Delaware High-Yield Opportunities Fund

Objective

Delaware High-Yield Opportunities Fund seeks total return and, as a secondary objective, high current income.

Strategy

The Fund primarily invests in high yield corporate bonds. The Fund’s manager engages thorough credit research to attempt to capture the high yield bond market’s premium return potential.

Fund information
Inception date12/30/1996
Dividends paid*Monthly
Capital gains paid*December

*If any.

Fund identifiers
NASDAQDHOAX
CUSIP245908876
Investment minimums
Initial investment$1,000
Subsequent Investments$100
Systematic withdrawal balance$5,000
Account features
CheckwritingNo
Payroll DeductionYes
IRAsYes

The performance quoted represents past performance and does not guarantee future results. Investment return and principal value of an investment will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance quoted.

Total returns may reflect waivers and/or expense reimbursements by the manager and/or distributor for some or all of the periods shown. Performance would have been lower without such waivers and reimbursements.

Average annual total return as of month-end (06/30/2014)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)5.30%12.55%9.31%13.72%8.70%7.69%12/30/1996
Max offer pricen/a7.44%7.62%12.68%8.19%7.41%
BofA Merrill Lynch U.S. High Yield Constrained Index5.64%11.79%9.25%13.89%8.91%n/a
Average annual total return as of quarter-end (06/30/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)2.46%5.30%12.55%9.31%13.72%8.70%7.69%12/30/1996
Max offer price-2.20%0.68%7.44%7.62%12.68%8.19%7.41%
BofA Merrill Lynch U.S. High Yield Constrained Index2.57%5.64%11.79%9.25%13.89%8.91%n/a

Returns for less than one year are not annualized.

Class A shares have a maximum up-front sales charge of 4.50% and are subject to an annual distribution fee.

Expense ratio
Gross1.11%
Net1.06%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursement from Nov. 27, 2013 through Nov. 28, 2014. Please see the fee table in the Fund's prospectus for more information.

Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20142.77%2.46%n/an/an/a
20133.50%-1.66%2.80%3.98%8.79%
20126.84%1.13%5.07%3.41%17.38%
20114.18%0.69%-9.43%7.27%1.91%
20105.22%-1.06%6.90%4.53%16.31%
20095.00%19.45%12.87%5.76%49.69%
2008-2.60%0.76%-7.78%-18.08%-25.83%
20073.04%0.95%-0.80%-1.52%1.61%
20063.35%0.58%3.46%4.48%12.36%
2005-0.41%1.35%1.59%0.49%3.04%
20042.54%0.60%5.02%5.34%14.12%
Portfolio characteristics - as of 06/30/2014
Share assets$337.1 million
Number of holdings267
Effective maturity (weighted average) (view definition)5.00 years
Effective duration (weighted average) (view definition)4.15 years
Annualized standard deviation, 3 years (view definition)8.05
SEC 30-day yield with waiver (view definition)4.30%
SEC 30-day yield without waiver (view definition)4.26%
Portfolio turnover (last fiscal year)88%
Portfolio composition as of 06/30/2014Total may not equal 100% due to rounding.
Credits72.6%
Foreign bonds24.5%
Equity securities1.7%
Cash and cash equivalents1.3%
Top 10 holdings as of 06/30/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Intelsat Luxembourg S.A. 8.125 6/1/20231.1%
First Data Corp. 11.750 8/15/20211.1%
Ally Financial Inc.1.0%
Par Pharmaceutical Cos Inc. 7.375 10/15/20201.0%
Algeco Scotsman Global Finance Plc 10.750 10/15/20190.9%
Lloyds Banking Group PLC 7.500 4/30/20490.8%
Digicel Group Ltd. 8.250 9/30/20200.8%
VTR Finance BV 6.875 1/15/20240.8%
Virgin Media Finance PLC 6.375 4/15/20230.8%
Clear Channel Communications Inc. 6.750 1/30/20190.8%
Total % Portfolio in Top 10 holdings9.1%

Holdings are as of the date indicated and subject to change.

Top sectors as of 06/30/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Energy16.0%
Basic industry10.9%
Services8.4%
Media7.4%
Healthcare7.1%
Telecommunications7.1%
Technology & electric6.9%
Capital goods6.0%
Consumer cyclical5.6%
Emerging markets4.6%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20140.0000.139
20130.0000.274
20120.0000.299
20110.0000.320
20100.0000.346
20090.0000.310
20080.0000.296
20070.0000.335
20060.0000.334
20050.0000.320
20040.0000.336

1If a Fund makes a distribution from any source other than net income, it is required to provide shareholders with a notice disclosing the source of such distribution (each a "Notice"). The amounts and sources of distributions reported above and in each Notice are only estimates and are not provided for tax reporting purposes. Each Fund will send each shareholder a Form 1099 DIV for the calendar year that will provide definitive information on how to report the Fund's distributions for federal income tax purposes. The information in the table above will not be updated to reflect any subsequent recharacterization of dividends and distributions. Click here to see recent Notices pertaining to the Fund (if any).

2Information on return of capital distributions is only provided from June 1, 2014 onward.

3Includes both short- and long-term capital gains.

Thomas Chow

Thomas H. Chow, CFA

Senior Vice President, Chief Investment Officer — Corporate Credit

Start date on the Fund: December 2012

(View bio)


Paul Matlack

Paul Matlack, CFA

Senior Vice President, Senior Portfolio Manager, Fixed Income Strategist

Start date on the Fund: December 2012

(View bio)


Craig Dembeck

Craig C. Dembek, CFA

Senior Vice President, Co-Head of Credit Research, Senior Research Analyst

Start date on the Fund: December 2012

(View bio)


John McCarthy

John P. McCarthy, CFA

Senior Vice President, Co-Head of Credit Research, Senior Research Analyst

Start date on the Fund: December 2012

(View bio)


Christopher Testa

Christopher M. Testa, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: June 2014

(View bio)


You may qualify for sales-charge discounts if you and your family invest, or agree to invest in the future, at least $100,000 in Delaware Investments® Funds. More information about these and other discounts is available from your financial advisor, in the Fund's prospectus under the section entitled "About your account," and in the Fund's statement of additional information under the section entitled "Purchasing shares."

The following table describes the fees and expenses that you may pay if you buy and hold shares of the Fund.

Shareholder fees
Maximum sales charge (load) imposed on purchases as a percentage of offering price4.50%
Maximum contingent deferred sales charge (load) as a percentage of original purchase price or redemption price, whichever is lowernone
Annual fund operating expenses
Management fees0.64%
Distribution and service (12b-1) fees0.25%
Other expenses0.22%
Total annual fund operating expenses1.11%
Fee waivers and expense reimbursements(0.05%)
Total annual fund operating expenses after fee waivers and expense reimbursements1.06%

1The Class A shares' distribution and service (12b-1) fee has been restated to reflect a permanent reduction to 0.25%.

2The Fund's investment manager, Delaware Management Company (Manager), is contractually waiving its investment advisory fees and/or paying expenses (excluding any 12b-1 plan, taxes, interest, inverse floater program expenses, short sale and dividend interest expenses, brokerage fees, certain insurance costs, acquired fund fees and expenses, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations) to the extent necessary to prevent total annual fund operating expenses from exceeding 0.81% of the Fund's average daily net assets from Nov. 27, 2013 through Nov. 28, 2014. These waivers and reimbursements may only be terminated by agreement of the Manager and Distributor, as applicable, and the Fund. Additionally, the Fund's Class A shares are subject to a blended 12b-1 fee of 0.10% on all shares acquired prior to June 1, 1992 and 0.25% on all shares acquired on or after June 1, 1992. All Class A shares currently bear 12b-1 fees at the same rate, the blended rate based on the formula described above. This method of calculating Class A 12b-1 fees may be discontinued at the sole discretion of the Fund's Board.

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Delaware High-Yield Opportunities Fund Quarterly commentary June 30, 2014 Class A (DHOAX)

Overview

High yield bonds, as measured by the BofA Merrill Lynch U.S. High Yield Constrained Index, returned 2.6% for the second quarter, bringing year-to-date returns to 5.6%. Loans returned 1.3% for the quarter and 2.4% year-to-date (data: J.P. Morgan). Bond returns were driven by falling interest rates, surging stock prices, generally supportive economic data, and sustained investor demand. These factors generally offset otherwise negative Mideast geopolitical events.

Bond performance was correlated with quality, as the interest-rate-sensitive BB sector led at 2.7%, followed by B-rated bonds and CCC-rated bonds at 2.2%. Every industry category posted positive returns during the quarter, with utilities (4.0%) and energy (3.2%) leading, and consumer products (1.2%) and paper (1.5%) lagging. Loan returns were correlated with risk, with CCC-rated loans returning 4.1% followed by B-rated loans at 1.2% and BB issues at 0.9%.

High yield bond yields fell 23 basis points to 5.17%, while spreads fell 14 basis points to 399 basis points. Loan yields (calculated to a 3-year takeout) fell 24 basis points to 4.96%, while spreads tightened 26 basis points to 399 basis points. (A basis point equals one one-hundredth of a percentage point.)

Within the Fund

For the second quarter of 2014, Delaware High-Yield Opportunities Fund (Class A shares at net asset value) generated a positive total return that underperformed that of its benchmark, the BofA Merrill Lynch U.S. High Yield Constrained Index.

Top sector contributors were technology, media, and energy. Top individual contributors included First Data (transaction processing), Nuveen Investments (mutual funds), and Midstates Petroleum (oil exploration and production). First Data gained on news that equity sponsor KKR arranged a $3.5 billion private placement to help the company refinance high-cost debt. Nuveen gained on news of its acquisition by TIAA-CREF, and Midstates gained on the spike in oil prices caused by the tensions in Iraq.

Sectors that detracted most on a relative basis during the second quarter were consumer cyclicals, utilities, and financial services. The Fund’s largest detractors were David’s Bridal (retail bridal gowns), Algeco Scotsman (modular trailer leasing), and Quiksilver (outdoor sports retailer). David’s Bridal and Algeco declined on weaker-than-expected first-quarter earnings, while Quiksilver underperformed due to weak second-quarter numbers and Moody’s decision to place its credit ratings on negative outlook.

Outlook

While the near-perfect confluence of factors that supported the market during the first half of the year are unlikely to remain fully intact, we believe the key elements — moderate, noninflationary growth, low interest rates, stable credit trends, and strong demand for yield — are likely to persist for some time. In such an environment, investors need to distinguish between the valuation cycle and the credit cycle. At 3.99 percentage points off Treasurys, high yield values are full — though not stretched. Additional spread compression is certainly possible, and on a historical basis, even likely. However, spread compression should not be assumed, and expected high yield returns are likely, in our view, to consist largely of income. At present, the credit cycle remains in an expansionary phase, with abundant borrower access to both bank and public market credit.

Most importantly, a majority of new high-yield issuance remains devoted to refinancing rather than to leveraged buyouts or other activities that tend to result in higher systemic leverage and inflated asset prices. So long as this trend stays intact, and the current economic backdrop persists, credit should remain abundant and asset valuations should remain reasonable, supporting an extended below-average default environment. There has never been a high yield bear market under such conditions, although the reduced spread cushion implies vulnerability to episodic repricing in response to “risk-off” trades or interest rate shocks. However, given the market’s strong fundamental characteristics, and its high relative yield, investor demand for the leveraged finance asset class should remain firm as well.

We also expect loan demand to remain strong, supported by a high current income compared to many other parts of fixed income, lower volatility versus high yield and equities, low default risk, positive credit fundamentals, protection from rising interest rates, and a resilient U.S. economy.

By credit quality, we continue to find B-rated loans to offer the best value. In our opinion, this approach to positioning can allow an investor to carry a competitive yield while also potentially offering a degree of protection against volatility from economic and political surprises. While good fundamentals and low expected default rates support an overweight to CCC-rated loans, valuations, global growth concerns, and poor liquidity more than offset the higher yields from moving far down the credit spectrum. 

Bond ratings are determined by a nationally recognized statistical rating organization (NRSRO).

Per Standard & Poor’s credit rating agency, bonds rated below AAA are more susceptible to the adverse effects of changes in circumstances and economic conditions than those in higher-rated categories, but the obligor’s capacity to meet its financial commitment on the obligation is still strong. Bonds rated BBB exhibit adequate protection parameters, although adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments. Bonds rated BB, B, and CCC are regarded as having significant speculative characteristics with BB indicating the least degree of speculation of the three.

[12931]

The views expressed represent the Manager's assessment of the Fund and market environment as of the date indicated, and should not be considered a recommendation to buy, hold, or sell any security, and should not be relied on as research or investment advice. Information is as of the date indicated and subject to change.

Document must be used in its entirety.

Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and other information can be found in the Fund’s prospectus and its summary prospectus, which may be obtained by clicking the prospectus link located in the right-hand sidebar or calling 800 523-1918. Investors should read the prospectus and the summary prospectus carefully before investing.

Investing involves risk, including the possible loss of principal.

Fixed income securities and bond funds can lose value, and investors can lose principal, as interest rates rise. They also may be affected by economic conditions that hinder an issuer’s ability to make interest and principal payments on its debt.

The Fund may also be subject to prepayment risk, the risk that the principal of a fixed income security that is held by the Fund may be prepaid prior to maturity, potentially forcing the Fund to reinvest that money at a lower interest rate.

High yielding, 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.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 07/23/2014)

Class APriceNet changeYTD
NAV$4.42no chg4.72%
Max offer price$4.63n/an/a

Total net assets (as of 06/30/2014)

$688.0 million all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 06/30/2014)

Load waivedWith loadNo. of funds
Overall43565
3 Yrs42565
5 Yrs43488
10 Yrs43343
Morningstar categoryHigh Yield Bond

(View Morningstar disclosure)

Lipper ranking (as of 06/30/2014)

YTD ranking206 / 625
1 year61 / 589
3 years73 / 473
5 years86 / 405
10 years30 / 276
Lipper classificationHigh Yield Funds

(View Lipper disclosure)

Benchmark, peer group

BofA Merrill Lynch U.S. High Yield Constrained Index (view)

Lipper High Yield Funds Average (view)

Additional information