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  • Municipal markets in review: Risk sentiment versus technical conditions
    rate Currently municipal bond interest is exempt from this 3 8 tax in addition to being exempt from the 39 6 income tax In a market starved for yield this alone may have the potential to provide support to municipal bonds in the form of more attractive taxable equivalent yields The market is also expected to be aided in early 2013 by continued low levels of new issuance As mentioned in the market review section above there are still substantial issues to be resolved in Washington The combination of reaching the fast approaching debt ceiling and the two month deadline to resolve the sequestration spending cuts should result in another round of tough negotiations by political leaders wtih an ultimate goal of deficit reduction and tax reform There will be negotiations for spending cuts in exchange for a debt ceiling increase as well as negotiations for additional revenue The risk to teh municipal bond market is that the 28 cap on exclusions can potentially be on the table as a revenue enhancer This would negate many of the positive effects of higher marginal tax rates We believe there are many risks to the bond market as we enter into the new year There is the risk of a further downgrade of U S Debt there is the risk of a volatile interest rate market and there is the risk that the municiapl exemption may be capped Due to the volatile nature of these negotiations and their potential to affect financial markets we are taking a cautious approach to the market in the near term We will continue to monitor these events macroeconomic conditions and municipal credit metrics while continuing to employ our fundamental bottom up bond by bond approach to security selection Additional reading Developments within selected states briefly noted State specific developments noted below are based on information published by each state s respective budget authorities and supplemented by sources that include Standard Poor s the National Conference of State Legislatures the U S Labor Department and the National Association of State Budget Officers 1 The abbreviation IDR refers to industrial development revenue bonds while PCR refers to pollution control revenue bonds In Idaho the unemployment rate totaled 6 8 The governor signed a 2 7 billion 2013 budget into law on April 2012 For the first five months of fiscal 2013 general fund revenues totaled 1 1 billion This was 4 4 above the prior year but 0 7 below budget projections Individual income and sales taxes were 1 5 and 1 3 below budget respectively Corporate taxes which are more volatile were 5 3 below estimates Arizona has seen improvement in its unemployment rate which has declined to 7 8 in November The fiscal 2013 8 6 billion budget represents a 0 6 increase from fiscal 2012 For the first five months of fiscal 2013 general fund revenues totaled 3 6 billion This is 0 4 below the prior year but 0 6 above forecast If we were to exclude adjustments general fund base reveneus are coming in 4 higher than fiscal 2012 The state had 45 8 million in reserves in its official stabilization fund The unemployment rate in Minnesota registered 5 7 in November According to the state s November forecast general fund revenues for the 2012 2013 biennium are estimated to exceed end of session estimates by 1 1 billion or 3 2 General fund spending is projected to be 262 million below earlier estimates This improvement reflects gains from fiscal 2012 and spending savings in K 12 education debt service and property tax aid These forecast changes produce a 1 3 billion balance This will be allocated to buy back some of the outstanding school aid payment shifts amounting to 2 4 billion After this buyback 1 1 billion of school aid shifts will remain The state forecasts a 1 1 billion deficit for the 2014 2015 biennium Colorado s unemployment rate has improved in recent months to 7 7 in November The governor signed a 7 4 billion 2013 general fund budget into law on May 7 2012 According to the December economic update general fund revenue for the current fiscal year is expected to be 2 higher than forecasted in September Overall general fund revenue is expected to grow 4 9 in fiscal 2013 After accounting for a 1 increase in the reserve level the state is forecast to have excess reserves of 789 6 million All excess reserves will be transferred to the state s education fund In New York the unemployment rate totaled 8 3 in November higher than the national rate but improved over prior months Lawmakers signed off on a 132 6 billion budget that cuts spending by 135 million and includes no new taxes Through the first eight months of fiscal 2013 general fund revenues were 1 4 higher than fiscal 2012 but 0 9 below the latest November estimates The November midyear update projected 2 9 growth in taxes but taxes are currently running 0 4 higher than the prior year Additionally the midyear update did not reflect the effects of Hurricane Sandy The governor s proposed budget expected on Jan 22 2013 is anticipated to include projections based on the storm as well as conditions of the economy California s unemployment rate totaled 9 8 in November continuing to improve over prior months The governor signed a 91 3 billion 2013 budget into law closing a 15 7 billion budget gap through revenue increases and expenditure cuts Revenues for the first five months of fiscal 2103 are currently running 2 5 above the prior year figures but 2 6 below budget with shortfalls among all the big three tax sources Additionally spending is actually exceeding projections by 4 9 The shortfall of revenues together with excess spending equates to an overall deficit of 2 7 billion The state has sufficient cash liquidity resulting in a stronger position than originally anticipated for this point in

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  • Our perspective on municipal bonds and the fiscal cliff
    their unique tax benefits How we re preparing Even with the strong historical performance that the municipal bond market has enjoyed year to date we believe there remains opportunity within the market and can see certain scenarios related to the fiscal cliff in which new value opportunities may emerge We specifically look toward two possibilities as potential buying opportunities If a long term deal on the fiscal cliff is struck in December we could potentially see investors adopting a risk on posture once again buying equities and other risk assets at the expense of bonds including municipal bonds In the event that a 28 cap on municipal bonds is enacted we envision a scenario in which investors irrationally in our opinion punish municipal bonds In either of these cases we look to relatively recent history specifically the three month period ended January 2011 during which municipal bonds experienced a steep selloff to support our belief that what investors may initially view as a negative event for the municipal bond market could offer a significant opportunity for long term investors such as ourselves to locate and purchase deeply discounted securities In our view the municipal market overshot its true value to the downside in 2010 as investors turned away from the municipal market fearing a massive wave of defaults that simply never occurred Within our portfolios we were able to take advantage of what we believe were some extraordinary value opportunities that emerged at that time Today we continue to hold many of the fundamentally sound bonds that we purchased at that time at deep discounts when many investors had fled the municipal market entirely It s important to note however that while we continue to see opportunity for performance within the municipal market and look to benefit from any potential unrest in the coming months we remain aware that a number of significant headwinds aside from the fiscal cliff situation in the United States have yet to be resolved Accordingly we currently maintain a cautious view within the portfolios we manage focusing on credit level analysis studying one bond at a time monitoring prevailing credit conditions and maintaining diversified portfolios across both credit rating and yield curve considerations This approach also generally leads us to favor revenue bonds over general obligation GO debt and state issues over local debt as we believe that state officials will have better tools to address the consequences of deficit reduction policies that appear on the horizon whether or not a deficit deal is struck between now and Dec 31 1 Applies to unearned income from interest dividends capital gains annuities royalties and rent Income from municipal bond interest is exempt Carefully consider the Funds investment objectives risk factors charges and expenses before investing This and other information can be found in the Funds prospectuses and their summary prospectuses which may be obtained by visiting the fund literature page or calling 800 523 1918 Investors should read the prospectus and the summary prospectus carefully before

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  • Preparing for inflation? Consider real estate investment trusts
    the Consumer Price Index CPI and typically rise with inflation The difference between rising income levels generated from rental rates and the fixed financing costs of REIT investments contributes to REITs ability to potentially generate increased cash flow during inflationary periods as illustrated in the chart below Dividend growth among REITs has exceeded the inflation rate or CPI every year since 1992 except for 2002 and 2009 according to data published by the National Association of Real Estate Investment Trusts NAREIT 2011 and SNL Financial 2011 most recent data available This level of dividend growth could buoy a portfolio during periods of rising inflation adding to REITs benefits during spikes in inflation Chart is for illustrative purposes only and is not meant to predict actual results Sources NAREIT 2011 SNL Financial 2011 most recent data available The U S Consumer Price Index is a measure of inflation that is calculated by the U S Department of Labor representing changes in pricing of all goods and services purchased for consumption by urban households To learn more about REITs and to determine whether they may be a suitable consideration for you contact your financial advisor today or visit our fund center for information about Delaware REIT Fund Carefully consider the Funds investment objectives risk factors charges and expenses before investing This and other information can be found in the Funds prospectuses and their summary prospectuses which may be obtained by visiting the fund literature page or calling 800 523 1918 Investors should read the prospectus and the summary prospectus carefully before investing IMPORTANT RISK CONSIDERATIONS Investing involves risk including the possible loss of principal Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors Technology companies may be subject to severe competition and product obsolescence REIT investments are subject

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  • Europe and the global equity markets
    business and credit cycles than by discrete policy decisions Regardless of how these policies develop we feel markets must weigh in real time the significance of those actions as well as the uncertainty regarding their nature and timing While this pattern persists elevated market volatility and high levels of risk aversion seem likely to prevail It is important to note however that these conditions are well recognized and discounted in current market valuations As conditions normalize we believe that the types of companies we seek those with good free cash flow strong balance sheets and capable management teams should assert themselves Ultimately we believe that a successful company will succeed on the strength of its management the competitiveness of its productive asset base the quality of its balance sheet and the structure of its global market positioning Furthermore the location of the company s domicile is less important to us than its real underlying risk exposures In combination with what we view as favorable valuations we believe this type of company may provide one of the strongest most consistent source for potential relative outperformance The Delaware Investments Global and International Value Equity team seeks to anticipate and benefit from the significant volatility that typically occurs within international and developing economies It employs a rigorous analytical process to identify favorable stocks in these economies Your financial advisor can help you determine whether an allocation to global and international equities could complement your overall asset mix The views expressed represent the Manager s assessment of the market environment as of November 2012 and should not be considered a recommendation to buy hold or sell any security and should not be relied on as research or investment advice Views are subject to change without notice and may not reflect the Manager s current views Carefully consider the Funds investment objectives risk factors charges and expenses before investing This and other information can be found in the Funds prospectuses and their summary prospectuses which may be obtained by visiting the fund literature page or calling 800 523 1918 Investors should read the prospectus and the summary prospectus carefully before investing IMPORTANT RISK CONSIDERATIONS Investing involves risk including the possible loss of principal 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 Investors should not place undue reliance on forward looking statements as a prediction of actual results In addition we disclaim any obligations to update any forward looking statements to reflect events or circumstances that occur after the date of this document Ned A Gray CIO Global and International Value Equity View bio More from Ned A Gray A selective approach to value investing Despite macro pressures in Europe ample opportunity remains Political change brings new optimism in Japan See all from this author

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  • Hurricane Sandy: Looking ahead toward recovery
    around the country We don t envision hurricane related repair expenses having a significant effect on these companies because of their strong cash flows Property casualty insurers will see an increase in insured losses Early estimates of commercially insurable losses are between 5 billion and 10 billion a range well below estimates for total losses Data Dow Jones This is because much of the damage was caused by flooding which is often covered by alternative policies such as national flood insurance rather than traditional property coverage We think insurable losses should be manageable for the industry and in particular for the holdings within the portfolios we oversee Furthermore the pricing environment for insurers which has been improving should continue to solidify Home improvement retailers are positioned to benefit as repair and rebuilding work gets underway Given the challenges facing consumers in general this could potentially pull some seasonal spending away from traditional holiday retailers in the areas affected by the storm By Babak Bob Zenouzi The developments cited below are based on data published by sources that include Dow Jones Reuters Bloomberg and Insurance Journal Clearly the devastation has caused an interruption of commerce mostly in New York and along the eastern corridor In terms of the real estate sectors that we cover we believe hotels will feel the brunt of the aftermath Already flight cancellations have caused conferences as well as transient business travel to be permanently lost One possible upside however is that the rebuilding efforts within New York and New Jersey will likely act as an infrastructure spending bill Roads bridges dwellings and utilities systems will need to be upgraded which should help home builders engineering and construction services providers as well as cement companies We think with the U S Federal Reserve already on high alert for any additional softening of the U S economy will only be emboldened by this tragedy thereby increasing liquidity and offering additional monetary measures including outright printing of new money if needed The views expressed represent the Manager s assessment of the market environment as of November 2012 and should not be considered a recommendation to buy hold or sell any security and should not be relied on as research or investment advice Views are subject to change without notice and may not reflect the Manager s views Carefully consider the Funds investment objectives risk factors charges and expenses before investing This and other information can be found in the Funds prospectuses and their summary prospectuses which may be obtained by visiting the fund literature page or calling 800 523 1918 Investors should read the prospectus and the summary prospectus carefully before investing IMPORTANT RISK CONSIDERATIONS Investing involves risk including the possible loss of principal Christopher S Beck CIO Small Cap Value Mid Cap Value Equity View bio More from Christopher S Beck M A activity s record year Reasons for continued optimism Recent market volatility has implications from Shanghai to D C Corporate spending tilted toward shareholder friendly activities

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  • As China's economy cools, a focus on the longer term
    middle class and the long held image of China as the world s manufacturer is giving way to a new reality in which China s consumer class takes a bigger share of the limelight This is a dynamic that is firmly in place and we will therefore look to domestic consumption as a driver of business activity With that focus in mind companies that serve China s consumer driven economy will be among those that we seriously consider as we seek opportunities for investment According to many indicators China s economy is likely headed for a sustained period of relatively slow growth Despite what could be a rocky period of adjustment it s worth keeping in mind that this downturn comes on the back of a dynamic and prolonged economic expansion with the consumer segment playing a notable role Appetites for luxury goods provide an indication of this growth Data Financial Times July 2012 Prada Company May 2012 most recent data available Other factors that influence our view include the following Investing in China is not without its share of low visibility areas A general lack of transparency poses a persistent challenge and many investors find this to be a significant source of discomfort We therefore favor areas in which we see 1 secular growth 2 assets that are difficult to replace or unlikely to be rendered obsolete and 3 enterprises that we believe are managed well All along we pursue companies that show high potential to perform consistently despite the ebb and flow of macro level developments Following our long standing practice we invest with an ownership mindset This means that we pursue a high degree of insight into each company s operations financial condition and ultimate competitive advantage We believe this nuts and bolts approach is important in any country we invest in but even more so within the vast and contoured structure of Chinese markets Notwithstanding investors reaction to the stream of daily news we remain disciplined in implementing our investment process in China or in any other part of the world that we cover We aim to continue investing in companies that we believe have strong franchise sustainability long term earnings power and valuations that are at significant discounts to our estimates of their intrinsic value Tools and resources Many investors have little experience investing in equity markets within emerging markets At Delaware Investments a seasoned team of investment professionals provides coverage of these markets seeking to identify businesses with strong franchises and positive long term growth prospects The team manages Delaware Emerging Markets Fund a fund that seeks long term capital appreciation by investing in equity securities issued by companies that are domiciled in or that derive a significant portion of revenues from developing nations The views expressed represent the Manager s assessment of the market environment as of November 2012 and should not be considered a recommendation to buy hold or sell any security and should not be relied on as research or investment

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  • Municipal debt: A model of resilience
    though somewhat more susceptible to adverse economic conditions and are subject to low credit risk Baa 0 37 Bonds of medium grade quality with adequate capacity to meet financial commitments but less reliability for the long term Below investment grade 7 94 Bonds with speculative elements ranging from moderately speculative to extremely speculative Calculated as average 10 year cumulative default rates Data Moody s Investors Service September 2012 most recent data available Moody s long term ratings are assigned to issuers or obligations with an original maturity of one year or more and reflect both on the likelihood of a default on contractually promised payments and the expected financial loss suffered in the event of default Analysis only includes municipal bonds rated by Moody s Default rates shown are calculate as cumulative averages for the period shown between 1970 and 2011 for bonds in existence for at least 10 years Chart is for comparative purposes only Past performance does not guarantee future results Important points to consider about the defensive nature of municipal debt Unlike corporations municipalities can t fold or liquidate States put a high priority on servicing debt A default on a debt obligation could paralyze a state s access to capital markets State and local governments are required by law to balance their budgets Carefully consider the Fund s investment objectives risk factors charges and expenses before investing This and other information can be found in the Fund s prospectus and its summary prospectus which may be obtained by visiting our fund literature page or calling 800 523 1918 Investors should read the prospectus and the summary prospectus carefully before investing IMPORTANT RISK CONSIDERATIONS Investing involves risk including the possible loss of principal Fixed income securities and bond funds can lose value and investors can lose principal

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  • Finding income today
    remains at historically low levels Emphasizing total return potential over yield alone We believe investors should consider an investment s total return potential rather than just its yield When considering stocks for example those with sustainable dividend payouts have historically outperformed those with the highest yield as noted in the chart below Total returns historically driven by dividend growth not current yield This chart looks at companies within the S P 500 Index grouping them into quintiles based on rates of dividend growth As shown companies with the highest rates of dividend growth those in the higher quintiles historically have generated the strongest overall returns Data Compustat Deutsche Bank Chart is for illustrative purposes only and is not a representative of the performance of any specific investment Past performance does not guarantee future results Investors are reminded that different types of investments involve varying degrees of risk We believe investors should also be cautious about chasing the highest yield possible for another reason yield rates are currently highly correlated to Treasurys and if Treasury yields rise investors could suffer significant capital losses To learn more about the potential benefits as well as the risks of income generating investments and to determine whether they may be suitable for you consult your financial advisor The views expressed represent the Manager s assessment of the market environment as of October 2012 and should not be considered a recommendation to buy hold or sell any security and should not be relied on as research or investment advice Views are subject to change without notice and may not reflect the Manager s views Carefully consider the Funds investment objectives risk factors charges and expenses before investing This and other information can be found in the Funds prospectuses and their summary prospectuses which may be obtained by visiting the fund literature page or calling 800 523 1918 Investors should read the prospectus and the summary prospectus carefully before investing IMPORTANT RISK CONSIDERATIONS Investing involves risk including the possible loss of principal Fixed income securities can lose value and investors can lose principal as interest rates rise They may be affected by economic conditions that hinder an issuer s ability to make interest and principal payments on its debt Bonds are also subject to prepayment risk the risk that the principal of the bond is prepaid prior to maturity potentially forcing the investor to reinvest that money at a lower interest rate High yielding non investment grade bonds junk bonds involve higher risk than investment grade bonds Narrowly focused investments may exhibit higher volatility than investments in multiple industry sectors REIT investments are subject to many of the risks associated with direct real estate ownership including changes in economic conditions credit risk and interest rate fluctuations A REIT s fund s tax status as a regulated investment company could be jeopardized if it holds real estate directly as a result of defaults or receives rental income from real estate holdings Nondiversified Funds may allocate more of their

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