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 (if any)Monthly
Capital gains paid (if any)December
Fund identifiers
NASDAQDHOAX
CUSIP245908876
Investment minimums
Initial investment$1,000
Subsequent Investments$100
Systematic withdrawal balance$5,000
Account features
CheckwritingNo
Payroll DeductionYes
IRAsYes

On Sept. 25, 2014, Class B shares of the Fund converted to Class A shares.

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 (01/31/2016)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-1.20%-7.86%-0.57%3.10%5.67%6.26%12/30/1996
Max offer price-5.72%-12.02%-2.06%2.15%5.19%6.00%
BofA Merrill Lynch U.S. High Yield Constrained Index-1.58%-6.76%0.65%4.07%6.52%n/a
Average annual total return as of quarter-end (12/31/2015)
Current quarter1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-2.80%-6.72%0.33%3.85%5.94%6.35%12/30/1996
Max offer price-7.06%-10.91%-1.19%2.88%5.45%6.10%
BofA Merrill Lynch U.S. High Yield Constrained Index-2.16%-4.61%1.65%4.84%6.81%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.

Index performance returns do not reflect any management fees, transaction costs, or expenses. Indices are unmanaged and one cannot invest directly in an index.

Expense ratio
Gross1.12%
Net1.05%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursement from Nov. 27, 2015 through Nov. 28, 2016. Please see the fee table in the Fund's prospectus for more information.

Quarterly total returns @ NAV
Year1st quarter2nd quarter3rd quarter4th quarterAnnual return
20152.21%-0.07%-6.05%-2.80%-6.72%
20142.77%2.46%-2.25%-3.31%-0.47%
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%
Portfolio characteristics - as of 01/31/2016
Number of holdings237
Effective maturity (weighted average) (view definition)7.45 years
Effective duration (weighted average) (view definition)4.75 years
Annualized standard deviation, 3 years (view definition)5.88
SEC 30-day yield with waiver (view definition)6.45%
SEC 30-day yield without waiver (view definition)6.40%
Portfolio turnover (last fiscal year)86%
Portfolio composition as of 01/31/2016Total may not equal 100% due to rounding.
Credits79.5%
Foreign bonds17.2%
Cash and cash equivalents3.3%
Top 10 holdings as of 01/31/2016
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
First Data Corp. 7.000 12/1/20231.6%
JPMorgan Chase & Co. 6.750 8/29/20491.6%
DaVita HealthCare Partners Inc. 5.000 5/1/20251.1%
Gray Television Inc. 7.500 10/1/20200.9%
Zayo Group LLC / Zayo Capital Inc. 6.000 4/1/20230.9%
US Bancorp 5.125 12/29/20490.9%
Morgan Stanley0.9%
Bank of America Corp.0.8%
IASIS Healthcare LLC / IASIS Capital Corp. 8.375 5/15/20190.8%
Royal Bank of Scotland Group PLC 7.007 12/29/20490.8%
Total % Portfolio in Top 10 holdings10.3%

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

Top sectors as of 01/31/2016
List excludes cash and cash equivalents.
Sector% of portfolio
Healthcare12.8%
Media10.5%
Banking9.7%
Basic industry9.6%
Telecommunications8.4%
Technology & electric7.1%
Capital goods6.8%
Services5.8%
Consumer goods5.5%
Retail5.4%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20160.0000.017
20150.0000.234
20140.0580.239
20130.0000.274
20120.0000.299
20110.0000.320
20100.0000.346
20090.0000.310
20080.0000.296
20070.0000.335
20060.0000.334

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 (if any) is only provided from June 1, 2014 onward.

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

Christopher Testa

Christopher M. Testa, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: June 2014

Years of industry experience: 29

(View bio)


Adam Brown

Adam H. Brown, CFA

Senior Vice President, Senior Portfolio Manager

Start date on the Fund: November 2014

Years of industry experience: 17

(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

Years of industry experience: 21

(View bio)


Paul Matlack

Paul A. Matlack, CFA

Senior Vice President, Senior Portfolio Manager, Fixed Income Strategist

Start date on the Fund: December 2012

Years of industry experience: 30

(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

Years of industry experience: 29

(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 intermediary, in the Fund's prospectus under the section entitled "About your account," and in the Fund's statement of additional information (SAI) under the section entitled "Purchasing Shares."

The table below 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 expenses0.23%
Total annual fund operating expenses1.12%
Fee waivers and expense reimbursements(0.07%)
Total annual fund operating expenses after fee waivers and expense reimbursements1.05%

1The Fund's investment manager, Delaware Management Company (Manager), has contractually agreed to waive all or a portion of its investment advisory fees and/or pay/reimburse expenses (excluding any 12b-1 fees, acquired fund fees and expenses, taxes, interest, short sale and dividend interest expenses, brokerage fees, certain insurance costs, and nonroutine expenses or costs, including, but not limited to, those relating to reorganizations, litigation, conducting shareholder meetings, and liquidations) in order to prevent total annual fund operating expenses from exceeding 0.80% of the Fund's average daily net assets from Nov. 27, 2015 through Nov. 28, 2016. These waivers and reimbursements may only be terminated by agreement of the Manager 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 12b1-fees at the same rate, the blended rate based on the forumula described above. This method of calculating Class A 12b-1 fees may be discontinued at the sole discretion of the Fund's Board of Trustees.

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Delaware High-Yield Opportunities Fund Quarterly commentary December 31, 2015

Overview

High yield bonds, as represented by the J.P. Morgan Domestic High Yield Index, returned -2.79% during the fourth quarter, marking the third consecutive quarterly loss for the asset class and bringing 2015 returns to -5.0%. Prices were pressured by a mix of fundamental and technical factors, principal among them the continuing price decline among energy (-30% year-to-date) and other industrial commodities, which affected issuers constituting approximately 20% (by dollar value) of high yield indices. In addition, broader concerns over slowing Chinese and emerging markets growth, the unknown impact of rising short-term rates in the United States (courtesy of the Federal Reserve), volatile global equity prices, and poor seasonal high yield liquidity coalesced into a "risk-off" sentiment that led to $10 billion of self-reinforcing fund redemptions during November and December. High yield bond yields rose 66 basis points to 8.68%, while spreads widened by 31 basis points to 689 basis points, both levels the widest since early 2012. (A basis point equals one-hundredth of a percentage point.)

Market returns were correlated with credit quality, with BB-rated bonds leading at -0.3%, followed by B-rated bonds at -2.54%, and CCC-rated bonds at -9.1%. Not surprisingly, two of the quarter's biggest declines came in the commodity-related sectors of energy (-13.5%) and metals and mining (-11.82%), followed by transportation (-4.5%). Meanwhile, leaders resided in the relatively defensive and/or fundamentally positive sectors of cable TV (+2.80%), food and beverage (+1.34%), and telecom (+1.89%).

Within the Fund

During the fourth quarter, Delaware High-Yield Opportunities Fund (Institutional Class shares and Class A shares at net asset value) posted negative returns and underperformed its benchmark, the BofA Merrill Lynch U.S. High Yield Constrained Index.

The Fund’s strongest sector contributors were energy, banking, and leisure. Our strongest individual contributors were Cablevision Systems (Cable TV), Sinclair Television (local TV broadcasting), and Rite Aid (retail drug stores). Cablevision gained after its announced acquisition by Altice, Sinclair gained on improving operating metrics, and Rite Aid gained after its announced acquisition by Walgreens.

Conversely, the Fund’s largest sector detractors on a relative basis were telecom, healthcare, and automotive. The biggest individual detractors were Neiman Marcus (retail stores), Intelsat (satellite operator), and TPC Group (chemical manufacturer). Neiman Marcus, Intelsat, and TPC all declined due to unexpectedly poor operating results.

Outlook

In our view, several general observations about the high yield market in 2016 can be made. Prolonged oil prices at less than $50 a barrel means that defaults will likely rise significantly relative to recent years, but should remain largely confined to the energy and commodity sectors. Second, due to the age of the credit cycle, recent market performance, and regulatory scrutiny, refinancing risk is growing across all sectors for lower-rated companies exhibiting excessive leverage and/or credit deterioration, implying elevated idiosyncratic risk and elevated spreads in general compared to the past several years. Finally, we believe the strongest technical strength will likely be found among high-quality, noncommodity B-rated and BB-rated issuers.

Ultimately, high yield performance in 2016 may rest on the outcome of several competing forces: (1) the degree to which fundamental weakness remains confined to the energy and commodity sectors, reinforced by the otherwise simulative effect of cheap oil, or (2) that it broadens, perhaps through the channel of slowing global growth and intensifying capital market weakness, into other areas of the economy; (3) the extent to which fourth-quarter selling pressure has abated and demand for the asset class, whether from yield-hungry retail investors or institutional entities sensing a good entry point, solidifies to support sentiment, valuations, and new issuance. Given those factors, base-case returns in 2016 should likely be range-bound around the coupon.

Our portfolio strategy is aimed at capital preservation versus capital appreciation. Accordingly, the Fund is focused on the B and BB rating tiers, and on underweighting CCC-rated bonds. Within sectors, we are avoiding the energy space, significantly underweighting industrial commodities, and focusing instead on defensive and/or fundamentally positive sectors such as healthcare, financial services, and media. In each instance, we favor what we believe are well-capitalized large-cap names that exhibit strong, predictable cash flows, ample liquidity, noncomplex capital structures, and minimal refinancing risk. We believe this Fund can achieve positive performance under the conditions described above by delivering a competitive income stream while minimizing both volatility and downside risk relative to the market as a whole.

The J.P. Morgan Domestic High Yield Index is designed to mirror the investable universe of the U.S.-dollar domestic high yield corporate debt market.

[15905]

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 877 693-3546. 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, non-investment-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.

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.

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.

All third-party marks cited are the property of their respective owners.

Not FDIC Insured | No Bank Guarantee | May Lose Value

Fund Finder

Daily pricing (as of 02/11/2016)

Class APriceNet change
NAV$3.38-0.03
Max offer price$3.54n/a

Total net assets (as of 01/31/2016)

$342.3 million all share classes

Lipper ranking (as of 01/31/2016)

YTD ranking281 / 708
1 year542 / 658
3 years412 / 532
5 years284 / 431
10 years105 / 289
Lipper classificationHigh Yield Funds

(View Lipper disclosure)

Benchmark, peer group

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

Lipper High Yield Funds Average (view definition)

Additional information