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 (03/31/2014)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)2.77%8.02%8.68%17.27%8.50%7.65%12/30/1996
Max offer pricen/a3.26%7.02%16.17%8.00%7.37%
BofA Merrill Lynch U.S. High Yield Constrained Index2.99%7.51%8.69%18.13%8.54%n/a
Average annual total return as of quarter-end (03/31/2014)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)2.77%2.77%8.02%8.68%17.27%8.50%7.65%12/30/1996
Max offer price-1.75%-1.75%3.26%7.02%16.17%8.00%7.37%
BofA Merrill Lynch U.S. High Yield Constrained Index2.99%2.99%7.51%8.69%18.13%8.54%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%n/an/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 03/31/2014
Share assets$338.5 million
Number of holdings276
Effective maturity (weighted average) (view definition)4.96 years
Effective duration (weighted average) (view definition)3.74 years
Annualized standard deviation, 3 years (view definition)8.14
SEC 30-day yield with waiver (view definition)3.88%
SEC 30-day yield without waiver (view definition)3.82%
Portfolio turnover (last fiscal year)88%
Portfolio composition as of 03/31/2014Total may not equal 100% due to rounding.
Credits71.6%
Foreign bonds23.0%
Cash and cash equivalents2.8%
Equity securities2.7%
Top 10 holdings as of 03/31/2014
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
Par Pharmaceutical Cos Inc. 7.375 10/15/20201.0%
Univision Communications Inc. 8.500 5/15/20210.8%
Algeco Scotsman Global Finance Plc 10.750 10/15/20190.8%
Intelsat Luxembourg S.A. 8.125 6/1/20230.8%
Ally Financial Inc.0.8%
Digicel Group Ltd. 8.250 9/30/20200.8%
Virgin Media Finance PLC 6.375 4/15/20230.8%
VTR Finance BV 6.875 1/15/20240.8%
Clear Channel Communications Inc. 6.750 1/30/20190.8%
ArcelorMittal 6.125 6/1/20180.7%
Total % Portfolio in Top 10 holdings8.1%

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

Top sectors as of 03/31/2014
List excludes cash and cash equivalents.
Sector% of portfolio
Energy14.6%
Healthcare10.2%
Basic industry9.4%
Media8.8%
Services8.3%
Consumer cyclical7.4%
Technology & electric7.2%
Telecommunications6.9%
Capital goods3.6%
Emerging markets3.4%
Distribution history - annual distributions (Class A)
Distributions ($ per share)
YearCapital gainsDividends
20140.0000.060
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
Thomas Chow

Thomas H. Chow, CFA

Chief Investment Officer — Corporate Credit

Start date on the Fund: December 2012

(View bio)


Paul Matlack

Paul Matlack, CFA

Senior Portfolio Manager, Fixed Income Strategist

Start date on the Fund: December 2012

(View bio)


Craig Dembeck

Craig C. Dembek, CFA

Co-Head of Credit Research, Senior Research Analyst

Start date on the Fund: December 2012

(View bio)


John McCarthy

John P. McCarthy, CFA

Co-Head of Credit Research, Senior Research Analyst

Start date on the Fund: December 2012

(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 December 31, 2013 Class A (DHOAX)

Overview

Against a backdrop of evolving monetary policy, rising interest rates, rallying stock prices, and heavy new supply, high yield bonds, as represented by the BofA Merrill Lynch U.S. High Yield Constrained Index, advanced 3.49% in the fourth quarter of 2013. Although performing modestly in absolute terms, leveraged credit outperformed all other major fixed income categories. This pattern held true for the full year as well. High yield bonds’ returns in the quarter were correlated with risk: CCC-rated securities gained 3.6%, B-rated securities returned 3.2%, and BB securities advanced 2.9%.

While the S&P 500® Index soared more than 30% in 2013 on the back of low interest rates, modest noninflationary growth, and growing investor demand for stocks, it was a volatile ride for most fixed income markets, which were beset with worry about uneven economic growth and the prospects of the Federal Reserve's scaling back its quantitative-easing program. Indeed, with interest rates range-bound at 60-year lows and credit spreads hovering at their narrowest levels in five years, the central question for bond investors was this: When would Fed tapering or stronger economic growth (or both) bring the 30-year era of declining interest rates to a definitive close?

This question was partially answered in May and June 2013, when Fed Chairman Ben Bernanke’s mere mention of possible tapering prompted a global selloff across capital markets, driving the 10-year Treasury yield from a low of 1.63% in May to 2.98% by early September. The question was fully answered in mid-December, when stronger-than-expected data on the economy prompted the Fed to formally announce a modest $10-billion-per-month reduction in monthly bond purchases. That capped a two-and-a-half month climb in rates that resulted in the 10-year yield rising to more than 3% by year end.

Despite this volatile backdrop, high yield bonds posted positive returns in every month of the fourth quarter. Technical conditions helped, as strong demand from yield-oriented investors offset the historic levels of new bond issuance. The majority of new bond issuance was dedicated to refinancing, which tends to be credit-enhancing by lowering companies’ interest costs and improving their balance-sheet liquidity. This development has been manifested in low corporate default rates: According to Moody's Investors Service, the default rate for below-investment-grade companies in the United States was 2.4% in November, down from 3.1% a year earlier.

Within the Fund

For the fourth quarter of 2013, Delaware High-Yield Opportunities Fund (Class A shares at net asset value) generated a soundly positive total return that outperformed that of its benchmark, the BofA Merrill Lynch U.S. High Yield Constrained Index.

The Fund’s top sector contributors were basic industry, consumer cyclical, and energy bonds. Top individual contributors were FMG Resources in mining, First Data in transaction processing, and Algeco Scotsman in leasing. All three are in economically sensitive sectors and thus benefited from better-than-expected economic data released during the quarter. Also adding to the Fund’s relative performance was an average duration about six months shorter than that of the index.

Detracting from relative performance were financial services, gaming, and utilities securities. Impairing the Fund’s results the most were RadNet in diagnostic imaging, Equinix in internet infrastructure, and Woodside Homes in homebuilding; they were hurt by a varying combination of interest rate sensitivity, trading flows, and repricings due to new issuance.

We didn’t alter the Fund’s holdings significantly during the quarter, although we continued to add to the Fund’s position in bank loans (which now account for roughly 9% of the portfolio). Since bank loans are floating-rate securities, they have a duration of just 0.3 years and thus are defensive in rising rate environments. Also, since bank loans are the most senior component in the capital structure of issuers (in contrast to high yield bonds, which typically are the most junior component), they help defend against credit risk. Buying bank loans, which offer competitive yields, has helped us sustain the Fund’s overall relatively high yield.

Outlook

While the prospective performance of high yield bonds and loans will be limited by range-bound interest rates and tight credit spreads, many of the ingredients that supported their strong relative performance in 2013 — moderate, noninflationary growth, low defaults, and strong investor demand — remain intact. Mid-single-digit returns are unappealing to us except when the alternatives are lower. Given that spreads remain wide to the historically narrow levels reached in the past, and given our expectation for continued low default rates, we believe that high yield returns could largely be driven by the income component as we enter 2014.

The S&P 500 Index measures the performance of 500 mostly large-cap stocks weighted by market value, and is often used to represent performance of the U.S. stock market.

[11957]

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 04/15/2014)

Class APriceNet changeYTD
NAV$4.40no chg2.77%
Max offer price$4.61n/an/a

Total net assets (as of 03/31/2014)

$686.4 million all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 03/31/2014)

Load waivedWith loadNo. of funds
Overall43550
3 Yrs42550
5 Yrs43469
10 Yrs44332
Morningstar categoryHigh Yield Bond

(View Morningstar disclosure)

Lipper ranking (as of 03/31/2014)

YTD ranking273 / 627
1 year90 / 577
3 years76 / 468
5 years98 / 395
10 years23 / 273
Lipper classificationHigh Yield Funds

(View Lipper disclosure)

Literature

Prospectuses and reports

Benchmark, peer group

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

Lipper High Yield Funds Average (view)

Additional information