provides a sharing of benefits with the Fund and its shareholders.
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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 | ||||
Independent Trustees | ||||
Thomas L. Bennett | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
October 1947 | ||||
Joseph W. Chow | Trustee | Since January 2013 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1953 | ||||
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 |
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 | 70 | 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) | ||||
Private Investor | 70 | Director | ||
(March 2004–Present) | Bryn Mawr Bank Corp. (BMTC) | |||
(2007–2011) | ||||
Executive Vice President | 70 | Director and Audit Committee | ||
(Emerging Economies Strategies, | Member — Hercules | |||
Risk and Corporate Administration) | Technology Growth | |||
State Street Corporation | Capital, Inc. | |||
(July 2004–March 2011) | ||||
President | 70 | Director — Hershey Trust | ||
Drexel University | ||||
(August 2010–Present) | Director and Audit | |||
Committee Member | ||||
President | Community Health Systems | |||
Franklin & Marshall College | ||||
(July 2002–July 2010) | ||||
Managing Director | 70 | None | ||
AKA Strategy | ||||
(Strategic Consulting) | ||||
(1990–Present) |
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 (continued) | ||||
Lucinda S. Landreth | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
June 1947 | ||||
Frances A. Sevilla-Sacasa | Trustee | Since September 2011 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1956 | ||||
Thomas K. Whitford | Trustee | Since January 2013 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
March 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 | ||
Private Investor | 70 | None | ||
(2004–Present) | ||||
Chief Executive Officer — | 70 | Trust Manager and | ||
Banco Itaú Europa | Audit Committee | |||
International | Member — Camden | |||
(April 2012–Present) | Property Trust | |||
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) | ||||
Vice Chairman | 70 | None | ||
(2010–April 2013) | ||||
Chief Administrative | ||||
Officer (2008–2010) | ||||
and Executive Vice | ||||
President and Chief | ||||
Administrative Officer | ||||
(2007–2009) — | ||||
PNC Financial | ||||
Services Group |
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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 | ||||
106
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 | 70 | 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 | ||||
(2005–2012) | ||||
Founder | 70 | Director and Compensation | ||
Investor Analytics | Committee Member | |||
(Risk Management) | Investor Analytics | |||
(May 1999–Present) | ||||
Director — P/E Investments | ||||
Founder | ||||
P/E Investments | ||||
(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 | Senior Vice President, | Senior Vice President, | ||
2005 Market Street | Deputy General | Deputy General Counsel | ||
Philadelphia, PA 19103 | Counsel, and Secretary | since May 2013; | ||
December 1963 | Vice President, Deputy | |||
General Counsel | ||||
September 2000– | ||||
May 2013; Secretary since | ||||
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.
108
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 | 70 | None3 | ||
Deputy General Counsel of | ||||
Delaware Investments | ||||
since 2000. | ||||
Daniel V. Geatens has served | 70 | None3 | ||
in various capacities at | ||||
different times at | ||||
Delaware Investments. | ||||
David P. O’Connor has served in | 70 | None3 | ||
various executive and legal | ||||
capacities at different times | ||||
at Delaware Investments. | ||||
Richard Salus has served in | 70 | 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 | Joseph W. Chow John A. Fry Anthony D. Knerr | Lucinda S. Landreth Frances A. Sevilla-Sacasa | Thomas K. Whitford Janet L. Yeomans J. Richard Zecher |
Affiliated officers | |||
David F. Connor | Daniel V. Geatens | David P. O’Connor | Richard Salus |
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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Annual report Delaware U.S. Growth Fund October 31, 2013 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 its summary prospectus, which may be obtained by visiting delawareinvestments.com or calling 800 523-1918. Investors should read the prospectus and 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.
- 24-hour access to your account information
- Obtain share prices
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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 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 | |
Schedule of investments | 12 | |
Statement of assets and liabilities | 16 | |
Statement of operations | 18 | |
Statements of changes in net assets | 20 | |
Financial highlights | 22 | |
Notes to financial statements | 32 | |
Report of independent registered | ||
public accounting firm | 42 | |
Other Fund information | 43 | |
Board of trustees/directors and | ||
officers addendum | 48 | |
About the organization | 56 |
Unless otherwise noted, views expressed herein are current as of Oct. 31, 2013, 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.
© 2013 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 12, 2013 |
Performance preview (for the year ended October 31, 2013) | |||||
Delaware U.S. Growth Fund (Class A shares) | 1-year return | + | 26.92 | % | |
Russell 1000® Growth Index (benchmark) | 1-year return | + | 28.29 | % |
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.
The Fund’s fiscal year ended Oct. 31, 2013 was generally a positive one for U.S. equity markets as the S&P 500® Index gained 27% and the Dow Jones Industrial Average gained 22%. The trend outside the United States was mixed, as the MSCI EAFE Index (net) rose 27% while emerging markets struggled a bit — the MSCI Emerging Markets Index (net), for example, returned just 7%. Overall, despite relatively subdued economic conditions and mounting U.S. fiscal policy uncertainty, many investors appeared to embrace riskier assets. (Source: Bloomberg.)
More so than in the past, many investors seemed to take their cues from central bank policy makers during the fiscal year. Federal Reserve comments about the potential for scaling back asset purchases, for example, precipitated a selloff in risk assets. On Sept. 18, 2013, however, the Fed surprised investors by not following through on the scale back. In its announcement, the Fed noted a “tightening of financial conditions” in recent months and the need to see more evidence that economic progress can be sustained. On the day of the announcement, the absence of a stimulus reduction boosted the broad market by more than 1.1% (source: Bloomberg). Despite investors’ focus on the Fed, the U.S. economy continued to experience moderate momentum as the fiscal year progressed. Employment and housing statistics showed strength, while manufacturing and aspects of consumer demand were more challenged.
As the fiscal year concluded, there was a series of important, market-moving news events that included the following: Detroit filed for bankruptcy in July 2013; the U.S. engaged in the Syrian chemical weapons saga (which raised the specter of another war in the Middle East); and the federal government shut down many of its nonessential activities. U.S. equities reacted to the news flow, generally experiencing up-down-up months, but ultimately continued their advance, amid a rebound in international developed and emerging market stocks.
Fund performance
For the fiscal year ended Oct. 31, 2013, Delaware U.S. Growth Fund (Class A shares) returned +26.92% at net asset value and +19.60% at maximum offer price (both figures reflect all distributions reinvested). During the same period, the Fund’s benchmark, the Russell 1000 Growth Index, returned +28.29%. 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
Despite strong relative performance in the financial services and consumer staples sectors, Fund performance was partially offset by weak relative performance in the healthcare and producer durables sectors.
Priceline.com was one of the strongest contributors to performance during the fiscal year. The company continued to post what we viewed as attractive financial results based on strong growth both domestically and in its European hotel booking business. We believe the potential for market share gains still exists in Europe and that the current expansion into other geographies — such as Asia — may prove beneficial. While the North American online travel industry has become increasingly competitive and sustainable domestic returns may be difficult to maintain, we think there may be opportunities overseas for companies like priceline.com that have established a lead in markets if significant secular growth continues.
Celgene, which was added to the Fund in November 2012, also contributed to performance. The company, a leading player in the treatment of blood cancers, has a growing product pipeline in breast, lung, and pancreatic cancers. During the fiscal year, the FDA approved its drug within the pancreatic cancer segment. This could be meaningful both for the company and patient community. Additionally, in our view, Celgene appears poised to benefit from growth potential, which may be driven by additional indications of its drugs, by increased usage of existing drugs, and by international growth opportunities.
Walgreen also contributed to performance during the fiscal year. The company benefited from an upward bias to revenues and earnings as some of the lost Express Scripts business continued to return in the aftermath of the two companies’ settled contract dispute. The company has also made strategic moves such as acquisitions and expansion of onsite health services, which we believe could be meaningful for the company’s growth going forward.
Teradata, a mid-sized database software company that specializes in aggregating data for business analytics and decision-making, detracted from performance during the fiscal year. The stock declined amid concerns about a difficult information technology spending environment when the company reported earnings that missed investor expectations. Despite these concerns, we believe the issues are transitory as Teradata continued to sign up new clients and grow its existing client business. Furthermore, the company continued to benefit from the market's overall favorable view of the cloud computing and business analytics industry. We believe the company may be well-positioned in a technology spending environment that appears focused on making technology buys with a definable return on investment.
Kinder Morgan was a detractor from the Fund’s performance during the fiscal year. The company suffered from a high-profile research report released by a hedge fund that argued the company was overvalued due to a variety of factors. (The most notable assertion was that the company was misleading investors about the amount of cash-flow generation). While the report and consequent investor concern caused the stock to sell off, we disagreed with the short seller’s characterization of management’s intent and execution of the company’s operating fundamentals. We are satisfied
2
that the company has adequately addressed the concerns raised by the report; therefore, we believe our research confirms our original thesis about the company. Natural gas distribution is a gating factor to the increased potential use of natural gas in the energy grid, and Kinder Morgan, which operates the largest North American gas pipeline, has what we view as a unique competitive position to potentially take advantage of this industry structure.
Allergan also detracted from the Fund’s performance during the fiscal year. The stock ended the period relatively flat from where it started but experienced volatility along the way. In spring 2013, the company received disappointing news regarding the FDA’s proposal to allow a generic version of one of its key drugs to be approved without clinical testing. The company also reported disappointing mid-stage clinical trial results for one of its pipeline products. Despite these setbacks, we believed the company continued to operate at a high level, driven by the core ophthalmology franchise as well as by the broader use of Botox in other noncosmetic, medical indications.
Regardless of the economic outcome, we remain consistent in our long-term investment philosophy: We want 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, 2013 |
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 and benchmark performance1,2 | Average annual total returns through October 31, 2013 | |||||
1 year | 5 years | 10 years | ||||
Class A (Est. Dec. 3, 1993) | ||||||
Excluding sales charge | +26.92% | +18.51% | +7.32% | |||
Including sales charge | +19.60% | +17.12% | +6.69% | |||
Class B (Est. March 29, 1994) | ||||||
Excluding sales charge | +26.14% | +17.64% | +6.69% | |||
Including sales charge | +22.14% | +17.41% | +6.69% | |||
Class C (Est. May 23, 1994) | ||||||
Excluding sales charge | +26.04% | +17.62% | +6.54% | |||
Including sales charge | +25.04% | +17.62% | +6.54% | |||
Class R (Est. June 2, 2003) | ||||||
Excluding sales charge | +26.66% | +18.22% | +7.06% | |||
Including sales charge | +26.66% | +18.22% | +7.06% | |||
Institutional Class (Est. Feb. 3, 1994) | ||||||
Excluding sales charge | +27.29% | +18.82% | +7.61% | |||
Including sales charge | +27.29% | +18.82% | +7.61% | |||
Russell 1000 Growth Index | +28.29% | +17.51% | +7.70% |
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. 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. Prior to Oct. 1, 2013, Class A shares had an annual distribution and service fee of 0.30% of average daily net assets. This fee was contractually limited to 0.25% during the period from Nov. 1, 2012 until Oct. 1, 2013. Performance for Class A shares, excluding sales charges, assumes that no front-end sales charge applied.
4
Class B shares may be purchased only through dividend reinvestment and certain permitted exchanges as described in the prospectus. 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. This fee has been contractually limited to 0.25% of average daily net assets from Oct. 1, 2013, through Sept. 30, 2014. 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 0.50% of average daily net assets. Prior to Oct. 1, 2013, Class R shares had an annual distribution and service fee of 0.60% of average daily net assets. This fee was contractually limited to 0.50% during the period from Nov. 1, 2012 until Oct. 1, 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.
2The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table. Delaware Management Company has agreed to reimburse certain expenses and/or waive certain fees in order to prevent total fund operating expenses (excluding any 12b-1 plan, taxes, interest, inverse floater program expenses, short sale and dividend interest expenses, brokerage fees, certain insurance costs, acquired fund fees and expenses, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations (collectively nonroutine expenses)) from exceeding 0.85% of the Fund’s average daily net assets during the period from Nov. 1, 2012, through Feb. 28, 2014. 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 | 1.11% | 1.86% | 1.86% | 1.36% | 0.86% | |||||
(without fee waivers) | ||||||||||
Net expenses | 1.10% | 1.10% | 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, 2003, through Oct. 31, 2013
For period beginning Oct. 31, 2003, through Oct. 31, 2013 | Starting value | Ending value | ||
Russell 1000 Growth Index | $10,000 | $21,002 | ||
Delaware U.S. Growth Fund — Class A shares | $9,425 | $19,137 |
1 The “Performance of a $10,000 investment” graph assumes $10,000 invested in Class A shares of the Fund on Oct. 31, 2003, 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. Expenses are listed in the “Fund expense ratios” table on page 5. Please note additional details on pages 4 through 7.
The chart also assumes $10,000 invested in the Russell 1000 Growth Index as of Oct. 31, 2003. 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.
The S&P 500 Index, which is mentioned on page 1, measures the performance of 500 mostly large-cap stocks weighted by market value, and is often used to represent performance of the U.S. stock market.
The Dow Jones Industrial Average, which is mentioned on page 1, is an often-quoted market indicator that comprises 30 widely held blue-chip stocks.
The MSCI EAFE Index, which is mentioned on page 1, measures equity market performance across developed market countries in Europe, Australasia, and the Far East. Index “net” return approximates the minimum possible dividend reinvestment, after deduction of withholding tax at the highest possible rate.
6
The MSCI Emerging Markets Index, which is mentioned on page 1, measures equity market performance across emerging market countries worldwide. Index “net” return approximates the minimum possible dividend reinvestment, after deduction of withholding tax at the highest possible rate.
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 |
7
Disclosure of Fund expenses
For the six-month period from May 1, 2013 to October 31, 2013 (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, 2013 to Oct. 31, 2013.
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 | |||||
5/1/13 | 10/31/13 | Expense Ratio | 5/1/13 to 10/31/13* | |||||
Actual Fund return† | ||||||||
Class A | $1,000.00 | $1,133.10 | 1.08% | $5.81 | ||||
Class B | 1,000.00 | 1,129.40 | 1.73% | 9.29 | ||||
Class C | 1,000.00 | 1,128.80 | 1.83% | 9.82 | ||||
Class R | 1,000.00 | 1,131.50 | 1.33% | 7.15 | ||||
Institutional Class | 1,000.00 | 1,134.80 | 0.83% | 4.47 | ||||
Hypothetical 5% return (5% return before expenses) | ||||||||
Class A | $1,000.00 | $1,019.76 | 1.08% | $5.50 | ||||
Class B | 1,000.00 | 1,016.48 | 1.73% | 8.80 | ||||
Class C | 1,000.00 | 1,015.98 | 1.83% | 9.30 | ||||
Class R | 1,000.00 | 1,018.50 | 1.33% | 6.77 | ||||
Institutional Class | 1,000.00 | 1,021.02 | 0.83% | 4.23 |
*“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (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
top 10 equity holdings
Delaware U.S. Growth Fund | As of October 31, 2013 (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 | 97.94 | % |
Consumer Discretionary | 19.16 | % |
Consumer Staples | 4.48 | % |
Energy | 9.32 | % |
Financial Services | 19.02 | % |
Healthcare | 12.36 | % |
Materials & Processing | 2.03 | % |
Technology | 31.57 | % |
Warrant | 0.08 | % |
Short-Term Investments | 0.88 | % |
Total Value of Securities | 98.90 | % |
Receivables and Other Assets Net of Liabilities | 1.10 | % |
Total Net Assets | 100.00 | % |
²Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting.
To monitor compliance with the Fund’s concentration guidelines as described in the Fund’s Prospectus and Statement of Additional Information, the Technology sector (as disclosed herein for financial reporting purposes) is subdivided into a variety of “industries” (in accordance with the requirements of the 1940 Act) such as computers, internet , semiconductors, software and telecommunications. As of 10/31/2013 such amounts, as percentage of total net assets, were 3.80%, 6.86% 4.56%, 11.31% and 5.04% respectively. The percentage in any such single industry will comply with the Fund’s concentration policy even if the percentage in the “Technology sector” for financial reporting purposes may exceed 25%.
10
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 | |
Visa Class A | 5.61 | % |
MasterCard Class A | 5.44 | % |
EOG Resources | 5.33 | % |
Crown Castle International | 5.04 | % |
Liberty Interactive Class A | 4.81 | % |
Celgene | 4.69 | % |
Google Class A | 4.60 | % |
QUALCOMM | 4.56 | % |
Walgreen | 4.48 | % |
priceline.com | 4.00 | % |
11
Schedule of investments | |
Delaware U.S. Growth Fund | October 31, 2013 |
Number of shares | Value | ||||
²Common Stock – 97.94% | |||||
Consumer Discretionary – 19.16% | |||||
† | eBay | 1,503,200 | $ | 79,233,672 | |
L Brands | 1,527,050 | 95,608,601 | |||
† | Liberty Interactive Class A | 4,611,115 | 124,315,660 | ||
NIKE Class B | 813,875 | 61,659,170 | |||
† | priceline.com | 98,300 | 103,591,489 | ||
† | Sally Beauty Holdings | 1,192,948 | 31,398,391 | ||
495,806,983 | |||||
Consumer Staples – 4.48% | |||||
Walgreen | 1,958,650 | 116,030,426 | |||
116,030,426 | |||||
Energy – 9.32% | |||||
EOG Resources | 772,325 | 137,782,780 | |||
Kinder Morgan | 2,927,058 | 103,354,418 | |||
241,137,198 | |||||
Financial Services – 19.02% | |||||
CME Group | 760,298 | 56,421,715 | |||
† | IntercontinentalExchange | 403,075 | 77,684,645 | ||
MasterCard Class A | 196,325 | 140,784,658 | |||
Progressive | 2,781,589 | 72,237,866 | |||
Visa Class A | 737,725 | 145,088,375 | |||
492,217,259 | |||||
Healthcare – 12.36% | |||||
Allergan | 965,700 | 87,502,077 | |||
† | Celgene | 817,075 | 121,327,467 | ||
Novo Nordisk ADR | 360,700 | 60,117,869 | |||
Perrigo | 369,106 | 50,896,026 | |||
319,843,439 | |||||
Materials & Processing – 2.03% | |||||
Syngenta ADR | 649,225 | 52,424,919 | |||
52,424,919 |
12
Number of shares | Value | ||||||
²Common Stock (continued) | |||||||
Technology – 31.57% | |||||||
† | Adobe Systems | 1,790,150 | $ | 97,026,130 | |||
Apple | 98,925 | 51,673,474 | |||||
† | Crown Castle International | 1,717,099 | 130,533,865 | ||||
† | Google Class A | 115,525 | 119,057,755 | ||||
Intuit | 1,115,600 | 79,664,996 | |||||
Microsoft | 2,743,025 | 96,965,934 | |||||
QUALCOMM | 1,697,575 | 117,930,535 | |||||
† | Teradata | 1,056,350 | 46,553,345 | ||||
† | VeriFone Systems | 836,700 | 18,959,622 | ||||
† | VeriSign | 1,075,125 | 58,357,785 | ||||
816,723,441 | |||||||
Total Common Stock (cost $2,009,008,632) | 2,534,183,665 | ||||||
Warrant – 0.08% | |||||||
† | Kinder Morgan CW17 | ||||||
strike price $40.00, expiration date 5/25/17 | 460,552 | 1,971,163 | |||||
Total Warrant (cost $843,781) | 1,971,163 | ||||||
Principal amount | |||||||
Short-Term Investments – 0.88% | |||||||
≠Discount Notes – 0.16% | |||||||
Federal Home Loan Bank | |||||||
0.025% 11/15/13 | $ | 314,113 | 314,111 | ||||
0.05% 12/27/13 | 177,321 | 177,315 | |||||
0.065% 11/6/13 | 3,553,707 | 3,553,704 | |||||
4,045,130 | |||||||
Repurchase Agreements – 0.60% | |||||||
Bank of America 0.06%, dated 10/31/13, to be | |||||||
repurchased on 11/1/13, repurchase price $3,893,777 | |||||||
(collateralized by U.S. government obligations | |||||||
0.625%-1.625% 7/15/14-1/15/15; | |||||||
market value $3,971,647) | 3,893,771 | 3,893,771 | |||||
BNP Paribas 0.08%, dated 10/31/13, to be repurchased on | |||||||
11/1/13, repurchase price $11,711,255 (collateralized | |||||||
by U.S. government obligations 0.25%-3.875% | |||||||
12/15/13-8/15/40; market value $11,945,454) | 11,711,229 | 11,711,229 | |||||
15,605,000 |
13
Schedule of investments
Delaware U.S. Growth Fund
Principal amount | Value | ||||
Short-Term Investments (continued) | |||||
≠U.S. Treasury Obligations – 0.12% | |||||
U.S. Treasury Bills | |||||
0.0325% 1/23/14 | $ | 377,186 | $ | 377,155 | |
0.0525% 11/14/13 | 2,388,380 | 2,388,368 | |||
0.065% 4/24/14 | 452,623 | 452,453 | |||
3,217,976 | |||||
Total Short-Term Investments (cost $22,868,064) | 22,868,106 | ||||
Total Value of Securities – 98.90% | |||||
(cost $2,032,720,477) | $ | 2,559,022,934 |
² | Narrow industries are utilized for compliance purposes for diversification whereas broad sectors are used for financial reporting. |
† | Non income producing security. |
≠ | The rate shown is the effective yield at the time of purchase. |
ADR – American Depositary Receipt
See accompanying notes, which are an integral part of the financial statements.
14
Statement of assets and liabilities | |
Delaware U.S. Growth Fund | October 31, 2013 |
Assets: | |||
Investments, at value1 | $ | 2,536,154,828 | |
Short-term investments, at value2 | 22,868,106 | ||
Cash | 175,213 | ||
Receivable for securities sold | 62,473,205 | ||
Dividends and interest receivable | 1,293,458 | ||
Receivable for fund shares sold | 9,732,360 | ||
Total assets | 2,632,697,170 | ||
Liabilities: | |||
Payable for securities purchased | 41,944,853 | ||
Payable for fund shares redeemed | 1,218,851 | ||
Investment management fees payable | 1,253,420 | ||
Distribution fees payable to affiliates | 124,387 | ||
Other affiliates payable | 87,931 | ||
Trustees’ fees payable | 7,098 | ||
Other accrued expenses | 675,508 | ||
Total liabilities | 45,312,048 | ||
Total Net Assets | $ | 2,587,385,122 | |
Net Assets Consist of: | |||
Paid-in capital | $ | 2,096,067,765 | |
Undistributed net investment income | 429,951 | ||
Accumulated net realized loss on investments | (35,415,051 | ) | |
Net unrealized appreciation of investments | 526,302,457 | ||
Total Net Assets | $ | 2,587,385,122 | |
1Investments, at cost | $ | 2,009,852,413 | |
2Short-term investments, at cost | 22,868,064 |
16
Net Asset Value
Class A | ||
Net assets | $ | 290,303,423 |
Shares of beneficial interest outstanding, unlimited authorization, no par | 13,211,195 | |
Net asset value per share | $ | 21.97 |
Sales charge | 5.75% | |
Offering price per share, equal to net asset value per share/(1 - sales charge) | $ | 23.31 |
Class B | ||
Net assets | $ | 1,459,472 |
Shares of beneficial interest outstanding, unlimited authorization, no par | 77,764 | |
Net asset value per share | $ | 18.77 |
Class C | ||
Net assets | $ | 67,898,340 |
Shares of beneficial interest outstanding, unlimited authorization, no par | 3,339,451 | |
Net asset value per share | $ | 20.33 |
Class R | ||
Net assets | $ | 23,814,467 |
Shares of beneficial interest outstanding, unlimited authorization, no par | 1,111,251 | |
Net asset value per share | $ | 21.43 |
Institutional Class | ||
Net assets | $ | 2,203,909,420 |
Shares of beneficial interest outstanding, unlimited authorization, no par | 94,561,565 | |
Net asset value per share | $ | 23.31 |
See accompanying notes, which are an integral part of the financial statements.
17
Statement of operations | |
Delaware U.S. Growth Fund | Year Ended October 31, 2013 |
Investment Income: | |||||||
Dividends | $ | 16,411,232 | |||||
Securities lending income | 1,160 | ||||||
Interest | 22,495 | ||||||
Foreign tax withheld | (216,990 | ) | $ | 16,217,897 | |||
Expenses: | |||||||
Management fees | 9,422,670 | ||||||
Distribution expenses – Class A | 610,823 | ||||||
Distribution expenses – Class B | 18,095 | ||||||
Distribution expenses – Class C | 484,417 | ||||||
Distribution expenses – Class R | 104,820 | ||||||
Dividend disbursing and transfer agent fees and expenses | 2,679,658 | ||||||
Accounting and administration expenses | 611,445 | ||||||
Registration fees | 172,384 | ||||||
Reports and statements to shareholders | 152,337 | ||||||
Legal fees | 94,084 | ||||||
Trustees’ fees | 69,750 | ||||||
Audit and tax | 30,025 | ||||||
Custodian fees | 28,879 | ||||||
Insurance | 18,764 | ||||||
Dues and services | 13,376 | ||||||
Consulting fees | 12,429 | ||||||
Trustees’ expenses | 4,632 | ||||||
Pricing fees | 2,954 | 14,531,542 | |||||
Less expenses absorbed or waived | (41,578 | ) | |||||
Less waived distribution expenses – Class A | (91,944 | ) | |||||
Less waived distribution expenses – Class B | (918 | ) | |||||
Less waived distribution expenses – Class R | (15,932 | ) | |||||
Less expense paid indirectly | (551 | ) | |||||
Total operating expenses | 14,380,619 | ||||||
Net Investment Income | 1,837,278 |
18
Net Realized and Unrealized Gain: | ||
Net realized gain on investments | $ | 114,719,095 |
Net change in unrealized appreciation | ||
(depreciation) of investments | 288,392,710 | |
Net Realized and Unrealized Gain | 403,111,805 | |
Net Increase in Net Assets Resulting from Operations | $ | 404,949,083 |
See accompanying notes, which are an integral part of the financial statements.
19
Statements of changes in net assets
Delaware U.S. Growth Fund
Year Ended | |||||||
10/31/13 | 10/31/12 | ||||||
Increase (Decrease) in Net Assets from Operations: | |||||||
Net investment income (loss) | $ | 1,837,278 | $ | (7,753 | ) | ||
Net realized gain | 114,719,095 | 15,012,947 | |||||
Net change in unrealized appreciation (depreciation) | 288,392,710 | 93,577,399 | |||||
Net increase in net assets resulting from operations | 404,949,083 | 108,582,593 | |||||
Dividends and Distributions to Shareholders from: | |||||||
Net investment income: | |||||||
Institutional Class | (1,407,327 | ) | (762,634 | ) | |||
(1,407,327 | ) | (762,634 | ) | ||||
Capital Share Transactions: | |||||||
Proceeds from shares sold: | |||||||
Class A | 157,616,843 | 97,179,803 | |||||
Class B | 67,162 | 11,237 | |||||
Class C | 32,926,610 | 18,695,774 | |||||
Class R | 17,216,523 | 10,559,111 | |||||
Institutional Class | 1,255,751,527 | 381,972,084 | |||||
Net asset value of shares issued upon reinvestment | |||||||
of dividends and distributions: | |||||||
Institutional Class | 1,281,746 | 611,918 | |||||
1,464,860,411 | 509,029,927 | ||||||
Cost of shares redeemed: | |||||||
Class A | (64,441,424 | ) | (23,402,778 | ) | |||
Class B | (1,294,061 | ) | (1,473,929 | ) | |||
Class C | (7,646,363 | ) | (3,249,329 | ) | |||
Class R | (8,779,050 | ) | (1,429,661 | ) | |||
Institutional Class | (312,149,814 | ) | (116,061,003 | ) | |||
(394,310,712 | ) | (145,616,700 | ) | ||||
Increase in net assets derived from | |||||||
capital share transactions | 1,070,549,699 | 363,413,227 | |||||
Net Increase in Net Assets | 1,474,091,455 | 471,233,186 | |||||
Net Assets: | |||||||
Beginning of year | 1,113,293,667 | 642,060,481 | |||||
End of year (including undistributed net investment | |||||||
income of $429,951 and $—, respectively) | $ | 2,587,385,122 | $ | 1,113,293,667 |
See accompanying notes, which are an integral part of the financial statements.
20
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 |
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.
22
Year Ended | |||||||||||||||
10/31/13 | 10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | |||||||||||
$17.310 | $14.960 | $13.450 | $11.100 | $9.380 | |||||||||||
(0.012 | ) | (0.031 | ) | 0.006 | (0.038 | ) | 0.001 | ||||||||
4.672 | 2.381 | 1.504 | 2.388 | 1.719 | |||||||||||
4.660 | 2.350 | 1.510 | 2.350 | 1.720 | |||||||||||
$21.970 | $17.310 | $14.960 | $13.450 | $11.100 | |||||||||||
26.92% | 15.71% | 11.23% | 21.17% | 18.34% | |||||||||||
$290,303 | $146,112 | $60,615 | $89,259 | $128,702 | |||||||||||
1.09% | 1.10% | 1.10% | 1.07% | 1.00% | |||||||||||
1.13% | 1.16% | 1.21% | 1.26% | 1.31% | |||||||||||
(0.06% | ) | (0.19% | ) | 0.04% | (0.31% | ) | 0.00% | ||||||||
(0.10% | ) | (0.25% | ) | (0.07% | ) | (0.50% | ) | (0.31% | ) | ||||||
23% | 20% | 25% | 22% | 30% |
23
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 |
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 and/or 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.
24
Year Ended | |||||||||||||||
10/31/13 | 10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | |||||||||||
$14.880 | $12.960 | $11.740 | $9.760 | $8.310 | |||||||||||
(0.125 | ) | (0.134 | ) | (0.090 | ) | (0.114 | ) | (0.058 | ) | ||||||
4.015 | 2.054 | 1.310 | 2.094 | 1.508 | |||||||||||
3.890 | 1.920 | 1.220 | 1.980 | 1.450 | |||||||||||
$18.770 | $14.880 | $12.960 | $11.740 | $9.760 | |||||||||||
26.14% | 14.81% | 10.39% | 20.29% | 17.45% | |||||||||||
$1,460 | $2,271 | $3,288 | $4,428 | $5,564 | |||||||||||
1.79% | 1.85% | 1.85% | 1.82% | 1.75% | |||||||||||
1.84% | 1.86% | 1.91% | 1.96% | 2.01% | |||||||||||
(0.76% | ) | (0.94% | ) | (0.71% | ) | (1.06% | ) | (0.75% | ) | ||||||
(0.81% | ) | (0.95% | ) | (0.77% | ) | (1.20% | ) | (1.01% | ) | ||||||
23% | 20% | 25% | 22% | 30% |
25
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 |
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.
26
Year Ended | |||||||||||||||
10/31/13 | 10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | |||||||||||
$16.130 | $14.050 | $12.720 | $10.580 | $9.010 | |||||||||||
(0.147 | ) | (0.146 | ) | (0.098 | ) | (0.123 | ) | (0.065 | ) | ||||||
4.347 | 2.226 | 1.428 | 2.263 | 1.635 | |||||||||||
4.200 | 2.080 | 1.330 | 2.140 | 1.570 | |||||||||||
$20.330 | $16.130 | $14.050 | $12.720 | $10.580 | |||||||||||
26.04% | 14.80% | 10.46% | 20.23% | 17.43% | |||||||||||
$67,898 | $31,103 | $13,456 | $12,535 | $13,112 | |||||||||||
1.84% | 1.85% | 1.85% | 1.82% | 1.75% | |||||||||||
1.84% | 1.86% | 1.91% | 1.96% | 2.01% | |||||||||||
(0.81% | ) | (0.94% | ) | (0.71% | ) | (1.06% | ) | (0.75% | ) | ||||||
(0.81% | ) | (0.95% | ) | (0.77% | ) | (1.20% | ) | (1.01% | ) | ||||||
23% | 20% | 25% | 22% | 30% |
27
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 |
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 |
See accompanying notes, which are an integral part of the financial statements.
28
Year Ended | |||||||||||||||
10/31/13 | 10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | |||||||||||
$16.920 | $14.660 | $13.210 | $10.930 | $9.260 | |||||||||||
(0.059 | ) | (0.073 | ) | (0.030 | ) | (0.067 | ) | (0.022 | ) | ||||||
4.569 | 2.333 | 1.480 | 2.347 | 1.692 | |||||||||||
4.510 | 2.260 | 1.450 | 2.280 | 1.670 | |||||||||||
$21.430 | $16.920 | $14.660 | $13.210 | $10.930 | |||||||||||
26.66% | 15.42% | 10.98% | 20.86% | 18.03% | |||||||||||
$23,815 | $11,202 | $1,697 | $2,375 | $2,336 | |||||||||||
1.34% | 1.35% | 1.35% | 1.32% | 1.25% | |||||||||||
1.43% | 1.46% | 1.51% | 1.56% | 1.61% | |||||||||||
(0.31% | ) | (0.44% | ) | (0.21% | ) | (0.56% | ) | (0.25% | ) | ||||||
(0.40% | ) | (0.55% | ) | (0.37% | ) | (0.80% | ) | (0.61% | ) | ||||||
23% | 20% | 25% | 22% | 30% |
29
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 |
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 |
See accompanying notes, which are an integral part of the financial statements.
30
Year Ended | |||||||||||||||
10/31/13 | 10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | |||||||||||
$18.340 | $15.830 | $14.220 | $11.710 | $9.890 | |||||||||||
0.039 | 0.011 | 0.045 | (0.008 | ) | 0.024 | ||||||||||
4.959 | 2.520 | 1.587 | 2.527 | 1.813 | |||||||||||
4.998 | 2.531 | 1.632 | 2.519 | 1.837 | |||||||||||
(0.028 | ) | (0.021 | ) | (0.022 | ) | (0.009 | ) | (0.017 | ) | ||||||
(0.028 | ) | (0.021 | ) | (0.022 | ) | (0.009 | ) | (0.017 | ) | ||||||
$23.310 | $18.340 | $15.830 | $14.220 | $11.710 | |||||||||||
27.29% | 16.01% | 11.48% | 21.42% | 18.48% | |||||||||||
$2,203,909 | $922,606 | $563,004 | $477,361 | $460,756 | |||||||||||
0.84% | 0.85% | 0.85% | 0.82% | 0.75% | |||||||||||
0.84% | 0.86% | 0.91% | 0.96% | 1.01% | |||||||||||
0.19% | 0.06% | 0.29% | (0.06% | ) | 0.25% | ||||||||||
0.19% | 0.05% | 0.23% | (0.20% | ) | (0.01% | ) | |||||||||
23% | 20% | 25% | 22% | 30% |
31
Notes to financial statements | |
Delaware U.S. Growth Fund | October 31, 2013 |
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 1.00% 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 4.00% 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 1.00%, 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).
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
32
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 (Oct. 31, 2010–Oct. 31, 2013), 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 Oct. 31, 2013.
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 among 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. 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 tax withholdings, a portion of which may be reclaimable. Withholding taxes and reclaims 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 distributions from net investment income and net realized gain on investments, if any, annually. The Fund may distribute more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.
33
Notes to financial statements
Delaware U.S. Growth Fund
1. Significant Accounting Policies (continued)
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 $5,582 for the year ended Oct. 31, 2013. 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 Oct. 31, 2013.
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which are used to offset transfer agent fees. If the amount earned is greater than one dollar, the expense paid under this arrangement is included in dividend disbursing and transfer agent fees and expenses and appears on the statement of operations with the corresponding expense offset shown as “expense paid indirectly.” For the year ended Oct. 31, 2013, the Fund earned $551 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 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 fund operating expenses (excluding any 12b-1 fees, taxes, interest, short sale and dividend interest expenses, brokerage fees, certain insurance costs, acquired fund fees and expenses, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations (collectively nonroutine expenses)) do not exceed 0.85% of average daily net assets of the Fund from Nov. 1, 2012 through Feb. 28, 2014. For purposes of this waiver and reimbursement, nonroutine expenses may also include such additional costs and expenses as may be agreed upon from time to time by the Fund’s Board and DMC. This expense waiver and reimbursement may only be terminated by agreement of DMC and 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
34
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 Oct. 31, 2013, the Fund was charged $76,424 for these services.
DSC is also the transfer agent and dividend disbursing agent of the Fund. For these services, the Fund pays DSC fees based on the aggregate daily net assets of the retail Funds within the Delaware Investments Family of Funds at the following annual rate: 0.025% of the first $20 billion; 0.020% of the next $5 billion; 0.015% of the next $5 billion; and 0.013% on average daily net assets in excess of $30 billion. 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. These amounts are included in the statement of operations as dividend disbursing and transfer agent fees and expenses. For the year ended Oct. 31, 2013, the amounts charged by DSC and BNYMIS were $2,409,367 and $269,740, respectively.
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 1.00% of the average daily net assets of the Class B and Class C shares. This fee has been contractually limited to 0.25% of average daily net assets from Oct. 1, 2013, through Sept. 30, 2014 for Class B. Effective Oct. 1, 2013, the Fund pays DDLP distribution and service fees of 0.25% of the average daily net assets of the Class A shares and 0.50% of the average daily net assets of the Class R shares. Prior to Oct. 1, 2013, the Fund paid an annual distribution and service fee of 0.30%, 1.00% and 0.60% of the average daily net assets of the Class A, Class B and Class R shares, respectively. For the period from Nov. 1, 2012 to Oct. 1, 2013, the distribution and service fees for Class A and Class R were contractually limited to 0.25% and 0.50% of the classes’ average daily net assets. Institutional Class shares pay no distribution and service expenses.
As provided in the investment management agreement, the Fund bears the cost of certain legal services, including internal legal services provided to the Fund by DMC and/or its affiliates’ employees. For the year ended Oct. 31, 2013, the Fund was charged $44,557 for internal legal services provided by DMC and/or its affiliates’ employees.
For the year ended Oct. 31, 2013, DDLP earned $93,721 for commissions on sales of the Fund’s Class A shares. For the year ended Oct. 31, 2013, DDLP received gross CDSC commissions of $119 and $1,566 on redemption of the Fund’s 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 Oct. 31, 2013, the Fund made purchases of $1,388,575,937 and sales of $348,316,631 of investment securities other than short-term investments.
35
Notes to financial statements
Delaware U.S. Growth Fund
3. Investments (continued)
At Oct. 31, 2013, the cost of investments for federal income tax purposes was $2,041,070,230. At Oct. 31, 2013, net unrealized appreciation was $517,952,704, of which $543,413,082 related to unrealized appreciation of investments and $25,460,378 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) |
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.
36
The following table summarizes the valuation of the Fund’s investments by fair value hierarchy levels as of Oct. 31, 2013:
Level 1 | Level 2 | Total | |||||||
Common Stock | $ | 2,534,183,665 | $ | — | $ | 2,534,183,665 | |||
Warrant | 1,971,163 | — | 1,971,163 | ||||||
Short-Term Investments | — | 22,868,106 | 22,868,106 | ||||||
Total | $ | 2,536,154,828 | $ | 22,868,106 | $ | 2,559,022,934 |
During the year ended Oct. 31, 2013, 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.
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 Oct. 31, 2013 and 2012 was as follows:
Year Ended | ||||||
10/31/13 | 10/31/12 | |||||
Ordinary income | $ | 1,407,327 | $ | 762,634 |
5. Components of Net Assets on a Tax Basis
As of Oct. 31, 2013, the components of net assets on a tax basis were as follows:
Shares of beneficial interest | $ | 2,096,067,765 | |
Undistributed ordinary income | 429,951 | ||
Capital loss carryforwards | (27,065,298 | ) | |
Unrealized appreciation | 517,952,704 | ||
Net assets | $ | 2,587,385,122 |
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales.
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. $113,829,684 was utilized in 2013. Capital loss carryforwards remaining at Oct. 31, 2013 will expire as follows: $27,065,298 expires in 2017.
On Dec. 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 are generally effective for taxable years beginning after the date of enactment. Under the Act, the Fund is permitted to carry forward capital losses incurred
37
Notes to financial statements
Delaware U.S. Growth Fund
5. Components of Net Assets on a Tax Basis (continued)
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 | ||||||
10/31/13 | 10/31/12 | |||||
Shares sold: | ||||||
Class A | 8,064,934 | 5,786,607 | ||||
Class B | 4,129 | 782 | ||||
Class C | 1,834,459 | 1,177,946 | ||||
Class R | 932,956 | 632,605 | ||||
Institutional Class | 59,025,140 | 21,318,038 | ||||
Shares issued upon reinvestment of dividends and distributions: | ||||||
Institutional Class | 69,723 | 38,269 | ||||
69,931,341 | 28,954,247 | |||||
Shares redeemed: | ||||||
Class A | (3,297,022 | ) | (1,394,763 | ) | ||
Class B | (78,949 | ) | (101,851 | ) | ||
Class C | (423,054 | ) | (207,560 | ) | ||
Class R | (483,774 | ) | (86,226 | ) | ||
Institutional Class | (14,849,574 | ) | (6,597,075 | ) | ||
(19,132,373 | ) | (8,387,475 | ) | |||
Net increase | 50,798,968 | 20,566,772 |
For the years ended Oct. 31, 2013 and 2012, 36,910 Class B shares were converted to 31,642 Class A shares valued at $603,231 and 53,054 Class B shares were converted to 45,786 Class A shares valued at $773,729, 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
Each Fund, along with certain other funds in the Delaware Investments® Family of Funds (Participants), was a participant in a $125,000,000 revolving line of credit to be used for temporary or emergency purposes as an additional source of liquidity to fund redemptions of investor shares.
38
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 available under the agreement expired on Nov. 13, 2012.
On Nov. 13, 2012, the Funds, along with the other Participants, entered into an amendment to the agreement for a $125,000,000 revolving line of credit. The line of credit was to be used as described above and operated in substantially the same manner as the original agreement. The line of credit available under the agreement expired on Nov. 12, 2013.
On Nov. 12, 2013, the Funds, along with the other Participants, entered into an amendment to the agreement for a $225,000,000 revolving line of credit. The line of credit 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 Nov. 10, 2014.
The Fund had no amounts outstanding as of Oct. 31, 2013 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
39
Notes to financial statements
Delaware U.S. Growth Fund
8. Securities Lending (continued)
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. 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. 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. At Oct. 31, 2013, the Fund had no securities out on loan.
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 illiquid 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 Oct. 31, 2013, there were no Rule 144A securities and no securities have been determined to be illiquid under the Fund’s Liquidity Procedures.
40
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 Oct, 31, 2013 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 U.S. Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, 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, 2013, 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 four 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, 2013 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for the year 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, 2013
42
Other Fund information
(Unaudited)
Delaware U.S. Growth 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 the 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 disclosures 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 reporting, it is the intention of the Fund to report the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
For the fiscal year ended Oct. 31, 2013, the Fund reports distributions paid during the year as follows:
(A) | Ordinary Income Distributions (Tax Basis)* | 100.00% |
(B) | Qualified Dividends1 | 100.00% |
(A) | is based on a percentage of the Fund’s total distributions. |
(B) | is based on the Fund’s ordinary income distributions. |
Board consideration of Delaware U.S. Growth Fund investment advisory agreement
At a meeting held on Aug. 20-22, 2013 (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 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 contract. 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 to the Trustees in May 2013 and included 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
43
Other Fund information
(Unaudited)
Delaware U.S. Growth Fund
Board consideration of Delaware U.S. Growth Fund investment advisory agreement (continued)
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 for 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 recent 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 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
44
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 ended March 31, 2013. 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-, three- and five-year periods was in the first quartile of its Performance Universe. The report further showed that the Fund’s total return for the ten-year period was in the second quartile of its Performance Universe. 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, 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, reflects recent operational cost savings and efficiencies initiated by Delaware Investments. The Board considered
45
Other Fund information
(Unaudited)
Delaware U.S. Growth Fund
Board consideration of Delaware U.S. Growth Fund investment advisory agreement (continued)
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 second 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 fees under the Investment Management Agreement provides a sharing of benefits with the Fund and its shareholders.
46
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 | ||||
Independent Trustees | ||||
Thomas L. Bennett | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
October 1947 | ||||
Joseph W. Chow | Trustee | Since January 2013 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1953 | ||||
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 |
1 Patrick P. Coyne is considered to be an “Interested Trustee” because he is an executive officer of the Fund’s(s’) investment advisor.
48
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 | 70 | 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) | ||||
Private Investor | 70 | Director | ||
(March 2004–Present) | Bryn Mawr Bank Corp. (BMTC) | |||
(2007–2011) | ||||
Executive Vice President | 70 | Director and Audit Committee | ||
(Emerging Economies Strategies, | Member — Hercules | |||
Risk and Corporate Administration) | Technology Growth | |||
State Street Corporation | Capital, Inc. | |||
(July 2004–March 2011) | ||||
President | 70 | Director — Hershey Trust | ||
Drexel University | ||||
(August 2010–Present) | Director and Audit | |||
Committee Member | ||||
President | Community Health Systems | |||
Franklin & Marshall College | ||||
(July 2002–July 2010) | ||||
Managing Director | 70 | None | ||
AKA Strategy | ||||
(Strategic Consulting) | ||||
(1990–Present) |
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.
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) | ||||
Lucinda S. Landreth | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
June 1947 | ||||
Frances A. Sevilla-Sacasa | Trustee | Since September 2011 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1956 | ||||
Thomas K. Whitford | Trustee | Since January 2013 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
March 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 | ||
Private Investor | 70 | None | ||
(2004–Present) | ||||
Chief Executive Officer — | 70 | Trust Manager and | ||
Banco Itaú Europa | Audit Committee | |||
International | Member — Camden | |||
(April 2012–Present) | Property Trust | |||
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) | ||||
Vice Chairman | 70 | None | ||
(2010–April 2013) | ||||
Chief Administrative | ||||
Officer (2008–2010) | ||||
and Executive Vice | ||||
President and Chief | ||||
Administrative Officer | ||||
(2007–2009) — | ||||
PNC Financial | ||||
Services Group |
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 | 70 | 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 | ||||
(2005–2012) | ||||
Founder | 70 | Director and Compensation | ||
Investor Analytics | Committee Member | |||
(Risk Management) | Investor Analytics | |||
(May 1999–Present) | ||||
Director — P/E Investments | ||||
Founder | ||||
P/E Investments | ||||
(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 | Senior Vice President, | Senior Vice President, | ||
2005 Market Street | Deputy General | Deputy General Counsel | ||
Philadelphia, PA 19103 | Counsel, and Secretary | since May 2013; | ||
December 1963 | Vice President, Deputy | |||
General Counsel | ||||
September 2000– | ||||
May 2013; Secretary since | ||||
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 | 70 | None3 | ||
Deputy General Counsel of | ||||
Delaware Investments | ||||
since 2000. | ||||
Daniel V. Geatens has served | 70 | None3 | ||
in various capacities at | ||||
different times at | ||||
Delaware Investments. | ||||
David P. O’Connor has served in | 70 | None3 | ||
various executive and legal | ||||
capacities at different times | ||||
at Delaware Investments. | ||||
Richard Salus has served in | 70 | 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 | Joseph W. Chow John A. Fry Anthony D. Knerr | Lucinda S. Landreth Frances A. Sevilla-Sacasa | Thomas K. Whitford Janet L. Yeomans J. Richard Zecher |
Affiliated officers | |||
David F. Connor | Daniel V. Geatens | David P. O’Connor | Richard Salus |
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
Annual report Delaware International Bond Fund October 31, 2013 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 its summary prospectus, which may be obtained by visiting delawareinvestments.com or calling 800 523-1918. Investors should read the prospectus and 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.
- 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 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 |
Schedule of investments | 11 |
Statement of assets and liabilities | 18 |
Statement of operations | 20 |
Statements of changes in net assets | 22 |
Financial highlights | 24 |
Notes to financial statements | 32 |
Report of independent registered | |
public accounting firm | 47 |
Other Fund information | 48 |
Board of trustees/directors and | |
officers addendum | 52 |
About the organization | 60 |
Unless otherwise noted, views expressed herein are current as of Oct. 31, 2013, 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.
© 2013 Delaware Management Holdings, Inc.
All third-party marks cited are the property of their respective owners.
Portfolio management review | ||
Delaware International Bond Fund | November 12, 2013 |
Performance preview (for the year ended October 31, 2013) | |||
Delaware International Bond Fund (Class A shares) | 1-year return | -6.72% | |
Barclays Global Aggregate ex-USD Index (benchmark) | 1-year return | -1.95% |
For complete, annualized performance for Delaware International Bond 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.
Note: On Nov. 7, 2013, the Board of the Trust unanimously approved the liquidation and dissolution of Delaware International Bond Fund. The liquidation is expected to happen on or about Dec. 31, 2013. In light of the pending liquidation, the Fund is not accepting additional investments from new or current shareholders.
The Fund’s fiscal year ended Oct. 31, 2013 was largely characterized by a “risk on” mentality as investors were willing to take on more risk than usual and embraced a diminution of macroeconomic concerns, most notably in the 17-country euro zone. With domestic nominal and real yields close to record lows, this willingness to take on more volatile assets caused bond yields to inch higher as investors rotated out of fixed-income and into equities. Underpinning the change in sentiment was a consensus that global central banks would take whatever measures were necessary to prevent another financial crisis — and that policymakers had the monetary tools to do so.
Risk appetites began to grow early in the fiscal period as investors perceived that aggressive action and rhetoric from the European Central Bank had significantly lessened the possibility that the single-currency experiment would end poorly. Somewhat paradoxically, this shift in market psychology occurred even as the euro zone appeared headed toward a double-dip recession. With growth stalling, credit spreads tightened and sovereign yields remained within pre-established ranges. In early 2013, however, signs of faster economic growth in the United States caused Treasury yields to rise along with the U.S. dollar. Gains by the U.S. dollar were broad-based, but they were particularly notable against the Japanese yen, which was sent tumbling by inflation fears related to government policies designed to breathe new life into that country’s long deflated economy.
The supreme importance of central bank policy was evident in May when the U.S. Federal Reserve intimated that its massive bond-buying program could wind down sooner than expected. Treasury yields spiked sharply and investors fled the emerging market bonds and currencies that had benefited from a global search for yield. But bearish sentiment abruptly reversed in September after the Fed remained status quo, triggering a relief rally in all fixed-income sectors except emerging markets.
Fund performance
For the fiscal year ended Oct. 31, 2013, Delaware International Bond Fund (Class A shares) returned -6.72% at net asset value and -10.90% at maximum offer price
1
Portfolio management review
Delaware International Bond Fund
(both returns assume reinvestment of all distributions). During the same period, the Fund’s benchmark, the Barclays Global Aggregate ex-USD Index, returned -1.95%. Complete annualized performance for Delaware International Bond Fund is shown in the table on page 4.
During the early months of the Fund’s fiscal year, our strategy of overweighting corporate bonds (investment grade and high yield) aided relative performance as credit spreads tightened. Similarly, the Fund’s underweight allocation toward developed-world sovereign debt, as well as underweights to the euro and yen currencies, were contributors. The Fund’s allocation to emerging market debt increased late in calendar 2012, reflecting our view at the time that fundamentals in the developing world were superior to those of the U.S., Europe, and Japan, particularly relating to debt-GDP ratios and macroeconomic policy flexibility. Notably, we focused our emerging markets allocation within the corporate (rather than the sovereign) sector because of what we considered to be robust credit fundamentals. Meanwhile, we maintained a below-market weighting to developed-world sovereign bonds.
We maintained those allocations through the early months of 2013 while also hedging foreign currencies more aggressively. During this period, the Fund’s U.S. dollar holdings doubled to about one-third of assets as “Abenomics” took root in Japan. Coined for the country’s newly elected Prime Minister, Shinzo Abe, Abenomics involved an ambitious multi-pronged attack on deflation, with the monetary component requiring a massive expansion of the Bank of Japan’s balance sheet. After suffering debilitating bouts of deflation over the last two decades, Abe’s objective was to drive the yen sharply lower, thus exerting upward pressure on import prices (to boost inflation) and aid Japan’s large export sector.
As previously mentioned, we believe the “game changer” for global fixed-income markets came in May when Fed Chairman Bernanke hinted that the U.S. central bank might scale back (“taper”) its $85 billion-a-month bond purchases sooner than investors had expected. Emerging market debt and currencies were particularly hard hit by the possibility of less Fed support. Though we subsequently reduced exposure to emerging market assets, the Fund’s remaining positions nonetheless contributed to Fund underperformance for the fiscal year. Even as bond yields rose across all sectors, credit spreads widened after Bernanke’s warning, causing the Fund’s investment grade and high yield holdings to lag the benchmark. Notably, we detected no significant deterioration in credit fundamentals, and the wider spreads sent valuations in those sectors to levels that we considered compelling.
It was from those more attractive levels that credit sectors rallied strongly after the Fed shocked the markets again in September, this time by declining to begin scaling back its bond-buying program. However, we did not use the Fed’s decision to stand pat as a rationale to expand allocations to emerging market bonds and currencies, which we viewed as still vulnerable to Fed tightening, whenever it began. Meanwhile, we increased our allocation to European sovereign debt amid indications that economic conditions were improving and structural reforms in Spain and Ireland were moving forward. Within the domestic credit sector, we
2
increased our exposure to bank loans late in the fiscal period, given the likelihood that Treasury yields eventually will move higher when tapering speculation returns.
As the fiscal year drew to a close, the Fund held about 10% of assets in high yield and about 40% each in non-corporate developed sovereign bonds and high grade U.S. corporate bonds. With regard to country weightings, we were significantly overweight toward the U.S., U.K. and significantly underweight toward France. In terms of currencies, close to half of the Fund’s assets were denominated in euros and slightly more than a quarter were denominated in the Japanese yen. Finally, nearly 90% of Fund holdings were rated investment grade (AAA through BBB), with nearly 20% rated AAA.
A word about derivatives
During the fiscal year, the Fund’s portfolio held derivatives that included single-name credit default swaps1, credit default swap baskets, forward foreign exchange contracts, interest rate swaps, futures, and options. Brief notes about each:
- The credit default swaps and credit default swap baskets were used primarily to help protect the Fund against macroeconomic contagion risks related to the market’s perception of credit valuation.
- The interest rate swaps, futures, and options were used primarily to hedge interest rate risks stemming from perceptions about monetary policy changes in the U.S.
- Forward currency contracts were used in part to hedge the currency risk posed by securities denominated in foreign currencies, as well as to actively manage the foreign currency exposure of the Fund relative to its benchmark index.
In aggregate, the Fund’s positions in derivatives detracted from performance during the fiscal year. The majority of this underperformance came from forward contracts on the Japanese yen. (The Fund’s portfolio held no Japanese government bonds, though they represented roughly 30% of the currency exposure within the index; the contracts were used to manage this large currency difference relative to the benchmark.) The overall negative returns were due largely to the yen’s depreciation against the U.S. dollar — it slipped by approximately 20% between December 2012 and June 2013. The Fund’s contracts helped it maintain a yen exposure of approximately 17% during the period, versus an average yen exposure of approximately 30% within the index. Ultimately, while the hedges generated a negative return, they outperformed the yen exposure within the index.
1 Single-name swaps refer to swaps that refer to a single underlying entity; in this case, single-name swaps were related to a single country’s sovereign debt.
3
Performance summary | |
Delaware International Bond Fund | October 31, 2013 |
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 and benchmark performance1,2 | Average annual total returns through October 31, 2013 | |||||||||
1 year | 5 years | 10 years | Lifetime | |||||||
Class A (Est. April 11, 1997) | ||||||||||
Excluding sales charge | -6.72% | +5.30% | +5.43% | n/a | ||||||
Including sales charge | -10.90% | +4.33% | +4.95% | n/a | ||||||
Class C (Est. July 28, 2011) | ||||||||||
Excluding sales charge | -7.36% | n/a | n/a | -2.35% | ||||||
Including sales charge | -8.26% | n/a | n/a | -2.35% | ||||||
Class R (Est. July 28, 2011) | ||||||||||
Excluding sales charge | -6.89% | n/a | n/a | -1.83% | ||||||
Including sales charge | -6.89% | n/a | n/a | -1.83% | ||||||
Institutional Class (Est. July 28, 2011) | ||||||||||
Excluding sales charge | -6.44% | n/a | n/a | -1.37% | ||||||
Including sales charge | -6.44% | n/a | n/a | -1.37% | ||||||
Barclays Global Aggregate | ||||||||||
ex-USD Index | -1.95% | +5.98% | +5.26% | 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. 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 0.25% of average daily net assets. Prior to Oct. 1, 2013, Class A shares had an annual distribution and service fee of 0.30% of average daily net assets. This fee was contractually limited to 0.25% during the period from Nov. 1, 2012 until Oct. 1, 2013. 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.
4
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 0.50% of average daily net assets. Prior to Oct. 1, 2013, Class R shares had an annual distribution and service fee of 0.60% of average daily net assets. This fee was contractually limited to 0.50% during the period from Nov. 1, 2012 until Oct. 1, 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 Management Company has agreed to reimburse certain expenses and/or waive certain fees in order to prevent total fund operating expenses (excluding any 12b-1 plan, taxes, interest, inverse floater program expenses, short sale and dividend interest expenses, brokerage fees, certain insurance costs, acquired fund fees and expenses, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations (collectively nonroutine expenses)) from exceeding 0.85% of the Fund’s average daily net assets during the period from Nov. 1, 2012, through Feb. 28, 2014. 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 | 2.89% | 3.64% | 3.14% | 2.64% | |||
(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, 2003, through Oct. 31, 2013
For period beginning Oct. 31, 2003, through Oct. 31, 2013 | Starting value | Ending value | ||
Barclays Global Aggregate ex-USD Index | $10,000 | $16,694 | ||
Delaware International Bond Fund — Class A Shares | $9,550 | $16,213 |
1 The “Performance of a $10,000 investment” graph assumes $10,000 invested in Class A shares of the Fund on Oct. 31, 2003, 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
6
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. 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 Global Aggregate ex-USD Index as of Oct. 31, 2003. 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, 2013 to October 31, 2013 (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, 2013 to Oct. 31, 2013.
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 | |||||||
5/1/13 | 10/31/13 | Expense Ratio | 5/1/13 to 10/31/13* | |||||||
Actual Fund return† | ||||||||||
Class A | $1,000.00 | $ | 944.10 | 1.10% | $5.39 | |||||
Class C | 1,000.00 | 940.00 | 1.85% | 9.05 | ||||||
Class R | 1,000.00 | 943.50 | 1.35% | 6.61 | ||||||
Institutional Class | 1,000.00 | 945.70 | 0.85% | 4.17 | ||||||
Hypothetical 5% return (5% return before expenses) | ||||||||||
Class A | $1,000.00 | $ | 1,019.66 | 1.10% | $5.60 | |||||
Class C | 1,000.00 | 1,015.88 | 1.85% | 9.40 | ||||||
Class R | 1,000.00 | 1,018.40 | 1.35% | 6.87 | ||||||
Institutional Class | 1,000.00 | 1,020.92 | 0.85% | 4.33 |
* | “Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (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 allocation | |
Delaware International Bond Fund | As of October 31, 2013 (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 | |
Commercial Mortgage-Backed Security | 0.22 | % |
Corporate Bonds | 41.09 | % |
Australia | 0.68 | % |
Bermuda | 0.46 | % |
Canada | 2.34 | % |
Cayman Islands | 1.75 | % |
France | 2.16 | % |
Ireland | 2.42 | % |
Italy | 3.50 | % |
Luxembourg | 4.39 | % |
Mexico | 4.84 | % |
Netherlands | 7.62 | % |
Norway | 0.84 | % |
Panama | 0.33 | % |
Spain | 0.60 | % |
United Kingdom | 6.10 | % |
United States | 3.06 | % |
Regional Bonds | 8.94 | % |
Australia | 8.94 | % |
Senior Secured Loans | 11.28 | % |
Sovereign Bonds | 33.87 | % |
Belgium | 6.54 | % |
Ireland | 5.24 | % |
Italy | 4.79 | % |
South Africa | 0.65 | % |
Spain | 4.84 | % |
United Kingdom | 11.81 | % |
U.S. Treasury Obligation | 0.90 | % |
Short-Term Investments | 0.42 | % |
Total Value of Securities | 96.72 | % |
Receivables and Other Assets Net of Liabilities | 3.28 | % |
Total Net Assets | 100.00 | % |
10
Schedule of investments | |
Delaware International Bond Fund | October 31, 2013 |
Principal amount° | Value (U.S. $) | |||||||
Commercial Mortgage-Backed Security – 0.22% | ||||||||
•#FREMF Mortgage Trust Series 2012-K21 B 144A | ||||||||
3.939% 7/25/45 | USD | 10,000 | $ | 9,369 | ||||
Total Commercial Mortgage-Backed | ||||||||
Security (cost $10,161) | 9,369 | |||||||
ΔCorporate Bonds – 41.09% | ||||||||
Australia – 0.68% | ||||||||
BHP Billiton Finance USA 3.25% 11/21/21 | 30,000 | 30,279 | ||||||
30,279 | ||||||||
Bermuda – 0.46% | ||||||||
# | Ingersoll-Rand Global Holding 144A 4.25% 6/15/23 | 20,000 | 20,128 | |||||
20,128 | ||||||||
Canada – 2.34% | ||||||||
Barrick Gold | ||||||||
2.90% 5/30/16 | 15,000 | 15,385 | ||||||
3.85% 4/1/22 | 15,000 | 13,675 | ||||||
Canadian Natural Resources 3.45% 11/15/21 | 15,000 | 15,107 | ||||||
Rogers Communications 3.00% 3/15/23 | 20,000 | 18,872 | ||||||
Teck Resources 4.75% 1/15/22 | 25,000 | 25,357 | ||||||
TransCanada Pipelines 3.75% 10/16/23 | 15,000 | 15,126 | ||||||
103,522 | ||||||||
Cayman Islands – 1.75% | ||||||||
Noble Holding International 3.95% 3/15/22 | 55,000 | 54,617 | ||||||
Transocean 6.375% 12/15/21 | 20,000 | 22,570 | ||||||
77,187 | ||||||||
France – 2.16% | ||||||||
# | GDF Suez 144A 1.625% 10/10/17 | 25,000 | 25,062 | |||||
Orange 4.125% 9/14/21 | 35,000 | 36,154 | ||||||
Total Capital International 2.875% 2/17/22 | 35,000 | 34,281 | ||||||
95,497 | ||||||||
Ireland – 2.42% | ||||||||
# | Nara Cable Funding 144A 8.875% 12/1/18 | 100,000 | 107,250 | |||||
107,250 | ||||||||
Italy – 3.50% | ||||||||
# | ENI 144A 4.15% 10/1/20 | 150,000 | 155,047 | |||||
155,047 |
11
Schedule of investments
Delaware International Bond Fund
Principal amount° | Value (U.S. $) | |||||||
ΔCorporate Bonds (continued) | ||||||||
Luxembourg – 4.39% | ||||||||
# | Schlumberger Investment 144A 3.30% 9/14/21 | USD | 25,000 | $ | 25,227 | |||
# | SES 144A 3.60% 4/4/23 | 40,000 | 38,952 | |||||
Tyco Electronics Group 3.50% 2/3/22 | 25,000 | 24,372 | ||||||
# | Wind Acquisition Finance 144A 7.25% 2/15/18 | 100,000 | 105,749 | |||||
194,300 | ||||||||
Mexico – 4.84% | ||||||||
America Movil 3.75% 6/28/17 | EUR | 145,000 | 214,037 | |||||
214,037 | ||||||||
Netherlands – 7.62% | ||||||||
Koninklijke Philips Electronics 3.75% 3/15/22 | USD | 25,000 | 25,452 | |||||
LYB International Finance 4.00% 7/15/23 | 20,000 | 20,178 | ||||||
# | Myriad International Holding 144A 6.375% 7/28/17 | 100,000 | 110,500 | |||||
#• | Rabobank 144A 11.00% 12/29/49 | 115,000 | 152,225 | |||||
Shell International Finance 2.25% 1/6/23 | 10,000 | 9,184 | ||||||
Syngenta Finance 3.125% 3/28/22 | 20,000 | 19,791 | ||||||
337,330 | ||||||||
Norway – 0.84% | ||||||||
Statoil 2.45% 1/17/23 | 40,000 | 37,204 | ||||||
37,204 | ||||||||
Panama – 0.33% | ||||||||
Carnival 1.875% 12/15/17 | 15,000 | 14,725 | ||||||
14,725 | ||||||||
Spain – 0.60% | ||||||||
Telefonica Emisiones 5.462% 2/16/21 | 25,000 | 26,550 | ||||||
26,550 | ||||||||
United Kingdom – 6.10% | ||||||||
Abbey National Treasury Services 4.00% 4/27/16 | 30,000 | 31,975 | ||||||
BP Capital Markets 3.994% 9/26/23 | 20,000 | 20,653 | ||||||
ENSCO 4.70% 3/15/21 | 30,000 | 32,462 | ||||||
HSBC Holdings 6.25% 3/19/18 | EUR | 100,000 | 159,820 | |||||
Rio Tinto Finance 1.625% 8/21/17 | USD | 25,000 | 24,971 | |||||
269,881 |
12
Principal amount° | Value (U.S. $) | ||||||
ΔCorporate Bonds (continued) | |||||||
United States – 3.06% | |||||||
Comcast 6.30% 11/15/17 | USD | 20,000 | $ | 23,622 | |||
Enterprise Products Operating 6.30% 9/15/17 | 15,000 | 17,436 | |||||
International Game Technology 5.35% 10/15/23 | 20,000 | 20,815 | |||||
JPMorgan Chase 4.25% 11/2/18 | NZD | 30,000 | 23,546 | ||||
Kinder Morgan Energy Partners 6.00% 2/1/17 | USD | 20,000 | 22,742 | ||||
Verizon Communications 5.15% 9/15/23 | 25,000 | 27,177 | |||||
135,338 | |||||||
Total Corporate Bonds (cost $1,753,246) | 1,818,275 | ||||||
ΔRegional Bonds – 8.94% | |||||||
Australia – 8.94% | |||||||
New South Wales Treasury 6.00% 3/1/22 | AUD | 187,000 | 196,506 | ||||
Treasury of Victoria 5.50% 11/15/18 | AUD | 195,000 | 199,129 | ||||
Total Regional Bonds (cost $408,447) | 395,635 | ||||||
«Senior Secured Loans – 11.28% | |||||||
Activision Blizzard Tranche B 1st Lien 3.25% 9/12/20 | USD | 50,000 | 50,210 | ||||
Biomet Tranche 1st Lien 3.75% 7/25/17 | 49,750 | 50,185 | |||||
Calpine Construction Finance Tranche B 3.00% 5/1/20 | 49,875 | 49,355 | |||||
Clear Channel Communication Tranche B 3.65% 1/29/16 | 50,000 | 48,620 | |||||
Gardner Denver Tranche 1st Lien 4.25% 7/23/20 | 50,000 | 50,082 | |||||
Hudson’s Bay Tranche B 1st Lien 4.75% 10/7/20 | 50,000 | 50,725 | |||||
Nuveen Investments Tranche 1st Lien 4.00% 5/13/17 | 100,000 | 99,601 | |||||
Peabody Energy Tranche B 4.25% 9/20/20 | 50,000 | 49,844 | |||||
Samson Investment Tranche 2nd Lien 6.00% 9/10/18 | 50,000 | 50,516 | |||||
Total Senior Secured Loans (cost $494,688) | 499,138 | ||||||
ΔSovereign Bonds – 33.87% | |||||||
Belgium – 6.54% | |||||||
Belgium Government | |||||||
2.25% 6/22/23 | EUR | 100,000 | 133,409 | ||||
#144A 4.25% 3/28/41 | EUR | 100,000 | 155,983 | ||||
289,392 |
13
Schedule of investments
Delaware International Bond Fund
Principal amount° | Value (U.S. $) | ||||||
ΔSovereign Bonds (continued) | |||||||
Ireland – 5.24% | |||||||
Irish Government 3.90% 3/20/23 | EUR | 165,000 | $ | 231,908 | |||
231,908 | |||||||
Italy – 4.79% | |||||||
Italy Buoni Poliennali Del Tesoro 4.75% 9/1/21 | EUR | 145,000 | 211,852 | ||||
211,852 | |||||||
South Africa – 0.65% | |||||||
Republic of South Africa 10.50% 12/21/26 | ZAR | 240,000 | 28,718 | ||||
28,718 | |||||||
Spain – 4.84% | |||||||
Spanish Government 3.75% 10/31/18 | EUR | 151,000 | 214,139 | ||||
214,139 | |||||||
United Kingdom – 11.81% | |||||||
United Kingdom Treasury Gilt | |||||||
1.75% 1/22/17 | GBP | 95,000 | 156,465 | ||||
4.00% 3/7/22 | GBP | 106,000 | 191,799 | ||||
5.00% 3/7/25 | GBP | 89,100 | 174,484 | ||||
522,748 | |||||||
Total Sovereign Bonds (cost $1,481,458) | 1,498,757 | ||||||
U.S. Treasury Obligation – 0.90% | |||||||
U.S. Treasury Note 2.50% 8/15/23 | USD | 40,000 | 39,856 | ||||
Total U.S. Treasury Obligation (cost $39,861) | 39,856 | ||||||
Short-Term Investments – 0.42% | |||||||
≠Discount Note – 0.03% | |||||||
Federal Home Loan Bank 0.05% 12/27/13 | 1,495 | 1,495 | |||||
1,495 | |||||||
≠U.S. Treasury Obligations – 0.39% | |||||||
U.S. Treasury Bills | |||||||
0.033% 1/23/14 | 7,734 | 7,734 | |||||
0.065% 4/24/14 | 9,281 | 9,278 | |||||
17,012 | |||||||
Total Short-Term Investments (cost $18,508) | 18,507 | ||||||
Total Value of Securities – 96.72% (cost $4,206,369) | $ | 4,279,537 |
14
° | Principal amount is stated in the currency in which each security is denominated. |
• | Variable rate security. The rate shown is the rate as of Oct. 31, 2013. Interest rates reset periodically. |
# | Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. At Oct. 31, 2013, the aggregate value of Rule 144A securities was $905,492, which represented 20.46% of the Fund’s net assets. See Note 10 in “Notes to financial statements.” |
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 Oct. 31, 2013. |
≠ | The rate shown is the effective yield at the time of purchase. |
The following foreign currency exchange contracts were outstanding at Oct. 31, 2013:1
Foreign Currency Exchange Contracts
Unrealized | |||||||||||||||||
Appreciation | |||||||||||||||||
Counterparty | Contracts to Receive (Deliver) | In Exchange For | Settlement Date | (Depreciation) | |||||||||||||
BAML | AUD | (324,251 | ) | USD | 310,448 | 12/6/13 | $ | 4,599 | |||||||||
BAML | BRL | 43,470 | USD | (19,724 | ) | 12/6/13 | (485 | ) | |||||||||
BAML | CAD | 62,239 | USD | (59,549 | ) | 12/6/13 | 82 | ||||||||||
BAML | EUR | 424,619 | USD | (585,353 | ) | 12/6/13 | (8,745 | ) | |||||||||
BAML | GBP | (160,000 | ) | USD | 258,966 | 12/6/13 | 2,484 | ||||||||||
BAML | IDR | 161,595,000 | USD | (15,025 | ) | 12/6/13 | (838 | ) | |||||||||
BAML | JPY | 135,485,442 | USD | (1,392,641 | ) | 12/6/13 | (14,423 | ) | |||||||||
BAML | NOK | (296,837 | ) | USD | 49,968 | 12/6/13 | 180 | ||||||||||
BAML | NZD | 11,829 | USD | (9,812 | ) | 12/6/13 | (66 | ) | |||||||||
BAML | PLN | (85,700 | ) | USD | 28,269 | 11/5/13 | 465 | ||||||||||
BAML | SEK | 96,098 | USD | (15,144 | ) | 12/6/13 | (330 | ) | |||||||||
BAML | TRY | 16,455 | USD | (8,266 | ) | 12/6/13 | (76 | ) | |||||||||
CITI | CLP | 2,796,281 | USD | (5,511 | ) | 12/6/13 | (81 | ) | |||||||||
MNB | MYR | (342,008 | ) | USD | 107,401 | 11/4/13 | (919 | ) | |||||||||
MSC | AUD | (96,716 | ) | USD | 92,597 | 12/6/13 | 1,370 | ||||||||||
TD | CAD | 42,329 | USD | (40,487 | ) | 12/6/13 | 68 | ||||||||||
TD | IDR | 67,070,960 | USD | (6,232 | ) | 12/6/13 | (344 | ) | |||||||||
TD | JPY | 22,790 | USD | (234 | ) | 12/6/13 | (2 | ) | |||||||||
TD | NOK | 296,837 | USD | (50,244 | ) | 12/6/13 | (456 | ) | |||||||||
$ | (17,517 | ) |
15
Schedule of investments
Delaware International Bond Fund
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 represents 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 8 in “Notes to financial statements.”
Summary of abbreviations: |
AUD — Australian Dollar |
BAML — Bank of America Merrill Lynch |
BRL — Brazilian Real |
CAD — Canadian Dollar |
CITI — Citigroup Global Markets |
CLP — Chilean Peso |
EUR — European Monetary Unit |
GBP — British Pound Sterling |
IDR — Indonesian Rupiah |
JPY — Japanese Yen |
MNB — Mellon National Bank |
MSC — Morgan Stanley Capital |
MYR — Malaysian Ringgit |
NOK — Norwegian Krone |
NZD — New Zealand Dollar |
PLN — Polish Zloty |
SEK — Swedish Krona |
TD — Toronto Dominion Bank |
TRY — Turkish Lira |
USD — United States Dollar |
ZAR — South African Rand |
See accompanying notes, which are an integral part of the financial statements.
16
Statement of assets and liabilities | |
Delaware International Bond Fund | October 31, 2013 |
Assets: | |||
Investments, at value1 | $ | 4,261,030 | |
Short-term investments, at value2 | 18,507 | ||
Cash collateral for derivatives | 10,000 | ||
Foreign currencies, at value3 | 7,931 | ||
Receivable for securities sold | 928,337 | ||
Interest receivable | 50,349 | ||
Receivable from investment manager | 20,044 | ||
Unrealized gain of foreign currency exchange contracts | 9,248 | ||
Receivable for fund shares sold | 273 | ||
Other assets | 117 | ||
Total assets | 5,305,836 | ||
Liabilities: | |||
Cash overdraft | 20,716 | ||
Payable for fund shares redeemed | 628,716 | ||
Payable for securities purchased | 150,272 | ||
Unrealized loss of foreign currency exchange contracts | 26,765 | ||
Distribution fees payable to affiliates | 1,782 | ||
Trustees fees payable | 19 | ||
Other accrued expenses | 51,816 | ||
Other affiliates payable | 858 | ||
Total liabilities | 880,944 | ||
Total Net Assets | $ | 4,424,892 | |
Net Assets Consist of: | |||
Paid-in capital | $ | 4,941,044 | |
Undistributed net investment income | 123 | ||
Accumulated net realized loss on investments | (570,442 | ) | |
Net unrealized appreciation of investments and derivatives | 54,167 | ||
Total Net Assets | $ | 4,424,892 | |
1Investments, at cost | $ | 4,187,861 | |
2Short-term investments, at cost | 18,508 | ||
3Foreign currencies, at cost | 7,992 |
18
Net Asset Value | ||
Class A | ||
Net assets | $ | 3,461,885 |
Shares of beneficial interest outstanding, unlimited authorization, no par | 405,358 | |
Net asset value per share | $ | 8.54 |
Sales charge | 4.50% | |
Offering price per share, equal to net asset value per share/(1 - sales charge) | $ | 8.94 |
Class C | ||
Net assets | $ | 767,327 |
Shares of beneficial interest outstanding, unlimited authorization, no par | 90,081 | |
Net asset value per share | $ | 8.52 |
Class R | ||
Net assets | $ | 78,036 |
Shares of beneficial interest outstanding, unlimited authorization, no par | 9,146 | |
Net asset value per share | $ | 8.53 |
Institutional Class | ||
Net assets | $ | 117,644 |
Shares of beneficial interest outstanding, unlimited authorization, no par | 13,762 | |
Net asset value per share | $ | 8.55 |
See accompanying notes, which are an integral part of the financial statements.
19
Statement of operations | |
Delaware International Bond Fund | Year Ended October 31, 2013 |
Investment Income: | |||
Interest | $ | 497,182 | |
Foreign tax withheld | (1,379 | ) | |
495,803 | |||
Expenses: | |||
Management fees | 86,441 | ||
Registration fees | 63,337 | ||
Distribution expenses – Class A | 36,084 | ||
Distribution expenses – Class C | 10,116 | ||
Distribution expenses – Class R | 474 | ||
Audit and tax | 40,544 | ||
Reports and statements to shareholders | 16,349 | ||
Custodian fees | 11,312 | ||
Dividend disbursing and transfer agent fees and expenses | 11,178 | ||
Dues and services | 8,146 | ||
Legal fees | 7,434 | ||
Pricing fees | 5,854 | ||
Accounting and administration expenses | 5,154 | ||
Trustees’ fees | 651 | ||
Insurance | 273 | ||
Consulting fees | 153 | ||
Trustees’ expenses | 52 | ||
303,552 | |||
Less fees waived | (143,394 | ) | |
Less waived distribution expenses – Class A | (5,840 | ) | |
Less waived distribution expenses – Class R | (73 | ) | |
Less expense paid indirectly | (9 | ) | |
Total operating expenses | 154,236 | ||
Net Investment Income | 341,567 |
20
Net Realized and Unrealized Loss: | ||||
Net realized loss on: | ||||
Investments | $ | (130,022 | ) | |
Foreign currencies | (229,934 | ) | ||
Foreign currency exchange contracts | (742,013 | ) | ||
Futures contracts | (68,391 | ) | ||
Swap contracts | (19,085 | ) | ||
Net realized loss | (1,189,445 | ) | ||
Net change in unrealized appreciation (depreciation) of: | ||||
Investments | (528,169 | ) | ||
Foreign currencies | (1,131 | ) | ||
Foreign currency exchange contracts | (19,642 | ) | ||
Net change in unrealized appreciation (depreciation) | (548,942 | ) | ||
Net Realized and Unrealized Loss | (1,738,387 | ) | ||
Net Decrease in Net Assets Resulting from Operations | $ | (1,396,820 | ) |
See accompanying notes, which are an integral part of the financial statements.
21
Statements of changes in net assets
Delaware International Bond Fund
Year Ended | ||||||||
10/31/13 | 10/31/12 | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 341,567 | $ | 309,175 | ||||
Net realized loss | (1,189,445 | ) | (69,290 | ) | ||||
Net change in unrealized appreciation (depreciation) | (548,942 | ) | 436,946 | |||||
Net increase (decrease) in net assets resulting from operations | (1,396,820 | ) | 676,831 | |||||
Dividends and Distributions to Shareholders from: | ||||||||
Net investment income: | ||||||||
Class A | — | (2,570,576 | ) | |||||
Class C | — | (44,741 | ) | |||||
Class R | — | (399 | ) | |||||
Institutional Class | — | (4,790 | ) | |||||
Return of capital: | ||||||||
Class A | (358,169 | ) | — | |||||
Class C | (21,106 | ) | — | |||||
Class R | (2,045 | ) | — | |||||
Institutional Class | (3,610 | ) | — | |||||
(384,930 | ) | (2,620,506 | ) | |||||
Capital Share Transactions: | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 7,459,488 | 2,682,936 | ||||||
Class C | 320,629 | 1,100,808 | ||||||
Class R | 86,816 | 24,520 | ||||||
Institutional Class | 109,367 | 141,369 | ||||||
Net asset value of shares issued upon reinvestment of | ||||||||
dividends and distributions: | ||||||||
Class A | 351,623 | 2,564,714 | ||||||
Class C | 19,409 | 44,432 | ||||||
Class R | 2,045 | 399 | ||||||
Institutional Class | 3,160 | 4,790 | ||||||
8,352,537 | 6,563,968 |
22
Year Ended | |||||||
10/31/13 | 10/31/12 | ||||||
Capital Share Transactions (continued): | |||||||
Cost of shares redeemed: | |||||||
Class A | $ | (15,815,337 | ) | $ | (528,987 | ) | |
Class C | (747,325 | ) | (21,111 | ) | |||
Class R | (28,013 | ) | — | ||||
Institutional Class | (140,278 | ) | (3,937 | ) | |||
(16,730,953 | ) | (554,035 | ) | ||||
Increase (decrease) in net assets derived from capital | |||||||
share transactions | (8,378,416 | ) | 6,009,933 | ||||
Net Increase (Decrease) in Net Assets | (10,160,166 | ) | 4,066,258 | ||||
Net Assets: | |||||||
Beginning of year | 14,585,058 | 10,518,800 | |||||
End of year (including undistributed (distributions in excess of) | |||||||
net investment income of $123 and $(53,747), respectively) | $ | 4,424,892 | $ | 14,585,058 |
See accompanying notes, which are an integral part of the financial statements.
23
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 (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 |
Return of capital |
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 |
1 Effective July 28, 2011, the Fund received all of the assets and liabilities of the Delaware Pooled® Trust – The International Fixed Income Portfolio (Portfolio). The Class A shares financial highlights for the periods prior to July 28, 2011, reflect the performance of the Institutional Class shares of the Portfolio. Fees paid by the Portfolio were less than Class A share fees, and performance would have been lower if Class A fees were paid. See Note 2 in “Notes to financial statements.” |
2 The average shares outstanding method has been applied for per share information. |
See accompanying notes, which are an integral part of the financial statements.
24
Year Ended | |||||||||||||||||||||
10/31/13 | 10/31/12 | 10/31/111 | 10/31/101 | 10/31/091 | |||||||||||||||||
$9.390 | $11.690 | $12.140 | $12.430 | $11.570 | |||||||||||||||||
0.234 | 0.239 | 0.269 | 0.279 | 0.876 | |||||||||||||||||
(0.848 | ) | 0.190 | (0.124 | ) | 0.752 | 1.173 | |||||||||||||||
(0.614 | ) | 0.429 | 0.145 | 1.031 | 2.049 | ||||||||||||||||
— | (2.729 | ) | (0.595 | ) | (1.321 | ) | (1.189 | ) | |||||||||||||
(0.236 | ) | — | — | — | — | ||||||||||||||||
(0.236 | ) | (2.729 | ) | (0.595 | ) | (1.321 | ) | (1.189 | ) | ||||||||||||
$8.540 | $9.390 | $11.690 | $12.140 | $12.430 | |||||||||||||||||
(6.72% | ) | 5.23% | 1.52% | 9.33% | 18.86% | ||||||||||||||||
$3,462 | $13,130 | $10,337 | $21,358 | $19,538 | |||||||||||||||||
1.10% | 1.10% | 0.72% | 0.60% | 0.60% | |||||||||||||||||
2.23% | 2.94% | 1.28% | 0.81% | 0.79% | |||||||||||||||||
2.63% | 2.56% | 2.33% | 2.48% | 7.73% | |||||||||||||||||
1.50% | 0.72% | 1.77% | 2.27% | 7.54% | |||||||||||||||||
153% | 132% | 151% | 31% | 98% |
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, and does not reflect impact of a sales charge. Total investment return during all of the periods shown reflects waivers by the manager and/or distributor. Performance would have been lower had the waivers not been in effect. |
25
Financial highlights
Delaware International Bond 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 income (loss)2 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Return of capital |
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 (loss) to average net assets |
Ratio of net investment income (loss) to average net assets |
prior to fees waived |
Portfolio turnover |
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 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. |
4 Portfolio turnover is representative of the Fund for the entire annual period. |
See accompanying notes, which are an integral part of the financial statements.
26
7/28/111 | ||||||||||||||
Year Ended | to | |||||||||||||
10/31/13 | 10/31/12 | 10/31/11 | ||||||||||||
$9.380 | $11.690 | $12.020 | ||||||||||||
0.167 | 0.170 | (0.025 | ) | |||||||||||
(0.841 | ) | 0.184 | (0.218 | ) | ||||||||||
(0.674 | ) | 0.354 | (0.243 | ) | ||||||||||
— | (2.664 | ) | (0.087 | ) | ||||||||||
(0.186 | ) | — | — | |||||||||||
(0.186 | ) | (2.664 | ) | (0.087 | ) | |||||||||
$8.520 | $9.380 | $11.690 | ||||||||||||
(7.36% | ) | 4.40% | (2.03% | ) | ||||||||||
$767 | $1,272 | $166 | ||||||||||||
1.85% | 1.82% | 1.85% | ||||||||||||
2.93% | 3.61% | 3.84% | ||||||||||||
1.88% | 1.84% | (0.81% | ) | |||||||||||
0.80% | 0.05% | (2.80% | ) | |||||||||||
153% | 132% | 151% | 4 |
27
Financial highlights
Delaware International Bond 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 income (loss)2 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Return of capital |
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 (loss) to average net assets |
Ratio of net investment income (loss) to average net assets |
prior to fees waived |
Portfolio turnover |
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 waivers by the manager and distributor. Performance would have been lower had the waivers not been in effect. |
4 Portfolio turnover is representative of the Fund for the entire annual period. |
See accompanying notes, which are an integral part of the financial statements.
28
7/28/111 | ||||||||||||||
Year Ended | to | |||||||||||||
10/31/13 | 10/31/12 | 10/31/11 | ||||||||||||
$9.390 | $11.690 | $12.020 | ||||||||||||
0.208 | 0.210 | (0.013 | ) | |||||||||||
(0.848 | ) | 0.198 | (0.215 | ) | ||||||||||
(0.640 | ) | 0.408 | (0.228 | ) | ||||||||||
— | (2.708 | ) | (0.102 | ) | ||||||||||
(0.220 | ) | — | — | |||||||||||
(0.220 | ) | (2.708 | ) | (0.102 | ) | |||||||||
$8.530 | $9.390 | $11.690 | ||||||||||||
(6.89% | ) | 5.00% | (1.91% | ) | ||||||||||
$78 | $26 | $— | ||||||||||||
1.35% | 1.35% | 1.35% | ||||||||||||
2.52% | 3.24% | 3.44% | ||||||||||||
2.38% | 2.31% | (0.31% | ) | |||||||||||
1.21% | 0.42% | (2.40% | ) | |||||||||||
153% | 132% | 151% | 4 |
29
Financial highlights
Delaware International Bond 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 income2 |
Net realized and unrealized gain (loss) |
Total from investment operations |
Less dividends and distributions from: |
Net investment income |
Return of capital |
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 (loss) to average net assets |
prior to fees waived |
Portfolio turnover |
See accompanying notes, which are an integral part of the financial statements.
30
7/28/111 | |||||||||||
Year Ended | to | ||||||||||
10/31/13 | 10/31/12 | 10/31/11 | |||||||||
$9.390 | $11.690 | $12.020 | |||||||||
0.255 | 0.259 | 0.006 | |||||||||
(0.842 | ) | 0.191 | (0.218 | ) | |||||||
(0.587 | ) | 0.450 | (0.212 | ) | |||||||
— | (2.750 | ) | (0.118 | ) | |||||||
(0.253 | ) | — | — | ||||||||
(0.253 | ) | (2.750 | ) | (0.118 | ) | ||||||
$8.550 | $9.390 | $11.690 | |||||||||
(6.44% | ) | 5.46% | (1.77% | ) | |||||||
$118 | $157 | $16 | |||||||||
0.85% | 0.85% | 0.85% | |||||||||
1.93% | 2.64% | 2.84% | |||||||||
2.88% | 2.81% | 0.19% | |||||||||
1.80% | 1.02% | (1.80% | ) | ||||||||
153% | 132% | 151% | 4 |
31
Notes to financial statements | ||
Delaware International Bond Fund | October 31, 2013 |
Delaware Group® Adviser Funds (Trust) is organized as 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 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 4.50%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) of 1.00% 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 1.00%, 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. On Nov. 7, 2013, the Board of the Trust unanimously voted and approved a proposal to liquidate and dissolve the Fund. The liquidation and dissolution are expected to take effect on or about Dec. 31, 2013. The Fund is closed to new and existing 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 — Debt securities and credit default swap (CDS) contracts are valued based upon valuation provided by an independent pricing service or broker/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. U.S. government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value. 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. For asset-backed securities, collateralized mortgage obligations, commercial mortgage securities and U.S. government agency mortgage securities, pricing vendors utilize matrix pricing which considers prepayment speed, attributes of the collateral, yield or price of bonds of comparable quality, coupon, maturity and type as well as broker/dealer-supplied prices. 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 and foreign cross 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. 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
32
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.
Federal & Foreign 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 (Oct. 31, 2010–Oct. 31, 2013), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. In regard to foreign taxes only, the Fund has open tax years in certain foreign countries it invests in that may date back to the inception of the Fund.
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. At Oct. 31, 2013, the Fund held no investments in repurchase agreements.
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 daily into U.S. dollars at the exchange rate of such currencies against the U.S. dollar. 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 bifurcates 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. That portion of gains (losses) is included in the statement of operations under the caption net realized gain (loss) on foreign currencies. 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.
33
Notes to financial statements
Delaware International Bond Fund
1. Significant Accounting Policies (continued)
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 among 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 lives of the respective securities using the effective interest method. Withholding taxes and reclaims 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 distributions from net investment income monthly and net realized gain on investments, if any, annually. The Fund may distribute 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 Oct. 31, 2013.
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which are used to offset transfer agent fees. If the amount earned is greater than one dollar, the expense paid under this arrangement is included in dividend disbursing and transfer agent fees and expenses and appears on the statement of operations with the corresponding expense offset shown as “expense paid indirectly.” For the year ended Oct. 31, 2013, the Fund earned $9 under the 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.
34
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 fund operating expenses (excluding any 12b-1 Plan, taxes, interest, inverse floater program expenses, short sale and dividend interest expenses, brokerage fees, certain insurance costs, acquired fund fees and expenses, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations (collectively nonroutine expenses)) do not exceed 0.85% of the Fund’s average daily net assets from Feb. 28, 2013 through Feb. 28, 2014. For purposes of this waiver and reimbursement, nonroutine expenses may also include such additional costs and expenses as may be agreed upon from time to time by the Fund’s Board and DMC. This expense waiver and reimbursement may only be terminated by agreement of DMC and 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 Oct. 31, 2013, the Fund was charged $643 for these services.
DSC is also the transfer agent and dividend disbursing agent of the Fund. For these services, the Fund pays DSC fees based on the aggregate daily net assets of the retail funds within the Delaware Investments Family of Funds at the following annual rate: 0.025% of the first $20 billion; 0.020% of the next $5 billion; 0.015% of the next $5 billion; and 0.013% of average daily net assets in excess of $30 billion. 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. These amounts are included in the statement of operations as dividend disbursing and transfer agent fees and expenses. For the year ended Oct. 31, 2013, the amounts charged by DSC and BNYMIS were $7,556 and $3,613, respectively.
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 1.00% of the average daily net assets of the Class C shares. Effective Oct. 1, 2013, the Fund pays DDLP an annual distribution and service fees of 0.25% and 0.50% of the average daily net assets of the Class A and Class R shares’ respectively. Prior to Oct. 1, 2013, the Fund paid DDLP an annual distribution and service fee of 0.30% and 0.60% of the average daily net assets of the Class A and Class R shares’ respectively. For the period from Nov. 1, 2012 to Oct. 1, 2013, the distribution and service fees for Class A and Class R shares were contractually limited to 0.25% and 0.50% of the classes’ average daily net assets. Institutional Class shares pay no distribution and service expenses.
As provided in the investment management agreement, the Fund bears the cost of certain legal services, including internal legal services provided to the Fund by DMC and/or its affiliates’ employees. For the year ended Oct. 31, 2013, the Fund was charged $421 for internal legal services provided by DMC and/or its affiliates’ employees.
35
Notes to financial statements
Delaware International Bond Fund
3. Investments
For the year ended Oct. 31, 2013, DDLP earned $1,463 for commissions on sales of the Fund’s Class A shares. For the year ended Oct. 31, 2013, DDLP received gross CDSC commissions of $5,048 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.
For the year ended Oct. 31, 2013, the Fund made purchases of $17,904,853 and sales of $26,092,586 of investment securities other than U.S. government securities and short-term investments. For the year ended Oct. 31, 2013, the Fund made purchases of $701,479 and sales of $687,323 of long-term U.S. government securities.
At Oct. 31, 2013, the cost of investments for federal income tax purposes was $4,248,960. At Oct. 31, 2013, net unrealized appreciation was $30,577, of which $151,179 related to unrealized appreciation and $120,602 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) |
36
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 Oct. 31, 2013:
Level 2 | ||||
Commercial Mortgage-Backed Security | $ | 9,369 | ||
Corporate Debt | 1,818,275 | |||
Foreign Debt | 1,894,392 | |||
Senior Secured Loans | 499,138 | |||
U.S. Treasury Obligation | 39,856 | |||
Short-Term Investments | 18,507 | |||
Total | $ | 4,279,537 | ||
Foreign Currency Exchange Contracts | $ | (17,517 | ) |
During the year ended Oct. 31, 2013, there were no transfers between Level 1 investments, Level 2 investments or Level 3 investments that had a significant impact to the Fund. The Fund’s policy is to recognize transfers between levels at the beginning of the reporting 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 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 Oct. 31, 2013 and 2012 were as follows:
Year Ended | ||||||
10/31/13 | 10/31/12 | |||||
Ordinary income | $ | — | $ | 2,593,450 | ||
Return of capital | 384,930 | 27,056 | ||||
Total | $ | 384,930 | $ | 2,620,506 |
37
Notes to financial statements
Delaware International Bond Fund
5. Components of Net Assets on a Tax Basis
As of Oct. 31, 2013, the components of net assets on a tax basis were as follows:
Shares of beneficial interest | $ | 4,941,044 | ||
Capital loss carryforwards | (527,851 | ) | ||
Other temporary differences | (15,212 | ) | ||
Unrealized appreciation | 26,911 | |||
Net assets | $ | 4,424,892 |
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 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, dividends and distributions, market discount and premium on certain debt instruments, and net operating losses. Results of operations and net assets were not affected by these reclassifications. For the year ended Oct. 31, 2013, the Fund recorded the following reclassifications:
Distributions in excess of net investment income | $ | (287,697 | ) | |
Accumulated net realized | 884,312 | |||
Paid-in capital | (596,615 | ) |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. Capital loss carryforwards remaining at Oct. 31, 2013 will expire as follows: $154,783 expires in 2014, $21,289 expires in 2016 and $23,325 expires in 2017.
On Dec. 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 will be 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. Losses incurred that will be carried forward under the Act are as follows:
Loss carry forward character | |||
Short-term | $ | 328,454 |
38
6. Capital Shares
Transactions in capital shares were as follows:
Year Ended | ||||||
10/31/13 | 10/31/12 | |||||
Shares Sold: | ||||||
Class A | 841,558 | 286,660 | ||||
Class C | 36,911 | 118,699 | ||||
Class R | 9,472 | 2,700 | ||||
Institutional Class | 12,340 | 15,286 | ||||
Shares issued upon reinvestment of dividends and distributions: | ||||||
Class A | 39,367 | 285,008 | ||||
Class C | 2,178 | 4,937 | ||||
Class R | 232 | 44 | ||||
Institutional Class | 357 | 531 | ||||
942,415 | 713,865 | |||||
Shares redeemed: | ||||||
Class A | (1,874,118 | ) | (57,366 | ) | ||
Class C | (84,577 | ) | (2,275 | ) | ||
Class R | (3,305 | ) | — | |||
Institutional Class | (15,661 | ) | (428 | ) | ||
(1,977,661 | ) | (60,069 | ) | |||
Net increase (decrease) | (1,035,246 | ) | 653,796 |
7. Line of Credit
The Fund, along with certain other funds in the Delaware Investments® Family of Funds (Participants), was a participant in a $125,000,000 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 Nov. 13, 2012.
On Nov. 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 line of credit was used as described above and operated in substantially the same manner as the original agreement. The line of credit available under the agreement expired on Nov. 12, 2013.
39
Notes to financial statements
Delaware International Bond Fund
7. Line of Credit (continued)
On Nov. 12, 2013, the Fund, along with the other Participants, entered into an amendment to the agreement for a $225,000,000 revolving line of credit. The line of credit 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 Nov. 10, 2014.
The Fund had no amounts outstanding as of Oct. 31, 2013 or at any time during the year then ended.
8. 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 and forward foreign cross 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 and foreign cross 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 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 $10,000 in cash collateral for foreign currency exchange contracts, which is presented as cash collateral for derivatives on the statement of assets and liabilities. The Fund received $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
40
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 reduced 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 Oct. 31, 2013.
Options Contracts — During the year ended Oct. 31, 2013, 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 option 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 option 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. No options contracts were outstanding at Oct. 31, 2013.
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 Standard & Poor’s (S&P) or Baa3 by Moody’s Investors Service (Moody’s) or is determined to be of equivalent credit quality by the manager.
41
Notes to financial statements
Delaware International Bond Fund
8. Derivatives (continued)
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 Oct. 31, 2013, 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. Initial margin and variation margin is posted to central counterparties for CDS basket trades submitted on or after June 10, 2013, as determined by the applicable central counterparty.
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 (1) 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 for trades entered prior to June 10, 2013, and (2) trading these instruments through a central counterparty for trades entered on or after June 10, 2013.
Swaps Generally. 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. No swap contracts were outstanding at Oct. 31, 2013.
42
The effect of derivative instruments on the statement of operations for the year ended Oct. 31, 2013 was as follows:
Net Realized Gain (Loss) on: | ||||||||||||||||
Foreign | ||||||||||||||||
Currency | Futures | |||||||||||||||
Transactions | Contracts | Swaps | Total | |||||||||||||
Foreign currency exchange contracts | $ | (742,013 | ) | $ | — | $ | — | $ | (742,013 | ) | ||||||
Interest rate contracts | — | (68,391 | ) | — | (68,391 | ) | ||||||||||
Credit contracts | — | — | (19,085 | ) | (19,085 | ) | ||||||||||
Total | $ | (742,013 | ) | $ | (68,391 | ) | $ | (19,085 | ) | $ | (829,489 | ) |
Net Change in Unrealized | |||||||||||||
Appreciation (Depreciation) of: | |||||||||||||
Foreign | |||||||||||||
Currency | Futures | ||||||||||||
Transactions | Contracts | Swaps | Total | ||||||||||
Foreign currency exchange contracts | $ | (19,642 | ) | $ | — | $ | — | $ | (19,642 | ) |
Derivatives Generally. The table below summarizes the average balance of derivative holdings by the Fund during the year ended Oct. 31, 2013:
Long | Short | ||||
Derivative | Derivative | ||||
Volume | Volume | ||||
Foreign currency exchange contracts (average cost) | USD | 6,976,278 | USD | 1,711,108 | |
Futures contracts (average notional value) | 286,350 | 660,336 | |||
Options contracts (average notional value) | 1 | — | |||
Swap contracts (average notional value)* | EUR | 28,234 | — | ||
USD | 14,960 | — |
*Long represents buying protection and short represents selling protection.
9. 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
43
Notes to financial statements
Delaware International Bond Fund
9. Securities Lending (continued)
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. 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. 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. During the year ended Oct. 31, 2013, the Fund had no securities out on loan.
44
10. 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 invests in high yield fixed income securities, which are securities rated lower than BBB- by S&P and Baa3 by Moody’s, or similarly rated by another nationally recognized statistical rating organization. Investments in these higher yielding 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 certain obligations that may have liquidity protection to ensure that the receipt of payments due on the underlying security is timely. Such protection may be provided through guarantees, insurance policies or letters of credit obtained by the issuer or sponsor through third parties, through various means of structuring the transaction or through a combination of such approaches. The Fund will not pay any additional fees for such credit support, although the existence of credit support may increase the price of a security.
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 Oct. 31, 2013, no securities have been determined to be illiquid under the Fund’s Liquidity Procedures. Rule 144A securities have been identified on the schedule of investments.
11. 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.
45
Notes to financial statements
Delaware International Bond Fund
12. Subsequent Events
On Nov. 7, 2013, the Board of the Trust unanimously voted and approved a proposal to liquidate and dissolve the Fund. The liquidation and dissolution are expected to take effect on or about Dec. 31, 2013. The Fund is closed to new and existing investors.
Except as described above and in Note 7, management has determined that no other material events or transactions occurred subsequent to Oct. 31, 2013 that would require recognition or disclosure in the Fund’s financial statements.
46
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:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, 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 (one of the series constituting Delaware Group Adviser Funds, hereafter referred to as the “Fund”) at October 31, 2013, 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 periods presented after the year ended October 31, 2010, 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, 2013 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for the year 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, 2013
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Other Fund information
(Unaudited)
Delaware International Bond 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 the 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 disclosures 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 reporting, it is the intention of the Fund to report the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
For the fiscal year ended Oct 31, 2013, the Fund reports distributions paid during the year as follows:
(A) Return of Capital (Tax Basis) | 100.00% |
(A) is based on a percentage of the Fund’s total distributions. |
Board consideration of Delaware International Bond Fund investment advisory agreement
At a meeting held on August 20-22, 2013 (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 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 Management Agreement with Delaware Management Company (“DMC”) and Sub-Advisory Agreements with each of Macquarie Investment Management Limited (“MIML”) and Macquarie Bank International Limited (“MBIL”) included materials provided by DMC and its affiliates (“Delaware Investments”), MIML and MBIL, 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 to the Trustees in May 2013 and included reports provided by Lipper, an independent statistical compilation organization. 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 for certain investment styles, which had in the past year inhibited, or which were likely in the future to inhibit, DMC’s, MIML’s or MBIL’s ability to invest fully in accordance with Fund policies.
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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 recent 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 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 and MBIL under the terms of the sub-advisory contracts between DMC and MIML and DMC and MBIL, respectively, to the Fund and its shareholders. In reviewing the nature, extent and quality of services, the Board noted 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 MBIL 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 and MBIL.
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
49
Other Fund information
(Unaudited)|
Delaware International Bond Fund
Board consideration of Delaware International Bond investment advisory agreement (continued)
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 ended March 31, 2013. 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-, three- and five-year periods was in the second quartile of its Performance Universe. The report further showed that the Fund’s total return for the ten-year period was in the first quartile of its Performance Universe. 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, 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 was in the quartile with the lowest expenses of its Expense Group and its total expenses were in the quartile with the second 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
50
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, reflects 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. Trustees were also given available information on profits being realized by MIML and MBIL in relation to the services being provided to the Fund or in relation to MIML’s and MBIL’s overall investment advisory business, but believed such information to be of limited relevance since the sub-advisory fees are paid by DMC out of its management fee and changes in the level of sub-advisory fees do not impact Fund expenses. The Board was also provided information on potential fall-out benefits derived or to be derived by each of MIML and MBIL in connection with its relationship to the Fund, such as reputational enhancement, soft dollar arrangements or commissions paid to affiliated broker-dealers.
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.
51
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 | ||||
Independent Trustees | ||||
Thomas L. Bennett | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
October 1947 | ||||
Joseph W. Chow | Trustee | Since January 2013 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1953 | ||||
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 |
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 | 70 | 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) | ||||
Private Investor | 70 | Director | ||
(March 2004–Present) | Bryn Mawr Bank Corp. (BMTC) | |||
(2007–2011) | ||||
Executive Vice President | 70 | Director and Audit Committee | ||
(Emerging Economies Strategies, | Member — Hercules | |||
Risk and Corporate Administration) | Technology Growth | |||
State Street Corporation | Capital, Inc. | |||
(July 2004–March 2011) | ||||
President | 70 | Director — Hershey Trust | ||
Drexel University | ||||
(August 2010–Present) | Director and Audit | |||
Committee Member | ||||
President | Community Health Systems | |||
Franklin & Marshall College | ||||
(July 2002–July 2010) | ||||
Managing Director | 70 | None | ||
AKA Strategy | ||||
(Strategic Consulting) | ||||
(1990–Present) |
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.
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 | ||
Independent Trustees (continued) | ||||
Lucinda S. Landreth | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
June 1947 | ||||
Frances A. Sevilla-Sacasa | Trustee | Since September 2011 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1956 | ||||
Thomas K. Whitford | Trustee | Since January 2013 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
March 1956 | ||||
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 | ||
Private Investor | 70 | None | ||
(2004–Present) | ||||
Chief Executive Officer — | 70 | Trust Manager and | ||
Banco Itaú Europa | Audit Committee | |||
International | Member — Camden | |||
(April 2012–Present) | Property Trust | |||
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) | ||||
Vice Chairman | 70 | None | ||
(2010–April 2013) | ||||
Chief Administrative | ||||
Officer (2008–2010) | ||||
and Executive Vice | ||||
President and Chief | ||||
Administrative Officer | ||||
(2007–2009) — | ||||
PNC Financial | ||||
Services Group |
55
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 | ||||
56
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 | 70 | 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 | ||||
(2005–2012) | ||||
Founder | 70 | Director and Compensation | ||
Investor Analytics | Committee Member | |||
(Risk Management) | Investor Analytics | |||
(May 1999–Present) | ||||
Director — P/E Investments | ||||
Founder | ||||
P/E Investments | ||||
(Hedge Fund) | ||||
(September 1996–Present) |
57
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 | Senior Vice President, | Senior Vice President, | ||
2005 Market Street | Deputy General | Deputy General Counsel | ||
Philadelphia, PA 19103 | Counsel, and Secretary | since May 2013; | ||
December 1963 | Vice President, Deputy | |||
General Counsel | ||||
September 2000– | ||||
May 2013; Secretary since | ||||
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.
58
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 | 70 | None3 | ||
Deputy General Counsel of | ||||
Delaware Investments | ||||
since 2000. | ||||
Daniel V. Geatens has served | 70 | None3 | ||
in various capacities at | ||||
different times at | ||||
Delaware Investments. | ||||
David P. O’Connor has served in | 70 | None3 | ||
various executive and legal | ||||
capacities at different times | ||||
at Delaware Investments. | ||||
Richard Salus has served in | 70 | 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.
59
About the organization
Board of trustees | |||
Patrick P. Coyne Thomas L. Bennett | Joseph W. Chow John A. Fry Anthony D. Knerr | Lucinda S. Landreth Frances A. Sevilla-Sacasa | Thomas K. Whitford Janet L. Yeomans J. Richard Zecher |
Affiliated officers | |||
David F. Connor | Daniel V. Geatens | David P. O’Connor | Richard Salus |
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.
60
Annual report Delaware Global Real Estate Opportunities Fund October 31, 2013 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 its summary prospectus, which may be obtained by visiting delawareinvestments.com or calling 800 523-1918. Investors should read the prospectus and 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 |
Schedule of investments | 12 |
Statement of assets and liabilities | 18 |
Statement of operations | 20 |
Statements of changes in net assets | 22 |
Financial highlights | 24 |
Notes to financial statements | 30 |
Report of independent registered | |
public accounting firm | 45 |
Other Fund information | 46 |
Board of trustees/directors and | |
officers addendum | 50 |
About the organization | 58 |
Unless otherwise noted, views expressed herein are current as of Oct. 31, 2013, 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.
© 2013 Delaware Management Holdings, Inc.
All third-party marks cited are the property of their respective owners.
Portfolio management review | |
Delaware Global Real Estate Opportunities Fund | November 12, 2013 |
Performance preview (for the year ended October 31, 2013) | |||
Delaware Global Real Estate Opportunities Fund (Class A shares) | 1-year return | +13.11% | |
FTSE EPRA/NAREIT Developed Index (benchmark) | 1-year return | +13.16% |
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.
Global real estate securities enjoyed favorable results during the Fund’s fiscal year ended Oct. 31, 2013, with the FTSE EPRA/NAREIT Developed Index advancing by approximately 13%. This performance came in spite of a steep drop in share prices during May and June 2013, when the index shed more than 15% of its value before regaining a portion of its losses in the subsequent four months.
Japan was one of the strongest-performing markets in the index for the period, with a gain of more than 40%. In our view, real estate investors were optimistic about the country’s increasingly aggressive monetary policy and its potential to lift Japan’s long-depressed asset prices.
Meanwhile, various Southeast Asian markets encountered a relatively challenging investment environment. Singapore and Hong Kong, for example, dealt with the ramifications of overheated housing markets. Singaporean real estate stocks gained approximately 4% and Hong Kong generated a flat return. Canadian real estate stocks also fared poorly, declining 4%, in our view, as a result of inflated asset prices, among other factors.
Fund performance
For its fiscal year ended Oct. 31, 2013, Delaware Global Real Estate Opportunities Fund (Class A shares) returned +13.11% at net asset value and +6.60% at maximum offer price (both returns assume reinvestment of all distributions). In comparison, the Fund’s benchmark, the FTSE EPRA/NAREIT Developed Index, returned +13.16% during the same period. Complete, annualized performance for Delaware Global Real Estate Opportunities Fund is shown in the table on page 4.
Costly underweighting in Japan
As mentioned earlier, Japanese stocks performed extremely well during the 12-month period. The Fund began the fiscal year with an overweight allocation to Japan, which was beneficial to performance. In spring 2013, however, we reduced the Fund’s exposure to this country as we believed its stocks had grown overly expensive. This positioning was briefly advantageous when Japanese stocks corrected, but as they bounced back in subsequent months, the Fund’s relative underweighting ultimately proved detrimental.
Source: Bloomberg.
1
Portfolio management review
Delaware Global Real Estate Opportunities Fund
Most notably, the Fund’s underweight position in Sumitomo Realty & Development and lack of any stake in Tokyo Tatemono or Tokyu Land Corporation, three strong-performing Japanese developers, hindered the Fund’s performance versus the benchmark. That said, the Fund’s investments in Mitsui Fudosan, another top-performing Japanese developer, tempered its Japan-related underperformance. The Fund was also hampered by its position in two large mall operators, Simon Property Group, a U.S.-based REIT, and Westfield Group, an Australia-based company that is one of the world’s largest owners of retail property. Despite Simon Property Group’s underperformance, we see it as a core long-term holding, given what we view as its strong operations and healthy cash flow. We ultimately reduced the Fund’s stake in Westfield since we concluded that better Australian opportunities could be found.
Sources of outperformance
The negative effects on Fund performance discussed earlier were tempered by several positive factors. These include:
The Fund’s below-benchmark weighting in Canadian and Swiss markets aided performance in relative terms, as did good stock picking within Singapore and Hong Kong.
On an individual basis, several of the Fund’s leading contributors were U.S. real estate investment trusts (REITs), reflecting the Fund’s large stake in the domestic market (nearly half the Fund’s net assets). For example, the Fund was particularly helped by its holdings of Strategic Hotels & Resorts, an operator of high-end hotels. Shares of the company rose as a result of their valuation metrics, an improved business backdrop for hotels generally, and rumors that the company could be an acquisition target. As this stock’s valuation rose, we scaled back the Fund’s investment but still maintained a sizeable position, reflecting our constructive outlook for luxury hotel operators.
Another strong U.S.-based contributor was First Industrial Realty Trust. This industrial property owner, which has been experiencing a multi-year turnaround, began to show results as the company’s operating income continued to rise. Its balance sheet and business fundamentals also improved, even as its share value was well below that of its peers. Office REIT SL Green Realty benefited, in our view, from its strong management team, favorable valuation, and growing demand for office space in Manhattan, its core market.
Among the Fund’s international holdings, a position in GLP J-REIT was beneficial to relative performance. This Japanese-listed property stock is sponsored by Global Logistic Properties, a Singapore-based industrial REIT (and also a Fund holding) that dominates the market for industrial real estate in China. In the United Kingdom, Great Portland Estates, an owner of office space in London’s highly sought-after West End, boosted Fund performance, as the company was able to charge high rents as a result of an office-space shortage there.
2
Credit markets inform bias toward U.S. securities
Because real estate companies don’t finance themselves, changes in their valuations are frequently driven by trends in the capital markets. When we determine that credit conditions are supportive within a particular region, we tend to invest more heavily in that area. Conversely, if we determine that credit conditions are unfavorable, we tend to underweight the Fund’s position there.
Accordingly, at the end of the Fund’s fiscal year, we maintained an overweight allocation to U.S. property stocks, as we saw potential for good growth prospects there relative to other parts of the world. We consider the American Midwest a new “emerging market” due to energy development, auto production, and manufacturing activity that we believe may offer better potential for job growth than many traditional emerging markets.
The Fund ended the fiscal year with underweight allocations to Hong Kong, Singapore, and most of Asia. We believe that China — and neighboring countries influenced by its growth — has become overbuilt, especially in the housing sector, so we have de-emphasized that region. Meanwhile, we have decreased the Fund’s allocation within Japan in light of what we saw as relatively high valuations and maintained that underweight positioning at the end of the fiscal year.
3
Performance summary | |
Delaware Global Real Estate Opportunities Fund | October 31, 2013 |
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 and benchmark performance1,2 | Average annual total returns through October 31, 2013 | ||||||
1 year | 5 years | Lifetime | |||||
Class A (Est. Jan. 10, 2007) | |||||||
Excluding sales charge | +13.11% | +13.64% | +0.45% | ||||
Including sales charge | +6.60% | +12.31% | -0.42% | ||||
Class C (Est. Sept. 28, 2012) | |||||||
Excluding sales charge | +12.23% | n/a | +12.84% | ||||
Including sales charge | +11.23% | n/a | +12.84% | ||||
Class R (Est. Sept. 28, 2012) | |||||||
Excluding sales charge | +12.87% | n/a | +13.43% | ||||
Including sales charge | +12.87% | n/a | +13.43% | ||||
Institutional Class (Est. Jan. 10, 2007) | |||||||
Excluding sales charge | +13.58% | +13.90% | +0.69% | ||||
Including sales charge | +13.58% | +13.90% | +0.69% | ||||
FTSE EPRA/NAREIT Developed Index | +13.16% | +15.33% | +0.99% |
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. 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. Prior to Oct. 1, 2013, Class A shares had an annual distribution and service fee of 0.30% of average daily net assets. This fee was contractually limited to 0.25% during the period from Nov. 1, 2012, until Oct. 1, 2013. 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
4
distribution and service fee of 0.50% of average daily net assets. Prior to Oct. 1, 2013, Class R shares had an annual distribution and service fee of 0.60% of average daily net assets. This fee was contractually limited to 0.50% during the period from Nov. 1, 2012, until Oct. 1, 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.
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.
The Fund may experience portfolio turnover in excess of 100%, which could result in higher transaction costs and tax liability.
2The Fund’s expense ratios, as described in the most recent prospectus, are disclosed in the following “Fund expense ratios” table. Delaware Management Company has agreed to reimburse certain expenses and/or waive certain fees in order to prevent total fund operating expenses (excluding any 12b-1 plan, taxes, interest, inverse floater program expenses, short sale and dividend interest expenses, brokerage fees, certain insurance costs, acquired fund fees and expenses, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations (collectively nonroutine expenses)) from exceeding 1.15% of the Fund’s average daily net assets during the period from Nov. 1, 2012, through Feb. 28, 2014. 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 | 1.52% | 2.27% | 1.77% | 1.27% | |||
(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, 2013
For period beginning Jan. 10, 2007, through Oct. 31, 2013 | Starting value | Ending value | ||
FTSE EPRA/NAREIT Developed Index | $10,000 | $10,692 | ||
Delaware Global Real Estate Opportunities Fund — Class A shares | $9,425 | $9,720 |
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. Expenses are listed in the “Fund expense ratios” table on page 5. Please note additional details on pages 4 through 7.
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
6
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, 2013 to October 31, 2013 (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, 2013 to Oct. 31, 2013.
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 Fund
Expense analysis of an investment of $1,000
Beginning | Ending | Expenses | ||||||||||||
Account Value | Account Value | Annualized | Paid During Period | |||||||||||
5/1/13 | 10/31/13 | Expense Ratio | 5/1/13 to 10/31/13* | |||||||||||
Actual Fund return† | ||||||||||||||
Class A | $ | 1,000.00 | $ | 943.10 | 1.40% | $ | 6.86 | |||||||
Class C | 1,000.00 | 939.30 | 2.15% | 10.51 | ||||||||||
Class R | 1,000.00 | 942.10 | 1.65% | 8.08 | ||||||||||
Institutional Class | 1,000.00 | 944.30 | 1.15% | 5.64 | ||||||||||
Hypothetical 5% return (5% return before expenses) | ||||||||||||||
Class A | $ | 1,000.00 | $ | 1,018.15 | 1.40% | $ | 7.12 | |||||||
Class C | 1,000.00 | 1,014.37 | 2.15% | 10.92 | ||||||||||
Class R | 1,000.00 | 1,016.89 | 1.65% | 8.39 | ||||||||||
Institutional Class | 1,000.00 | 1,019.41 | 1.15% | 5.85 |
*“Expenses Paid During Period” are equal to the Fund’s annualized expense ratio, multiplied by the average account value over the period, multiplied by 184/365 (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, 2013 (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 | 95.79 | % |
Australia | 7.69 | % |
Belgium | 0.79 | % |
Canada | 2.66 | % |
China/Hong Kong | 6.43 | % |
France | 3.27 | % |
Germany | 2.43 | % |
Japan | 10.60 | % |
Mexico | 0.77 | % |
Singapore | 4.05 | % |
Sweden | 0.52 | % |
United Kingdom | 6.33 | % |
United States | 50.25 | % |
Short-Term Investments | 3.69 | % |
Securities Lending Collateral | 0.04 | % |
Total Value of Securities | 99.52 | % |
Obligation to Return Securities Lending Collateral | (0.04 | %) |
Receivables and Other Assets Net of Liabilities | 0.52 | % |
Total Net Assets | 100.00 | % |
10
Common stock by sector | Percentage of net assets | |
Diversified REITs | 13.84 | % |
Healthcare REITs | 5.00 | % |
Hotel REITs | 5.83 | % |
Industrial REITs | 9.73 | % |
Mall REITs | 9.13 | % |
Multifamily REITs | 8.80 | % |
Office/Industrial REITs | 4.74 | % |
Office REITs | 13.25 | % |
Real Estate Operating Companies/Developer | 10.71 | % |
Retail REITs | 4.58 | % |
Self-Storage REIT | 2.13 | % |
Shopping Center REITs | 4.19 | % |
Single Tenant REIT | 0.96 | % |
Specialty REITs | 2.90 | % |
Total | 95.79 | % |
11
Schedule of investments | |
Delaware Global Real Estate Opportunities Fund | October 31, 2013 |
Number of shares | Value (U.S. $) | ||||
ΔCommon Stock – 95.79% | |||||
Australia – 7.69% | |||||
Dexus Property Group | 906,303 | $ | 929,747 | ||
Goodman Group | 217,402 | 1,040,101 | |||
†@= | GPT Group-In Specie | 1,377,200 | 0 | ||
Investa Office Fund | 139,178 | 409,254 | |||
Mirvac Group | 654,396 | 1,076,593 | |||
Westfield Group | 69,556 | 711,579 | |||
4,167,274 | |||||
Belgium – 0.79% | |||||
* | Cofinimmo | 3,549 | 428,699 | ||
428,699 | |||||
Canada – 2.66% | |||||
Boardwalk Real Estate Investment Trust | 13,318 | 757,507 | |||
Canadian Real Estate Investment Trust | 16,753 | 682,330 | |||
1,439,837 | |||||
China/Hong Kong – 6.43% | |||||
Hongkong Land Holdings | 61,000 | 375,760 | |||
Hysan Development | 107,356 | 501,958 | |||
Link REIT | 180,500 | 910,305 | |||
Sun Hung Kai Properties | 90,053 | 1,180,117 | |||
Wharf Holdings | 61,685 | 519,548 | |||
3,487,688 | |||||
France – 3.27% | |||||
Klepierre | 17,883 | 803,263 | |||
Unibail-Rodamco | 3,699 | 969,378 | |||
1,772,641 | |||||
Germany – 2.43% | |||||
Alstria Office REIT | 59,335 | 752,345 | |||
† | Deutsche Annington Immobilien | 21,681 | 565,239 | ||
1,317,584 | |||||
Japan – 10.60% | |||||
† | GLP J-REIT | 519 | 538,926 | ||
Japan Real Estate Investment | 43 | 491,991 | |||
Kenedix Realty Investment | 43 | 192,642 | |||
Mitsubishi Estate | 40,642 | 1,156,122 | |||
Mitsui Fudosan | 50,446 | 1,659,728 |
12
Number of shares | Value (U.S. $) | ||||
ΔCommon Stock (continued) | |||||
Japan (continued) | |||||
Nippon Building Fund | 28 | $ | 346,565 | ||
Sumitomo Realty & Development | 29,000 | 1,364,099 | |||
5,750,073 | |||||
Mexico – 0.77% | |||||
Concentradora Fibra Hotelera Mexicana | 269,018 | 418,619 | |||
418,619 | |||||
Singapore – 4.05% | |||||
Global Logistic Properties | 217,000 | 539,814 | |||
Mapletree Commercial Trust | 623,000 | 631,953 | |||
Starhill Global REIT | 370,000 | 241,275 | |||
Suntec REIT | 568,500 | 784,911 | |||
2,197,953 | |||||
Sweden – 0.52% | |||||
Hufvudstaden Class A | 21,491 | 281,337 | |||
281,337 | |||||
United Kingdom – 6.33% | |||||
British Land | 123,301 | 1,229,738 | |||
Derwent London | 13,297 | 533,880 | |||
Great Portland Estates | 83,891 | 770,771 | |||
Segro | 171,369 | 897,986 | |||
3,432,375 | |||||
United States – 50.25% | |||||
Apartment Investment & Management | 14,282 | 399,610 | |||
AvalonBay Communities | 6,784 | 848,339 | |||
BioMed Realty Trust | 7,002 | 139,480 | |||
Boston Properties | 5,038 | 521,433 | |||
Brandywine Realty Trust | 28,040 | 399,009 | |||
BRE Properties | 9,895 | 540,366 | |||
Camden Property Trust | 8,338 | 535,300 | |||
CBL & Associates Properties | 8,379 | 165,988 | |||
DCT Industrial Trust | 59,926 | 464,427 | |||
DDR | 33,408 | 566,266 | |||
Duke Realty | 29,577 | 490,091 | |||
EPR Properties | 9,567 | 491,457 | |||
Equity One | 17,906 | 431,714 | |||
Equity Residential | 17,680 | 925,725 |
13
Schedule of investments
Delaware Global Real Estate Opportunities Fund
Number of shares | Value (U.S. $) | ||||
ΔCommon Stock (continued) | |||||
United States (continued) | |||||
First Industrial Realty Trust | 39,709 | $ | 717,542 | ||
First Potomac Realty Trust | 15,001 | 184,362 | |||
† | Forest City Enterprises Class A | 21,990 | 445,517 | ||
General Growth Properties | 64,865 | 1,377,083 | |||
Healthcare Realty Trust | 12,665 | 304,087 | |||
Healthcare Trust of America Class A | 23,545 | 273,593 | |||
Highwoods Properties | 7,606 | 293,592 | |||
Host Hotels & Resorts | 51,947 | 963,617 | |||
Kilroy Realty | 8,966 | 476,633 | |||
Kimco Realty | 17,174 | 368,898 | |||
LaSalle Hotel Properties | 8,997 | 279,357 | |||
Lexington Realty Trust | 47,748 | 558,652 | |||
Liberty Property Trust | 4,422 | 164,454 | |||
Macerich | 4,792 | 283,734 | |||
Mid-America Apartment Communities | 3,038 | 201,726 | |||
Omega Healthcare Investors | 20,000 | 664,800 | |||
Pebblebrook Hotel Trust | 10,155 | 306,681 | |||
Prologis | 42,354 | 1,692,041 | |||
PS Business Parks | 4,936 | 402,235 | |||
Public Storage | 6,908 | 1,153,428 | |||
Ramco-Gershenson Properties Trust | 25,292 | 411,248 | |||
RLJ Lodging Trust | 13,586 | 343,182 | |||
Sabra Health Care REIT | 18,199 | 489,553 | |||
Simon Property Group | 17,264 | 2,668,150 | |||
SL Green Realty | 7,549 | 713,909 | |||
Spirit Realty Capital | 49,966 | 522,644 | |||
STAG Industrial | 13,306 | 278,228 | |||
† | Strategic Hotels & Resorts | 55,994 | 487,148 | ||
Sunstone Hotel Investors | 27,386 | 362,865 | |||
Tanger Factory Outlet Centers | 14,234 | 496,055 | |||
Taubman Centers | 6,891 | 453,359 | |||
Ventas | 15,017 | 979,709 | |||
Vornado Realty Trust | 11,338 | 1,009,762 | |||
27,247,049 | |||||
Total Common Stock (cost $ 48,804,118) | 51,941,129 |
14
Principal amount | ||||||
(U.S. $) | Value (U.S. $) | |||||
Short-Term Investments – 3.69% | ||||||
≠Discount Notes – 0.47% | ||||||
Federal Home Loan Bank | $ | 204,189 | $ | 204,188 | ||
0.025% 11/6/13 | 14,909 | 14,909 | ||||
0.05% 11/15/13 | 36,876 | 36,875 | ||||
0.065% 12/27/13 | 255,972 | |||||
Repurchase Agreements – 2.60% | ||||||
Bank of America 0.06%, dated 10/31/13, to be | ||||||
repurchased on 11/1/13, repurchase price | ||||||
$352,075 (collateralized by U.S. government | ||||||
obligations 0.625%-1.625% 7/15/14-1/15/15; | ||||||
market value $359,115) | 352,074 | 352,074 | ||||
BNP Paribas 0.08%, dated 10/31/13, to be | ||||||
repurchased on 11/1/13, repurchase price | ||||||
$1,058,928 (collateralized by U.S. government | ||||||
obligations 0.25%-3.875% 12/15/13-8/15/40; | ||||||
market value $1,080,105) | 1,058,926 | 1,058,926 | ||||
1,411,000 | ||||||
≠U.S. Treasury Obligations – 0.62% | ||||||
U.S. Treasury Bills | ||||||
0.02% 11/14/13 | 96,003 | 96,003 | ||||
0.033% 12/19/13 | 77,481 | 77,478 | ||||
0.053% 1/23/14 | 73,993 | 73,987 | ||||
0.065% 4/24/14 | 88,792 | 88,759 | ||||
336,227 | ||||||
Total Short-Term Investments (cost $2,003,202) | 2,003,199 | |||||
Total Value of Securities Before Securities | ||||||
Lending Collateral – 99.48% (cost $50,807,320) | 53,944,328 | |||||
Number of shares | ||||||
**Securities Lending Collateral – 0.04% | ||||||
Investment Company | ||||||
Delaware Investments Collateral Fund No. 1 | 22,975 | 22,975 | ||||
Total Securities Lending Collateral (cost $22,975) | 22,975 | |||||
©Total Value of Securities – 99.52% | ||||||
(cost $50,830,295) | $ | 53,967,303 |
15
Schedule of investments
Delaware Global Real Estate Opportunities Fund
Δ | Securities have been classified by country of origin. Classification by type of business has been presented under “Security type/country and sector allocations” on page 11. |
† | Non income producing security. |
@ | Illiquid security. At Oct. 31, 2013, 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.” |
= | Security is being fair valued in accordance with the Fund’s fair valuation policy. At Oct. 31, 2013, 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.” |
* | Fully or partially on loan. |
≠ | The rate shown is the effective yield at the time of purchase. |
** | See Note 11 in “Notes to financial statements” for additional information on securities lending collateral. |
© | Includes $21,622 of securities loaned. |
The following foreign currency exchange contracts were outstanding at Oct. 31, 2013:1
Foreign Currency Exchange Contracts
Unrealized | ||||||||||||||||
Contracts to | Appreciation | |||||||||||||||
Counterparty | Receive (Deliver) | In Exchange For | Settlement Date | (Depreciation) | ||||||||||||
MNB | JPY | (9,427,784 | ) | USD | 95,957 | 11/1/13 | $ | 73 | ||||||||
MNB | MXN | 761,099 | USD | (58,869 | ) | 11/4/13 | (517 | ) | ||||||||
$ | (444 | ) |
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 10 in “Notes to financial statements.”
Summary of abbreviations:
JPY — Japanese Yen
MNB — Mellon National Bank
MXN — Mexican Peso
REIT — Real Estate Investment Trust
USD — United States Dollar
See accompanying notes, which are an integral part of the financial statements.
16
Statement of assets and liabilities | ||
Delaware Global Real Estate Opportunities Fund | October 31, 2013 |
Assets: | ||||
Investments, at value (including securities on loan $21,622)1 | $ | 51,941,129 | ||
Short-term investments, at value2 | 2,003,199 | |||
Short-term investments held as collateral for loaned securities, at value3 | 22,975 | |||
Cash | 9,602 | |||
Foreign currencies, at value4 | 12,906 | |||
Receivable for securities sold | 818,910 | |||
Receivable for fund shares sold | 258,248 | |||
Dividends and interest receivable | 100,157 | |||
Unrealized gain of foreign currency exchange contracts | 73 | |||
Securities lending income receivable | 9 | |||
Total assets | 55,167,208 | |||
Liabilities: | ||||
Payable for securities purchased | 672,845 | |||
Payable for fund shares redeemed | 169,502 | |||
Investment management fees payable | 22,681 | |||
Obligation to return securities lending collateral | 22,975 | |||
Distribution fees payable to affiliates | 1,342 | |||
Unrealized loss of foreign currency exchange contracts | 517 | |||
Trustees fees payable | 153 | |||
Other affiliates payable | 7,660 | |||
Other accrued expenses | 42,413 | |||
Total liabilities | 940,088 | |||
Total Net Assets | $ | 54,227,120 | ||
Net Assets Consist of: | ||||
Paid-in capital | $ | 148,259,560 | ||
Undistributed net investment income | 563,988 | |||
Accumulated net realized loss on investments | (97,733,509 | ) | ||
Net unrealized appreciation of investments and derivatives | 3,137,081 | |||
Total Net Assets | $ | 54,227,120 | ||
1Investments, at cost | $ | 48,804,118 | ||
2Short-term investments, at cost | 2,003,202 | |||
3Short-term investments held as collateral for loaned securities, at cost | 22,975 | |||
4Foreign currencies, at cost | 12,918 |
18
Net Asset Value | |||
Class A | |||
Net assets | $ | 4,340,382 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | 652,249 | ||
Net asset value per share | $ | 6.65 | |
Sales charge | 5.75% | ||
Offering price per share, equal to net asset value per share/(1 - sales charge) | $ | 7.06 | |
Class C | |||
Net assets | $ | 571,860 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | 86,185 | ||
Net asset value per share | $ | 6.64 | |
Class R | |||
Net assets | $ | 23,452 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | 3,530 | ||
Net asset value per share | $ | 6.64 | |
Institutional Class | |||
Net assets | $ | 49,291,426 | |
Shares of beneficial interest outstanding, unlimited authorization, no par | 7,411,776 | ||
Net asset value per share | $ | 6.65 |
See accompanying notes, which are an integral part of the financial statements.
19
Statement of operations | |
Delaware Global Real Estate Opportunities Fund | Year Ended October 31, 2013 |
Investment Income: | |||
Dividends | $ | 1,799,766 | |
Securities lending income | 7,664 | ||
Interest | 756 | ||
Foreign tax withheld | (97,636 | ) | |
1,710,550 | |||
Expenses: | |||
Management fees | 649,527 | ||
Distribution expenses – Class A | 6,038 | ||
Distribution expenses – Class C | 1,972 | ||
Distribution expenses – Class R | 45 | ||
Registration fees | 117,346 | ||
Dividend disbursing and transfer agent fees and expenses | 32,118 | ||
Custodian fees | 26,951 | ||
Audit and tax | 26,795 | ||
Accounting and administration expenses | 25,440 | ||
Reports and statements to shareholders | 25,006 | ||
Dues and services | 9,795 | ||
Legal fees | 5,243 | ||
Pricing fees | 3,664 | ||
Trustees’ expenses | 3,153 | ||
Insurance | 1,358 | ||
Consulting fees | 622 | ||
Trustees’ fees | 231 | ||
935,304 | |||
Less fees waived | (171,747 | ) | |
Less waived distribution expenses – Class R | (7 | ) | |
Less expense paid indirectly | (6 | ) | |
Total operating expenses | 763,544 | ||
Net Investment Income | 947,006 |
20
Net Realized and Unrealized Gain (Loss): | |||
Net realized gain (loss) on: | |||
Investments | $ | 10,867,688 | |
Foreign currencies | (48,298 | ) | |
Foreign currency exchange contracts | (93,674 | ) | |
Net realized gain | 10,725,716 | ||
Net change in unrealized appreciation (depreciation) of: | |||
Investments | (2,089,785 | ) | |
Foreign currencies | 1,489 | ||
Foreign currency exchange contracts | (444 | ) | |
Net change in unrealized appreciation (depreciation) | (2,088,740 | ) | |
Net Realized and Unrealized Gain | 8,636,976 | ||
Net Increase in Net Assets Resulting from Operations | $ | 9,583,982 |
See accompanying notes, which are an integral part of the financial statements.
21
Statements of changes in net assets
Delaware Global Real Estate Opportunities Fund
Year Ended | |||||||
10/31/13 | 10/31/12 | ||||||
Increase (Decrease) in Net Assets from Operations: | |||||||
Net investment income | $ | 947,006 | $ | 941,824 | |||
Net realized gain | 10,725,716 | 3,935,886 | |||||
Net change in unrealized appreciation (depreciation) | (2,088,740 | ) | 4,060,411 | ||||
Net increase in net assets resulting from operations | 9,583,982 | 8,938,121 | |||||
Dividends and Distributions to shareholders from: | |||||||
Net investment income: | |||||||
Class A | (43,533 | ) | (306 | ) | |||
Class C | (1,019 | ) | — | ||||
Class R | (200 | ) | — | ||||
Institutional Class | (2,409,597 | ) | (2,051,090 | ) | |||
(2,454,349 | ) | (2,051,396 | ) | ||||
Capital Share Transactions: | |||||||
Proceeds from shares sold: | |||||||
Class A | 4,848,064 | 39,337 | |||||
Class C | 533,552 | 6 | |||||
Class R | 16,130 | 6 | |||||
Institutional Class | 5,978,853 | 40,552,760 | |||||
Net asset value of shares issued upon reinvestment of | |||||||
dividends and distributions: | |||||||
Class A | 36,689 | 306 | |||||
Class C | 1,018 | — | |||||
Class R | 199 | — | |||||
Institutional Class | 1,994,281 | 1,861,763 | |||||
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 | |||||
13,408,786 | 43,899,847 |
22
Year Ended | ||||||||||||
10/31/13 | 10/31/12 | |||||||||||
Capital Share Transactions (continued): | ||||||||||||
Cost of shares redeemed: | ||||||||||||
Class A | $ | (1,049,483 | ) | $ | — | |||||||
Class C | (3,384 | ) | — | |||||||||
Class R | — | (528 | ) | |||||||||
Institutional Class | (42,013,438 | ) | (23,398,216 | ) | ||||||||
(43,066,305 | ) | (23,398,744 | ) | |||||||||
Increase (decrease) in net assets derived from capital | ||||||||||||
share transactions | (29,657,519 | ) | 20,501,103 | |||||||||
Net Increase (Decrease) in Net Assets | (22,527,886 | ) | 27,387,828 | |||||||||
Net Assets: | ||||||||||||
Beginning of year | 76,755,006 | 49,367,178 | ||||||||||
End of year (including undistributed net investment income of | ||||||||||||
$563,988 and $815,409, respectively) | $ | 54,227,120 | $ | 76,755,006 |
* | 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.
23
Financial highlights
Delaware Global Real Estate Opportunities Fund 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 |
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 after the close of business on Sept. 28, 2012. Prior to the Reorganization, the Fund had no investment operations. The information shown for 2012 and earlier is historical information for The Global Real Estate Securities Portfolio. 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. |
2 The average shares outstanding method has been applied for per share information. |
See accompanying notes, which are an integral part of the financial statements.
24
Year Ended | |||||||||||||||||||||
10/31/13 | 10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | |||||||||||||||||
$6.060 | $5.370 | $5.780 | $5.040 | $4.420 | |||||||||||||||||
0.079 | 0.103 | 0.148 | 0.129 | 0.129 | |||||||||||||||||
0.696 | 0.799 | (0.069 | ) | 0.973 | 0.491 | ||||||||||||||||
0.775 | 0.902 | 0.079 | 1.102 | 0.620 | |||||||||||||||||
(0.185 | ) | (0.212 | ) | (0.489 | ) | (0.362 | ) | — | |||||||||||||
(0.185 | ) | (0.212 | ) | (0.489 | ) | (0.362 | ) | — | |||||||||||||
$6.650 | $6.060 | $5.370 | $5.780 | $5.040 | |||||||||||||||||
13.11% | 17.79% | 1.68% | 23.26% | 14.03% | |||||||||||||||||
$4,340 | $297 | $8 | $8 | $6 | |||||||||||||||||
1.40% | 1.38% | 1.39% | 1.50% | 1.32% | |||||||||||||||||
1.66% | 1.52% | 1.49% | 1.50% | 1.46% | |||||||||||||||||
1.21% | 1.65% | 2.69% | 2.52% | 3.20% | |||||||||||||||||
0.95% | 1.51% | 2.59% | 2.52% | 3.06% | |||||||||||||||||
112% | 128% | 155% | 185% | 124% |
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 and does not reflect the impact of a sales charge. Total investment return during some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
25
Financial highlights
Delaware Global Real Estate Opportunities Fund Class C
Selected data for each share of the Fund outstanding throughout each period were as follows:
Year | 10/1/121 | ||||||
Ended | to | ||||||
10/31/13 | 10/31/12 | ||||||
Net asset value, beginning of period | $6.060 | $5.960 | |||||
Income (loss) from investment operations: | |||||||
Net investment income (loss)2 | 0.030 | (0.005 | ) | ||||
Net realized and unrealized gain | 0.705 | 0.105 | |||||
Total from investment operations | 0.735 | 0.100 | |||||
Less dividends and distributions from: | |||||||
Net investment income | (0.155 | ) | — | ||||
Total dividends and distributions | (0.155 | ) | — | ||||
Net asset value, end of period | $6.640 | $6.060 | |||||
Total return3 | 12.23% | 1.68% | |||||
Ratios and supplemental data: | |||||||
Net assets, end of period (000 omitted) | $572 | $25 | |||||
Ratio of expenses to average net assets | 2.15% | 2.15% | |||||
Ratio of expenses to average net assets | |||||||
prior to fees waived | 2.41% | 2.52% | |||||
Ratio of net investment income (loss) to average net assets | 0.46% | (0.93% | ) | ||||
Ratio of net investment income (loss) to average net assets | |||||||
prior to fees waived | 0.20% | (1.30% | ) | ||||
Portfolio turnover | 112% | 128% | 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 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. |
4 Portfolio turnover is representative of the Fund for the entire annual period. |
See accompanying notes, which are an integral part of the financial statements.
26
Delaware Global Real Estate Opportunities Fund Class R
Selected data for each share of the Fund outstanding throughout each period were as follows:
Year | 10/1/121 | ||||||
Ended | to | ||||||
10/31/13 | 10/31/12 | ||||||
Net asset value, beginning of period | $6.060 | $5.960 | |||||
Income (loss) from investment operations: | |||||||
Net investment income (loss)2 | 0.062 | (0.002 | ) | ||||
Net realized and unrealized gain | 0.699 | 0.102 | |||||
Total from investment operations | 0.761 | 0.100 | |||||
Less dividends and distributions from: | |||||||
Net investment income | (0.181 | ) | — | ||||
Total dividends and distributions | (0.181 | ) | — | ||||
Net asset value, end of period | $6.640 | $6.060 | |||||
Total return3 | 12.87% | 1.68% | |||||
Ratios and supplemental data: | |||||||
Net assets, end of period (000 omitted) | $24 | $7 | |||||
Ratio of expenses to average net assets | 1.65% | 1.65% | |||||
Ratio of expenses to average net assets | |||||||
prior to fees waived | 2.00% | 2.12% | |||||
Ratio of net investment income (loss) to average net assets | 0.96% | (0.43% | ) | ||||
Ratio of net investment income (loss) to average net assets | |||||||
prior to fees waived | 0.61% | (0.90% | ) | ||||
Portfolio turnover | 112% | 128% | 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 reflects waivers by the manager and distributor. Performance would have been lower had the waivers not been in effect. |
4 Portfolio turnover is representative of the Fund for the entire annual period. |
See accompanying notes, which are an integral part of the financial statements.
27
Financial highlights
Delaware Global Real Estate Opportunities Fund 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 |
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 after the close of business on Sept. 28, 2012. Prior to the Reorganization, the Fund had no investment operations. The information shown for 2012 and earlier is historical information for The Global Real Estate Securities Portfolio. 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. |
2 The average shares outstanding method has been applied for per share information. |
See accompanying notes, which are an integral part of the financial statements.
28
Year Ended | |||||||||||||||
10/31/13 | 10/31/12 | 10/31/11 | 10/31/10 | 10/31/09 | |||||||||||
$6.060 | $5.390 | $5.790 | $5.050 | $4.430 | |||||||||||
0.094 | 0.105 | 0.163 | 0.142 | 0.139 | |||||||||||
0.707 | 0.791 | (0.061 | ) | 0.971 | 0.490 | ||||||||||
0.801 | 0.896 | 0.102 | 1.113 | 0.629 | |||||||||||
(0.211 | ) | (0.226 | ) | (0.502 | ) | (0.373 | ) | (0.009 | ) | ||||||
(0.211 | ) | (0.226 | ) | (0.502 | ) | (0.373 | ) | (0.009 | ) | ||||||
$6.650 | $6.060 | $5.390 | $5.790 | $5.050 | |||||||||||
13.58% | 17.68% | 2.10% | 23.49% | 13.75% | |||||||||||
$49,291 | $76,426 | $49,359 | $60,307 | $54,761 | |||||||||||
1.15% | 1.13% | 1.14% | 1.25% | 1.07% | |||||||||||
1.41% | 1.27% | 1.24% | 1.25% | 1.21% | |||||||||||
1.46% | 1.90% | 2.94% | 2.77% | 3.45% | |||||||||||
1.20% | 1.76% | 2.84% | 2.77% | 3.31% | |||||||||||
112% | 128% | 155% | 185% | 124% |
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 some of the periods shown reflects a waiver by the manager. Performance would have been lower had the waiver not been in effect. |
29
Notes to financial statements | |
Delaware Global Real Estate Opportunities Fund | October 31, 2013 |
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 (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 5.75%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) of 1.00% 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 1.00%, 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 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 and foreign cross 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
30
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 & Foreign 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 (Oct. 31, 2010–Oct. 31, 2013), and has concluded that no provision for federal income tax is required in the Fund’s financial statements. In regard to foreign taxes only, the Fund has open tax years in certain foreign countries it invests in that may date back to the inception of the Fund.
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 Oct. 31, 2013.
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 daily into U.S. dollars at the exchange rate of such currencies against the U.S. dollar. 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 bifurcate 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.
31
Notes to financial statements
Delaware Global Real Estate Opportunities Fund
1. Significant Accounting Policies (continued)
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 among 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 the 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 tax withholdings, a portion of which may be reclaimable. Withholding taxes and reclaims 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 distributions from net investment income quarterly and net realized gain on investments, if any, annually. The Fund may distribute 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 Oct. 31, 2013.
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which are used to offset transfer agent fees. If the amount earned is greater than one dollar, the expense paid under this arrangement is included in dividend disbursing and transfer agent fees and expenses and appears on the statement of operations with the corresponding expense offset shown as “expense paid indirectly.” For the year ended Oct. 31, 2013, the Fund earned $ 6 under the agreement.
32
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 fund operating expenses (excluding any 12b-1 plan, taxes, interest, inverse floater program expenses, short sale and dividend interest expenses, brokerage fees, certain insurance costs, acquired fund fees and expenses, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations (collectively nonroutine expenses)) do not exceed 1.15% of the Fund’s average daily net assets from Feb. 28, 2013 through Feb. 28, 2014. For purposes of this waiver and reimbursement, nonroutine expenses may also include such additional costs and expenses as may be agreed upon from time to time by the Fund’s Board and DMC. This expense waiver and reimbursement may only be terminated by agreement of DMC and 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 Oct. 31, 2013, the Fund was charged $3,181 for these services.
DSC is also the transfer agent and dividend disbursing agent of the Fund. For these services, the Fund pays DSC fees based on the aggregate daily net assets of the retail funds within the Delaware Investments Family of Funds at the following annual rate: 0.025% of the first $20 billion; 0.020% of the next $5 billion; 0.015% of the next $5 billion; and 0.013% of average daily net assets in excess of $30 billion. 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. These amounts are included in the statement of operations as dividend disbursing and transfer agent fees and expenses. For the year ended Oct. 31, 2013, the amounts charged by DSC and BNYMIS were $ 19,761 and $ 12,351, respectively.
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 0.25% of the average daily net assets of the Class A shares and 1.00% of the average daily net assets of the Class C shares. Effective Oct. 1, 2013, the Fund pays DDLP an annual distribution and service fees of 0.50% of the average daily net assets of the Class R shares. Prior to Oct. 1, 2013, the Fund paid DDLP an
33
Notes to financial statements
Delaware Global Real Estate Opportunities Fund
2. Investment Management, Administration Agreements and Other Transactions with Affiliates (continued)
annual distribution and service fee of 0.60% of the average daily net assets of the Class R shares. For the period from Nov. 1, 2012 to Oct. 1, 2013, the distribution and service fee for Class R shares was contractually limited to 0.50% of the class average daily net assets. Institutional Class shares pay no distribution and service expenses.
As provided in the investment management agreement, the Fund bears the cost of certain legal services, including internal legal services provided to the Fund by DMC and/or its affiliates’ employees. For the year ended Oct. 31, 2013, the Fund was charged $1,989 for internal legal services provided by DMC and/or its affiliates’ employees.
For the year ended Oct. 31, 2013, DDLP earned $2,076 for commissions on sales of the Fund’s Class A shares. For the year ended Oct. 31, 2013, DDLP received gross CDSC commissions of $ 6 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 Oct. 31, 2013, the Fund made purchases of $ 72,346,961 and sales of $105,568,614 of investment securities other than short-term investments.
At Oct. 31, 2013, the cost of investments for federal income tax purposes was $ 51,660,765. At Oct. 31, 2013, net unrealized appreciation was $ 2,306,538, of which $4,262,454 related to unrealized appreciation and $1,955,916 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) |
34
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) |
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 Oct. 31, 2013:
Level 1 | Level 2 | Level 3 | Total | |||||||||||
Common Stock1 | $ | 51,941,129 | $ | — | $— | $ | 51,941,129 | |||||||
Short-Term Investments | — | 2,003,199 | — | 2,003,199 | ||||||||||
Securities Lending Collateral | — | 22,975 | — | 22,975 | ||||||||||
Total | $ | 51,941,129 | $ | 2,026,174 | $— | $ | 53,967,303 | |||||||
Foreign Currency Exchange Contracts | $ | — | $ | (444 | ) | $— | $ | (444 | ) |
1Security type is valued across multiple levels. The amount attributed to Level 3 investments represents less than 1% of the total market value of this security type.
The securities that have been deemed worthless on the schedule of investments are considered to be Level 3 securities in this table.
During the year ended Oct. 31, 2013, there were no transfers between Level 1 investments, Level 2 investments or Level 3 investments that had a significant 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 year. In accordance with the Fair Valuation Procedures described in Note 1, 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, causing a change in the classification between levels. The Fund’s policy is to recognize transfers between levels at the beginning of the reporting period.
35
Notes to financial statements
Delaware Global Real Estate Opportunities Fund
3. Investments (continued)
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. Management has determined not to provide additional disclosure on Level 3 inputs under ASU No. 2011-04 since the Level 3 investments are not considered significant 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 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 Oct. 31, 2013 and 2012 were as follows:
Year Ended | ||||
10/31/13 | 10/31/12 | |||
Ordinary income | $2,454,349 | $2,051,396 |
5. Components of Net Assets on a Tax Basis
As of Oct. 31, 2013, the components of net assets on a tax basis were as follows:
Shares of beneficial interest | $ | 148,259,560 | |
Undistributed ordinary income* | 1,011,254 | ||
Capital loss carryforwards** | (97,350,232 | ) | |
Unrealized appreciation | 2,306,538 | ||
Net assets | $ | 54,227,120 |
* | The undistributed earnings for the Fund are estimated pending final notification of the tax character of distributions received from investments in REITs. |
** | 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 Fund on Sept. 28, 2012. |
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 foreign currency exchange contracts and tax treatment of passive foreign investment companies.
36
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, disallowed expenses and passive foreign investment companies. Results of operations and net assets were not affected by these reclassifications. For the year ended Oct. 31, 2013, the Fund recorded the following reclassifications:
Undistributed net investment income | $ | 1,255,922 | |
Accumulated net realized loss | (1,255,514 | ) | |
Pain-in capital | (408 | ) |
For federal income tax purposes, capital loss carryforwards may be carried forward and applied against future capital gains. $8,133,355 was utilized in 2013. Capital loss carryforwards remaining at Oct. 31, 2013 will expire as follows: $43,164,891 expires in 2016, $50,784,384 expires in 2017 and $3,400,957 expires in 2018.
On Dec. 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. 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.
37
Notes to financial statements
Delaware Global Real Estate Opportunities Fund
6. Capital Shares
Transactions in capital shares were as follows:
Year Ended | |||||
10/31/13 | 10/31/12 | ||||
Shares sold: | |||||
Class A | 760,881 | 6,568 | |||
Class C | 82,306 | 1 | |||
Class R | 2,408 | 1 | |||
Institutional Class | 917,597 | 7,017,753 | |||
Shares issued upon reinvestment of dividends and distributions: | |||||
Class A | 6,032 | 63 | |||
Class C | 168 | — | |||
Class R | 33 | — | |||
Institutional Class | 331,969 | 384,662 | |||
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 | |||
2,101,394 | 7,651,681 | ||||
Shares redeemed: | |||||
Class A | (163,649 | ) | — | ||
Class C | (513 | ) | — | ||
Class R | — | (89 | ) | ||
Institutional Class | (6,441,084 | ) | (4,154,049 | ) | |
(6,605,246 | ) | (4,154,138 | ) | ||
Net increase (decrease) | (4,503,852 | ) | 3,497,543 |
* | See Note 7. |
** | See Note 8. |
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7. Fund Reorganization
Following the close of business on Sept. 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 Class P and Original Class shareholders of the Portfolio received Class A shares and Institutional Class Shares of the Fund, respectively, 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 gain of the Portfolio as of the close of business on Sept. 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
Immediately following the Reorganization, on Sept. 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 Fund | Acquired 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 |
39
Notes to financial statements
Delaware Global Real Estate Opportunities Fund
8. Fund Merger (continued)
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 Sept. 28, 2012 were as follows:
Net assets | $ | 1,445,669 | |
Accumulated net realized loss | (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 Nov. 1, 2011, the beginning of the Acquiring Fund’s reporting period, the Acquiring Fund’s pro forma results of operations for the year ended Oct. 31, 2012 were 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 Oct. 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 $125,000,000 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 Nov. 13, 2012.
On Nov. 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 line of credit was used as described above and operated in substantially the same manner as the original agreement. The line of credit available under the agreement expired on Nov. 12, 2013.
40
On Nov. 12, 2013, the Fund, along with the other Participants, entered into an amendment to the agreement for a $225,000,000 revolving line of credit. The line of credit 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 Nov. 10, 2014.
The Fund had no amounts outstanding as of Oct. 31 , 2013 or at any time during the year then ended.
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 and foreign cross 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 and foreign cross 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 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 pages 20 and 21 for the realized and unrealized gain or loss on derivatives.
Derivatives Generally. The table below summarizes the average balance of derivative holdings by the Fund during the year ended Oct. 31, 2013:
Long | Short | ||
Derivative | Derivative | ||
Volume | Volume | ||
Foreign currency exchange contracts (average cost) | USD 324,700 | USD 211,596 |
41
Notes to financial statements
Delaware Global Real Estate Opportunities Fund
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. 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. 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.
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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 Oct. 31, 2013, the value of securities on loan was $21,622, for which cash collateral was received and invested in accordance with the Lending Agreement. At Oct. 31, 2013, the value of invested collateral was $22,975. These investments are presented on the schedule of investments 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 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 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
43
Notes to financial statements
Delaware Global Real Estate Opportunities Fund
12. Credit and Market Risk (continued)
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 Oct. 31, 2013, there were no Rule 144A securities. Illiquid securities have been identified on the schedule of investments.
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 Oct. 31, 2013 that would require recognition or disclosure in the Fund’s financial statements.
44
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:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, 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 (one of the series constituting Delaware Group Adviser Funds, hereafter referred to as the “Fund”) at October 31, 2013, 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 periods presented after the year ended October 31, 2010, 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, 2013 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for the year 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, 2013
45
Other Fund information
(Unaudited)
Delaware Global Real Estate Opportunities 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 the 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 disclosures 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 reporting, it is the intention of the Fund to report the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
For the fiscal year ended Oct. 31, 2013, the Fund reports distributions paid during the year as follows:
(A) Ordinary Income Distributions* (Tax Basis) | 100.00 | % |
(B) Qualifying Dividends1 | 0.08 | % |
(B) is based on a percentage of the Fund’s ordinary income distributions.
1Qualifying dividends represent dividends which qualify for the corporate dividends received deduction.
Board consideration of Delaware Global Real Estate Opportunities Fund investment advisory agreement
At a meeting held on August 20-22, 2013 (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 Delaware Global Real Estate Opportunities 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 to the Trustees in May 2013 and included 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.
46
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 for 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 recent 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 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
47
Other Fund information
(Unaudited)
Delaware Global Real Estate Opportunities Fund
Board consideration of Delaware Global Real Estate Opportunities Fund investment advisory agreement (continued)
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- and five-year periods ended March 31, 2013. 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 global real estate 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-year period was in the second quartile of its Performance Universe. 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, 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 was in the quartile with the second highest expenses of its Expense Group and its total expenses were in the quartile with the lowest expenses of its Expense Group. The Board was satisfied with the total expenses of the Fund in comparison to its Expense Group as shown in the Lipper report.
48
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, reflects 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 did not fall within the standard structure. Management explained that the Fund was very similar to another existing product offered by Delaware Investments and Management wanted consistency across the fee structure. In addition, the Fund generally invests a significant portion of its assets in international (including emerging markets) securities, an asset category that requires more research and firm resources than is typically true for funds investing in domestic securities. 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.
49
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 | ||||
Independent Trustees | ||||
Thomas L. Bennett | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
October 1947 | ||||
Joseph W. Chow | Trustee | Since January 2013 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1953 | ||||
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 |
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 | 70 | 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) | ||||
Private Investor | 70 | Director | ||
(March 2004–Present) | Bryn Mawr Bank Corp. (BMTC) | |||
(2007–2011) | ||||
Executive Vice President | 70 | Director and Audit Committee | ||
(Emerging Economies Strategies, | Member — Hercules | |||
Risk and Corporate Administration) | Technology Growth | |||
State Street Corporation | Capital, Inc. | |||
(July 2004–March 2011) | ||||
President | 70 | Director — Hershey Trust | ||
Drexel University | ||||
(August 2010–Present) | Director and Audit | |||
Committee Member | ||||
President | Community Health Systems | |||
Franklin & Marshall College | ||||
(July 2002–July 2010) | ||||
Managing Director | 70 | None | ||
AKA Strategy | ||||
(Strategic Consulting) | ||||
(1990–Present) |
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 (continued) | ||||
Lucinda S. Landreth | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
June 1947 | ||||
Frances A. Sevilla-Sacasa | Trustee | Since September 2011 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1956 | ||||
Thomas K. Whitford | Trustee | Since January 2013 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
March 1956 | ||||
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 | ||
Private Investor | 70 | None | ||
(2004–Present) | ||||
Chief Executive Officer — | 70 | Trust Manager and | ||
Banco Itaú Europa | Audit Committee | |||
International | Member — Camden | |||
(April 2012–Present) | Property Trust | |||
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) | ||||
Vice Chairman | 70 | None | ||
(2010–April 2013) | ||||
Chief Administrative | ||||
Officer (2008–2010) | ||||
and Executive Vice | ||||
President and Chief | ||||
Administrative Officer | ||||
(2007–2009) — | ||||
PNC Financial | ||||
Services Group |
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 | ||
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 | ||||
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 | ||
Vice President and Treasurer | 70 | 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 | ||||
(2005–2012) | ||||
Founder | 70 | Director and Compensation | ||
Investor Analytics | Committee Member | |||
(Risk Management) | Investor Analytics | |||
(May 1999–Present) | ||||
Director — P/E Investments | ||||
Founder | ||||
P/E Investments | ||||
(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 | Senior Vice President, | Senior Vice President, | ||
2005 Market Street | Deputy General | Deputy General Counsel | ||
Philadelphia, PA 19103 | Counsel, and Secretary | since May 2013; | ||
December 1963 | Vice President, Deputy | |||
General Counsel | ||||
September 2000– | ||||
May 2013; Secretary since | ||||
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.
56
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 | 70 | None3 | ||
Deputy General Counsel of | ||||
Delaware Investments | ||||
since 2000. | ||||
Daniel V. Geatens has served | 70 | None3 | ||
in various capacities at | ||||
different times at | ||||
Delaware Investments. | ||||
David P. O’Connor has served in | 70 | None3 | ||
various executive and legal | ||||
capacities at different times | ||||
at Delaware Investments. | ||||
Richard Salus has served in | 70 | 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 | Joseph W. Chow John A. Fry Anthony D. Knerr | Lucinda S. Landreth Frances A. Sevilla-Sacasa | Thomas K. Whitford 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.
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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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. Bennett1
Joseph W. Chow
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 $117,640 for the fiscal year ended October 31, 2013.
_______________________
1 The instructions to Form N-CSR require disclosure on the relevant experience of persons who qualify as audit committee financial experts based on “other relevant experience.” The Board of Trustees/Directors has determined that Mr. Bennett qualifies as an audit committee financial expert by virtue of: his education and Chartered Financial Analyst designation; his experience as a credit analyst, portfolio manager and the manager of other credit analysts and portfolio managers; and his prior service on the audit committees of public companies.
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.
(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, 2013.
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 $618,000 for the registrant’s fiscal year ended October 31, 2013. 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, 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; 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 $21,650 for the fiscal year ended October 31, 2013. 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, 2013. 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 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.
(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, 2013.
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, 2013. 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, 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%.
(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 $ 7,732,970 and $10,867,923 for the registrant’s fiscal years ended October 31, 2013 and October 31, 2012, 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 Company 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 fourth 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, 2014 |
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, 2014 |
/s/ RICHARD SALUS | |
By: | Richard Salus |
Title: | Chief Financial Officer |
Date: | January 7, 2014 |