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 (06/30/2015)
YTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)2.14%-3.47%6.31%8.12%7.13%7.06%12/30/1996
Max offer price-2.45%-7.81%4.70%7.14%6.64%6.79%
BofA Merrill Lynch U.S. High Yield Constrained Index2.49%-0.54%6.80%8.38%7.77%n/a
Average annual total return as of quarter-end (06/30/2015)
QTDYTD1 year3 year5 year10 yearLifetimeInception date
NAV (view definition)-0.07%2.14%-3.47%6.31%8.12%7.13%7.06%12/30/1996
Max offer price-4.53%-2.45%-7.81%4.70%7.14%6.64%6.79%
BofA Merrill Lynch U.S. High Yield Constrained Index-0.05%2.49%-0.54%6.80%8.38%7.77%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
Gross1.11%
Net1.05%

Net expense ratio reflects a contractual waiver of certain fees and/or expense reimbursement from Nov. 28, 2014 through Nov. 30, 2015. 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%n/an/an/a
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%
2005-0.41%1.35%1.59%0.49%3.04%
Portfolio characteristics - as of 06/30/2015
Number of holdings263
Effective maturity (weighted average) (view definition)6.19 years
Effective duration (weighted average) (view definition)4.47 years
Annualized standard deviation, 3 years (view definition)4.82
SEC 30-day yield with waiver (view definition)5.60%
SEC 30-day yield without waiver (view definition)5.52%
Portfolio turnover (last fiscal year)105%
Portfolio composition as of 06/30/2015Total may not equal 100% due to rounding.
Credits72.3%
Foreign bonds23.6%
Cash and cash equivalents4.2%
Top 10 holdings as of 06/30/2015
Holdings are as of the date indicated and subject to change.
List excludes cash and cash equivalents.
Holding% of portfolio
iHeartCommunications Inc. 9.000 9/15/20221.3%
Intelsat Luxembourg S.A. 8.125 6/1/20231.2%
VTR Finance BV 6.875 1/15/20241.0%
Landry's Inc. 9.375 5/1/20201.0%
Digicel Group Ltd. 8.250 9/30/20201.0%
JBS USA LLC / JBS USA Finance Inc. 5.750 6/15/20250.9%
Zayo Group LLC / Zayo Capital Inc. 6.000 4/1/20230.8%
Immucor Inc. 11.125 8/15/20190.8%
Gray Television Inc. 7.500 10/1/20200.8%
WideOpenWest Finance LLC / WideOpenWest Capital Corp. 10.250 7/15/20190.8%
Total % Portfolio in Top 10 holdings9.6%

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

Top sectors as of 06/30/2015
List excludes cash and cash equivalents.
Sector% of portfolio
Basic industry12.2%
Energy11.4%
Media11.2%
Telecommunications9.2%
Healthcare6.9%
Capital goods6.1%
Retail5.2%
Banking5.1%
Utility5.1%
Services5.1%
Distribution history - annual distributions (Class A)1,2
Distributions ($ per share)
YearCapital gains3Net investment
income
20150.0000.137
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
20050.0000.320

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: 28

(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: 28

(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 (SAI) 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(0.06%)
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. 28, 2014 through Nov. 30, 2015. 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 June 30, 2015

Overview

High yield bonds returned -1.7% in June, erasing the modest gains of April and May, and resulting in overall second quarter performance of -0.08%. Rising interest rates (the 10-year Treasury yield rose 40 basis points), volatile commodity markets, falling U.S. and Chinese stock prices in June (the S&P 500® Index declined 1.95% and the Shanghai Stock Exchange Composite Index fell 12.1% during the one-month period), persistent geopolitical tensions, and the worsening Greek debt crisis set the stage for break-even performance during the quarter. Conversely, generally positive U.S. economic data (employment, housing, consumer spending) proved supportive for high yield valuations, contributing to the sector’s outperformance relative to higher-rated Treasury securities (-3.0%) and investment grade debt (-2.6%).

Among credit sectors, B-rated bonds were the strongest performers (+0.38%) as rising Treasury yields pushed the rate-sensitive BB sector into negative territory (-0.38%), while the more equity-sensitive CCC tier (-0.41%) was affected by falling stock prices in June and declines in lower-rated energy bonds throughout the quarter. The strongest-performing industry groups were energy (returning 3.3% as higher-rated issues continued their year-long bounce), insurance (1.44%), and leisure (1.37%). The weakest-performing sectors were telecommunications (-1.1%), basic industry (-0.52%), and automotive (-0.44%). High yield bond spreads tightened by 20 basis points to 468 basis points, while yields rose 16 basis points to finish the quarter at 6.32%. (Data: J.P. Morgan Chase, Bloomberg.)

Within the Fund

During the second quarter, Delaware High-Yield Opportunities Fund (Institutional Class 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 basic industry, capital goods, and automotive. The Fund’s strongest individual contributors were Columbus International (cable TV), Ocean Rig (oil field services), and Oasis Petroleum (E&P). Columbus gained on expectations of a near-term call of their bonds, Ocean Rig gained after a successful equity offering, and Oasis gained after reporting strong operating metrics.

Conversely, the Fund’s largest sector detractors on a relative basis were services, media, and telecommunications. The biggest individual detractors were Intelsat (satellite operator), CHC Helicopter (oilfield services) and Chesapeake Energy (E&P). Intelsat declined due to lower-than-expected 2015 forward guidance, while CHC Helicopter and Chesapeake declined due to persistently low energy prices and slowing drilling activity.

Outlook

The outlook for high yield bonds is predicated on credit trends and U.S. economic growth. On a year-to-date basis, refinancing activity has re-crossed the important 50% threshold as a percentage of issuance. Meanwhile, default activity, while up modestly month over month, is down relative to last year and concentrated in the ailing energy and coal space. Rising merger and acquisition activity, which is a positive signal for economic activity and business confidence, should result in a growing number of leveraged buyout deals, but thus far the numbers are modest and not diluting market credit quality. Assuming oil, gas, and coal prices remain depressed, default rates within those sectors will likely trend higher; however, at 710 basis points over Treasurys, the sector is already pricing in elevated defaults.

Finally, credit spreads are hovering around the long-term average and, adjusted for energy, are inside the long-term average, suggesting that high yield bonds are approaching full valuation. Nevertheless, against the backdrop of a stable credit cycle, steady if not spectacular economic growth, and the prospect of imminent Federal Reserve rate hikes, investor demand for high yield bonds should remain firm given the sector’s income component and the floating rate feature of high yield loans. Accordingly, we expect yield to worst will remain a reasonable forecast of run-rate returns for both asset classes. (Data: J.P. Morgan Chase, Bloomberg.)

Index definitions

Yield to worst calculates a bond’s yield assuming a worst-case scenario, that is, the earliest redemption possible.

The Shanghai Stock Exchange Composite Index is a capitalization-weighted index. The index tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange.

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.

[14893]

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, 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.

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 07/28/2015)

Class APriceNet changeYTD
NAV$3.920.010.29%
Max offer price$4.10n/an/a

Total net assets (as of 06/30/2015)

$540.1 million all share classes

Overall Morningstar RatingTM

Load waived

With load

Class A shares (as of 06/30/2015)
Load waivedWith loadNo. of funds
Overall33611
3 Yrs32611
5 Yrs32516
10 Yrs33362
Morningstar categoryHigh Yield Bond

(View Morningstar disclosure)

Lipper ranking (as of 06/30/2015)

YTD ranking413 / 675
1 year543 / 626
3 years197 / 516
5 years123 / 425
10 years77 / 287
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