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: | 811-03363 | |
Exact name of registrant as specified in charter: | Delaware Group® Limited-Term Government 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 | ||
Registrants telephone number, including area code: | (800) 523-1918 | |
Date of fiscal year end: | December 31 | |
Date of reporting period: | December 31, 2011 |
Item 1. Reports to Stockholders
Annual report
Delaware
Limited-Term
Diversified Income Fund December
31, 2011
Fixed income mutual fund |
Carefully consider the Funds
investment objectives, risk factors, charges, and expenses before
investing. This and other information can be found in the Funds
prospectus and, if available, its summary prospectus, which may be
obtained by visiting www.delawareinvestments.com
or calling 800 523-1918. Investors should read the prospectus and, if
available, the summary prospectus carefully before
investing. |
You can obtain shareholder
reports and prospectuses online instead of in the mail. Visit www.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 Limited-Term Diversified Income Fund at www.delawareinvestments.com.
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 Limited-Term Diversified Income Fund are not and will not be deposits with or liabilities of Macquarie Bank Limited ABN 46 008 583 542 and its holding companies, including their subsidiaries or related companies (Macquarie Group), and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. No Macquarie Group company guarantees or will guarantee the performance of the Fund, the repayment of capital from the Fund, or any particular rate of return.
Table of contents | |
Portfolio management review | 1 |
Performance summary | 4 |
Disclosure of Fund expenses | 8 |
Security type/sector allocation | 10 |
Statement of net assets | 12 |
Statement of operations | 34 |
Statements of changes in net assets | 36 |
Financial highlights | 38 |
Notes to financial statements | 48 |
Report of independent registered | |
public accounting firm | 66 |
Other Fund information | 67 |
Board of trustees/directors and | |
officers addendum | 72 |
About the organization | 82 |
Unless otherwise noted, views expressed herein are current as of Dec. 31, 2011, 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 Funds distributor, Delaware Distributors, L.P. Macquarie Group refers to Macquarie Group Limited and its subsidiaries and affiliates worldwide.
© 2012 Delaware Management Holdings, Inc.
All third-party trademarks cited are the property of their respective owners.
Portfolio management review | |
Delaware Limited-Term Diversified Income Fund | January 10, 2012 |
Performance preview (for the year ended December 31, 2011) | ||||
Delaware Limited-Term Diversified Income Fund (Class A shares) | 1-year return | +2.78% | ||
Barclays Capital 1-3 Year Government/Credit Index (benchmark) | 1-year return | +1.59% |
For much of the Funds fiscal year, a deeply unsettled global macroeconomic environment was broadly supportive of fixed income prices as investors generally accepted low nominal yields in exchange for mitigating risk. Nonetheless, global bond markets also encountered significant volatility, as policy makers struggled to adapt unusual remedies to a wide range of serious problems, including a sovereign debt crisis in Europe, a tepid and mostly jobless economic recovery in the United States, rising food and energy prices worldwide, and stubbornly high inflation in China.
When the Funds fiscal year began in January 2011, the Federal Reserve had recently initiated a second round of quantitative easing (also referred to as QE2), which involved purchasing $600 billion of Treasury securities financed by the expansion of the central banks balance sheet. Though the program was intended to push market interest rates lower and thus encourage more borrowing bond yields actually rose for several months thereafter as investors general expectations for faster economic growth and higher inflation pushed money into generally riskier assets such as equities and commodities.
Beginning in early spring 2011, however, a series of events seemed to curtail investors appetite for risk. The tragic earthquake, tsunami, and nuclear crisis in Japan disrupted global supply chains, destabilizing what was still a fragile economic recovery in Europe and the U.S. Geopolitical unrest in North Africa and the Middle East continued to contribute to higher commodity prices, which compelled many consumers to pull their spending back even further. Additionally, deteriorating economic conditions in Greece and other peripheral euro-zone countries rekindled fears of a disorderly default of that countrys sovereign debt, with its potentially dangerous effects on the global financial system (including core euro-zone countries like Spain and Italy). Economic growth in the U.S. decelerated under the weight of those international factors as well as a high-stakes political showdown in Washington D.C. over raising the debt ceiling. The latter ultimately failed to produce a long-term solution to the nations looming budget shortfalls.
Though Standard & Poors subsequently downgraded the credit rating on U.S. government debt, Treasury yields nonetheless plunged to their lowest levels since the early 1960s as investors sought a port
1
in a gathering global economic storm. In September 2011, demand for intermediate-term and long-maturity Treasury debt was strengthened by another Fed program called Operation Twist, in which the U.S. central bank began using proceeds from the sale and maturing of its short-term Treasury holdings to buy longer-dated government paper in an attempt to drive down mortgage rates. During the final months of the Funds fiscal year, tentative signs of progress in Europe along with a firmer tone to U.S. economic data caused a mild backup in Treasury yields and a strong rally in credit-sensitive sectors of the fixed income market, most notably high yield bonds. (Source: Bloomberg.)
Fund performance
For the fiscal year ended Dec. 31, 2011, Delaware Limited-Term Diversified Income Fund returned +2.78% for Class A shares at net asset value and -0.02% at maximum offer price (both figures reflect all distributions reinvested). For the same period, the Barclays Capital 13 Year Government/Credit Index returned +1.59%. For complete, annualized performance of Delaware Limited-Term Diversified Income Fund, please see the table on page 4.
The Funds commitment to seek broad diversification allows us the flexibility to shift the portfolios makeup across several fixed income asset classes based on where we believe the best opportunities may potentially lie. We generally shied away from riskier asset classes during the fiscal year, which contributed to the Funds outperformance of its benchmark. Yet even the Funds relatively minimal exposure to areas such as emerging market and non-dollar debt, at times, detracted from its returns versus the benchmark.
The Funds overweight position in investment grade corporate bonds contributed to performance. Within this asset class, we concluded that the BBB- and A-rated areas generally offered the best risk-reward trade-off, and therefore, we emphasized the Funds positions in those categories. For much of the fiscal year, the Fund maintained an overweight exposure to the financial sector, with a focus on domestic financial and banking names. However, as European debt and banking issues threatened to influence U.S. entities, we began to scale back the Funds exposure to these areas.
Additionally, an overweight exposure to industrial company bonds was a significant contributor to returns during the Funds fiscal year. This sector enjoyed some price gains as U.S. Treasury market prices generally rallied throughout the year. Exposure to high-quality sovereign investments also contributed to Fund returns in 2011. We have favored investments in countries that have practiced what we view as solid fiscal prudence, and that also enjoy the benefits of natural resources development. Notable investments for the Funds fiscal year included Australian, Canadian, and Norwegian bonds.
Exposures to the lower-credit-quality sectors of bank loans, convertible bonds, and traditional high yield bonds (though limited), generally lagged market returns. The slowing of domestic economic activity, along with diminished prospects for growth abroad, caused an increase in required yield premiums for these sectors.
Finally, a relatively small allocation to U.S. Treasury notes and bonds detracted from Fund performance for the fiscal year. This sector enjoyed a flight-to-quality bid as the
2
European situation deteriorated throughout most of this period. As mentioned earlier, the Feds Operation Twist program supported longer-maturity Treasury bonds in 2011. As a result, we augmented a small allocation to this sector with interest rate futures, thereby attempting to capture some of this effect.
Outlook
We believe the sluggish pace of global economic growth may continue, or even decelerate, as the deleveraging cycle plays out and expands to include governmental entities worldwide. Within this environment, we believe that a normal cyclical recovery is unlikely unless policy makers embrace systemic changes that promote robust productivity growth and discourage excessive debt accumulation. Until then, we plan to continue to seek value and focus on quality, liquidity, and downside protection for taking risk.
Performance summary | |
Delaware Limited-Term Diversified Income Fund | December 31, 2011 |
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 www.delawareinvestments.com/performance. Current performance may be lower or higher than the performance data quoted.
Fund performance1,2 | Average annual total returns through December 31, 2011 | |||||||||||
1 year | 5 years | 10 years | Lifetime | |||||||||
Class A (Est. Nov. 24, 1985) | ||||||||||||
Excluding sales charge | +2.78% | +5.52% | +4.45 | % | n/a | |||||||
Including sales charge | -0.02% | +4.93% | +4.16 | % | n/a | |||||||
Class B (Est. May 2, 1994) | ||||||||||||
Excluding sales charge | +1.92% | +4.63% | +4.00 | % | n/a | |||||||
Including sales charge | -0.06% | +4.63% | +4.00 | % | n/a | |||||||
Class C (Est. Nov. 28, 1995) | ||||||||||||
Excluding sales charge | +2.03% | +4.62% | +3.56 | % | n/a | |||||||
Including sales charge | +1.04% | +4.62% | +3.56 | % | n/a | |||||||
Class R (Est. June 2, 2003) | ||||||||||||
Excluding sales charge | +2.42% | +5.12% | n/a | +3.75 | % | |||||||
Including sales charge | +2.42% | +5.12% | n/a | +3.75 | % | |||||||
Institutional Class (Est. June 1, 1992) | ||||||||||||
Excluding sales charge | +2.94% | +5.68% | +4.61 | % | n/a | |||||||
Including sales charge | +2.94% | +5.68% | +4.61 | % | n/a |
1 Returns reflect the reinvestment of all distributions and are presented both with and without the applicable sales charges described below. Returns do not reflect the deduction of taxes the shareholder would pay on Fund distributions or redemptions of Fund shares.
Expense limitations were in effect for certain classes during some or all of the periods shown in the Fund performance chart. The current expenses for each class are listed on the Fund expense ratios table on page 6. Performance would have been lower had expense limitations not been in effect.
Class A shares are sold with a maximum front-end sales charge of up to 2.75%, and have an annual distribution and service fee of up to 0.30% of average daily net assets. This fee has been contractually limited to 0.15% of average daily net assets from April 29, 2011, through April 29, 2012. Class A share purchases of $1,000,000 or more will pay a contingent deferred sales charge of 0.75% if redeemed during the first 12 months, unless a waiver applies.
Class B shares may be purchased only through dividend reinvestment and certain permitted exchanges as described in the prospectus.
4
Please see the prospectus for additional information on Class B shares. Class B shares have a contingent deferred sales charge that declines from 2.00% to zero depending on the period of time the shares are held. They are also subject to an annual distribution and service fee of up to 1.00% of average daily net assets. Class B shares will automatically convert to Class A shares on a quarterly basis approximately five years after purchase. Ten-year and lifetime performance figures for Class B shares reflect conversion to Class A shares after approximately five 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 up to 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 up to 0.60% of average daily net assets, which has been limited contractually to 0.50% from April 29, 2011, through April 29, 2012.
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 issuers 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.
If and when the Fund invests in forward foreign currency contracts or uses other investments to hedge against currency risks, the Fund will be subject to special risks, including counterparty risk.
Diversification may not protect against market risk.
5
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 Funds expense ratios, as described in the most recent prospectus, are disclosed in the following Fund expense ratios table. Delaware Investments has agreed to (i) voluntarily waive all or a portion of its investment advisory fees and/or reimburse certain expenses to prevent annual fund operating expenses from exceeding 0.70% of the Funds average daily net assets from April 29, 2011 until the voluntary cap is discontinued; and (ii) contractually limit the Class A and Class R shares distribution and service fees from April 29, 2011 through April 29, 2012 to 0.15% and 0.50%, respectively. Please see the most recent prospectus for additional information on these waivers and/or reimbursements.
Fund expense ratios | Class A | Class B | Class C | Class R | Institutional Class | ||||
Total annual operating expenses | 0.98% | 1.68% | 1.68% | 1.28% | 0.68% | ||||
(without fee waivers) | |||||||||
Net expenses | 0.83% | 1.68% | 1.68% | 1.18% | 0.68% | ||||
(including fee waivers, if any) | |||||||||
Type of waiver | Voluntary | Voluntary | Voluntary | Voluntary | Voluntary | ||||
and | and | ||||||||
Contractual | Contractual |
For period beginning Dec. 31, 2001, through Dec. 31, 2011 | Starting value | Ending value | ||
|
Delaware Limited-Term
Diversified Income Fund Class A Shares |
$9,725 | $15,016 | |
|
Barclays
Capital 1-3 Year Government/Credit Index |
$10,000 | $14,283 |
6
1 The Performance of a $10,000 investment graph assumes $10,000 invested in Class A shares of the Fund on Dec. 31, 2001, and includes the effect of a 2.75% front-end sales charge and the reinvestment of all distributions. The graph does not reflect the deduction of taxes the shareholders would pay on Fund distributions or redemptions of Fund shares. Expense limitations were in effect for some or all of the periods shown. Performance would have been lower had expense limitations not been in effect. Current expenses are listed in the Fund expense ratios table on page 6. Please note additional details on pages 4 through 7.
The chart also assumes $10,000 invested in the Barclays Capital 13 Year Government/ Credit Index as of Dec. 31, 2001. The Barclays Capital 13 Year Government/Credit Index is a market valueweighted index of government fixed-rate debt securities and investment grade U.S. and foreign fixed-rate debt securities with average maturities of one to three years.
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 | DTRIX | 245912308 | |||||
Class B | DTIBX | 245912605 | |||||
Class C | DTICX | 245912704 | |||||
Class R | DLTRX | 245912803 | |||||
Institutional Class | DTINX | 245912506 |
7
Disclosure of Fund
expenses
For the six-month period from July 1,
2011 to December 31, 2011
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 July 1, 2011 to December 31, 2011.
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 Funds actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds 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 Funds 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 Limited-Term Diversified
Income Fund
Expense analysis of an investment of $1,000
Beginning | Ending | Expenses | ||||||||||||
Account Value | Account Value | Annualized | Paid During Period | |||||||||||
7/1/11 | 12/31/11 | Expense Ratio | 7/1/11 to 12/31/11* | |||||||||||
Actual Fund return | ||||||||||||||
Class A | $ | 1,000.00 | $ | 1,006.80 | 0.80% | $ | 4.05 | |||||||
Class B | 1,000.00 | 1,002.50 | 1.65% | 8.33 | ||||||||||
Class C | 1,000.00 | 1,003.60 | 1.65% | 8.33 | ||||||||||
Class R | 1,000.00 | 1,005.00 | 1.15% | 5.81 | ||||||||||
Institutional Class | 1,000.00 | 1,007.50 | 0.65% | 3.29 | ||||||||||
Hypothetical 5% return (5% return before expenses) | ||||||||||||||
Class A | $ | 1,000.00 | $ | 1,021.17 | 0.80% | $ | 4.08 | |||||||
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 Limited-Term Diversified Income Fund | As of December 31, 2011 |
Sector designations may be different than the sector designations presented in other Fund materials. The sector designations may represent the investment managers internal sector classifications, which may result in the sector designations for one fund being different than another funds sector designations.
Security type/sector | Percentage of net assets | |
Agency Asset-Backed Security | 0.01 | % |
Agency Collateralized Mortgage Obligations | 2.81 | % |
Agency Mortgage-Backed Securities | 20.36 | % |
Agency Obligations | 0.97 | % |
Collateralized Debt Obligations | 0.27 | % |
Commercial Mortgage-Backed Securities | 1.50 | % |
Convertible Bonds | 1.19 | % |
Corporate Bonds | 34.77 | % |
Automobiles | 0.05 | % |
Banking | 9.03 | % |
Basic Industry | 3.84 | % |
Brokerage | 0.49 | % |
Capital Goods | 0.40 | % |
Communications | 4.16 | % |
Consumer Cyclical | 2.51 | % |
Consumer Non-Cyclical | 4.28 | % |
Electric | 1.56 | % |
Energy | 2.34 | % |
Finance Companies | 0.86 | % |
Insurance | 1.10 | % |
Natural Gas | 0.72 | % |
Real Estate | 0.71 | % |
Services | 0.19 | % |
Technology | 1.74 | % |
Transportation | 0.79 | % |
Municipal Bonds | 2.15 | % |
Non-Agency Asset-Backed Securities | 22.23 | % |
Non-Agency Collateralized Mortgage Obligations | 0.08 | % |
Regional Bonds | 4.11 | % |
Senior Secured Loans | 0.30 | % |
Sovereign Bonds | 4.54 | % |
U.S. Treasury Obligation | 3.08 | % |
10
Security type/sector | Percentage of net assets | |
Preferred Stock | 0.33 | % |
Short-Term Investments | 11.52 | % |
Total Value of Securities | 110.22 | % |
Liabilities Net of Receivables and Other Assets | (10.22 | %) |
Total Net Assets | 100.00 | % |
11
Statement of net assets | |
Delaware Limited-Term Diversified Income Fund | December 31, 2011 |
Principal amount° | Value (U.S. $) | ||||||
Agency Asset-Backed Security 0.01% | |||||||
Fannie Mae Grantor Trust | |||||||
Series 2003-T4 2A5 5.407% 9/26/33 | USD | 189,817 | $ | 200,398 | |||
Total Agency Asset-Backed Security | |||||||
(cost $188,283) | 200,398 | ||||||
Agency Collateralized Mortgage Obligations 2.81% | |||||||
| E.F. Hutton Trust III | ||||||
Series 1 A 1.324% 10/25/17 | 24,524 | 24,619 | |||||
Fannie Mae Grantor Trust | |||||||
Series 2001-T5 A2 6.991% 2/19/30 | 47,433 | 55,572 | |||||
Series 2002-T1 A2 7.00% 11/25/31 | 132,264 | 156,405 | |||||
Fannie Mae REMICs | |||||||
Series 2002-90 A1 6.50% 6/25/42 | 1,454 | 1,682 | |||||
Series 2003-32 PH 5.50% 3/25/32 | 43,243 | 45,098 | |||||
Series 2003-52 NA 4.00% 6/25/23 | 468,203 | 493,711 | |||||
Series 2003-81 GE 4.50% 4/25/18 | 709,656 | 735,212 | |||||
Series 2003-120 BL 3.50% 12/25/18 | 1,335,000 | 1,407,208 | |||||
Series 2004-36 FA 0.694% 5/25/34 | 781,770 | 782,303 | |||||
Series 2004-49 EB 5.00% 7/25/24 | 139,536 | 153,155 | |||||
Series 2005-66 FD 0.594% 7/25/35 | 3,368,789 | 3,357,286 | |||||
Series 2005-110 MB 5.50% 9/25/35 | 51,336 | 56,533 | |||||
Series 2006-69 PB 6.00% 10/25/32 | 2,094,229 | 2,128,247 | |||||
Series 2006-105 FB 0.714% 11/25/36 | 543,528 | 542,499 | |||||
Series 2010-29 PA 4.50% 10/25/38 | 1,030,989 | 1,090,194 | |||||
Series 2011-105 FP 0.694% 6/25/41 | 5,653,899 | 5,612,656 | |||||
Fannie Mae Whole Loan | |||||||
Series 2002-W1 2A 7.108% 2/25/42 | 153,225 | 178,209 | |||||
Series 2004-W9 2A1 6.50% 2/25/44 | 162,226 | 180,638 | |||||
Freddie Mac REMICs | |||||||
Series 2694 QG 4.50% 1/15/29 | 65,665 | 66,378 | |||||
Series 2706 UG 4.50% 8/15/16 | 637,868 | 639,640 | |||||
Series 2802 NM 4.50% 9/15/29 | 1,827,837 | 1,855,643 | |||||
Series 2890 PC 5.00% 7/15/30 | 263,217 | 266,874 | |||||
Series 2901 CA 4.50% 11/15/19 | 732,595 | 777,048 | |||||
Series 3016 FL 0.668% 8/15/35 | 1,027,044 | 1,023,653 | |||||
Series 3027 DE 5.00% 9/15/25 | 140,000 | 153,194 | |||||
Series 3067 FA 0.628% 11/15/35 | 8,586,857 | 8,554,618 | |||||
Series 3173 PE 6.00% 4/15/35 | 70,000 | 76,590 | |||||
Series 3241 FM 0.658% 11/15/36 | 190,140 | 189,538 | |||||
Series 3297 BF 0.518% 4/15/37 | 2,636,742 | 2,619,733 |
12
Principal amount° | Value (U.S. $) | ||||||
Agency Collateralized Mortgage Obligations (continued) | |||||||
Freddie Mac REMICs (continued) | |||||||
Series 3316 FB 0.578% 8/15/35 | USD | 774,794 | $ | 773,005 | |||
Series 3337 PB 5.50% 7/15/30 | 26,067 | 26,142 | |||||
Series 3416 GK 4.00% 7/15/22 | 5,449 | 5,650 | |||||
Series 3581 PE 4.50% 1/15/39 | 13,730,939 | 14,789,847 | |||||
Series 3780 LF 0.678% 3/15/29 | 2,434,734 | 2,428,260 | |||||
Series 3800 AF 0.778% 2/15/41 | 7,937,709 | 7,937,652 | |||||
Series 3803 TF 0.678% 11/15/28 | 2,238,040 | 2,240,639 | |||||
w | Freddie Mac Structured Pass Through Securities | ||||||
Series T-42 A5 7.50% 2/25/42 | 60,452 | 72,466 | |||||
Series T-54 2A 6.50% 2/25/43 | 1,408 | 1,567 | |||||
Series T-58 2A 6.50% 9/25/43 | 1,024,691 | 1,176,104 | |||||
Series T-60 1A4C 5.203% 3/25/44 | 1,043,980 | 1,065,910 | |||||
GNMA Series 2003-72 C 4.86% 2/16/30 | 856,193 | 881,398 | |||||
Total Agency Collateralized Mortgage | |||||||
Obligations (cost $64,297,064) | 64,622,776 | ||||||
Agency Mortgage-Backed Securities 20.36% | |||||||
Fannie Mae | |||||||
4.00% 9/1/20 | 13,899,609 | 14,689,245 | |||||
4.50% 3/1/14 | 265,866 | 283,517 | |||||
6.00% 9/1/12 | 57,036 | 58,065 | |||||
6.50% 8/1/17 | 104,120 | 114,056 | |||||
9.00% 11/1/15 | 75,623 | 80,092 | |||||
10.00% 10/1/30 | 104,490 | 118,854 | |||||
10.50% 6/1/30 | 27,402 | 28,217 | |||||
16.00% 11/15/12 | 743 | 750 | |||||
| Fannie Mae ARM | ||||||
2.339% 8/1/34 | 273,454 | 288,059 | |||||
2.341% 12/1/33 | 251,638 | 263,981 | |||||
2.486% 11/1/35 | 949,769 | 1,003,931 | |||||
2.527% 6/1/34 | 192,043 | 202,005 | |||||
2.533% 4/1/36 | 1,119,582 | 1,196,712 | |||||
3.458% 1/1/41 | 496,725 | 516,557 | |||||
3.702% 11/1/39 | 1,351,665 | 1,416,710 | |||||
4.308% 9/1/39 | 1,870,268 | 1,978,393 | |||||
4.422% 10/1/39 | 2,775,339 | 2,937,533 | |||||
4.575% 11/1/39 | 6,125,664 | 6,509,509 | |||||
4.886% 3/1/38 | 22,423 | 23,919 | |||||
4.973% 11/1/33 | 5,598,102 | 5,967,088 |
13
Statement of net assets
Delaware Limited-Term Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Agency Mortgage-Backed Securities (continued) | |||||||
| Fannie Mae ARM (continued) | ||||||
5.023% 9/1/38 | USD | 3,626,688 | $ | 3,873,326 | |||
5.05% 8/1/35 | 113,326 | 120,934 | |||||
5.139% 11/1/35 | 165,142 | 175,334 | |||||
5.538% 4/1/37 | 2,892,902 | 3,111,505 | |||||
6.011% 6/1/36 | 441,985 | 474,366 | |||||
6.025% 7/1/36 | 359,158 | 386,296 | |||||
6.263% 4/1/36 | 117,646 | 126,654 | |||||
6.276% 7/1/36 | 325,228 | 350,651 | |||||
6.305% 8/1/36 | 204,431 | 220,466 | |||||
Fannie Mae FHAVA 30 yr | |||||||
7.50% 3/1/25 | 5,688 | 5,702 | |||||
10.00% 1/1/19 | 47,936 | 49,626 | |||||
11.00% 6/1/15 | 501 | 503 | |||||
Fannie Mae S.F. 15 yr | |||||||
3.00% 11/1/26 | 6,620,767 | 6,848,903 | |||||
3.50% 8/1/26 | 1,954,229 | 2,045,438 | |||||
4.00% 11/1/25 to 1/1/26 | 23,899,337 | 25,419,580 | |||||
4.50% 9/1/20 | 4,156,689 | 4,450,790 | |||||
5.00% 9/1/18 to 9/1/25 | 43,785,785 | 47,130,402 | |||||
5.50% 4/1/21 to 4/1/23 | 143,416 | 155,724 | |||||
6.00% 3/1/18 to 8/1/22 | 2,674,849 | 2,893,134 | |||||
7.00% 11/1/14 | 506 | 539 | |||||
8.00% 10/1/14 to 10/1/16 | 138,000 | 149,199 | |||||
Fannie Mae S.F. 15 yr TBA | |||||||
3.50% 1/1/27 to 2/1/27 | 66,696,000 | 69,738,806 | |||||
Fannie Mae S.F. 20 yr 6.50% 2/1/22 | 170,890 | 190,228 | |||||
Fannie Mae S.F. 30 yr | |||||||
5.00% 3/1/34 | 15,756 | 17,039 | |||||
5.50% 4/1/34 | 18,036,736 | 19,786,301 | |||||
6.00% 9/1/34 to 10/1/39 | 57,715,177 | 63,656,871 | |||||
6.50% 6/1/29 to 12/1/37 | 87,000 | 98,100 | |||||
7.00% 12/1/34 to 12/1/37 | 2,336,009 | 2,667,636 | |||||
7.50% 3/1/14 to 6/1/34 | 20,645 | 24,183 | |||||
8.00% 11/1/21 to 5/1/24 | 90,908 | 102,843 | |||||
8.50% 8/1/17 | 22,693 | 22,766 | |||||
9.00% 8/1/22 | 108,682 | 123,943 | |||||
9.25% 6/1/16 to 8/1/16 | 29,436 | 29,546 | |||||
10.00% 2/1/25 | 227,588 | 265,837 | |||||
11.00% 9/1/15 to 8/1/20 | 58,690 | 61,899 |
14
Principal amount° | Value (U.S. $) | ||||||
Agency Mortgage-Backed Securities (continued) | |||||||
Fannie Mae S.F. 30 yr TBA | |||||||
5.50% 1/1/42 | USD | 8,170,000 | $ | 8,896,364 | |||
6.00% 1/1/42 to 2/1/42 | 116,245,000 | 127,978,920 | |||||
Freddie Mac | |||||||
6.00% 1/1/17 | 59,560 | 62,203 | |||||
6.50% 6/17/14 to 3/1/16 | 496,587 | 530,987 | |||||
| Freddie Mac ARM | ||||||
2.458% 4/1/33 | 138,803 | 139,511 | |||||
2.495% 7/1/36 | 134,533 | 141,616 | |||||
2.61% 4/1/34 | 44,640 | 47,207 | |||||
4.649% 2/1/37 | 12,910 | 13,707 | |||||
4.832% 2/1/35 | 210,064 | 219,610 | |||||
5.041% 8/1/38 | 99,966 | 107,471 | |||||
5.046% 7/1/38 | 5,167,655 | 5,516,233 | |||||
5.662% 6/1/37 | 1,733,610 | 1,868,524 | |||||
5.811% 10/1/36 | 26,893 | 28,819 | |||||
6.208% 10/1/37 | 2,242,687 | 2,421,748 | |||||
Freddie Mac S.F. 15 yr | |||||||
5.00% 6/1/18 to 12/1/22 | 475,713 | 512,636 | |||||
5.50% 7/1/24 | 7,641,818 | 8,301,627 | |||||
8.00% 7/1/16 | 42,588 | 45,933 | |||||
Freddie Mac S.F. 30 yr | |||||||
6.00% 2/1/36 to 1/1/38 | 12,016,289 | 13,232,384 | |||||
7.00% 11/1/33 | 1,209 | 1,388 | |||||
8.00% 5/1/31 | 163,265 | 195,798 | |||||
9.00% 9/1/30 | 101,333 | 112,555 | |||||
11.00% 11/1/19 to 5/1/20 | 28,056 | 28,755 | |||||
11.50% 6/1/15 to 3/1/16 | 63,802 | 70,655 | |||||
GNMA I GPM 12.25% 1/15/14 | 3,246 | 3,266 | |||||
GNMA I S.F. 15 yr 6.00% 1/15/22 | 4,354,831 | 4,734,864 | |||||
GNMA I S.F. 30 yr | |||||||
7.50% 12/15/23 to 1/15/32 | 207,585 | 244,319 | |||||
8.00% 6/15/30 | 8,136 | 8,532 | |||||
9.00% 5/15/16 to 2/15/17 | 20,768 | 21,557 | |||||
9.50% 12/15/16 to 8/15/17 | 4,866 | 5,356 | |||||
11.00% 7/15/13 to 8/15/19 | 70,485 | 73,241 | |||||
GNMA II GPM 9.75% 12/20/16 to 9/20/17 | 13,050 | 13,230 |
15
Statement of net
assets
Delaware Limited-Term
Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Agency Mortgage-Backed Securities (continued) | |||||||
GNMA II S.F. 30 yr | |||||||
9.50% 11/20/20 to 11/20/21 | USD | 85,327 | $ | 102,647 | |||
10.50% 6/20/20 | 1,903 | 1,912 | |||||
11.00% 9/20/15 to 10/20/15 | 23,296 | 26,116 | |||||
11.50% 12/20/17 to 10/20/18 | 35,710 | 37,413 | |||||
12.00% 4/20/14 to 5/20/16 | 71,143 | 73,879 | |||||
12.50% 10/20/13 to 1/20/14 | 12,938 | 13,569 | |||||
Total Agency Mortgage-Backed Securities | |||||||
(cost $462,380,437) | 468,286,815 | ||||||
Agency Obligations 0.97% | |||||||
Fannie Mae 0.55% 9/27/13 | 11,215,000 | 11,206,454 | |||||
Freddie Mac 0.55% 9/30/13 | 11,215,000 | 11,210,671 | |||||
Total Agency Obligations (cost $22,435,608) | 22,417,125 | ||||||
Collateralized Debt Obligations 0.27% | |||||||
# | Balboa CDO I 144A | ||||||
Series 2001-1A A 0.823% 7/15/14 | 824,317 | 816,725 | |||||
@# | Foxe Basin CLO | ||||||
Series 2003-1A A3 144A 1.596% 12/15/15 | 819,600 | 808,151 | |||||
@# | Gulf Stream Compass CLO 144A | ||||||
Series 2004-1A A 0.763% 7/15/16 | 1,847,534 | 1,810,843 | |||||
@# | Solar Investment Grade CBO II 144A | ||||||
Series 1-A 0.844% 7/24/13 | 931,109 | 929,861 | |||||
@# | Stony Hill CDO III 144A | ||||||
0.892% 10/15/13 | 1,213,865 | 1,165,310 | |||||
Series 1AW A 0.892% 10/15/13 | 809,243 | 776,873 | |||||
Total Collateralized Debt Obligations | |||||||
(cost $6,356,071) | 6,307,763 | ||||||
Commercial Mortgage-Backed Securities 1.50% | |||||||
# | American Tower Trust | ||||||
Series 2007-1A AFL 144A | |||||||
0.468% 4/15/37 | 250,000 | 243,483 | |||||
Bank of America Merrill Lynch | |||||||
Commercial Mortgage | |||||||
Series 2004-2 A3 4.05% 11/10/38 | 273,150 | 276,375 | |||||
Series 2004-5 A3 4.561% 11/10/41 | 33,413 | 33,400 | |||||
Series 2005-1 A5 5.333% 11/10/42 | 805,000 | 877,392 |
16
Principal amount° | Value (U.S. $) | ||||||
Commercial Mortgage-Backed Securities (continued) | |||||||
| Bear Stearns Commercial Mortgage Securities | ||||||
Series 2005-T20 A4A 5.145% 10/12/42 | USD | 1,005,000 | $ | 1,111,426 | |||
w | Commercial Mortgage Pass Through Certificates | ||||||
Series 2005-C6 A5A 5.116% 6/10/44 | 4,105,000 | 4,500,603 | |||||
#Series 2010-C1 A1 144A 3.156% 7/10/46 | 488,446 | 501,077 | |||||
| Credit Suisse Mortgage Capital Certificates | ||||||
Series 2006-C1 AAB 5.419% 2/15/39 | 147,087 | 154,548 | |||||
Goldman Sachs Mortgage Securities II | |||||||
Series 2004-GG2 A6 5.396% 8/10/38 | 1,045,000 | 1,118,956 | |||||
Series 2005-GG4 A4 4.761% 7/10/39 | 3,310,000 | 3,468,844 | |||||
Series 2005-GG4 A4A 4.751% 7/10/39 | 3,935,000 | 4,200,668 | |||||
Series 2006-GG6 A4 5.553% 4/10/38 | 1,160,000 | 1,261,193 | |||||
| JPMorgan Chase Commercial | ||||||
Mortgage Securities | |||||||
Series 2005-LDP5 A4 5.205% 12/15/44 | 1,625,000 | 1,797,575 | |||||
Merrill Lynch Mortgage Trust | |||||||
Series 2005-CIP1 A2 4.96% 7/12/38 | 409,687 | 413,401 | |||||
Morgan Stanley Capital I | |||||||
Series 2005-HQ6 A4A 4.989% 8/13/42 | 5,555,000 | 6,046,217 | |||||
Series 2006-T21 A3 5.185% 10/12/52 | 2,900,000 | 2,949,790 | |||||
Series 2007-T27 A4 5.638% 6/11/42 | 3,440,000 | 3,918,652 | |||||
Morgan Stanley Dean Witter Capital I | |||||||
Series 2003-TOP9 A2 4.74% 11/13/36 | 1,603,595 | 1,637,329 | |||||
Total Commercial Mortgage-Backed | |||||||
Securities (cost $30,818,724) | 34,510,929 | ||||||
Convertible Bonds 1.19% | |||||||
Advanced Micro Devices 5.75% | |||||||
exercise price $20.13, expiration date 8/15/12 | 10,000,000 | 10,150,000 | |||||
Amgen 0.375% exercise price $78.45, | |||||||
expiration date 2/1/13 | 6,325,000 | 6,380,344 | |||||
Medtronic 1.625% exercise price $54.00, | |||||||
expiration date 4/15/13 | 2,500,000 | 2,531,250 | |||||
Transocean 1.50% exercise price $164.09, | |||||||
expiration date 12/15/37 | 8,500,000 | 8,393,750 | |||||
Total Convertible Bonds (cost $26,633,938) | 27,455,344 |
17
Statement of net assets
Delaware Limited-Term Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds 34.77% | |||||||
Automobiles 0.05% | |||||||
Ford Motor Credit | |||||||
7.50% 8/1/12 | USD | 649,000 | $ | 670,226 | |||
12.00% 5/15/15 | 385,000 | 474,509 | |||||
1,144,735 | |||||||
Banking 9.03% | |||||||
Abbey National Treasury Services | |||||||
4.00% 4/27/16 | 5,820,000 | 5,226,465 | |||||
Ally Financial 8.30% 2/12/15 | 5,500,000 | 5,816,250 | |||||
# | Bank Nederlandse Gemeenten 144A | ||||||
1.75% 10/6/15 | 1,000 | 999 | |||||
# | Bank of Montreal 144A 2.625% 1/25/16 | 14,865,000 | 15,359,395 | ||||
Bank of New York Mellon 2.40% 1/17/17 | 4,905,000 | 4,899,693 | |||||
BB&T 5.20% 12/23/15 | 6,410,000 | 6,868,700 | |||||
| Branch Banking & Trust 0.862% 9/13/16 | 9,975,000 | 8,996,582 | ||||
# | Canadian Imperial Bank of Commerce 144A | ||||||
2.75% 1/27/16 | 3,565,000 | 3,691,679 | |||||
Comerica 3.00% 9/16/15 | 6,325,000 | 6,466,807 | |||||
# | Commonwealth Bank of Australia 144A | ||||||
0.839% 9/17/14 | 32,225,000 | 32,249,683 | |||||
# | Export-Import Bank of Korea 144A | ||||||
5.25% 2/10/14 | 2,275,000 | 2,399,170 | |||||
Fifth Third Bancorp 3.625% 1/25/16 | 5,425,000 | 5,509,326 | |||||
# | HSBC Bank 144A 3.10% 5/24/16 | 8,485,000 | 8,494,155 | ||||
JPMorgan Chase | |||||||
0.872% 6/13/16 | 1,750,000 | 1,567,886 | |||||
3.45% 3/1/16 | 18,539,000 | 18,852,902 | |||||
KeyBank 5.45% 3/3/16 | 5,500,000 | 5,924,578 | |||||
Korea Development Bank 8.00% 1/23/14 | 5,180,000 | 5,702,123 | |||||
# | National Australia Bank 144A 1.083% 7/8/14 | 31,645,000 | 31,785,218 | ||||
PNC Funding 5.25% 11/15/15 | 1,840,000 | 2,003,026 | |||||
Santander Holdings USA 4.625% 4/19/16 | 2,090,000 | 2,008,967 | |||||
SunTrust Banks | |||||||
0.796% 8/24/15 | 1,310,000 | 1,217,053 | |||||
3.60% 4/15/16 | 4,465,000 | 4,551,362 | |||||
| UBS 1.425% 1/28/14 | 5,660,000 | 5,515,064 | ||||
US Bancorp 3.15% 3/4/15 | 2,135,000 | 2,233,180 | |||||
US Bank 6.30% 2/4/14 | 2,390,000 | 2,624,557 | |||||
| USB Capital IX 3.50% 10/29/49 | 12,225,000 | 8,539,652 | ||||
Wachovia Bank 5.60% 3/15/16 | 4,805,000 | 5,150,249 |
18
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Banking (continued) | |||||||
Wells Fargo 2.625% 12/15/16 | USD | 1,800,000 | $ | 1,800,977 | |||
Wells Fargo Bank | |||||||
0.671% 5/16/16 | 1,825,000 | 1,605,964 | |||||
4.75% 2/9/15 | 590,000 | 615,983 | |||||
207,677,645 | |||||||
Basic Industry 3.84% | |||||||
ArcelorMittal 3.75% 8/5/15 | 9,895,000 | 9,467,200 | |||||
Barrick Gold 2.90% 5/30/16 | 9,620,000 | 9,883,607 | |||||
BHP Billiton Finance USA 1.875% 11/21/16 | 10,260,000 | 10,375,949 | |||||
Dow Chemical 5.90% 2/15/15 | 8,540,000 | 9,509,469 | |||||
Ecolab 3.00% 12/8/16 | 9,265,000 | 9,594,769 | |||||
Freeport-McMoRan Copper & Gold | |||||||
8.375% 4/1/17 | 5,745,000 | 6,110,531 | |||||
# | Georgia-Pacific 144A | ||||||
5.40% 11/1/20 | 5,750,000 | 6,380,286 | |||||
8.25% 5/1/16 | 530,000 | 588,996 | |||||
Lubrizol 5.50% 10/1/14 | 1,380,000 | 1,538,076 | |||||
Rio Tinto Finance USA 3.75% 9/20/21 | 4,965,000 | 5,213,240 | |||||
Teck Resources | |||||||
3.15% 1/15/17 | 3,070,000 | 3,139,938 | |||||
9.75% 5/15/14 | 6,054,000 | 7,118,323 | |||||
# | Xstrata Canada Financial 144A | ||||||
3.60% 1/15/17 | 9,325,000 | 9,412,599 | |||||
88,332,983 | |||||||
Brokerage 0.49% | |||||||
Jefferies Group 5.875% 6/8/14 | 2,805,000 | 2,797,988 | |||||
=^ | JPMorgan Structured Products | ||||||
0.641% 5/18/15 | BRL | 2,419,000 | 2,831,005 | ||||
Lazard Group | |||||||
6.85% 6/15/17 | USD | 1,762,000 | 1,850,382 | ||||
7.125% 5/15/15 | 3,519,000 | 3,781,482 | |||||
11,260,857 | |||||||
Capital Goods 0.40% | |||||||
Anixter 10.00% 3/15/14 | 313,000 | 342,735 | |||||
John Deere Capital 2.00% 1/13/17 | 5,270,000 | 5,355,184 | |||||
Waste Management 2.60% 9/1/16 | 3,525,000 | 3,581,876 | |||||
9,279,795 |
19
Statement of net
assets
Delaware Limited-Term
Diversified Income Fund
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Communications 4.16% | |||||||
AT&T 2.40% 8/15/16 | USD | 3,500,000 | $ | 3,574,897 | |||
Comcast 5.85% 11/15/15 | 7,835,000 | 8,921,909 | |||||
# | Cox Communications 144A 5.875% 12/1/16 | 4,450,000 | 5,143,355 | ||||
# | Crown Castle Towers 144A 3.214% 8/15/15 | 2,790,000 | 2,823,580 | ||||
# | Digicel 144A 8.25% 9/1/17 | 1,443,000 | 1,464,645 | ||||
DIRECTV Holdings 7.625% 5/15/16 | 2,715,000 | 2,883,963 | |||||
Discovery Communications 3.70% 6/1/15 | 6,500,000 | 6,841,796 | |||||
NII Capital 8.875% 12/15/19 | 1,443,000 | 1,525,973 | |||||
Qwest 8.375% 5/1/16 | 4,810,000 | 5,533,294 | |||||
Rogers Communications 7.50% 3/15/15 | 5,960,000 | 6,983,654 | |||||
Sprint Nextel 8.375% 8/15/17 | 1,400,000 | 1,261,750 | |||||
Telecom Italia Capital | |||||||
4.95% 9/30/14 | 10,000 | 9,288 | |||||
5.25% 11/15/13 | 1,700,000 | 1,633,702 | |||||
Time Warner Cable | |||||||
7.50% 4/1/14 | 2,705,000 | 3,030,255 | |||||
8.25% 2/14/14 | 1,510,000 | 1,702,844 | |||||
Verizon Communications | |||||||
1.184% 3/28/14 | 5,115,000 | 5,111,762 | |||||
2.00% 11/1/16 | 16,085,000 | 16,149,049 | |||||
Viacom 2.50% 12/15/16 | 7,420,000 | 7,425,765 | |||||
Virgin Media Secured Finance 6.50% 1/15/18 | 5,500,000 | 5,871,250 | |||||
# | Vivendi 144A 5.75% 4/4/13 | 5,535,000 | 5,784,440 | ||||
# | Wind Acquisition Finance 144A | ||||||
11.75% 7/15/17 | 2,083,000 | 1,874,700 | |||||
95,551,871 | |||||||
Consumer Cyclical 2.51% | |||||||
Brinker International 5.75% 6/1/14 | 4,000,000 | 4,221,444 | |||||
Disney (Walt) 1.35% 8/16/16 | 7,495,000 | 7,524,125 | |||||
# | FUEL Trust 144A 3.984% 6/15/16 | 1,800,000 | 1,801,512 | ||||
Johnson Controls 2.60% 12/1/16 | 5,095,000 | 5,145,874 | |||||
| Target 0.575% 7/18/14 | 21,300,000 | 21,313,312 | ||||
Time Warner | |||||||
3.15% 7/15/15 | 5,500,000 | 5,725,440 | |||||
5.875% 11/15/16 | 3,265,000 | 3,772,596 | |||||
Wal-Mart Stores 1.50% 10/25/15 | 6,940,000 | 7,055,475 | |||||
Western Union 3.65% 8/22/18 | 1,090,000 | 1,119,208 | |||||
57,678,986 |
20
Principal amount° | Value (U.S. $) | ||||||
Corporate Bonds (continued) | |||||||
Consumer Non-Cyclical 4.28% | |||||||
Amgen 4.85% 11/18/14 | USD | 8,165,000 | $ | 8,854,827 | |||
Anheuser-Busch 5.60% 3/1/17 | 4,500,000 | 5,299,047 | |||||
# | Aristotle Holding 144A 3.50% 11/15/16 | 2,895,000 | 2,951,710 | ||||
Baxter International 1.85% 1/15/17 | 6,002,000 | 6,055,892 | |||||
CareFusion 5.125% 8/1/14 | 4,555,000 | 4,917,970 | |||||
Coca-Cola Enterprises 2.125% 9/15/15 | 7,010,000 | 7,138,248 | |||||
DENTSPLY International 2.75% 8/15/16 | 4,785,000 | 4,836,137 | |||||
Dr Pepper Snapple Group 2.90% 1/15/16 | 1,530,000 | 1,588,305 | |||||
Express Scripts 3.125% 5/15/16 | 1,765,000 | 1,776,584 | |||||
HCA Holdings 7.75% 5/15/21 | 1,131,000 | 1,156,448 | |||||
Hospira 6.40% 5/15/15 | 3,920,000 | 4,243,537 | |||||
Kraft Foods 2.625% 5/8/13 | 4,000,000 | 4,087,860 | |||||
Medtronic 3.00% 3/15/15 | 1,790,000 | 1,891,731 | |||||
Quest Diagnostics | |||||||
3.20% 4/1/16 | 5,630,000 | 5,835,152 | |||||
5.45% 11/1/15 | 5,500,000 | 6,224,944 | |||||
Stryker 2.00% 9/30/16 | 7,505,000 | 7,688,775 | |||||
Teva Pharmaceutical Finance 2.40% 11/10/16 | 4,000,000 | 4,072,996 | |||||
Teva Pharmaceutical Finance II 3.00% 6/15/15 | 3,970,000 | 4,137,590 | |||||
# | Woolworths 144A 2.55% 9/22/15 | 11,825,000 | 12,091,404 | ||||
Yale University 2.90% 10/15/14 | 3,310,000 | 3,506,846 | |||||
98,356,003 | |||||||
Electric 1.56% | |||||||
Appalachian Power 3.40% 5/24/15 | 4,180,000 | 4,375,946 | |||||
Commonwealth Edison 1.95% 9/1/16 | 6,560,000 | 6,556,162 | |||||
Duke Energy 3.95% 9/15/14 | 4,500,000 | 4,804,232 | |||||
Duke Energy Carolinas 1.75% 12/15/16 | 10,800,000 | 10,895,731 | |||||
Jersey Central Power & Light 5.625% 5/1/16 | 4,560,000 | 5,157,944 | |||||
Public Service Electric & Gas 2.70% 5/1/15 | 3,935,000 | 4,105,417 | |||||
35,895,432 | |||||||
Energy 2.34% | |||||||
# | BG Energy Capital 144A 2.875% 10/15/16 | 5,375,000 | 5,498,593 | ||||
Chesapeake Energy 9.50% 2/15/15 | 1,697,000 | 1,951,550 | |||||
Noble Holding International 3.05% 3/1/16 | 13,895,000 | 14,298,510 | |||||
Petrohawk Energy | |||||||
7.25% 8/15/18 | 9,605,000 | 10,853,650 | |||||
7.875% 6/1/15 | 315,000 | 337,050 | |||||
# | Schlumberger Norge 144A 1.95% 9/14/16 | 5,525,000 | 5,596,267 |
21
Statement of net
assets
Delaware Limited-Term
Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Energy (continued) | ||||||||
Shell International Finance 3.10% 6/28/15 | USD | 1,930,000 | $ | 2,070,948 | ||||
Statoil 1.80% 11/23/16 | 7,595,000 | 7,704,436 | ||||||
Weatherford Bermuda 5.15% 3/15/13 | 49,000 | 50,970 | ||||||
# | Woodside Finance 144A 8.125% 3/1/14 | 4,940,000 | 5,527,050 | |||||
53,889,024 | ||||||||
Finance Companies 0.86% | ||||||||
# | CDP Financial 144A 3.00% 11/25/14 | 6,350,000 | 6,608,045 | |||||
General Electric Capital | ||||||||
0.806% 9/15/14 | 3,535,000 | 3,393,455 | ||||||
3.50% 6/29/15 | 3,480,000 | 3,651,933 | ||||||
# | Hyundai Capital America 144A 4.00% 6/8/17 | 2,170,000 | 2,149,802 | |||||
International Lease Finance | ||||||||
6.625% 11/15/13 | 341,000 | 341,000 | ||||||
8.75% 3/15/17 | 3,596,000 | 3,712,870 | ||||||
19,857,105 | ||||||||
Insurance 1.10% | ||||||||
| Chubb 6.375% 3/29/67 | 3,030,000 | 3,007,275 | |||||
MetLife 6.75% 6/1/16 | 7,570,000 | 8,729,376 | ||||||
# | Metropolitan Life Global Funding I 144A | |||||||
3.125% 1/11/16 | 7,500,000 | 7,703,370 | ||||||
# | ZFS Finance USA Trust II 144A | |||||||
6.45% 12/15/65 | 1,015,000 | 933,800 | ||||||
# | ZFS Finance USA Trust IV 144A | |||||||
5.875% 5/9/32 | 5,204,000 | 4,943,800 | ||||||
25,317,621 | ||||||||
Natural Gas 0.72% | ||||||||
Energy Transfer Partners 8.50% 4/15/14 | 285,000 | 319,705 | ||||||
Enterprise Products Operating | ||||||||
3.20% 2/1/16 | 3,000,000 | 3,108,804 | ||||||
9.75% 1/31/14 | 4,450,000 | 5,142,857 | ||||||
Plains All American Pipeline 3.95% 9/15/15 | 4,690,000 | 4,970,701 | ||||||
Williams Partners 7.25% 2/1/17 | 2,560,000 | 3,040,320 | ||||||
16,582,387 | ||||||||
Real Estate 0.71% | ||||||||
Health Care REIT 3.625% 3/15/16 | 7,305,000 | 7,196,199 | ||||||
Simon Property Group 2.80% 1/30/17 | 8,850,000 | 9,050,338 | ||||||
16,246,537 |
22
Principal amount° | Value (U.S. $) | |||||||
Corporate Bonds (continued) | ||||||||
Services 0.19% | ||||||||
Clean Harbors 7.625% 8/15/16 | USD | 743,000 | $ | 793,153 | ||||
Harrahs Operating 11.25% 6/1/17 | 1,314,000 | 1,401,052 | ||||||
Iron Mountain 8.00% 6/15/20 | 1,302,000 | 1,362,217 | ||||||
MGM Resorts International | ||||||||
10.375% 5/15/14 | 139,000 | 159,503 | ||||||
11.125% 11/15/17 | 178,000 | 203,810 | ||||||
13.00% 11/15/13 | 455,000 | 542,588 | ||||||
4,462,323 | ||||||||
Technology 1.74% | ||||||||
GXS Worldwide 9.75% 6/15/15 | 1,874,000 | 1,742,820 | ||||||
Hewlett-Packard | ||||||||
1.55% 5/30/14 | 6,500,000 | 6,395,942 | ||||||
3.00% 9/15/16 | 2,770,000 | 2,792,578 | ||||||
3.30% 12/9/16 | 2,735,000 | 2,795,887 | ||||||
International Business Machines | ||||||||
1.95% 7/22/16 | 3,160,000 | 3,255,691 | ||||||
National Semiconductor 6.60% 6/15/17 | 3,325,000 | 4,088,806 | ||||||
# | Seagate Technology International 144A | |||||||
10.00% 5/1/14 | 3,513,000 | 3,991,646 | ||||||
Xerox | ||||||||
1.281% 5/16/14 | 2,260,000 | 2,228,362 | ||||||
4.25% 2/15/15 | 8,500,000 | 8,965,511 | ||||||
6.35% 5/15/18 | 3,385,000 | 3,818,121 | ||||||
40,075,364 | ||||||||
Transportation 0.79% | ||||||||
Burlington Northern Santa Fe 7.00% 2/1/14 | 4,235,000 | 4,747,367 | ||||||
# | ERAC USA Finance 144A | |||||||
2.25% 1/10/14 | 7,840,000 | 7,811,306 | ||||||
2.75% 7/1/13 | 2,095,000 | 2,131,118 | ||||||
Ryder System 3.50% 6/1/17 | 3,310,000 | 3,353,460 | ||||||
18,043,251 | ||||||||
Total Corporate Bonds (cost $789,109,164) | 799,651,919 |
23
Statement of net
assets
Delaware Limited-Term
Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Municipal Bonds 2.15% | ||||||||
California State Revenue Anticipation Notes | ||||||||
Series A2 2.00% 6/26/12 | USD | 12,000,000 | $ | 12,095,040 | ||||
Los Angeles County, California Tax | ||||||||
Revenue Anticipation Note | ||||||||
Series B 2.50% 3/30/12 | 15,000,000 | 15,086,100 | ||||||
Railsplitter Tobacco Settlement Authority, | ||||||||
Illinois Revenue 5.00% 6/1/15 | 3,995,000 | 4,400,972 | ||||||
Regional Transportation Authority, Illinois | ||||||||
(Taxable Working Cash Notes) | ||||||||
Series C 2.843% 7/1/12 | 17,600,000 | 17,792,544 | ||||||
Total Municipal Bonds (cost $48,941,317) | 49,374,656 | |||||||
Non-Agency Asset-Backed Securities 22.23% | ||||||||
| Ally Master Owner Trust | |||||||
#Series 2010-1 A 144A 2.028% 1/15/15 | 11,950,000 | 12,095,013 | ||||||
Series 2010-4 A 1.348% 8/15/17 | 13,780,000 | 13,839,375 | ||||||
Series 2011-1 A1 1.148% 1/15/16 | 17,855,000 | 17,898,804 | ||||||
| American Express Credit Account Master Trust | |||||||
Series 2005-7 B 0.548% 3/16/15 | 479,000 | 478,107 | ||||||
Series 2009-1 A 1.628% 12/15/14 | 10,000,000 | 10,048,966 | ||||||
Series 2010-1 B 0.878% 11/16/15 | 1,225,000 | 1,224,989 | ||||||
Series 2011-1 A 0.448% 4/17/17 | 8,010,000 | 8,014,309 | ||||||
Series 2011-1 B 0.978% 4/17/17 | 2,750,000 | 2,749,976 | ||||||
Series 2011-2 A 0.398% 6/15/16 | 5,405,000 | 5,401,878 | ||||||
| Bank of America Credit Card Trust | |||||||
Series 2007-A4 A4 0.318% 11/15/19 | 6,490,000 | 6,369,000 | ||||||
Series 2007-A6 A6 0.338% 9/15/16 | 2,915,000 | 2,907,729 | ||||||
Series 2007-A10 A10 0.348% 12/15/16 | 4,900,000 | 4,887,505 | ||||||
# | BMW Floorplan Master Owner Trust | |||||||
Series 2009-1A A 144A 1.428% 9/15/14 | 12,600,000 | 12,670,307 | ||||||
# | Cabelas Master Credit Card Trust | |||||||
Series 2011-2A A2 144A 0.878% 6/17/19 | 6,000,000 | 6,037,304 | ||||||
# | Capital Auto Receivables Asset Trust | |||||||
Series 2008-CPA A1 144A 1.128% 1/15/13 | 921,848 | 922,706 | ||||||
Capital One Multi-Asset Execution Trust | ||||||||
Series 2004-A1 A1 0.488% 12/15/16 | 5,940,000 | 5,926,728 | ||||||
Series 2004-A4 A4 0.498% 3/15/17 | 4,380,000 | 4,367,665 | ||||||
Series 2005-A6 A6 0.453% 7/15/15 | 10,350,000 | 10,331,077 | ||||||
Series 2006-A5 A5 0.338% 1/15/16 | 16,310,000 | 16,279,497 |
24
Principal amount° | Value (U.S. $) | |||||||
Non-Agency Asset-Backed Securities (continued) | ||||||||
Capital One Multi-Asset Execution Trust (continued) | ||||||||
Series 2006-A12A 0.338% 7/15/16 | USD | 8,510,000 | $ | 8,477,609 | ||||
Series 2007-A1 A1 0.328% 11/15/19 | 3,675,000 | 3,583,803 | ||||||
Series 2007-A4 A4 0.308% 3/16/15 | 1,915,000 | 1,914,183 | ||||||
Series 2007-A7 A7 5.75% 7/15/20 | 2,075,000 | 2,453,874 | ||||||
Series 2007-A8 A8 0.846% 10/15/15 | 1,750,000 | 1,751,632 | ||||||
| Chase Issuance Trust | |||||||
Series 2005-A2 A2 0.348% 12/15/14 | 6,600,000 | 6,599,351 | ||||||
Series 2008-A6 A6 1.478% 5/15/15 | 7,813,000 | 7,932,426 | ||||||
# | Chesapeake Funding 144A | |||||||
Series 2009-1 A 2.278% 12/15/20 | 2,312,817 | 2,318,374 | ||||||
Series 2009-2A A 2.028% 9/15/21 | 20,851,215 | 20,915,711 | ||||||
| Citibank Credit Card Issuance Trust | |||||||
Series 2005-A3 A3 0.364% 4/24/14 | 718,000 | 717,930 | ||||||
Series 2008-A6 A6 1.485% 5/22/17 | 6,600,000 | 6,818,169 | ||||||
# | Citibank Omni Master Trust 144A | |||||||
Series 2009-A11A A11 1.828% 8/15/16 | 4,750,000 | 4,781,599 | ||||||
Series 2009-A14A A14 3.028% 8/15/18 | 12,390,000 | 12,997,189 | ||||||
# | CNH Wholesale Master Note Trust 144A | |||||||
Series 2009-1A A 1.978% 7/15/15 | 4,000,000 | 4,020,901 | ||||||
Series 2011-1A A 1.078% 12/15/15 | 7,290,000 | 7,297,047 | ||||||
Conseco Financial | ||||||||
Series 1997-6 A8 7.07% 1/15/29 | 1,049,447 | 1,093,378 | ||||||
| Discover Card Master Trust | |||||||
Series 2009-A1 A1 1.578% 12/15/14 | 13,975,000 | 14,057,631 | ||||||
Series 2010-A1 A1 0.928% 9/15/15 | 12,150,000 | 12,230,305 | ||||||
Series 2010-A2 A2 0.858% 3/15/18 | 10,000,000 | 10,096,625 | ||||||
Series 2011-A1 A1 0.628% 8/15/16 | 3,620,000 | 3,633,248 | ||||||
Series 2011-A3 A 0.488% 3/15/17 | 9,440,000 | 9,432,189 | ||||||
Series 2011-A4 A4 0.628% 5/15/19 | 7,810,000 | 7,809,932 | ||||||
| Discover Card Master Trust I | |||||||
Series 2005-4 A2 0.368% 6/16/15 | 9,000,000 | 8,999,042 | ||||||
# | Enterprise Fleet Financing | |||||||
Series 2011-3 A2 144A 1.62% 5/20/17 | 7,805,000 | 7,796,461 | ||||||
# | FIFC Premium Funding | |||||||
Series 2009-A A 144A 1.728% 2/17/14 | 6,725,000 | 6,747,515 | ||||||
| Ford Credit Auto Owner Trust | |||||||
Series 2008-C A4B 2.028% 4/15/13 | 2,296,982 | 2,305,472 |
25
Statement of net
assets
Delaware Limited-Term
Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
Non-Agency Asset-Backed Securities (continued) | ||||||||
| Ford Credit Floorplan Master Owner Trust | |||||||
Series 2009-2 A 1.828% 9/15/14 | USD | 23,075,000 | $ | 23,248,883 | ||||
#Series 2010-1 A 144A 1.928% 12/15/14 | 24,815,000 | 25,081,241 | ||||||
#Series 2010-3 A2 144A 1.978% 2/15/17 | 16,835,000 | 17,308,237 | ||||||
Series 2011-1 A2 0.878% 2/15/16 | 9,980,000 | 9,969,202 | ||||||
| GE Capital Credit Card Master Note Trust | |||||||
Series 2011-1 A 0.828% 1/15/17 | 7,930,000 | 7,980,648 | ||||||
Series 2011-2 A 0.758% 5/15/19 | 4,575,000 | 4,580,954 | ||||||
Series 2011-3 A 0.508% 9/15/16 | 7,510,000 | 7,509,935 | ||||||
# | Golden Credit Card Trust | |||||||
Series 2011-2A A 144A 0.678% 10/15/15 | 7,155,000 | 7,155,000 | ||||||
Harley-Davidson Motorcycle Trust | ||||||||
Series 2009-4 A3 1.87% 2/15/14 | 223,373 | 223,869 | ||||||
John Deere Owner Trust | ||||||||
Series 2009-A A4 3.96% 5/16/16 | 4,314,000 | 4,363,553 | ||||||
Series 2010-A A4 2.13% 10/17/16 | 2,540,000 | 2,584,502 | ||||||
MBNA Credit Card Master Note Trust | ||||||||
Series 2004-B1 B1 4.45% 8/15/16 | 7,475,000 | 7,943,347 | ||||||
# | Navistar Financial Dealer Note Master Trust 144A | |||||||
Series 2009-1 A 1.698% 10/26/15 | 10,895,000 | 10,956,303 | ||||||
Series 2011-1 A 1.444% 10/25/16 | 9,050,000 | 9,066,488 | ||||||
# | Navistar Financial Owner Trust | |||||||
Series 2010-B A3 144A 1.08% 3/18/14 | 2,840,000 | 2,837,110 | ||||||
# | Nissan Master Owner Trust Receivables | |||||||
Series 2010-AA A 144A 1.428% 1/15/15 | 14,965,000 | 15,075,554 | ||||||
# | Penarth Master Issuer 144A | |||||||
Series 2011-1A A1 0.935% 5/18/15 | 10,550,000 | 10,515,153 | ||||||
Series 2011-2A A1 1.035% 11/18/15 | 11,000,000 | 11,000,000 | ||||||
# | PFS Financing | |||||||
Series 2010-DA A 144A 1.728% 2/15/15 | 5,925,000 | 5,950,901 | ||||||
Renaissance Home Equity Loan Trust | ||||||||
Series 2006-4 AF2 5.285% 1/25/37 | 35,000 | 12,324 | ||||||
# | Volkswagen Credit Auto Master Trust | |||||||
Series 2011-1A 144A 0.974% 9/20/16 | 8,525,000 | 8,524,945 | ||||||
Total Non-Agency Asset-Backed Securities | ||||||||
(cost $511,626,472) | 511,120,680 |
26
Principal amount° | Value (U.S. $) | |||||||
Non-Agency Collateralized Mortgage Obligations 0.08% | ||||||||
American Home Mortgage Investment Trust | ||||||||
Series 2005-2 5A1 5.064% 9/25/35 | USD | 146,966 | $ | 131,730 | ||||
Bank of America Alternative Loan Trust | ||||||||
Series 2005-3 2A1 5.50% 4/25/20 | 180,473 | 182,738 | ||||||
Series 2005-6 7A1 5.50% 7/25/20 | 128,558 | 119,984 | ||||||
| Bank of America Mortgage Securities | |||||||
Series 2002-K 2A1 2.686% 10/20/32 | 5,852 | 5,341 | ||||||
Citicorp Mortgage Securities | ||||||||
Series 2006-4 3A1 5.50% 8/25/21 | 147,928 | 148,016 | ||||||
| Citigroup Mortgage Loan Trust | |||||||
Series 2007-AR8 1A3A 5.673% 8/25/37 | 180,397 | 125,214 | ||||||
# | GSMPS Mortgage Loan Trust 144A | |||||||
Series 1998-2 A 7.75% 5/19/27 | 151,232 | 158,116 | ||||||
Series 1999-3 A 8.00% 8/19/29 | 389,002 | 385,529 | ||||||
| JPMorgan Mortgage Trust | |||||||
Series 2006-A2 3A3 5.603% 4/25/36 | 180,000 | 143,251 | ||||||
Lehman Mortgage Trust | ||||||||
Series 2005-2 2A3 5.50% 12/25/35 | 6,780 | 6,752 | ||||||
# | MASTR Specialized Loan Trust | |||||||
Series 2005-2 A2 144A 5.006% 7/25/35 | 190,090 | 191,061 | ||||||
| Wells Fargo Mortgage-Backed Securities Trust | |||||||
Series 2004-EE 3A1 2.74% 12/25/34 | 31,623 | 30,373 | ||||||
Series 2006-AR5 2A1 2.739% 4/25/36 | 301,443 | 215,965 | ||||||
Total Non-Agency Collateralized Mortgage | ||||||||
Obligations (cost $1,790,048) | 1,844,070 | |||||||
Regional Bonds 4.11%Δ | ||||||||
Australia 3.87% | ||||||||
New South Wales Treasury 6.00% 5/1/12 | AUD | 82,670,000 | 85,067,005 | |||||
Queensland Treasury 6.25% 6/14/19 | AUD | 3,430,000 | 3,904,787 | |||||
88,971,792 | ||||||||
Canada 0.24% | ||||||||
Ontario Province 2.30% 5/10/16 | USD | 5,270,000 | 5,432,674 | |||||
5,432,674 | ||||||||
Total Regional Bonds (cost $91,818,418) | 94,404,466 |
27
Statement of net
assets
Delaware Limited-Term
Diversified Income Fund
Principal amount° | Value (U.S. $) | |||||||
«Senior Secured Loans 0.30% | ||||||||
Delos Aircraft Tranche 2 7.00% 3/17/16 | USD | 2,862,116 | $ | 2,880,605 | ||||
International Lease Finance 1 6.75% 3/17/15 | 3,902,884 | 3,922,399 | ||||||
Total Senior Secured Loans (cost $6,881,450) | 6,803,004 | |||||||
Sovereign Bonds 4.54%Δ | ||||||||
Brazil 0.90% | ||||||||
Brazil Notas do Tesouro Nacional | ||||||||
Series F 10.00% 1/1/15 | BRL | 39,160,000 | 20,591,872 | |||||
20,591,872 | ||||||||
Indonesia 1.59% | ||||||||
Indonesia Retail Bond 7.95% 8/15/13 | IDR | 315,700,000,000 | 36,539,799 | |||||
36,539,799 | ||||||||
Norway 0.82% | ||||||||
Norwegian Government 6.50% 5/15/13 | NOK | 106,000,000 | 18,946,001 | |||||
18,946,001 | ||||||||
Republic of Korea 0.44% | ||||||||
Korea Treasury Inflation-Linked Bond | ||||||||
2.75% 3/10/17 | KRW | 10,730,790,000 | 10,046,769 | |||||
10,046,769 | ||||||||
South Africa 0.79% | ||||||||
Republic of South Africa 7.50% 1/15/14 | ZAR | 143,000,000 | 18,208,116 | |||||
18,208,116 | ||||||||
Total Sovereign Bonds (cost $108,368,978) | 104,332,557 | |||||||
U.S. Treasury Obligation 3.08% | ||||||||
∞ | U.S. Treasury Note 0.875% 11/30/16 | USD | 70,645,000 | 70,871,276 | ||||
Total U.S. Treasury Obligation | ||||||||
(cost $70,460,152) | 70,871,276 | |||||||
Number of shares | ||||||||
Preferred Stock 0.33% | ||||||||
| PNC Financial Services Group 8.25% | 7,260,000 | 7,501,068 | |||||
Total Preferred Stock (cost $7,271,507) | 7,501,068 |
28
Principal amount° | Value (U.S. $) | |||||||||
Short-Term Investments 11.52% | ||||||||||
≠Discount Notes 1.64% | ||||||||||
Fannie Mae 0.01% 3/7/12 | USD | 16,486,268 | $ | 16,485,972 | ||||||
Federal Home Loan Bank 0.02% 3/21/12 | 21,291,118 | 21,290,649 | ||||||||
37,776,621 | ||||||||||
Repurchase Agreements 9.16% | ||||||||||
BNP Paribas 0.02%, dated 12/30/11, | ||||||||||
to be repurchased on 1/3/12, | ||||||||||
repurchase price $210,529,468 | ||||||||||
(collateralized by U.S. government | ||||||||||
obligations 0.50%-4.00% 11/30/12- | ||||||||||
2/15/15; market value $214,739,580) | 210,529,000 | 210,529,000 | ||||||||
210,529,000 | ||||||||||
≠U.S. Treasury Obligation 0.72% | ||||||||||
U.S. Treasury Bill 0.001% 2/23/12 | 16,486,268 | 16,485,972 | ||||||||
16,485,972 | ||||||||||
Total Short-Term Investments | ||||||||||
(cost $264,791,382) | 264,791,593 | |||||||||
Total Value of Securities 110.22% | ||||||||||
(cost $2,514,169,013) | 2,534,496,439 | |||||||||
Liabilities Net of Receivables and | ||||||||||
Other Assets (10.22%) | (235,018,507 | )z* | ||||||||
Net Assets Applicable to 260,723,929 | ||||||||||
Shares Outstanding 100.00% | $ | 2,299,477,932 | ||||||||
Net Asset Value Delaware Limited-Term Diversified Income Fund | ||||||||||
Class A ($1,210,256,898 / 137,191,414 Shares) | $8.82 | |||||||||
Net Asset Value Delaware Limited-Term Diversified Income Fund | ||||||||||
Class B ($1,219,986 / 138,330 Shares) | $8.82 | |||||||||
Net Asset Value Delaware Limited-Term Diversified Income Fund | ||||||||||
Class C ($500,236,719 / 56,744,750 Shares) | $8.82 | |||||||||
Net Asset Value Delaware Limited-Term Diversified Income Fund | ||||||||||
Class R ($16,796,653 / 1,903,598 Shares) | $8.82 | |||||||||
Net Asset Value Delaware Limited-Term Diversified Income Fund | ||||||||||
Institutional Class ($570,967,676 / 64,745,837 Shares) | $8.82 |
29
Statement of net
assets
Delaware Limited-Term
Diversified Income Fund
Components of Net Assets at December 31, 2011: | ||||
Shares of beneficial interest (unlimited authorization no par) | $ | 2,293,747,546 | ||
Distributions in excess of net investment income | (2,978,819 | ) | ||
Accumulated net realized loss on investments | (10,032,347 | ) | ||
Net unrealized appreciation of investments and derivatives | 18,741,552 | |||
Total net assets | $ | 2,299,477,932 |
° | Principal amount is stated in the currency in which each security is denominated. |
| Variable rate security. The rate shown is the rate as of December 31, 2011. Interest rates reset periodically. |
w | 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 December 31, 2011, the aggregate value of Rule 144A securities was $427,050,411, which represented 18.57% of the Funds net assets. See Note 10 in Notes to financial statements. |
@ | Illiquid security. At December 31, 2011, the aggregate value of illiquid securities was $5,491,038, which represented 0.24% of the Funds 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 December 31, 2011. |
= | Security is being fair valued in accordance with the Funds fair valuation policy. At December 31, 2011, the aggregate value of fair valued securities was $2,831,005, which represented 0.12% of the Funds net assets. See Note 1 in Notes to financial statements. |
^ | Zero coupon security. The rate shown is the yield at the time of purchase. |
∞ | Fully or partially pledged as collateral for futures contracts. |
≠ | The rate shown is the effective yield at the time of purchase. |
z | Of this amount, $257,677,018 represents payable for securities purchased as of December 31, 2011. |
* | Includes foreign currency valued at $211,389 with a cost of $279,735. |
30
Net Asset Value and Offering Price Per Share | |||
Delaware Limited-Term Diversified Income Fund | |||
Net asset value Class A (A) | $ | 8.82 | |
Sales charge (2.75% of offering price) (B) | 0.25 | ||
Offering price | $ | 9.07 |
(A) Net asset value per share, as illustrated, is the amount which would be paid upon redemption or repurchase of shares.
(B) See the current prospectus for purchase of $100,000 or more.
The following futures contracts and swap contracts were outstanding at December 31, 2011:1
Futures Contracts
Unrealized | |||||||||||||||
Appreciation | |||||||||||||||
Contract to Sell | Notional Cost | Notional Value | Expiration Date | (Depreciation) | |||||||||||
(431) U.S. Treasury 5 yr Note | $ | (52,816,486 | ) | $ | (53,124,117 | ) | 3/30/12 | $ | (307,631 | ) | |||||
(560) U.S. Treasury 10 yr Note | (73,244,668 | ) | (73,430,000 | ) | 3/30/12 | (185,332 | ) | ||||||||
(333) U.S. Treasury Long Bond | (47,196,270 | ) | (48,222,563 | ) | 3/30/12 | (1,026,293 | ) | ||||||||
$ | (173,257,424 | ) | $ | (1,519,256 | ) |
31
Statement of net assets
Delaware Limited-Term Diversified Income Fund
Swap Contracts | |||||||||||||||||
CDS Contracts | |||||||||||||||||
Annual | Unrealized | ||||||||||||||||
Protection | Termination | Appreciation | |||||||||||||||
Counterparty | Swap & Referenced Obligation | Notional Value | Payments | Date | (Depreciation) | ||||||||||||
Protection Purchased: | |||||||||||||||||
Peoples Republic of China | |||||||||||||||||
MSC | 5 yr CDS | USD | 11,204,000 | 1.00 | % | 12/20/16 | $ | (307,026 | ) | ||||||||
Republic of France | |||||||||||||||||
MSC | 5 yr CDS | 5,592,000 | 0.25 | % | 12/20/16 | 13,650 | |||||||||||
$ | 16,796,000 | $ | (293,376 | ) | |||||||||||||
Protection Sold / | |||||||||||||||||
Moodys Rating: | |||||||||||||||||
BAML | CDX.N.A.HY.17 / Ba2 / B2 | USD | 12,152,000 | 5.00 | % | 12/20/16 | $ | (51,579 | ) | ||||||||
BCLY | CDX.N.A.HY.17 / Ba2 / B2 | 15,680,000 | 5.00 | % | 12/20/16 | 29,851 | |||||||||||
CITI | CDX.N.A.HY.17 / Ba2 / B2 | 18,130,000 | 5.00 | % | 12/20/16 | 78,342 | |||||||||||
GSC | CDX.N.A.HY.17 / Ba2 / B2 | 11,760,000 | 5.00 | % | 12/20/16 | (67,233 | ) | ||||||||||
JPMC | CDX.N.A.HY.17 / Ba2 / B2 | 18,130,000 | 5.00 | % | 12/20/16 | 78,343 | |||||||||||
JPMC | Tyson Foods CDS / Ba2 | 2,770,000 | 1.00 | % | 3/20/16 | 63,278 | |||||||||||
MSC | CDX.N.A.HY.17 / Ba2 / B2 | 18,130,000 | 5.00 | % | 12/20/16 | 78,343 | |||||||||||
96,752,000 | $ | 209,345 | |||||||||||||||
Total | $ | (84,031 | ) |
The use of futures contracts and swap contracts involves elements of market risk and risks in excess of the amounts recognized in the financial statements. The notional values presented above represent the Funds total exposure in such contracts, whereas only the net unrealized appreciation (depreciation) is reflected in the Funds net assets.
1See Note 8 in Notes to financial statements.
32
Summary of
abbreviations:
ARM Adjustable Rate Mortgage
AUD
Australian Dollar
BAML Bank of America Merrill Lynch
BCLY Barclays
Bank
BRL Brazilian Real
CBO Collateralized Bond Obligation
CDO
Collateralized Debt Obligation
CDS Credit Default Swap
CITI Citigroup
Global Markets
CLO Collateralized Loan Obligation
FHAVA Federal Housing Administration & Veterans
Administration
GNMA Government National Mortgage Association
GPM
Graduated Payment Mortgage
GSC Goldman Sachs Capital
GSMPS Goldman
Sachs Reperforming Mortgage Securities
HY High Yield
IDR Indonesian
Rupiah
JPMC JPMorgan Chase Bank
KRW South Korean Won
MASTR
Mortgage Asset Securitization Transactions, Inc.
MSC Morgan Stanley Capital
NOK Norwegian Krone
REIT Real
Estate Investment Trust
REMIC Real Estate
Mortgage Investment Conduit
S.F. Single Family
TBA To be
announced
USD United States Dollar
yr Year
ZAR South African Rand
See accompanying notes, which are an integral part of the financial statements.
33
Statement of operations | |
Delaware Limited-Term Diversified Income Fund | Year Ended December 31, 2011 |
Investment Income: | ||||||||
Interest | $ | 52,573,580 | ||||||
Dividends | 598,950 | |||||||
Foreign tax withheld | (175,923 | ) | $ | 52,996,607 | ||||
Expenses: | ||||||||
Management fees | 10,124,876 | |||||||
Distribution expenses Class A | 3,542,271 | |||||||
Distribution expenses Class B | 18,082 | |||||||
Distribution expenses Class C | 5,090,303 | |||||||
Distribution expenses Class R | 88,448 | |||||||
Dividend disbursing and transfer agent fees and expenses | 2,631,730 | |||||||
Accounting and administration expenses | 851,494 | |||||||
Reports and statements to shareholders | 242,168 | |||||||
Legal fees | 154,706 | |||||||
Custodian fees | 145,033 | |||||||
Registration fees | 133,021 | |||||||
Trustees fees | 114,087 | |||||||
Audit and tax | 91,615 | |||||||
Insurance fees | 38,666 | |||||||
Pricing fees | 33,136 | |||||||
Consulting fees | 21,819 | |||||||
Dues and services | 19,439 | |||||||
Trustees expenses | 7,721 | 23,348,615 | ||||||
Less waived distribution expenses Class A | (1,771,136 | ) | ||||||
Less waived distribution expenses Class R | (14,741 | ) | ||||||
Less expense paid indirectly | (1,920 | ) | ||||||
Total operating expenses | 21,560,818 | |||||||
Net Investment Income | 31,435,789 |
34
Net Realized and Unrealized Gain (Loss): | ||||
Net realized gain (loss) on: | ||||
Investments | $ | 31,841,592 | ||
Futures contracts | (2,964,432 | ) | ||
Swap contracts | (3,629,960 | ) | ||
Foreign currencies | 3,075,155 | |||
Foreign currency exchange contracts | (7,679,776 | ) | ||
Net realized gain | 20,642,579 | |||
Net change in unrealized appreciation (depreciation) on: | ||||
Investments | (12,019,086 | ) | ||
Futures contracts | 1,740,935 | |||
Swap contracts | 6,834,648 | |||
Foreign currencies | (1,126,367 | ) | ||
Foreign currency exchange contracts | 5,203,025 | |||
Net change in unrealized appreciation (depreciation) | 633,155 | |||
Net Realized and Unrealized Gain | 21,275,734 | |||
Net Increase in Net Assets Resulting from Operations | $ | 52,711,523 |
See accompanying notes, which are an integral part of the financial statements.
35
Statements of changes in net
assets
Delaware Limited-Term Diversified
Income Fund
Year Ended | ||||||||
12/31/11 | 12/31/10 | |||||||
Increase (Decrease) in Net Assets from Operations: | ||||||||
Net investment income | $ | 31,435,789 | $ | 38,188,139 | ||||
Net realized gain | 20,642,579 | 37,428,791 | ||||||
Net change in unrealized appreciation (depreciation) | 633,155 | (13,498,871 | ) | |||||
Net increase in net assets resulting from operations | 52,711,523 | 62,118,059 | ||||||
Dividends and Distributions to Shareholders from: | ||||||||
Net investment income: | ||||||||
Class A | (29,006,578 | ) | (18,043,048 | ) | ||||
Class B | (29,992 | ) | (21,359 | ) | ||||
Class C | (8,260,576 | ) | (3,285,309 | ) | ||||
Class R | (312,694 | ) | (167,403 | ) | ||||
Institutional Class | (11,835,354 | ) | (4,673,441 | ) | ||||
Net realized gain on investments: | ||||||||
Class A | (17,251,999 | ) | (18,731,533 | ) | ||||
Class B | (21,759 | ) | (43,661 | ) | ||||
Class C | (6,961,854 | ) | (8,094,158 | ) | ||||
Class R | (197,438 | ) | (241,214 | ) | ||||
Institutional Class | (7,614,090 | ) | (5,198,214 | ) | ||||
(81,492,334 | ) | (58,499,340 | ) | |||||
Capital Share Transactions: | ||||||||
Proceeds from shares sold: | ||||||||
Class A | 560,598,084 | 886,579,580 | ||||||
Class B | 307,964 | 842,414 | ||||||
Class C | 115,543,773 | 317,431,994 | ||||||
Class R | 11,848,284 | 17,261,986 | ||||||
Institutional Class | 430,088,689 | 467,933,743 | ||||||
Net asset value of shares issued upon reinvestment | ||||||||
of dividends and distributions: | ||||||||
Class A | 39,219,662 | 30,792,524 | ||||||
Class B | 43,148 | 52,719 | ||||||
Class C | 13,170,527 | 9,302,511 | ||||||
Class R | 508,427 | 399,364 | ||||||
Institutional Class | 16,557,650 | 7,370,288 | ||||||
1,187,886,208 | 1,737,967,123 |
36
Year Ended | ||||||||
12/31/11 | 12/31/10 | |||||||
Capital Share Transactions (continued): | ||||||||
Cost of shares repurchased: | ||||||||
Class A | $ | (591,852,244 | ) | $ | (661,806,330 | ) | ||
Class B | (1,646,352 | ) | (1,264,457 | ) | ||||
Class C | (173,794,327 | ) | (104,386,560 | ) | ||||
Class R | (12,047,401 | ) | (7,357,126 | ) | ||||
Institutional Class | (259,173,763 | ) | (151,873,219 | ) | ||||
(1,038,514,087 | ) | (926,687,692 | ) | |||||
Increase in net assets derived from | ||||||||
capital share transactions | 149,372,121 | 811,279,431 | ||||||
Net Increase in Net Assets | 120,591,310 | 814,898,150 | ||||||
Net Assets: | ||||||||
Beginning of year | 2,178,886,622 | 1,363,988,472 | ||||||
End of year (including undistributed (distributions in | ||||||||
excess of) net investment income of $(2,978,819) | ||||||||
and $8,946,975, respectively) | $ | 2,299,477,932 | $ | 2,178,886,622 |
See accompanying notes, which are an integral part of the financial statements.
37
Financial highlights
Delaware Limited-Term 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 on investments |
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 and expense paid indirectly |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived and expense paid indirectly |
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/or distributor. Performance would have been lower had
the waivers not been in effect. |
38
Year Ended | |||||||||||||||||||||
12/31/11 | 12/31/10 | 12/31/09 | 12/31/08 | 12/31/07 | |||||||||||||||||
$8.920 | $8.880 | $8.180 | $8.340 | $8.210 | |||||||||||||||||
0.145 | 0.192 | 0.328 | 0.294 | 0.310 | |||||||||||||||||
0.100 | 0.134 | 0.710 | (0.112 | ) | 0.199 | ||||||||||||||||
0.245 | 0.326 | 1.038 | 0.182 | 0.509 | |||||||||||||||||
(0.220 | ) | (0.143 | ) | (0.338 | ) | (0.342 | ) | (0.379 | ) | ||||||||||||
(0.125 | ) | (0.143 | ) | | | | |||||||||||||||
(0.345 | ) | (0.286 | ) | (0.338 | ) | (0.342 | ) | (0.379 | ) | ||||||||||||
$8.820 | $8.920 | $8.880 | $8.180 | $8.340 | |||||||||||||||||
2.78% | 3.70% | 12.89% | 2.21% | 6.36% | |||||||||||||||||
$1,210,257 | $1,217,992 | $958,305 | $252,563 | $177,183 | |||||||||||||||||
0.82% | 0.83% | 0.84% | 0.84% | 0.83% | |||||||||||||||||
0.97% | 0.98% | 1.04% | 1.12% | 1.12% | |||||||||||||||||
1.62% | 2.14% | 3.78% | 3.55% | 3.77% | |||||||||||||||||
1.47% | 1.99% | 3.58% | 3.27% | 3.48% | |||||||||||||||||
333% | 411% | 287% | 351% | 236% |
39
Financial
highlights
Delaware
Limited-Term 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 on investments |
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 and expense paid indirectly |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived and expense paid indirectly |
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 some 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.
40
Year Ended | ||||||||||||||||
12/31/11 | 12/31/10 | 12/31/09 | 12/31/08 | 12/31/07 | ||||||||||||
$8.920 | $8.870 | $8.180 | $8.330 | $8.210 | ||||||||||||
0.069 | 0.116 | 0.255 | 0.223 | 0.240 | ||||||||||||
0.101 | 0.144 | 0.700 | (0.101 | ) | 0.189 | |||||||||||
0.170 | 0.260 | 0.955 | 0.122 | 0.429 | ||||||||||||
(0.145 | ) | (0.067 | ) | (0.265 | ) | (0.272 | ) | (0.309 | ) | |||||||
(0.125 | ) | (0.143 | ) | | | | ||||||||||
(0.270 | ) | (0.210 | ) | (0.265 | ) | (0.272 | ) | (0.309 | ) | |||||||
$8.820 | $8.920 | $8.870 | $8.180 | $8.330 | ||||||||||||
1.92% | 2.94% | 11.82% | 1.47% | 5.34% | ||||||||||||
$1,220 | $2,529 | $2,884 | $3,728 | $5,631 | ||||||||||||
1.67% | 1.68% | 1.69% | 1.69% | 1.68% | ||||||||||||
1.67% | 1.68% | 1.74% | 1.82% | 1.82% | ||||||||||||
0.77% | 1.29% | 2.93% | 2.70% | 2.92% | ||||||||||||
0.77% | 1.29% | 2.88% | 2.57% | 2.78% | ||||||||||||
333% | 411% | 287% | 351% | 236% |
41
Financial
highlights
Delaware
Limited-Term 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 on investments |
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 and expense paid indirectly |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived and expense paid indirectly |
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 some 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.
42
Year Ended | |||||||||||||||||||||
12/31/11 | 12/31/10 | 12/31/09 | 12/31/08 | 12/31/07 | |||||||||||||||||
$8.910 | $8.870 | $8.180 | $8.330 | $8.210 | |||||||||||||||||
0.069 | 0.116 | 0.255 | 0.224 | 0.240 | |||||||||||||||||
0.110 | 0.133 | 0.699 | (0.102 | ) | 0.189 | ||||||||||||||||
0.179 | 0.249 | 0.954 | 0.122 | 0.429 | |||||||||||||||||
(0.144 | ) | (0.066 | ) | (0.264 | ) | (0.272 | ) | (0.309 | ) | ||||||||||||
(0.125 | ) | (0.143 | ) | | | | |||||||||||||||
(0.269 | ) | (0.209 | ) | (0.264 | ) | (0.272 | ) | (0.309 | ) | ||||||||||||
$8.820 | $8.910 | $8.870 | $8.180 | $8.330 | |||||||||||||||||
2.03% | 2.82% | 11.80% | 1.47% | 5.34% | |||||||||||||||||
$500,237 | $550,958 | $327,809 | $52,505 | $19,847 | |||||||||||||||||
1.67% | 1.68% | 1.69% | 1.69% | 1.68% | |||||||||||||||||
1.67% | 1.68% | 1.74% | 1.82% | 1.82% | |||||||||||||||||
0.77% | 1.29% | 2.93% | 2.70% | 2.92% | |||||||||||||||||
0.77% | 1.29% | 2.88% | 2.57% | 2.78% | |||||||||||||||||
333% | 411% | 287% | 351% | 236% |
43
Financial
highlights
Delaware
Limited-Term 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 on investments |
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 and expense paid indirectly |
Ratio of net investment income to average net assets |
Ratio of net investment income to average net assets |
prior to fees waived and expense paid indirectly |
Portfolio turnover |
1 The average
shares outstanding method has been applied for per share
information. |
2 Total investment
return is based on the change in net asset value of a share during the
period and assumes reinvestment of dividends and distributions at net
asset value. Total investment return during all of the periods shown
reflects waivers by the manager and/or 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.
44
Year Ended | |||||||||||||||||||||
12/31/11 | 12/31/10 | 12/31/09 | 12/31/08 | 12/31/07 | |||||||||||||||||
$8.920 | $8.880 | $8.180 | $8.340 | $8.220 | |||||||||||||||||
0.114 | 0.161 | 0.298 | 0.265 | 0.281 | |||||||||||||||||
0.100 | 0.133 | 0.710 | (0.112 | ) | 0.189 | ||||||||||||||||
0.214 | 0.294 | 1.008 | 0.153 | 0.470 | |||||||||||||||||
(0.189 | ) | (0.111 | ) | (0.308 | ) | (0.313 | ) | (0.350 | ) | ||||||||||||
(0.125 | ) | (0.143 | ) | | | | |||||||||||||||
(0.314 | ) | (0.254 | ) | (0.308 | ) | (0.313 | ) | (0.350 | ) | ||||||||||||
$8.820 | $8.920 | $8.880 | $8.180 | $8.340 | |||||||||||||||||
2.42% | 3.34% | 12.50% | 1.86% | 5.86% | |||||||||||||||||
$16,796 | $16,639 | $6,331 | $1,446 | $517 | |||||||||||||||||
1.17% | 1.18% | 1.19% | 1.19% | 1.18% | |||||||||||||||||
1.27% | 1.28% | 1.34% | 1.42% | 1.42% | |||||||||||||||||
1.27% | 1.79% | 3.43% | 3.20% | 3.42% | |||||||||||||||||
1.17% | 1.69% | 3.28% | 2.97% | 3.18% | |||||||||||||||||
333% | 411% | 287% | 351% | 236% |
45
Financial
highlights
Delaware Limited-Term
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 investment1 | |
Net realized and unrealized gain (loss) | |
Total from investment operations | |
Less dividends and distributions from: | |
Net investment income | |
Net realized gain on investments | |
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 and expense paid indirectly |
|
Ratio of net investment income to average net assets | |
Ratio of net investment income
to average net assets prior to fees waived and expense paid indirectly |
|
Portfolio turnover |
1 The average
shares outstanding method has been applied for per share
information. |
2 Total investment
return is based on the change in net asset value of a share during the
period and assumes reinvestment of dividends and distributions at net
asset value. Total investment return during some 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.
46
Year Ended | ||||||||||||||||
12/31/11 |
12/31/10 | 12/31/09 | 12/31/08 | 12/31/07 | ||||||||||||
$8.920 | $8.870 | $8.180 | $8.340 | $8.210 | ||||||||||||
0.159 | 0.206 | 0.341 | 0.306 | 0.322 | ||||||||||||
0.100 | 0.143 | 0.700 | (0.111 | ) | 0.199 | |||||||||||
0.259 | 0.349 | 1.041 | 0.195 | 0.521 | ||||||||||||
(0.234 | ) | (0.156 | ) | (0.351 | ) | (0.355 | ) | (0.391 | ) | |||||||
(0.125 | ) | (0.143 | ) | | | | ||||||||||
(0.359 | ) | (0.299 | ) | (0.351 | ) | (0.355 | ) | (0.391 | ) | |||||||
$8.820 | $8.920 | $8.870 | $8.180 | $8.340 | ||||||||||||
2.94% | 3.97% | 12.93% | 2.37% | 6.52% | ||||||||||||
$570,968 | $390,769 | $68,659 | $7,420 | $9,298 | ||||||||||||
0.67% | 0.68% | 0.69% | 0.69% | 0.68% | ||||||||||||
0.67% | 0.68% | 0.74% | 0.82% | 0.82% | ||||||||||||
1.77% | 2.29% | 3.93% | 3.70% | 3.92% | ||||||||||||
1.77% | 2.29% | 3.88% | 3.57% | 3.78% | ||||||||||||
333% | 411% | 287% | 351% | 236% |
47
Notes to financial statements | |
Delaware Limited-Term Diversified Income Fund | December 31, 2011 |
Delaware Group® Limited-Term Government Funds (Trust) is organized as a Delaware statutory trust and offers one series: Delaware Limited-Term 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 up to 2.75%. Class A share purchases of $1,000,000 or more will incur a contingent deferred sales charge (CDSC) of 0.75% if redeemed during the first 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 2% 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 five years after purchase. Class C shares are sold with a CDSC charge of 1%, if redeemed during the first twelve months. Class R and Institutional Class shares are not subject to a sales charge and are offered for sale exclusively to certain eligible investors.
The investment objective of the Fund is to seek maximum total return, consistent with reasonable risk.
1. Significant Accounting Policies
The following accounting policies are in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and are consistently followed by the Fund.
Security Valuation Equity securities, except those traded on the Nasdaq Stock Market, Inc. (Nasdaq), are valued at the last quoted sales price as of the time of the regular close of the New York Stock Exchange (NYSE) on the valuation date. Securities traded on the Nasdaq are valued in accordance with the Nasdaq Official Closing Price, which may not be the last sales price. If on a particular day an equity security does not trade, then the mean between the bid and ask prices will be used, which approximates fair value. Securities listed on a foreign exchange are normally valued at the last quoted sales price on the valuation date. Short-term debt securities are valued at market value. U.S. government and agency securities are valued at the mean between the bid and ask prices, which approximates fair value. Other debt securities and credit default swap (CDS) contracts are valued based upon valuation provided by an independent pricing service or broker 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. Foreign currency exchange contracts are valued at the mean between the bid and ask prices, which approximates fair value. Interpolated values are derived when the settlement date of the contract is an interim date for which quotations are not available. 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,
48
index swap contracts and 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 Funds Board of Trustees (Board). In determining whether market quotations are readily available or fair valuation will be used, various factors will be taken into consideration, such as market closures or suspension of trading in a security. The Fund may use fair value pricing more frequently for securities traded primarily in non-U.S. markets because, among other things, most foreign markets close well before the Fund values its securities, generally as of 4:00 p.m. Eastern time. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, government actions or pronouncements, aftermarket trading, or news events may have occurred in the interim. To account for this, the Fund may frequently value foreign securities using fair value prices based on third-party vendor modeling tools (international fair value pricing).
Federal Income Taxes No provision for federal income taxes has been made as the Fund intends to continue to qualify for federal income tax purposes as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and make the requisite distributions to shareholders. The Fund evaluates tax positions taken or expected to be taken in the course of preparing the Funds 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 Funds tax positions taken on federal income tax returns for all open tax years (December 31, 2008 December 31, 2011), and has concluded that no provision for federal income tax is required in the Funds financial statements.
Class Accounting Investment income and common expenses are allocated to the various classes of the Fund on the basis of settled shares of each class in relation to the net assets of the Fund. Realized and unrealized gains (loss) on investments are allocated to the various classes of the Fund on the basis of daily net assets of each class. Distribution expenses relating to a specific class are charged directly to that class.
Repurchase Agreements The Fund may purchase certain U.S. government securities subject to the counterpartys 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 Funds 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 December 30, 2011.
To Be Announced Trades The Fund may contract to purchase securities for a fixed price at a transaction date beyond the customary settlement period (e.g., when issued, delayed delivery, forward commitment, or TBA transactions) consistent with the Funds ability to manage its investment portfolio and meet redemption requests. These transactions involve a
49
Notes to financial
statements
Delaware Limited-Term
Diversified Income Fund
1. Significant Accounting Policies (continued)
commitment by the Fund to purchase securities for a predetermined price or yield with payment and delivery taking place more than three days in the future, or after a period longer than the customary settlement period for that type of security. No interest will be earned by the Fund on such purchases until the securities are delivered; however the market value may change prior to delivery.
Foreign Currency Transactions Transactions denominated in foreign currencies are recorded at the prevailing exchange rates on the valuation date in accordance with the Funds prospectus. The value of all assets and liabilities denominated in foreign currencies is translated into U.S. dollars at the exchange rate of such currencies against the U.S. dollar daily. Transaction gains or losses resulting from changes in exchange rates during the reporting period or upon settlement of the foreign currency transaction are reported in operations for the current period. The Fund generally isolates that portion of realized gains and losses on investments in debt securities which is due to changes in foreign exchange rates from that which is due to changes in market prices of debt securities. The Fund reports certain foreign currency related transactions as components of realized gains (losses) for financial reporting purposes, whereas such components are treated as ordinary income (loss) for federal income tax purposes.
Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the fair value of investments, the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and the differences could be material.
Other Expenses directly attributable to the Fund are charged directly to the Fund. Other expenses common to various funds within the Delaware Investments® Family of Funds are generally allocated amongst such funds on the basis of average net assets. Management fees and some other expenses are paid monthly. Security transactions are recorded on the date the securities are purchased or sold (trade date) for financial reporting purposes. Costs used in calculating realized gains and losses on the sale of investment securities are those of the specific securities sold. Dividend income is recorded on the ex-dividend date and interest income is recorded on the accrual basis. Discounts and premiums on non-convertible debt securities are amortized to interest income over the lives of the respective securities. Realized gains (losses) on paydowns of asset- and mortgage-backed securities are classified as interest income. Withholding taxes on foreign interest have been recorded in accordance with the Funds understanding of the applicable countrys tax rules and rates. The Fund declares dividends daily from net investment income and pays such dividends monthly and declares and pays distributions from net realized gain on investments, if any, annually. The Fund may distribute income dividends and capital gains more frequently, if necessary for tax purposes. Dividends and distributions, if any, are recorded on the ex-dividend date.
50
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 December 31, 2011.
The Fund receives earnings credits from its transfer agent when positive cash balances are maintained, which are used to offset transfer agent fees. The expense paid under this arrangement is included in dividend disbursing and transfer agent fees and expenses on the statement of operations with the corresponding expense offset shown as expense paid indirectly. For the year ended December 31, 2011, the Fund earned $1,920 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 0.50% on the first $500 million of average daily net assets of the Fund, 0.475% on the next $500 million, 0.45% on the next $1.5 billion, and 0.425% on average daily net assets in excess of $2.5 billion.
Effective April 29, 2011, DMC has voluntarily agreed to waive that portion, if any, of its management fees and reimburse the Fund to the extent necessary to ensure that total annual operating expenses (excluding any 12b-1 plan expenses and certain other expenses) do not exceed 0.70% of the Funds average daily net assets until such time as the waiver is discontinued. This expense waiver and reimbursement applies only to expenses paid directly by the Fund. Prior to April 29, 2011, this waiver was contractual.
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 December 31, 2011, the Fund was charged $107,145 for these services.
DSC also provides dividend disbursing and transfer agency services. Effective July 18, 2011, the Fund pays DSC a monthly asset-based fee for these services. Prior to July 18, 2011, the Fund paid DSC a monthly fee based on the number of shareholder accounts for dividend disbursing and transfer agent services.
51
Notes to financial
statements
Delaware Limited-Term
Diversified Income Fund
2. | Investment Management, Administration Agreements and Other Transactions with Affiliates (continued) |
Pursuant to a distribution agreement and distribution plan, the Fund pays DDLP, the distributor and an affiliate of DMC, an annual distribution and service fee not to exceed 0.30% of the average daily net assets of the Class A shares, 1.00% of the average daily net assets of the Class B and C shares and 0.60% of the average daily net assets of the Class R shares. Institutional Class shares pay no distribution and service expenses. DDLP has contractually agreed to limit the Class A and Class R shares 12b-1 fees through April 29, 2012 to no more than 0.15% and 0.50%, respectively, of the classes average daily net assets.
At December 31, 2011, the Fund had liabilities payable to affiliates as follows:
Investment management fee payable to DMC | $ | 907,498 | |
Dividend disbursing, transfer agent and fund accounting | |||
oversight fees and other expenses payable to DSC | 56,067 | ||
Distribution fees payable to DDLP | 585,984 | ||
Other expenses payable to DMC and affiliates | 111,511 |
*DMC, as part of its administrative services, pays operating expenses on behalf of the Fund and is reimbursed on a periodic basis. Expenses include items such as printing of shareholder reports, fees for audit, legal and tax services, registration fees and trustees fees.
As provided in the investment management agreement, the Fund bears the cost of certain legal and tax services, including internal legal and tax services provided to the Fund by DMC and/or its affiliates employees. For the year ended December 31, 2011, the Fund was charged $73,268 for internal legal and tax services provided by DMC and/or its affiliates employees.
For the year ended December 31, 2011, DDLP earned $243,636 for commissions on sales of the Funds Class A shares. For the year ended December 31, 2011, DDLP received gross CDSC commissions of $8,070, $2,636 and $85,958 on redemption of the Funds 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 Trustees 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.
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3. Investments
For the year ended December 31, 2011, the Fund made purchases of $4,506,627,444 and sales of $4,145,883,839 of investment securities other than U.S. government securities and short-term investments. For the year ended December 31, 2011, the Fund made purchases of $2,221,043,817 and sales of $2,424,363,322 of long-term U.S. government securities.
At December 31, 2011, the cost of investments for federal income tax purposes was $2,521,953,944. At December 31, 2011, net unrealized appreciation was $12,542,495 of which $42,535,864 related to unrealized appreciation of investments and $29,993,369 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 entitys 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 Funds 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, options contracts) |
Level 2 | | other observable inputs (including, but not limited to: quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market-corroborated inputs) (e.g., debt securities, government securities, swap contracts, foreign currency exchange contracts, foreign securities utilizing international fair value pricing) |
Level 3 | | inputs are significant unobservable inputs (including the Funds 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, including related or comparable assets or liabilities, recent transactions, market multiples, book values, and other relevant information for the investment to determine the fair value of the investment. 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
53
Notes to financial
statements
Delaware Limited-Term
Diversified Income Fund
3. Investments (continued)
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 Funds investments by fair value hierarchy levels as of December 31, 2011:
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
Agency, Asset-Backed & | |||||||||||||||
Mortgage-Backed | |||||||||||||||
Securities | $ | | $ | 1,084,847,793 | $ | 18,155,000 | $ | 1,103,002,793 | |||||||
Corporate Debt | | 838,275,846 | 1,942,184 | 840,218,030 | |||||||||||
Foreign Debt | | 198,737,023 | | 198,737,023 | |||||||||||
Municipal Bonds | | 49,374,656 | | 49,374,656 | |||||||||||
U.S. Treasury Obligations | | 70,871,276 | | 70,871,276 | |||||||||||
Preferred Stock | | 7,501,068 | | 7,501,068 | |||||||||||
Short-Term Investments | | 264,791,593 | | 264,791,593 | |||||||||||
Total | $ | | $ | 2,514,399,255 | $ | 20,097,184 | $ | 2,534,496,439 | |||||||
Futures Contracts | $ | (1,519,256 | ) | $ | | $ | | $ | (1,519,256 | ) | |||||
Swap Contracts | | (84,031 | ) | | (84,031 | ) |
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining fair value:
Agency, | |||||||||||||||||
Asset-Backed | |||||||||||||||||
and Mortgage-Backed | |||||||||||||||||
Securities | Corporate Debt* | Foreign Debt* | Total | ||||||||||||||
Balance as of 12/31/10 | $ | 6,320,192 | $ | 14,757,562 | $ | 9,839,793 | $ | 30,917,547 | |||||||||
Purchases | 28,703,095 | | | 28,703,095 | |||||||||||||
Sales | (5,710,285 | ) | (9,794,293 | ) | | (15,504,578 | ) | ||||||||||
Net realized loss | (26,400 | ) | (99,385 | ) | | (125,785 | ) | ||||||||||
Transfers out of Level 3 | (11,059,486 | ) | (2,501,481 | ) | (9,447,487 | ) | (23,008,454 | ) | |||||||||
Net change in unrealized | |||||||||||||||||
appreciation (depreciation) | (72,116 | ) | (420,219 | ) | (392,306 | ) | (884,641 | ) | |||||||||
Balance as of 12/31/11 | $ | 18,155,000 | $ | 1,942,184 | $ | | $ | 20,097,184 | |||||||||
Net change in unrealized | |||||||||||||||||
appreciation (depreciation) | |||||||||||||||||
from investments still held | |||||||||||||||||
as of 12/31/11 | $ | (375 | ) | $ | (54,625 | ) | $ | | $ | (55,000 | ) |
*One security valued at $2,888,375 was reclassified from foreign debt to corporate debt as of 12/31/10.
54
During the year ended December 31, 2011, the Fund made transfers out of Level 3 investments into Level 2 investments in the amount of $23,008,454. The transfers were due to the Funds pricing vendor being able to supply a matrix price with observable inputs for investments that had been utilizing a broker quoted price and observable market data because the valuation was derived using the market price of similar or comparable security.
During the year ended December 31, 2011, there were no transfers between Level 1 investments and Level 2 investments that had a material impact to the Fund.
The Funds policy is to recognize transfers between levels at the end 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 December 31, 2011 and 2010 was as follows:
Year Ended | ||||||
12/31/11 | 12/31/10 | |||||
Ordinary income | $ | 66,369,279 | $ | 48,385,615 | ||
Long-term capital gains | 15,123,055 | 10,113,725 | ||||
Total | $ | 81,492,334 | $ | 58,499,340 |
5. Components of Net Assets on a Tax Basis
As of December 31, 2011, the components of net assets on a tax basis were as follows:
Shares of beneficial interest | $ | 2,293,747,546 | |
Undistributed long-term capital gains | 1,579,662 | ||
Post-October losses | (4,935,217 | ) | |
Other temporary differences | (3,473,973 | ) | |
Unrealized appreciation | 12,559,914 | ||
Net assets | $ | 2,299,477,932 |
The differences between book basis and tax basis components of net assets are primarily attributable to tax deferral of losses on wash sales, tax deferral of losses on straddles, mark-to-market of futures contracts, tax treatment of CDS contracts and tax treatment of market discount and premium on debt instruments.
Post-October losses represent losses realized on investment transactions from November 1, 2011 through December 31, 2011 that, in accordance with federal income tax regulations, the Fund has elected to defer and treat as having arisen in the following fiscal year.
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, dividends and distributions, foreign capital gain taxes,
55
Notes to financial
statements
Delaware Limited-Term
Diversified Income Fund
5. Components of Net Assets on a Tax Basis (continued)
CDS contracts, market discount and premium on certain debt instruments, amortization of treasury inflation index securities sold, and paydowns of asset- and mortgage-backed securities. Results of operations and net assets were not affected by these reclassifications. For the year ended December 31, 2011, the Fund recorded the following reclassifications:
Undistributed net investment income | $ | 6,083,611 | |
Accumulated net realized loss | (6,083,611 | ) |
6. Capital Shares
Transactions in capital shares were as follows:
Year Ended | ||||||
12/31/11 | 12/31/10 | |||||
Shares sold: | ||||||
Class A | 62,543,833 | 98,998,425 | ||||
Class B | 34,354 | 94,073 | ||||
Class C | 12,904,071 | 35,465,572 | ||||
Class R | 1,330,666 | 1,926,271 | ||||
Institutional Class | 48,027,122 | 52,208,937 | ||||
Shares issued upon reinvestment of dividends and distributions: | ||||||
Class A | 4,412,404 | 3,435,983 | ||||
Class B | 4,860 | 5,885 | ||||
Class C | 1,485,861 | 1,038,638 | ||||
Class R | 57,208 | 44,549 | ||||
Institutional Class | 1,864,680 | 822,302 | ||||
132,665,059 | 194,040,635 | |||||
Shares repurchased: | ||||||
Class A | (66,317,551 | ) | (73,843,937 | ) | ||
Class B | (184,453 | ) | (141,440 | ) | ||
Class C | (19,456,065 | ) | (11,646,883 | ) | ||
Class R | (1,349,166 | ) | (819,047 | ) | ||
Institutional Class | (28,971,969 | ) | (16,943,026 | ) | ||
(116,279,204 | ) | (103,394,333 | ) | |||
Net increase | 16,385,855 | 90,646,302 |
For the years ended December 31, 2011 and 2010, 47,113 Class B shares were converted to 47,102 Class A shares valued at $419,714 and 57,899 Class B shares were converted to 57,871 Class A shares valued at $517,852, 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.
56
7. Line of Credit
The Fund, along with certain other funds in the Delaware Investments® Family of Funds (Participants), was a participant in a $50,000,000 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 Participants 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. On August 1, 2011, the Fund, along with the other Participants, entered into an amendment for a $100,000,000 revolving line of credit. The line of credit under the agreement expired on November 15, 2011.
On November 15, 2011, the Fund, along with the other Participants, entered into an amendment to the agreement for a $125,000,000 revolving line of credit. The agreement is to be used as described above and operates in substantially the same manner as the original agreement. The agreement expires on November 13, 2012. The Fund had no amounts outstanding as of December 31, 2011 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 entitys results of operations and financial position.
Foreign Currency Exchange Contracts The Fund may enter into foreign currency exchange contracts as a way of managing foreign exchange rate risk. The Fund may enter into these contracts to fix the U.S. dollar value of a security that it has agreed to buy or sell for the period between the date the trade was entered into and the date the security is delivered and paid for. The Fund may also use these contracts to hedge the U.S. dollar value of securities it already owns that are denominated in foreign currencies. The change in value is recorded as an unrealized gain or loss. When the contract is closed, a realized gain or loss is recorded equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed.
The use of foreign currency exchange contracts does not eliminate fluctuations in the underlying prices of the securities, but does establish a rate of exchange that can be achieved in the future. Although foreign currency exchange contracts limit the risk of loss due to an unfavorable change in the value of the hedged currency, they also limit any potential gain that might result should the value of the currency change favorably. In addition, the Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts. The Funds 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 Funds exposure to the counterparty. No foreign currency exchange contracts were outstanding at December 31, 2011.
57
Notes to financial
statements
Delaware Limited-Term Diversified
Income Fund
8. Derivatives (continued)
Futures Contracts A futures contract is an agreement in which the writer (or seller) of the contract agrees to deliver to the buyer an amount of cash or securities equal to a specific dollar amount times the difference between the value of a specific security or index at the close of the last trading day of the contract and the price at which the agreement is made. The Fund may use futures in the normal course of pursuing its investment objective. The Fund may invest in futures contracts to hedge its existing portfolio securities against fluctuations in fair value caused by changes in prevailing market interest rates. Upon entering into a futures contract, the Fund deposits cash or pledges U.S. government securities to a broker, equal to the minimum initial margin requirements of the exchange on which the contract is traded. Subsequent payments are received from the broker or paid to the broker each day, based on the daily fluctuation in the market value of the contract. These receipts or payments are known as variation margin and are recorded daily by the Fund as unrealized gains or losses until the contracts are closed. When the contracts are closed, the Fund records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time it was closed. Risks of entering into futures contracts include potential imperfect correlation between the futures contracts and the underlying securities and the possibility of an illiquid secondary market for these instruments. When investing in futures, there is minimal counterparty credit risk to the Fund because futures are exchange-traded and the exchanges clearinghouse, as counterparty to all exchange-traded futures, guarantees against default.
Options Contracts During the year ended December 31, 2011, 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 Funds exposure to changes in securities prices and foreign currencies; as an efficient means of adjusting the Funds overall exposure to certain markets; to protect the value of portfolio securities; and as a cash management tool. The Fund may buy or write call or put options on securities, futures, swaps, swaptions, financial indices, and foreign currencies. When the Fund buys an option, a premium is paid and an asset is recorded and adjusted on a daily basis to reflect the current market value of the options purchased. When the Fund writes an option, a premium is received and a liability is recorded and adjusted on a daily basis to reflect the current market value of the options written. Premiums received from writing options that expire unexercised are treated by the Fund on the expiration date as realized gains. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is treated as realized gain or loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in determining whether the Fund has a realized gain or loss. If a put option is exercised, the premium reduces the cost basis of the securities purchased by the Fund. The Fund, as writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option. When writing options, the Fund is subject to minimal counterparty risk because the counterparty is only obligated to pay premiums and does not bear the market risk of an unfavorable market change. There were no transactions in written options during the year ended December 31, 2011.
58
Swap Contracts The Fund enters into index swap contracts and CDS contracts in the normal course of pursuing its investment objective. Index swaps may be used to gain exposure to markets that the Fund invests in, such as the corporate bond market. The Fund may also use index swaps as a substitute for futures or options contracts if such contracts are not directly available to the Fund on favorable terms. 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.
Index Swaps. Index swaps involve commitments to pay interest in exchange for a market linked return based on a notional amount. To the extent the total return of the security, instrument or basket of instruments underlying the transaction exceeds the offsetting interest obligation, the Fund will receive a payment from the counterparty. To the extent the total return of the security, instrument or basket of instruments underlying the transaction falls short of the offsetting interest obligation, the Fund will make a payment to the counterparty. The change in value of swap contracts outstanding, if any, is recorded as unrealized appreciation or depreciation daily. A realized gain or loss is recorded on maturity or termination of the swap contract. The Funds 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 index swap contracts remaining life, to the extent that the amount is positive. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Funds exposure to the counterparty.
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 December 31, 2011, 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. At December 31, 2011, the net unrealized depreciation of CDS contracts was $84,031. The Fund has posted $6,330,000 as collateral for certain open derivatives. If a credit event had occurred for all swap transactions where collateral posting was required as of December 31, 2011, the Fund would have been required to pay $79,956,000 less the value of the contracts related reference obligations.
59
Notes to financial
statements
Delaware Limited-Term
Diversified Income Fund
8. Derivatives (continued)
As disclosed in the footnotes to the statement of net assets, at December 31, 2011, the notional value of the protection sold was $96,752,000, which reflects the maximum potential amount the Fund would have been required to make as a seller of credit protection if a credit event had occurred. The quoted market prices and resulting market values for credit default swap agreements on securities and credit indices serve as an indicator of the current status of the payment/performance risk and represent the likelihood of an expected liability (or profit) for the credit derivative if the swap agreement has been closed/sold as of the period end. Increasing market values, in absolute terms when compared to the notional amount of the swap, represent a deterioration of the reference entitys credit soundness and a greater likelihood of risk of default or other credit event occurring as defined under the terms of the agreement. At December 31, 2011, the net unrealized appreciation of the protection sold was $209,345.
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 Funds maximum risk of loss from counterparty credit risk, either as the seller of protection or the buyer of protection, is the fair value of the contract. This risk is mitigated by having a netting arrangement between the Fund and the counterparty and by the posting of collateral by the counterparty to the Fund to cover the Funds exposure to the counterparty.
Swaps Generally. Because there are generally no organized markets for swap contracts, the value of open swaps may differ from that which would be realized in the event the Fund terminated its position in the agreement. Risks of entering into these contracts include the potential inability of the counterparty to meet the terms of the contracts. This type of risk is generally limited to the amount of favorable movement in the value of he underlying security, instrument or basket of instruments, if any, at the day of default. Risks also arise from potential losses from adverse market movements and such losses could exceed the unrealized amounts shown on the statement of net assets.
Fair value of derivative instruments as of December 31, 2011 was as follows:
Asset Derivatives | Liability Derivatives | ||||||||||
Statement of | Statement of | ||||||||||
Net Assets | Net Assets | ||||||||||
Location | Fair Value | Location | Fair Value | ||||||||
Interest rate contracts | |||||||||||
(Futures contracts) | Liabilities net of receivables and other assets | $ | | Liabilities net of receivables and other assets | $ | (1,519,256 | ) | ||||
Credit contracts | |||||||||||
(Swap contracts) | Liabilities net of receivables and other assets | 249,814 | Liabilities net of receivables and other assets | (333,845 | ) | ||||||
Total | $ | 249,814 | $ | (1,853,101 | ) |
60
The effect of derivative instruments on the statement of operations for the year ended December 31, 2011 was as follows:
Change in | |||||||||
Unrealized | |||||||||
Realized Gain | Appreciation | ||||||||
(Loss) on | (Depreciation) | ||||||||
Location of Gain (Loss) on | Derivatives | on Derivatives | |||||||
Derivatives Recognized in | Recognized in | Recognized in | |||||||
Income | Income | Income | |||||||
Forward currency exchange | |||||||||
contracts (Foreign currency | |||||||||
exchange contracts) | Net realized loss on foreign currency exchange contracts and net change in unrealized appreciation (depreciation) of foreign currency exchange contracts | $ | (7,679,776 | ) | $ | 5,203,025 | |||
Interest rate contracts | |||||||||
(Futures contracts) | Net realized loss on futures contracts and net change in unrealized appreciation (depreciation) of futures contracts | (2,964,432 | ) | 1,740,935 | |||||
Credit contracts | |||||||||
(Swap contracts) | Net realized loss on swap contracts and net change in unrealized appreciation (depreciation) of swap contracts | (3,629,960 | ) | 6,834,648 | |||||
Total | $ | (14,274,168 | ) | $ | 13,778,608 |
61
Notes to financial
statements
Delaware Limited-Term
Diversified Income Fund
8. Derivatives (continued)
Derivatives Generally. The table below summarizes the average balance of derivative holdings by the Fund during the year ended December 31, 2011. The average balance of derivatives held is generally similar to the volume of derivative activity for the year ended December 31, 2011.
Asset Derivative | Liability Derivative | |||||
Volume | Volume | |||||
Foreign currency exchange contracts (average cost) | USD | 54,388,711 | USD | 251,971,975 | ||
Futures contracts (average notional value) | 126,701,438 | 27,563,250 | ||||
Options contracts (average notional value) | 21,768 | | ||||
Swap contracts (average notional value) | 20,174,488 | 111,170,976 | ||||
EUR | 66,091,306 |
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 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 initial 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 Mellons 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 Collective Trust 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 the Collective Trust defaulted or if it were necessary to liquidate assets in the Collective Trust to meet returns on outstanding security
62
loans at a time when the collateral investment pools 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. 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 change 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 Fund had no securities out on loan as of December 31, 2011.
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 countrys 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 invests in high yield fixed income securities, which are securities rated lower than BBB- by Standard & Poors and Baa3 by Moodys Investor Services, 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 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
63
Notes to financial
statements
Delaware Limited-Term
Diversified Income Fund
10. Credit and Market Risk (continued)
the markets perception of the issuers and changes in interest rates. Investors receive principal and interest payments as the underlying mortgages and 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 Funds 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 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 Funds Board has delegated to DMC, the day-to-day functions of determining whether individual securities are liquid for purposes of the Funds 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 Funds 15% limit on investments in illiquid securities. Rule 144A and illiquid securities have been identified on the statement of net assets.
11. Contractual Obligations
The Fund enters into contracts in the normal course of business that contain a variety of indemnifications. The Funds 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 Funds existing contracts and expects the risk of loss to be remote.
12. Subsequent Events
Management has determined that no material events or transactions occurred subsequent to December 31, 2011 that would require recognition or disclosure in the Funds financial statements.
64
13. Tax Information (Unaudited)
The information set forth below is for the Funds 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 designations are based on financial information available as of the date of this annual report and, accordingly are subject to change. For any and all items requiring designation, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code and the regulations thereunder.
For the fiscal year ended December 31, 2011, the Fund designates distributions paid during the year as follows:
(A) | Long-Term Capital Gain Distributions (Tax Basis) | 19 | % | |
(B) | Ordinary Income Distributions (Tax Basis) | 81 | % | |
Total Distributions (Tax Basis) | 100 | % |
(A) and (B) are based on a percentage of
the Funds total distributions.
For the fiscal
year ended December 31, 2011, certain interest income paid by the Fund,
determined to be Qualified Interest Income and Short-Term Capital Gains, may be
subject to relief from U.S. withholding for foreign shareholders, as provided by
the American Jobs Creation Act of 2004 and as extended by Tax Relief,
Unemployment Insurance Reauthorization and Jobs Creation Act of 2010. For the
fiscal year ended December 31, 2011, the Fund has designated maximum
distributions of Qualified Interest Income of $66,369,279.
65
Report of independent
registered public
accounting firm
To the Board of Trustees of Delaware Group
Limited-Term Government Funds
and the Shareholders of Delaware Limited-Term
Diversified Income Fund:
In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Delaware Limited-Term Diversified Income Fund (constituting Delaware Group Limited-Term Government Funds, hereafter referred to as the Fund) at December 31, 2011, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the two 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 Funds 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 December 31, 2011 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. The financial highlights for each of the three years in the period ended December 31, 2009 were audited by other independent accountants whose report dated February 19, 2010 expressed an unqualified opinion on those statements.
Philadelphia, Pennsylvania
February 16,
2012
66
Other Fund information
(Unaudited)
Delaware
Limited-Term Diversified Income Fund
Board Consideration of Delaware Limited-Term Diversified Income Fund Investment Advisory Agreement
At a meeting held on August 16-17, 2011 (the Annual Meeting), the Board of Trustees (the Board), including a majority of disinterested or independent Trustees, approved the renewal of the Investment Advisory Agreement for the Delaware Limited-Term Diversified Income Fund (the Fund). In making its decision, the Board considered information furnished specifically in connection with the renewal of the Investment Advisory Agreement with Delaware Management Company (DMC), which included materials provided by DMC and its affiliates (Delaware Investments) concerning, among other things, the nature, extent and quality of services provided to the Fund, the costs of such services to the Fund, economies of scale and the financial condition and profitability of Delaware Investments. In addition, in connection with the Annual Meeting, reports were provided in May 2011 and included independent historical and comparative reports provided by Lipper, Inc., an independent statistical compilation organization (Lipper). The Lipper reports compared the Funds 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 DMCs policy with respect to advisory fee levels and its breakpoint philosophy; the structure of portfolio manager compensation; the investment managers profitability; and any constraints or limitations on the availability of securities in certain investment styles, which had in the past year inhibited, or which were likely in the future to inhibit, DMCs ability to invest fully in accordance with Fund policies.
In considering information relating to the approval of the Funds 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 Funds investment advisor and the emphasis placed on research in the investment process. The Board gave favorable consideration to DMCs 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. It is expected that such measures will improve the quality and lower the cost of delivering transfer agent and shareholder servicing services to the Fund. The Board once again noted the benefits provided to Fund shareholders
67
Other Fund information
(Unaudited)
Delaware
Limited-Term Diversified Income Fund
Board Consideration of Delaware Limited-Term Diversified Income Fund Investment Advisory Agreement (continued)
through each shareholders 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 its importance to shareholders. Although the Board gave appropriate consideration to performance reports and discussions with portfolio managers at Investment Committee meetings throughout the year, the Board gave particular weight to the Lipper reports furnished for the Annual Meeting. The Lipper reports prepared for the Fund showed the investment performance of its Class A shares in comparison to a group of similar funds as selected by Lipper (the Performance Universe). A fund with the best performance ranked first, and a fund with the poorest performance ranked last. The highest/best performing 25% of funds in the Performance Universe make up the first quartile; the next 25%, the second quartile; the next 25%, the third quartile; and the poorest/worst performing 25% of funds in the Performance Universe make up the fourth quartile. Comparative annualized performance for the Fund was shown for the past one-, three-, five- and ten-year periods, as applicable, ended March 31, 2011. The Boards objective is that the Funds 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 Boards view of such performance.
The Performance Universe for the Fund consisted of the Fund and all retail and institutional short-intermediate investment grade debt funds as selected by Lipper. The Lipper report comparison showed that the Funds total return for the three- and ten-year periods was in the second quartile of its Performance Universe. The report further showed that the Funds total return for the one- and five-year periods was in the fourth and first quartiles, respectively. The Board determined that the Funds performance results were mixed but on an overall basis tended toward above median, which was acceptable.
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 Funds 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 Funds total expenses were also
68
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 Boards objective is to limit the Funds total expense ratio to be competitive with that of the Expense Group. The following paragraph summarizes the expense results for the Fund and the Boards view of such expenses.
The expense comparisons for the Fund showed that its actual management fee was in the quartile with the second lowest 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 management fee and total expenses of the Fund in comparison to those of its Expense Group as shown in the Lipper report.
Management Profitability. The Board considered the level of profits realized by Delaware Investments in connection with the operation of the Fund. In this respect, the Board reviewed the Investment Management Profitability Analysis that addressed the overall profitability of Delaware Investments business in providing management and other services to each of the individual funds and the Delaware Investments® Family of Funds as a whole. Specific attention was given to the methodology followed in allocating costs for the purpose of determining profitability. Management stated that the level of profits of Delaware Investments, to a certain extent, reflect recent operational cost savings and efficiencies initiated by Delaware Investments. The Board considered Delaware Investments efforts to improve services provided to fund shareholders and to meet additional regulatory and compliance requirements resulting from recent industry-wide Securities and Exchange Commission initiatives. The Board also considered the extent to which Delaware Investments might derive ancillary benefits from fund operations, including the potential for procuring additional business as a result of the prestige and visibility associated with its role as service provider to the Delaware Investments Family of Funds and the benefits from allocation of fund brokerage to improve trading efficiencies. The Board found that the management fees were reasonable in light of the services rendered and the level of profitability of Delaware Investments.
Economies of Scale. The Trustees considered whether economies of scale are realized by Delaware Investments as the Funds 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 Funds management contract fell within the standard structure. The Board also noted that the Funds 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 Advisory Agreement provides a sharing of benefits with the Fund and its shareholders.
69
Other Fund information
(Unaudited)
Delaware Limited-Term Diversified Income
Fund
Change in Independent Registered Public Accounting Firm
Due to independence matters under the Securities and Exchange Commissions auditor independence rules relating to the January 4, 2010 acquisition of Delaware Investments (including DMC, DDLP and DSC) by Macquarie Group, Ernst & Young LLP (E&Y) has resigned as the independent registered public accounting firm for Delaware Group® Limited Term Government Funds (the Trust) effective May 20, 2010. At a meeting held on May 20, 2010, the Board of Trustees of the Trust, upon recommendation of the Audit Committee, selected PricewaterhouseCoopers LLP (PwC) to serve as the independent registered public accounting firm for the Trust for the fiscal year ending December 31, 2010. During the fiscal years ended December 31, 2009 and 2008, E&Ys audit reports on the financial statements of the Trust did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles. In addition, there were no disagreements between the Trust and E&Y on accounting principles, financial statements disclosures or audit scope, which, if not resolved to the satisfaction of E&Y, would have caused them to make reference to the disagreement in their reports. Neither the Trust nor anyone on its behalf has consulted with PwC at any time prior to their selection with respect to the application of accounting principles to a specified transaction, either completed or proposed or the type of audit opinion that might be rendered on the Trusts financial statements.
70
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 funds business affairs. Trustees establish procedures and oversee and review the performance of the investment manager, the distributor, and others who perform services for the fund. The independent fund trustees, in particular, are advocates
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Interested Trustees | ||||
Patrick P. Coyne1 | Chairman, President, | Chairman and Trustee | ||
2005 Market Street | Chief Executive Officer, | since August 16, 2006 | ||
Philadelphia, PA 19103 | and Trustee | |||
April 1963 | President and | |||
Chief Executive Officer | ||||
since August 1, 2006 | ||||
1 Patrick P. Coyne is considered to be an Interested Trustee because he is an executive officer of the Funds(s) investment advisor.
72
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 | 74 | 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) | ||||
Finance Committee Member | ||||
St. John Vianney Roman | ||||
Catholic Church | ||||
Board of Trustees | ||||
Agnes Irwin School | ||||
Member of Investment | ||||
Committee | ||||
Cradle of Liberty Council, | ||||
BSA | ||||
(20072010) | ||||
2 Delaware Investments is the marketing name for Delaware Management Holdings, Inc. and its subsidiaries, including the Funds(s) investment advisor, principal underwriter, and its transfer agent.
73
Board of trustees/directors and officers
addendum
Delaware Investments®
Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Independent Trustees | ||||
Thomas L. Bennett | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
October 1947 | ||||
John A. Fry | Trustee | Since January 2001 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
May 1960 | ||||
Anthony D. Knerr | Trustee | Since April 1990 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
December 1938 | ||||
Lucinda S. Landreth | Trustee | Since March 2005 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
June 1947 | ||||
74
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 | 74 | Chairman of Investment | ||
(March 2004Present) | Committee | |||
Pennsylvania Academy of | ||||
Investment Manager | Fine Arts | |||
Morgan Stanley & Co. | ||||
(January 1984March 2004) | Investment Committee and | |||
Governance Committee | ||||
Member | ||||
Pennsylvania Horticultural | ||||
Society | ||||
Director | ||||
Bryn Mawr Bank Corp. (BMTC) | ||||
(20072011) | ||||
President | 74 | Board of Governors Member | ||
Drexel University | NASDAQ OMX PHLX LLC | |||
(August 2010Present) | ||||
Director and Audit | ||||
President | Committee Member | |||
Franklin & Marshall College | Community Health Systems | |||
(July 2002July 2010) | ||||
Director U.S. SQUASH | ||||
Director Ecore | ||||
International | ||||
(20092010) | ||||
Director Allied | ||||
Barton Securities Holdings | ||||
(20052008) | ||||
Managing Director | 74 | None | ||
Anthony Knerr & Associates | ||||
(Strategic Consulting) | ||||
(1990Present) | ||||
Chief Investment Officer | 74 | None | ||
Assurant, Inc. (Insurance) | ||||
(20022004) | ||||
75
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) | ||||
Ann R. Leven | Trustee | Since October 1989 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
November 1940 | ||||
Frances A. Sevilla-Sacasa | Trustee | Since September 2011 | ||
2005 Market Street | ||||
Philadelphia, PA 19103 | ||||
January 1956 | ||||
76
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 | ||
Consultant | 74 | Director and Audit | ||
ARL Associates | Committee Chair | |||
(Financial Planning) | Systemax Inc. | |||
(1983Present) | (20012009) | |||
Director and Audit | ||||
Committee Chairperson | ||||
Andy Warhol Foundation | ||||
(19992007) | ||||
Executive Advisor to Dean | 74 | Trust Manager Camden | ||
(since August 2011) and | Property Trust | |||
Interim Dean | (since August 2011) | |||
(January 2011July 2011) | ||||
University of Miami School of | Board of Trustees | |||
Business Administration | Thunderbird School of | |||
Global Management | ||||
President U.S. Trust, | (20072011) | |||
Bank of America Private | ||||
Wealth Management | Board of Trustees | |||
(Private Banking) | Carrollton School of the | |||
(July 2007December 2008) | Sacred Heart | |||
(since 2007) | ||||
President and Director | ||||
(November 2005June 2007) and | Board Member | |||
Chief Executive Officer | Foreign Policy Association | |||
(April 2007June 2007) | (since 2006) | |||
U.S. Trust Company | ||||
(Private Banking) | Board of Trustees | |||
Georgetown Preparatory School | ||||
(20052011) | ||||
Board of Governors | ||||
Miami City Ballet | ||||
(20002011) | ||||
Board of Trustees | ||||
St. Thomas University | ||||
(20052011) | ||||
77
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 |
78
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 | 74 | Director and Audit | ||
(January 2006Present) | Committee Member | |||
Vice President Mergers & Acquisitions | Okabena Company | |||
(January 2003January 2006), and | ||||
Vice President and Treasurer | Chair 3M | |||
(July 1995January 2003) | Investment Management | |||
3M Corporation | Company | |||
Founder | 74 | Director and Compensation | ||
Investor Analytics | Committee Member | |||
(Risk Management) | Investor Analytics | |||
(May 1999Present) | ||||
Director | ||||
Founder | Oxigene, Inc. | |||
Sutton Asset Management | (20032008) | |||
(Hedge Fund) | ||||
(September 1996Present) |
79
Board of trustees/directors
and officers addendum
Delaware
Investments® Family of Funds
Name, Address, | Position(s) | Length of | ||
and Birth Date | Held with Fund(s) | Time Served | ||
Officers | ||||
David F. Connor | Vice President, | Vice President since | ||
2005 Market Street | Deputy General | September 2000 | ||
Philadelphia, PA 19103 | Counsel, and Secretary | and Secretary since | ||
December 1963 | October 2005 | |||
Daniel V. Geatens | Vice President | Treasurer | ||
2005 Market Street | and Treasurer | since October 2007 | ||
Philadelphia, PA 19103 | ||||
October 1972 | ||||
David P. OConnor | Senior Vice President, | Senior Vice President, | ||
2005 Market Street | General Counsel, | General Counsel, and | ||
Philadelphia, PA 19103 | and Chief Legal Officer | Chief Legal Officer | ||
February 1966 | 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.
80
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 | 74 | None3 | ||
Vice President and Deputy | ||||
General Counsel of | ||||
Delaware Investments | ||||
since 2000. | ||||
Daniel V. Geatens has served | 74 | None3 | ||
in various capacities at | ||||
different times at | ||||
Delaware Investments. | ||||
David P. OConnor has served in | 74 | None3 | ||
various executive and legal | ||||
capacities at different times | ||||
at Delaware Investments. | ||||
Richard Salus has served in | 74 | None3 | ||
various executive capacities | ||||
at different times at | ||||
Delaware Investments. | ||||
3 David F. Connor, Daniel V. Geatens, David P. OConnor, 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.
81
About the organization
Board of trustees | |||
Patrick P. Coyne | Anthony D. Knerr | Ann R. Leven | Janet L. Yeomans |
Chairman, President, and | Founder and Managing | Consultant | Vice President and |
Chief Executive Officer | Director | ARL Associates | Treasurer |
Delaware Investments® | Anthony Knerr & | New York, NY | 3M Corporation |
Family of Funds | Associates | St. Paul, MN | |
Philadelphia, PA | New York, NY | Frances A. | |
Sevilla-Sacasa | J. Richard Zecher | ||
Thomas L. Bennett | Lucinda S. Landreth | Executive Advisor | Founder |
Private Investor | Former Chief Investment | to Dean, University of | Investor Analytics |
Rosemont, PA | Officer | Miami School of | Scottsdale, AZ |
Assurant, Inc. | Business Administration | ||
John A. Fry | Philadelphia, PA | Coral Gables, FL | |
President | |||
Drexel University | |||
Philadelphia, PA | |||
Affiliated officers | |||
David F. Connor | Daniel V. Geatens | David P. OConnor | Richard Salus |
Vice President, Deputy | Vice President and | Senior Vice President, | Senior Vice President and |
General Counsel, and | Treasurer | General Counsel, | Chief Financial Officer |
Secretary | Delaware Investments | and Chief Legal Officer | Delaware Investments |
Delaware Investments | Family of Funds | Delaware Investments | Family of Funds |
Family of Funds | Philadelphia, PA | Family of Funds | Philadelphia, PA |
Philadelphia, PA | Philadelphia, PA |
This annual report is for the information of Delaware Limited-Term Diversified Income Fund shareholders, but it may be used with prospective investors when preceded or accompanied by the Delaware Investments Fund fact sheet for the most recently completed calendar quarter. These documents are available at www.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 Funds 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 SECs website at www.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 Funds Schedule of Investments are available without charge on the Funds website at www.delawareinvestments.com. The Funds Forms N-Q may be reviewed and copied at the SECs 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 Funds website at www.delawareinvestments.com; and (ii) on the SECs website at www.sec.gov.
82
Item 2. Code of Ethics
The registrant has adopted a code of ethics that applies to the registrants 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 registrants 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 registrants Board of Trustees/Directors has determined that certain members of the registrants 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 registrants 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 registrants Board of Trustees/Directors has also determined that each member of the registrants 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 registrants Audit Committee are set forth below:
Thomas L. Bennett1
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 registrants annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $73,314 for the fiscal year ended December 31, 2011.
____________________
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 registrants annual financial statements and for services normally provided by the independent auditors in connection with statutory and regulatory filings or engagements were $88,100 for the fiscal year ended December 31, 2010.
(b) Audit-related fees.
The aggregate fees billed by the registrants independent auditors for services relating to the performance of the audit of the registrants financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended December 31, 2011.
The aggregate fees billed by the registrants independent auditors for services relating to the performance of the audit of the financial statements of the registrants investment adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $593,000 for the registrants fiscal year ended December 31, 2011. The percentage of these fees relating to services approved by the registrants 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.
The aggregate fees billed by the registrants independent auditors for services relating to the performance of the audit of the registrants financial statements and not reported under paragraph (a) of this Item were $0 for the fiscal year ended December 31, 2010.
The aggregate fees billed by the registrants independent auditors for services relating to the performance of the audit of the financial statements of the registrants 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 $84,000 for the registrants fiscal year ended December 31, 2010. The percentage of these fees relating to services approved by the registrants 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: audit procedures performed on Delaware Investments for its consolidation into Macquaries financial statements as of March 31, 2010.
(c) Tax fees.
The aggregate fees billed by the registrants independent auditors for tax-related services provided to the registrant were $14,350 for the fiscal year ended December 31, 2011. The percentage of these fees relating to services approved by the registrants 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 registrants independent auditors for tax-related services provided to the registrants 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 registrants fiscal year ended December 31, 2011.
The aggregate fees billed by the registrants independent auditors for tax-related services provided to the registrant were $16,550 for the fiscal year ended December 31, 2010. The percentage of these fees relating to services approved by the registrants 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 registrants independent auditors for tax-related services provided to the registrants 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 $10,000 for the registrants fiscal year ended December 31, 2010. The percentage of these fees relating to services approved by the registrants 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: state and local tax services.
(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 December 31, 2011.
The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrants independent auditors to the registrants adviser and other service providers under common control with the adviser and that relate directly to the operations or financial reporting of the registrant were $25,000 for the registrants fiscal year ended December 31, 2011. The percentage of these fees relating to services approved by the registrants Audit Committee pursuant to the de minimis exception from the pre-approval requirement in Rule 2-01(c)(7)(i)(C) of Regulation S-X was 0%. These other services were as follows: attest examination of management's assertion to the controls in place at the transfer agent to be in compliance with Rule 17ad-13(a)(3) of the Securities Exchange Act of 1934.
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 December 31, 2010.
The aggregate fees billed for all services other than those set forth in paragraphs (b) and (c) of this Item provided by the registrants independent auditors to the registrants 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 registrants fiscal year ended December 31, 2010.
(e) The registrants 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 registrants 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 |
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 registrants 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 registrants independent auditors for services rendered to the registrant and to its investment adviser and other service providers under common control with the adviser were $5,228,766 and $0 for the registrants fiscal years ended December 31, 2011 and December 31, 2010, respectively.
(h) In connection with its selection of the independent auditors, the registrants Audit Committee has considered the independent auditors provision of non-audit services to the registrants 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 registrants principal executive officer and principal financial officer have evaluated the registrants 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 registrants 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 registrants fourth fiscal quarter) that have materially affected, or are reasonably likely to materially affect, the registrants internal control over financial reporting.
Item 12. Exhibits
(a) (1) Code of Ethics
Not applicable.
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® LIMITED-TERM GOVERNMENT FUNDS
/s/ PATRICK P. COYNE | |
By: | Patrick P. Coyne |
Title: | Chief Executive Officer |
Date: | March 1, 2012 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
/s/ PATRICK P. COYNE | |
By: | Patrick P. Coyne |
Title: | Chief Executive Officer |
Date: | March 1, 2012 |
/s/ RICHARD SALUS | |
By: | Richard Salus |
Title: | Chief Financial Officer |
Date: | March 1, 2012 |
EXHIBIT 99.CERT
CERTIFICATION
I, Patrick P. Coyne, certify that:
1. | I have reviewed this report on Form N-CSR of Delaware Group® Limited-Term Government Funds; | ||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; | ||
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: | ||
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and | ||
(d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and | ||
5. | The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | ||
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and | ||
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | ||
/s/ PATRICK P. COYNE | |
By: | Patrick P. Coyne |
Title: | Chief Executive Officer |
CERTIFICATION
I, Richard Salus, certify that:
1. | I have reviewed this report on Form N-CSR of Delaware Group® Limited-Term Government Funds; | ||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; | ||
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; | ||
4. | The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: | ||
(a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
(b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
(c) | evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and | ||
(d) | disclosed in this report any change in the registrants internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and | ||
5. | The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): | ||
(a) | all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and | ||
(b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. | ||
/s/ RICHARD SALUS | |
By: | Richard Salus |
Title: | Chief Financial Officer |
EXHIBIT 99.906CERT
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the attached report of the registrant on Form N-CSR to be filed with the Securities and Exchange Commission (the Report), each of the undersigned officers of the registrant does hereby certify, to the best of such officers knowledge, that:
1. | The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the registrant as of, and for, the periods presented in the Report. |
Date: March 1, 2012 | |
/s/ PATRICK P. COYNE | |
By: | Patrick P. Coyne |
Title: | Chief Executive Officer |
/s/ RICHARD SALUS | |
By: | Richard Salus |
Title: | Chief Financial Officer |
A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act, or other document authenticating, acknowledging, or otherwise adopting the signatures that appear in typed form within the electronic version of this written statement required by Section 906, has been provided to the registrant and will be retained by the registrant and furnished to the SEC or its staff upon request.
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